Bank of New York Mellon says it's on track to beat 2023 expense target

Mark Kauzlarich/Bloomberg

Bank of New York Mellon's plan for major expense reductions appears to be working. 

The $405 billion-asset bank said it expects expenses to grow close to 3% in 2023, below its target of 4% announced over the winter. Third-quarter expenses rose 3% year over year, excluding a one-time goodwill impairment last year that distorted comparisons.

Controlling costs amid resilient inflation has become a focal point for banks in 2023. Last Friday, the same day it reported a $316 million year-over-year decline in revenue, PNC Financial Services Group pledged to trim 4% of its workforce to cut costs and bolster next year's profits. Truist Financial, which had been facing criticism from Wall Street over its rising expenses, rolled out a plan in September to cut costs by an estimated $750 million over 12 to 18 months.

BNY Mellon in January unveiled an ambitious expense-reduction plan dubbed "Project Catalyst". The bank is about 40% of the way through the plan, bank executives said on Tuesday. 

"There are a lot of things happening under the hood that give us a high degree of confidence that we'll be able to continue to bend the cost curve into 2024 and beyond," BNY Mellon Chief Executive Officer Robin Vince said on a call with analysts shortly after the bank reported its third-quarter results.

The plan to reassess structural expenses came after the bank reported an 8% expense growth rate in 2022. BNY Mellon said it is using approximately $500,000 of the funds it has already saved to fund incremental investments. 

"We need to be smart and disciplined about how we spend so our investments in the business go further," Dermot McDonough, chief financial officer of the bank, told analysts.

Banks across the industry are expected to report stable expenses in the third quarter, according to Barclays analysts. Resilient inflation and high levels of technology spending boosted financial institutions' expenses between July and September, but savings from branch consolidation over the same period should help mitigate expense increases, the analysts said.

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Deposits at the bank totaled about $271 billion in the third quarter, down 8% from a year earlier. Still, deposits have proved stickier than expected at BNY Mellon this year, fueling double-digit increases in net interest income. Net interest income rose 10% in the third quarter to $1.02 billion. In July, BNY Mellon reported a 33% increase in second-quarter net interest income, compared with the year-earlier period.

BNY Mellon reported earnings per share of $1.27 in the third quarter, above the consensus estimate of $1.15. Revenue totaled $4.4 billion, up 2% from the third quarter of 2022. Total assets under management, a key metric for custody banks like BNY Mellon, rose to $1.81 trillion in the third quarter, up slightly from $1.78 trillion a year ago. But assets under management were down from their first- and second-quarter levels of $1.91 trillion.

Shares of Bank of New York Mellon rose as much as 4.7% in intraday trading Tuesday after the bank released its earnings report. BNY Mellon shares finished the day at $43.44, up 3.82%.