Bank of New York Mellon says it's living up to predictions it made earlier in the year for strong net interest income growth in 2023 and assures that it can keep reining in expenses.
At the same time, the $430.4 billion-asset trust bank warned of looming declines in deposit balances and reported lower second-quarter fee income.
BNY Mellon topped analysts' expectations with profits of $1 billion for the three months ending June 30, driven by record quarterly operating revenue of $4.5 billion.
Its second-quarter results validated the forecast Chief Financial Officer Dermot McDonogh made following the company's first-quarter earnings report, when he
Revenue increased 5% year over year while BNY Mellon held expenses, which totaled $3.1 billion, flat on both a linked-quarter and year-over-year basis. President and CEO Robin Vince credited BNY Mellon with a "good financial performance amid a very dynamic operating environment," Tuesday.
Expenses proved a particular bright spot. In January, the company pledged to halve the 2022 rate of increase, which totaled 8%. Now, at the midway point of 2023, BNYMellon believes it may be able to limit the rate of increase -- excluding notable items and the impact of foreign currency exchange -- to 3% this year.
"We've got an increasingly firm grip on our expense base," Vince said on a conference call with investor analysts.
In a research note last week, Jefferies Analyst Ken Usdin wrote that expense control would play an increasingly important role for all trust banks as deposit runoff and higher funding costs threaten to crimp net interest income going forward.
Morningstar Analyst Rajiv Bhatia termed BNY Mellon's second-quarter cost figures "a good result given the current inflationary environment," in a research note Tuesday.
BNY Mellon reported a higher-than-expected level of deposits, totaling $277 billion on June 30, but both Vince and McDonogh predicted the trend would reverse course in the second half of 2023 as banks, corporate clients and state and local governments move money into higher-yielding Treasury securities.
"We do expect this growth to moderate in the back half of the year, and we do expect declines in our balances as a result of the treasury issuance," McDonough said. A shift to treasuries could create deposit pressure "across the industry in the months ahead," McDonogh added.
The other big driver behind BNY Mellon's earnings beat was net interest income, which spiked 33% year over year to $1.1 billion. McDonogh left his earlier projection of 20% net interest revenue growth in 2023 unchanged. "We're very pleased with where we've come out the first half of the year and feel we're on a very good footing for the back half," McDonogh said on the call.
Fee income, BNY Mellon's biggest source of revenue, declined 2% year over year to $3.3 billion.
Bolstering its status as the world's largest custody bank, BNY Mellon reported a 9% increase in assets under custody or administration to $46.9 trillion. The company's flagship securities services business segment grew revenues 12% year over year to $2.24 billion, good for a 29% pretax profit margin.
The market and wealth services business unit saw year-over-year revenue increase by 10% to $1.45 billion. Given the segment's 46% pretax profit margin, it isn't surprising BNY Mellon is investing in it. "We're putting big budget dollars to work there," McDonogh said, citing the Wove open-architecture wealth management platform for investment advisors that BNY Mellon unveiled in June. Wove's trials have gone well, with "the client pipeline growing nicely," according to Vince.
BNY Mellon did experience some headwinds during the quarter. Last month, the company discovered its ability to expand in cryptocurrency custody business could be limited by an existing
According to Bhatia, BNY Mellon reported a "decent" second quarter. Investors appeared to agree, pushing the price of the company's shares up more than 4% to $45.33 on Tuesday.
