Two big players in US custody banking take hit

BNY MELLON and State Street, two of the three largest players in the US custody banking business, saw their shares take a hit yesterday after missing analysts’ expectations and announcing significant cuts in staff.

Bank of New York Mellon said fourth-quarter earnings declined 26 per cent on a restructuring charge and as interest rates near record lows held back profit. Net income fell to $505 million, or 42 cents a share, from $679 million or 54 cents, a year earlier.

Shares in BNY Mellon were trading close to 4.5 per cent lower at $20.32 in a rising market towards the close of yesterday’s session.

The bank also said overall employee headcount in the fourth quarter declined by 900 as it works to save money through a large-scale efficiency programme.

Shares in State Street fell the most in five months after fourth-quarter earnings missed analysts’ estimates and chief executive Joseph Hooley said weak capital markets would probably persist in 2012. State Street fell as much as 8.7 per cent to $39.02 in New York trading.

Both banks have a significant presence in Ireland.

“I’m not trying to give necessarily a negative outlook; just a realistic outlook,” Mr Hooley said during a conference call with investors. “I don’t think anybody’s ready to predict that the most recent markets are going to sustain themselves.”

Custody banks, hurt by record low interest rates that reduce the return on investments and lending, and by a decline in equity markets in 2011, have worked to buoy profits by cutting expenses.

State Street has eliminated 2,250 jobs in the past 13 months as it aimed to reduce costs by at least $575 million annually by 2015.

Mr Hooley said it would be difficult to create positive operating leverage in 2012, referring to the ability of revenue growth to outpace expense growth. He said he intended to continue trimming expenses and hoped to increase dividends and share buybacks this year.

State Street said profit on an operating basis rose 4.4 per cent to $454 million, or 93 cents a share, from $435 million, or 87 cents, a year earlier. State Street said revenue was $2.32 billion. – (Bloomberg)