01—Abstract
Summary
Summary of the 10-K filed February 28, 2011. Cited figures are marked; the original filing is the authoritative source.
The Bank of New York Mellon (BNY Mellon) reported 2010 net income applicable to common shareholders of $2.5 billiona, or $2.05 per diluted share, versus a net loss of $1.4 billion in 2009, which was driven by roughly $5.4 billion of pre-tax securities restructuring losses.
Excluding those losses and other charges, the company's results improved on higher market values, the GIS and BAS acquisitions completed in mid-2010, and lower provisions for credit losses ($11 millionb versus $332 million). Assets under custody and administration reached a record $25.0 trillion and assets under management reached $1.17 trillion at year-end 2010. The balance sheet strengthened over the year.
The Tier 1 capital ratio rose to 13.4% from 12.1%, supported by earnings retention and a $677 millionc common equity issuance, and the company estimates its Tier 1 common ratio under Basel III will exceed 7% by year-end 2011. Net interest margin compressed to 1.70% from 1.82% amid the low-rate environment, and fee revenue remains about 78% of total revenue, so the business is still heavily dependent on market levels and transaction volumes. For investors, the key watch items are the dividend (held at $0.09 per quarter and subject to Federal Reserve review, with payout ratios above 30% drawing scrutiny), the pace of Basel III and Dodd-Frank implementation, including likely designation as a systemically important institution, ongoing litigation (including Sentinel, Madoff-related, securities lending, and German broker-dealer matters, with reasonably possible losses estimated at $200 million to $500 million above accruals), and the integration of acquired businesses.
02—Key points
Key Highlights
- Net income applicable to common shareholders of $2.5 billion ($2.05 per diluted share) in 2010, compared with a net loss of $1.4 billion in 2009 that reflected $5.4 billion of pre-tax investment securities losses.
- Record assets under custody and administration of $25.0 trillion and assets under management of $1.17 trillion at Dec. 31, 2010, aided by the Global Investment Servicing (GIS) and BHF Asset Servicing (BAS) acquisitions.
- Tier 1 capital ratio improved to 13.4% from 12.1%, with the Tier 1 common ratio at 11.8%; the company estimates a Basel III Tier 1 common ratio above 7% by Dec. 31, 2011.
- Provision for credit losses fell to $11 million from $332 million, as criticized assets declined 66% during 2010.
- Net interest margin contracted to 1.70% from 1.82% due to narrower spreads in the low-rate environment, partly offset by a higher yield on the restructured securities portfolio.
- Noninterest expense rose 7% to $10.2 billion on acquisition costs, with merger and integration expenses of $139 million; the company expects a 30-31% effective tax rate in 2011.
- Dividend held at $0.09 per quarter; any increase requires Federal Reserve consultation, and the company is subject to Dodd-Frank systemic-importance designation and heightened capital standards.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 28, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $13.82B$7.65B | +80.5% |
| Operating Income | $2.58B-$814.00M | +417.4% |
| Interest Expense | $545.00M$593.00M | −8.1% |
| Net Income | $2.52B-$1.08B | +332.5% |
| EPS (Basic) | $2.06$-1.16 | +277.6% |
| EPS (Diluted) | $2.05$-1.16 | +276.7% |
| Shares Outstanding (Basic) | 1.21B1.18B | +2.9% |
| Shares Outstanding (Diluted) | 1.22B1.18B | +3.2% |
05—Questions
Frequently Asked Questions
How did BNY Mellon perform in 2010 compared with 2009?
Net income applicable to common shareholders was $2.5 billion, or $2.05 per diluted share, compared with a net loss of $1.4 billion in 2009. The 2009 loss was driven mainly by a $5.4 billion pre-tax charge from restructuring the investment securities portfolio. Total revenue rose to $13.9 billion from $7.7 billion, and pre-tax income was $3.7 billion versus a pre-tax loss of $2.2 billion.
Is the dividend at risk?
The quarterly dividend was held at $0.09 per share in 2010 and the company declared the same amount in January 2011. Because the Federal Reserve scrutinizes payout ratios above 30% of after-tax net income, and the Bank of New York Mellon and BNY Mellon, N.A. require regulatory consent before paying dividends, any increase depends on regulatory approval of the capital plan. The filing does not indicate a planned cut.
How strong is the company's capital position?
At year-end 2010 the Tier 1 capital ratio was 13.4%, total capital was 16.3%, and the leverage ratio was 5.8%, all above well-capitalized thresholds. The Tier 1 common ratio was 11.8%. Under Basel III, BNY Mellon expects to remain above a 7% Tier 1 common ratio by the end of 2011, though final rules are still pending.
What are the main legal and regulatory risks?
The filing discloses several matters, including the Sentinel bankruptcy dispute, a CFTC inquiry, auction rate securities claims, Madoff-related lawsuits against Ivy Asset Management, securities lending suits, foreign exchange pricing investigations, and German broker-dealer litigation. Management believes accruals are not material to financial position but estimates a reasonably possible loss of $200 million to $500 million above accrued amounts for matters where a loss can be estimated. Dodd-Frank is also expected to subject the company to systemically important institution requirements.
What drove growth in the business?
Growth came largely from acquisitions and market levels. The GIS acquisition for $2.3 billion and the BAS acquisition added to custody and fund services revenue. Securities servicing fees rose 11% to $5.6 billion, and asset and wealth management fees rose 7% to $2.9 billion, supported by a 13% rise in the S&P 500 at year-end. Acquired businesses were described as accretive to 2010 earnings.
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