BNY Mellon Profit Falls, Bank Frets Over Euro Deposits

Bank of New York Mellon Corp on Wednesday reported lower second-quarter profit and discussed charging clients on their euro deposits as jittery investors feel more comfortable parking their cash rather than buying stocks and bonds.

BNY Mellon executives said they are worried the bank could see a prolonged trend of excess deposit accumulation because of problems in the euro zone. Holding excess deposits increases costs while the bank struggles to earn money on the funds in an ultra-low interest rate environment.

"Europe is still an absolute mess," BNY Mellon Chief Executive Gerald Hassell said on a conference call.

BNY Mellon Chief Financial Officer Todd Gibbons told Reuters it was possible the bank would impose some kind of charge on euro deposits. No decision has been made, he said.

In the second quarter, total noninterest-bearing client deposits at the bank surged by $20 billion, or 46 percent, to $63 billion. The bank declined to give a breakdown of euro deposits.

As Nomura Equity Research analyst Glenn Schorr said in a research report, BNY Mellon's net interest margin -- largely the difference between what the bank pays on deposits and what it earns on the money through investing -- fell to 1.25 percent, compared with 1.41 percent in the year-ago period.

The world's largest custody bank reported quarterly net income of $466 million, or 39 cents a share, compared with $735 million, or 59 cents a share, a year earlier.

Excluding certain items, Gibbons said the bank's core earnings in the quarter were about 53 cents a share, matching the estimates of analysts. BNY Mellon shares rose nearly 1 percent to $21.92, but the stock is down nearly 11 percent over the past 12 months, while the S&P 500 index has climbed nearly 5 percent.

As announced earlier this month, the quarterly results included an after-tax charge of $212 million to settle an investor lawsuit accusing the bank of imprudently investing their cash in a risky debt vehicle that collapsed in 2008.

Quarterly revenue fell to $3.62 billion from $3.85 billion.

Assets under custody and administration amounted to $27.1 trillion, an increase of 3 percent from a year earlier.

Investment management fees declined 3 percent to $749 million on lower mutual fund revenue. But performance fees in the quarter tripled to $54 million from year-ago levels.

Foreign exchange revenue fell 15 percent to $157 million. BNY Mellon faces several lawsuits that accuse the bank of overcharging on forex trades, but denies any wrongdoing.

The bank's wealth management unit reported average loans totaled $7.76 billion, an increase of 13 percent over year-ago levels. Wealth management's average deposits climbed 25 percent to $11.3 billion.

The bank continued to book net inflows into its investment funds. Long-term flows were $26 billion in the quarter as clients pumped money into bond funds. Meanwhile, money market funds experienced net outflows of $14 billion as investors looked for higher interest rates in other products.

(Reporting by Tim McLaughlin in Boston; Editing by Lisa Von Ahn, Jeffrey Benkoe and Tim Dobbyn)