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As a result of tax reforms, Bank of New York Mellon expects to reinvest the cash in building capital base, organic investments, acquisitions, and via dividends & buybacks. $BK also plans to increase minimum wages for all employees to $15 per hour in the US. The company also plans to increase technology spending as 75% of the business is tech based.
The world's largest custodian bank Bank of New York Mellon reported 37% jump in 4Q profits due to tax reforms. Revenue for the quarter dropped 2% to $3.7Bil (fee revenues contributed 77%), while assets under custody increased 11% to $33.3 trillion. Tax benefits stood at $427MM. $BK also recorded $246MM in severance and litigation charges.
$BK said collateral management is another form of custody. And the company is acting as a custodian as do many of its competitors and that falls to the asset servicing line. Custodian is the fastest growing component, despite being a small component. $BK said about half of the growth was contributed by improvements in collateral management.
For 2017, $BK expects total adjusted expenses to be up around 1%, although the improved revenue performance and the recent decline of the dollar may make this a bit more challenging. $BK sees effective tax rate of 25-26% and finally expects to generate positive operating leverage for the entire year of 2017.
Looking ahead, $BK said 3Q17 earnings are typically impacted by a seasonal slowdown in transaction volumes and market-related revenue, particularly things like foreign exchange, collateral services, and securities lending. This is offset by the seasonally higher activity that the company see in depositary receipts.
$BK has began on boarding clients affected by $JPM's decision to exit the US government securities Clearance business. The revenue impact in 2017 will be modest as many of the largest revenue producing relationships will not be coming on board until 2018. $BK expects to see the full revenue impact in 2019.
$BK's Board approved quarterly dividend increase of 26% to $0.24 per share, payable on Aug. 11 to shareholders of record on Aug. 1. The board also approved the repurchase of up to $3.1Bil of common stock, including the repurchase of $500MM of common stock contingent upon a preferred stock issuance, over the next four quarters.
$BK's asset under management for 2Q17 increased 6% to $1.77 trillion. This reflects higher market values and net inflows. Net long-term inflows of $3Bil reflecting inflows of liability-driven and fixed income investments. Net short-term inflows of $11Bil were a result of increased distribution through liquidity portals.
$BK's net interest revenue for 2Q17 rose 8% from last year. This primarily reflects higher interest rates. The year-over-year increase also reflects lower premium amortization, partially offset by lower interest-earning assets and higher average long-term debt.
$BK's investment management and performance fees for 2Q17 increased 6% from last year. This was due to higher market values, money market fees and performance fees, offset by the unfavorable impact of a stronger U.S. dollar. On a constant currency basis, investment management and performance fees grew 9%.
$BK's investment services fees for 2Q17 rose 4% from last year. This reflects growth in clearing services fees, net new business, including collateral management solutions, and higher equity market values, offset by the unfavorable impact of a stronger U.S. dollar.
$BK reported a rise in 2Q17 earnings driven by revenue growth in both its investment management and investment services businesses as well as the more favorable rate environment. Net income rose to $926MM or $0.88 per share from $825MM or $0.75 per share last year. Revenue grew to $3.96Bil from $3.78Bil.
$BK appointed Charles Scharf as CEO and a director, effective immediately, and will become Chairman of the Board effective Jan. 1, 2018. Gerald Hassell will continue to serve as Chairman through Dec. 31, 2017, working closely with Scharf to ensure a seamless transition of responsibilities.
$BK is positive on the outlook for the investment services business. The investment services fee revenue growth was 4%. $BK believes the asset servicing business will benefit from the trends which are putting pressure on asset managers to transform their operating models. $BK also sees growth opportunities from technology solutions.
$BK is seeing some sensitivity to interest rates. The deposit base has moved as the company had anticipated. While in 1Q17, on average, deposits were down about $15Bil, it has since moved up a bit and the company believes it will remain fairly steady. The beta is currently low but $BK believes it will move up as interest rates increase.
Banking company $BK posted a revenue of $3.8Bil in 1Q17, up 3%, riding on a 4% hike in investment services fees as well as investment management and performance fees. Net income applicable to common shareholders was $880MM, up from $804MM in 1Q16. EPS was up 14% to $0.83. Net interest revenue increased 3% to $792MM, due to higher interest rates.