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Bank of NY Mellon Quarterly Profit Falls 88 Percent

Tuesday, 20 Jan 2009 05:17 PM

NEW YORK -- Bank of New York Mellon Corp said on Tuesday that fourth-quarter profit tumbled 88 percent, hurt by securities losses and pressure on fees as client assets declined.

Net income fell to $61 million, or 2 cents per share after accounting for preferred stock dividends, from $520 million, or 45 cents, a year earlier.

Results reflected a charge of 65 cents per share from $1.24 billion in writedowns largely for securities tied to "Alt-A" mortgages, which often go to people who can't document income or assets.

Excluding this item, operating profit was $53 million, or 5 cents per share, the bank said. Revenue fell 24 percent to $2.89 billion. Results also included a charge of 9 cents per share for severance and other charges tied to job cuts.

Analysts, on average, expected profit of 70 cents per share, excluding items, on revenue of $3.81 billion, according to Reuters Estimates. It was not immediately clear on what basis the analysts computed their estimates.

Chief Executive Robert Kelly said the writedowns reflected "enormous liquidity discounts for mortgage-backed securities. We believe that the actual incurred loss will ultimately be materially lower."

Bank of New York Mellon moved up its earnings report by two days after another major custody bank, State Street Corp reported billions of dollars in unrealized investment losses earlier Tuesday, and said quarterly profit fell 71 percent.

State Street shares sank 59 percent to $14.89 on Tuesday, while Bank of New York Mellon shares fell $3.96, or 17.3 percent, to $19, both on the New York Stock Exchange. Bank of New York Mellon has fallen 57.8 percent in the last year, compared with a 68.4 percent loss in the KBW Bank Index.

Another custody bank, Northern Trust Corp, is expected to report lower quarterly profit on Wednesday.

Bank of New York Mellon said quarterly revenue from securities servicing fell 7 percent to $1.46 billion. Declining equity markets led to a 26 percent drop in asset and wealth management fees to $657 million.

The bank's Tier-1 capital ratio, which measures its ability to cover losses, rose to about 13.1 percent from 9.33 percent at September 30, helped by $3 billion from the U.S. Treasury Department's Troubled Asset Relief Program (TARP). It has also won a coveted mandate to provide custodial services for TARP.

State Street received $2 billion from TARP.

Bank of New York Co's July 2007 purchase of Mellon Financial Corp created a custodial power now handling $20.2 trillion of assets, down from $22.4 trillion at Sept 30.As an asset manager, it oversees $928 billion at year end, down from $1.07 trillion three months earlier.

Founded in 1784 by Alexander Hamilton, Bank of New York is the oldest U.S. banking company. Mellon was founded in 1869 and grew to prominence under financier Andrew Mellon. Both companies quit branch banking this decade.

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