April 23, 2024

Fee Revenue Grows at Top Custody Banks

Fee revenue climbed 16 percent, to $1.79 billion, at State Street Corporation while Bank of New York Mellon, the world’s top custody bank, reported a 12 percent increase, to $2.83 billion.

At Northern Trust, another large custody bank, noninterest income slipped 0.6 percent, to $663.5 million.

These companies, known as trust banks, earn the bulk of their profit from keeping records and providing accounting and other services to investment managers.

State Street’s earnings beat analyst expectations, extending a profit streak intact for 18 of the last 19 quarters.

State Street and Bank of New York benefited from recent acquisitions and stronger financial markets, which helped increase assets under custody and administration.

But each company still suffered from low interest rates and felt the effects of low volatility, which held down currency trading.

State Street said its foreign exchange revenue rose 19 percent as higher volumes offset lower volatility. At Bank of New York Mellon, foreign exchange revenue dropped 1 percent from a year ago and 16 percent from the 2010 fourth quarter because of lower volatility.

The companies’ foreign exchange business has come under criticism recently. Pension fund customers have sued the companies, charging they were cheated on trades.

The companies have denied the accusations, and their chief executives said on Tuesday that business has not been hurt by the lawsuits.

“Foreign exchange makes up only 6 percent of our revenue but it has been a topic of interest recently,” Robert Kelly, the Bank of New York Mellon chief executive, said in an interview. “It is an extremely competitive segment.”

Mr. Kelly said his bank hoped to attract new business in the area by spending more time with customers and being more “creative and aggressive” in developing new products.

The bank’s earnings from continuing operations, excluding special items, rose to $699 million, or 55 cents a share, from $601 million, or 49 cents a share, a year earlier. Assets under custody and administration rose 2 percent from the 2010 fourth quarter to a record $25.5 trillion.

Analysts had expected earnings of 57 cents a share, according to Thomson Reuters.

At State Street, earnings excluding special items rose to $444 million, or 88 cents a share, from $371 million, or 75 cents a share, a year earlier, beating analysts’ forecast of 86 cents a share. Assets under custody and administration rose 5 percent to $22.6 trillion.

Both banks recently announced plans to raise their dividends and execute share buybacks after passing the Federal Reserve’s second round of stress tests.

Northern Trust said net income slipped to $151 million, or 61 cents a share, from $157.2 million, or 64 cents a share, a year earlier.

State Street’s stock rose 2.3 percent, to $45.69, but share prices of other trust banks declined. Bank of New York Mellon dipped 2.9 percent after its profit fell short of expectations, and Northern Trust dropped 5.3 percent.

Article source: http://feeds.nytimes.com/click.phdo?i=e74b9a5f059f48e54b887c529234a928

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