DBRS: BNY Mellon 3Q Solid: Core Earnings Down QoQ, Yet Up YoY; Expenses Well Managed

Summary:
• Excluding non-core items, BNY Mellon’s 3Q15 earnings available to common shareholders was $828 million, down from $868 million for 2Q15, yet up from $734 million for 3Q14.
• The Company generated positive operating leverage year-over-year (YoY), as it continues to execute on its key strategic priorities.
• DBRS rates the Bank of New York Mellon Corp. Issuer & Senior Debt at AA (low) with a Stable trend.

DBRS, Inc. (DBRS) views the Bank of New York Mellon Corporation’s (BNY Mellon or the Company) 3Q15 results as solid and evidencing the Company’s diverse business model, large scale of operations and continued execution on strategic priorities. Importantly, BNY Mellon continues to win new business initiatives, bolstering its earnings generation capacity. Indeed, the Company announced estimated new custody and administration business wins totaling $84 billion in assets in 3Q15, coming on the heels of its $933 billion in total aggregate servicing new business wins in 2Q15, which included a contract to service $770 billion in assets for T. Rowe Price.

Overall, revenues were lower linked-quarter, reflecting a decline in investment management and performance fees due largely to lower equity market values, net outflows, and seasonally lower performance fees, as well as the sale of Meriten Investment Management GmbH in July 2015. Despite continued success with liability-driven investments, the Company reported net outflows in the quarter, and an overall 4% sequential quarter decline in assets under management. Moreover, lower total revenues also reflected a decrease in investment and other income, due to a decline in leasing gains. Meanwhile, on a YoY basis, improved core earnings reflected higher levels of asset servicing fees, financing related fees, and foreign exchange revenue. Finally, expenses remain well managed. Indeed, expenses excluding M&I, litigation and restructuring charges and amortization of intangibles, were relatively stable quarter-over-quarter (QoQ), yet down YoY.

Despite the repurchase of $690 million of common shares and the distribution of $190 million in dividends during the quarter, the Company’s capital profile remained solid with an estimated fully phased in CET1 ratio (advanced approach) of 9.3%. Furthermore, BNY Mellon’s estimated Supplementary Leverage Ratio remains the binding constraint and was improved at 4.8% on a fully phased-in basis. Lastly, the Company noted that it is compliant with the fully phased-in requirements of the Liquidity Coverage Ratio, as of September 30, 2015.

DBRS rates the Company’s Issuer & Senior Debt at AA (low) with a Stable trend.

Note:
All figures are in U.S. dollars unless otherwise noted.