10-QPeriod: Q2 FY2008

Bank of New York Mellon Corp Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 8, 2008For Securities:BKBK-PKBNYBNY-PK

Summary

This 10-Q filing for Bank of New York Mellon Corp (BK) for the period ending June 29, 2008, primarily focuses on legal proceedings and corporate governance matters. While the company is involved in several significant legal actions, including a substantial claim from the Russian Federation's Federal Customs Service seeking $22.5 billion, and various investigations by regulatory bodies like the IRS, SEC, and CFTC, management asserts that these matters, individually or in aggregate, are not expected to have a material adverse effect on the consolidated financial position or liquidity, although they could impact net income in a given period. The filing also details recent stock repurchase activity and the voting outcomes of the annual shareholder meeting held in April 2008, which included the election of directors and approval of various incentive plans. Investors should note the ongoing legal challenges, particularly the large Russian customs claim, which, despite management's reassurances, represents a significant contingent liability. The company's proactive disclosure of self-identified compliance issues and cooperation with regulators is also a key point. Shareholder votes indicate strong support for the board of directors and executive compensation plans, but proposals for cumulative voting and advisory votes on executive compensation did not pass. The limited share repurchase activity in Q2 2008 suggests a focus on capital preservation or other strategic priorities.

Financial Highlights

23 data points
Beta

Net Income

$309.00M

EPS (Diluted)

$0.27

Cash & Equivalents

$5.99B

Free Cash Flow

$1.72B

Financial Statements
Beta
Operating Income$1.04B
Interest Expense$677.00M
Net Income$309.00M
EPS (Basic)$0.27
EPS (Diluted)$0.27
Shares Outstanding (Basic)1.14B
Shares Outstanding (Diluted)1.14B

Key Highlights

  • 1The company is facing a significant legal claim of $22.5 billion from the Russian Federation's Federal Customs Service related to alleged failures in monitoring funds transfer activities.
  • 2BK is involved in multiple ongoing legal and regulatory matters, including IRS reviews of structured transactions, SEC investigations into trading activities, and CFTC inquiries related to Sentinel Management Group.
  • 3Management believes that, after considering reserves and insurance, no pending legal action will materially adversely affect the company's consolidated financial position or liquidity, though net income could be impacted.
  • 4During the second quarter of 2008, the company repurchased 443,000 shares of common stock for approximately $19 million, primarily in connection with employees paying taxes on restricted stock vesting.
  • 5A substantial portion of the Board of Directors' slate was re-elected with high vote counts, indicating shareholder confidence in current leadership.
  • 6Shareholders approved the adoption of the company's Long-Term Incentive Plan, Employee Stock Purchase Plan, and Executive Incentive Compensation Plan.
  • 7Proposals for cumulative voting in director elections and an advisory vote to ratify executive compensation were not approved by a majority of votes cast.

Frequently Asked Questions

The Russian Federal Customs Service has filed a claim against The Bank of New York (now The Bank of New York Mellon) for $22.5 billion. The claim alleges violations of U.S. law due to the Bank's alleged failure to supervise and monitor funds transfer activities, which the claimant asserts led to underpayment of value-added taxes by the Bank's correspondent clients. The Bank is vigorously defending itself, believing it has meritorious defenses in both Russian and potentially other international courts. While management does not believe this claim will materially adversely affect the company's financial position or liquidity, it could have a material effect on net income for a given period.

Yes, the company is involved in several other matters. These include ongoing reviews by the IRS concerning structured transactions for tax credits, an SEC investigation into trading activities of Pershing Trading Company LP, an investigation by the CFTC into Sentinel Management Group's relationship with the Bank, and self-disclosures to the SEC and FINRA regarding potential compliance issues related to trading practices and Auction Rate Securities. Management states that these matters, individually or in aggregate, are not expected to have a material adverse effect on the company's financial position or liquidity.

In the second quarter of 2008, Bank of New York Mellon repurchased 443,000 shares of its common stock for approximately $19 million at an average price of $43.18 per share. These repurchases were primarily related to employees paying taxes upon the vesting of restricted stock. The company had an authorized repurchase program of up to 35 million shares, with 33.8 million shares remaining available as of June 30, 2008, but no shares were repurchased under this specific program during Q2 2008.

Shareholders re-elected all 18 directors to the board, with most receiving over 900 million 'For' votes. The adoption of the Long-Term Incentive Plan, Employee Stock Purchase Plan, and Executive Incentive Compensation Plan were all approved by a majority of votes cast. However, a proposal requesting cumulative voting for directors and a proposal for an advisory vote to ratify executive compensation were not approved by a majority of votes cast.