01—Abstract
Summary
Summary of the 10-K filed February 27, 2019. Cited figures are marked; the original filing is the authoritative source.
The Bank of New York Mellon (BK) closed 2018 with net income applicable to common shareholders of $4.1 billiona, or $4.04 per diluted share, up from $3.7 per share in 2017.
Results were supported by net interest revenue up 9% to $3.6 billionb on higher rates (net interest margin 1.25% vs. 1.14%), investment services fees up 5% to $7.8 billion, and total revenue up 5% to $16.4 billion. Noninterest expense rose 2% to $11.2 billion, driven by technology investment, real estate consolidation and currency effects, partially offset by lower bank assessments. The effective tax rate was 18.1%, including adjustments tied to U.S. tax legislation and a $168 million net charge for severance, real estate consolidation and litigation.
Assets under custody and/or administration were $33.1 trillionc, down 1% year over year, while assets under management fell 9% to $1.7 trillion on a stronger dollar, market declines and net outflows. Fee revenue represented 78% of total revenue, which supports earnings durability relative to balance-sheet-driven peers.
Capital remained strong: the CET1 ratio under the Advanced Approach was 10.7%, the SLR was 6.0%, and the company returned capital through $3.3 billiond of buybacks and $1.2 billion of dividends, with the quarterly dividend raised 17% to $0.28 in July 2018. Key risks flagged in the filing include the planned UK exit from the EU on March 29, 2019 without a transition agreement, rising technology spending expected to increase 2019 technology costs, pressure from lower-fee investment products, a California utility bankruptcy that is expected to raise nonperforming assets and add a $20–30 million provision in Q1 2019, and a fair-value sensitivity in the securities portfolio, which carried a $907 million net unrealized loss at year end.
02—Key points
Key Highlights
- Net income applicable to common shareholders of $4.1 billion ($4.04 diluted EPS) in 2018, up from $3.9 billion ($3.72) in 2017, including a $168 million (-$0.17 per share) net charge for severance, real estate consolidation and litigation.
- Net interest revenue rose 9% to $3.6 billion and net interest margin expanded to 1.25% from 1.14%, mainly from higher interest rates.
- Total revenue of $16.4 billion grew 5%, with fee revenue at 78% of total revenue; investment services fees rose 5% to $7.8 billion and investment management and performance fees rose 3% to $3.7 billion.
- Assets under custody/administration fell 1% to $33.1 trillion and assets under management fell 9% to $1.7 trillion, reflecting a stronger U.S. dollar, lower markets and net outflows.
- Capital returns were significant: $3.3 billion of share repurchases and $1.2 billion of dividends in 2018, with the quarterly dividend increased 17% to $0.28 and a $2.4 billion repurchase plan running through Q2 2019.
- Capital ratios remained above well-capitalized levels, with a 10.7% CET1 ratio (Advanced Approach) and a 6.0% supplementary leverage ratio at December 31, 2018.
- Risk watch items include the UK's scheduled EU exit on March 29, 2019 without an agreement, a California utility bankruptcy affecting Q1 2019 credit costs, and an expected rise in technology-related expenses in 2019.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 27, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $16.39B$15.54B | +5.5% |
| Interest Expense | $2.82B$1.07B | +162.7% |
| Net Income | $4.27B$4.09B | +4.3% |
| EPS (Basic) | $4.06$3.74 | +8.6% |
| EPS (Diluted) | $4.04$3.72 | +8.6% |
| Shares Outstanding (Basic) | 1.00B1.03B | −3.0% |
| Shares Outstanding (Diluted) | 1.01B1.04B | −3.2% |
05—Questions
Frequently Asked Questions
How did BNY Mellon's profitability change in 2018?
Net income applicable to common shareholders rose to $4.1 billion, or $4.04 per diluted share, from $3.9 billion, or $3.72, in 2017. Growth came mainly from higher net interest revenue, which rose 9% on higher interest rates, and from investment services fees, which rose 5%. Expenses rose 2%, and the 2018 results include a $168 million net charge tied to severance, real estate consolidation and litigation.
Is BNY Mellon's revenue mainly fee-based or dependent on interest rates?
Mostly fee-based. Fee revenue was 78% of total revenue in 2018 and comes from custody, asset servicing, clearing, issuer services and investment management. Net interest revenue, which benefits from higher rates, made up the remainder. This mix is a key structural feature for investors, though fees are sensitive to market values, transaction volumes and the shift toward lower-fee products.
How strong is the company's capital position and how is it being returned to shareholders?
The company reported a 10.7% CET1 ratio under the Advanced Approach and a 6.0% SLR at year end, and it was well capitalized. It repurchased $3.3 billion of common stock in 2018 and paid $1.2 billion in common and preferred dividends. The common dividend payout ratio was 26%, and the quarterly dividend was raised 17% to $0.28 per share in July 2018.
What are the main risks highlighted in the filing for 2019?
Key risks include the UK's scheduled withdrawal from the EU on March 29, 2019 without a transition agreement, which could require operational changes and add costs. Technology spending is expected to rise in 2019, and a California utility bankruptcy is expected to increase nonperforming assets and add a $20 million to $30 million provision in Q1 2019. Rising interest rates also created a $907 million net unrealized securities loss at year end, and the company faces ongoing litigation and regulatory matters.
06—Continue