Bank of New York Mellon Corp. said Tuesday that its first-quarter profit dropped an unexpectedly steep 57 percent and that it was slashing its dividend in hopes of repaying a government investment.
The New York-based bank cut its dividend to nine cents a share from 24 cents — a move that will save $700 million a year. BNY Mellon said it plans to use some of the capital it saves from the dividend cut, with permission from regulators, to pay back a $3 billion investment from the government.
BNY Mellon was among an initial group of banks to receive aid from the government late last year as part of a $700 billion financial bailout plan. Several of them, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., have expressed a desire to return the funds as soon as possible.
During a conference call with investors, BNY Mellon Chairman and Chief Executive Robert Kelly said repaying the money would send “a strong message” to its clients around the world and to taxpayers that the bank is in a position of strength. Repaying the funds would also ensure that it is able to attract talented employees, he said.
Banks that have received federal bailout funds have become subject to greater government scrutiny and limits on executive pay.
The report from BNY Mellon also underscored the trouble still pervading the financial sector.
Several big banks, including Goldman Sachs, JPMorgan Chase and Bank of America Corp., have recently reported profits that have exceeded analysts’ expectations. But many have attributed the recent improvement in results to a spike in mortgage banking and trading activity — trends that aren’t expected to last. And credit losses keep rising as consumers and businesses struggle to pay off their debt.
BNY Mellon is a commercial bank which largely caters to institutions, corporations and wealthy individuals.
While its business differs from that of its retail bank counterparts, it is not immune to market challenges. Investment losses and goodwill write-downs cut into its earnings by 21 cents per share. And declining interest rates, lower market values and a drop in client volumes sent revenue down 22 percent.
But Kelly said he has seen encouraging signs of improvement, including positive inflows in equity products and strong money markets activity.
“It feels like we’re at, or close to, the bottom,” he said during a call with analysts and reporters.
Still, he was quick to note that problems still exist.
“We’re not saying that for the industry that loan losses have peaked,” he said. “Clearly, we’re going to see unemployment rates in this country rise for some time yet.”
After paying preferred dividends, BNY Mellon earned $322 million, or 28 cents per share, for the January-March period. That’s less than half the $746 million, or 65 cents per share, it earned a year ago.
Income from continuing operations excluding merger and integration costs, restructuring charges, investment write-downs and other nonrecurring items, was $676 million, or 59 cents per share.
Wall Street analysts had been expecting earnings of 63 cents per share. Analysts typically exclude one-time items from their estimates.
Losses on the bank’s securities portfolio totaled $295 million, up from $73 million in the first quarter of last year, but down significantly from a loss of $1.24 billion in the fourth quarter.
Total revenue was $2.93 billion, down from $3.75 billion a year ago. Analysts had forecast revenue of $3.66 billion.
Net interest revenue, or the amount earned on loans and deposits, totaled $792 million, up slightly from $767 million in the first quarter of last year.
Fee and other revenue fell 28 percent to $2.14 billion, reflecting declines in securities servicing and asset and wealth management fees. This was partly offset by a 19 percent increase in foreign exchange and other trading revenue.
Total assets under management were $881 billion at the end of the quarter, down 20 percent from a year ago.