By Matt Grossman
Bank of New York Mellon Corp. reported a drop in net interest revenue in the second quarter and warned that the trend may continue in the months to come, sending shares of the custody bank lower Wednesday.
The New York City-based investment-management firm said its net revenue from interest decreased to $780 million, a 3% fall from last year’s level. Analysts’ consensus had forecast net interest revenue of $792.3 million, according to FactSet.
The bank attributed the trend to lower interest rates on interest-earning assets. The Federal Reserve has lowered its key interest rates to nearly zero in recent months as part of its strategy to help offset the impact of the coronavirus pandemic and boost the economy.
For banks and other financial firms that fund themselves with deposits and other short-term loans and put that money to work through loans and longer-term investments, falling rates can impair profitability.
The bank’s shares declined 6.9% to $36.28 following the release of its results.
In a conference call Wednesday morning, Chief Financial Officer Michael P. Santomassimo told analysts that net interest income is likely to decline by 8% to 11% over the next three months compared with the most recent quarter, before stabilizing.
“I think when you look at the third quarter, it’s really all about rates coming down and getting the full impact of that for the full quarter,” Mr. Santomassimo said. He added that the bank would optimize its securities portfolio in response.
Glenn Schorr, an analyst at Evercore ISI Equity Research, said BNY Mellon’s business model leaves it more exposed than other institutions to low rates, he added.
“The big negative was that the low-interest-rate environment is going to hurt net interest income more than people have in their models,” Mr. Schorr said of the second-quarter results. “If you have a portfolio that turns over quickly, when rates go down, you have to reinvest at lower rates more quickly.”
Overall, the bank reported a stronger-than-expected profit, earning $1.01 a share, compared with the consensus forecast of 91 cents a share. Its income from fee revenue in the period was $3.17 billion, higher than the $3.11 billion of such revenue it reported in last year’s second quarter and better than analysts’ consensus estimate of $3.12 billion.
BNY Mellon set aside $143 million for credit losses in the quarter, a figure the bank said reflected credit downgrades and macroeconomic challenges during the coronavirus pandemic. In the first half of last year, the bank had achieved net credit recoveries.
Write to Matt Grossman at [email protected]
