10-QPeriod: Q3 FY2008

Bank of New York Mellon Corp Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 7, 2008For Securities:BKBK-PKBNYBNY-PK

Summary

The Bank of New York Mellon Corporation (BK) filed its quarterly report for the period ending September 29, 2008, amidst severe global financial market turmoil and economic slowdown. The company explicitly states that current difficult conditions are materially adversely affecting its business and operations. Key risks highlighted include increased regulation, uncertainty in estimating credit losses and fair value of securities, potential difficulties in accessing credit markets, intensified competition due to industry consolidation, and higher FDIC premiums. The company also notes that its ability to pay common stock dividends may be impacted by its agreement with the U.S. Treasury and the issuance of Series B preferred stock. Furthermore, BK acknowledges the significant uncertainty surrounding the effectiveness of the Emergency Economic Stabilization Act (EESA) in stabilizing financial markets. The interconnectedness of financial institutions poses a risk, as defaults or rumors about one institution can lead to market-wide liquidity problems. Any reduction in BK's credit rating could also increase its funding costs. Despite these challenges, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of the end of the reporting period. Changes in internal controls were primarily related to the integration following the merger with Mellon Financial.

Financial Highlights

23 data points
Beta

Net Income

$303.00M

EPS (Diluted)

$0.26

Cash & Equivalents

$45.34B

Free Cash Flow

-$393.00M

Financial Statements
Beta
Operating Income$1.35B
Interest Expense$631.00M
Net Income$303.00M
EPS (Basic)$0.26
EPS (Diluted)$0.26
Shares Outstanding (Basic)1.14B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1The company is facing significant adverse impacts on its business and operations due to the severe and unprecedented stress in global financial markets and the general economy.
  • 2BK anticipates increased regulation as a result of the Emergency Economic Stabilization Act (EESA), which could increase costs and limit business opportunities.
  • 3The process of estimating credit losses and valuing securities is subject to significant uncertainty and complex judgments due to volatile economic conditions.
  • 4The company's ability to access credit markets and borrow from other financial institutions could be adversely affected by ongoing market disruptions.
  • 5A dividend restriction is in place for three years related to U.S. Treasury holdings, limiting common stock dividends to a maximum of $0.24 per share, and a newly issued Series B preferred stock may further impact dividend capacity.
  • 6The company acknowledges the interconnectedness of financial institutions and the risk of contagion from defaults or concerns about other entities.
  • 7Despite significant market challenges, management concluded that disclosure controls and procedures were effective as of September 30, 2008, with internal control changes primarily driven by the Mellon Financial merger integration.

Frequently Asked Questions

BK highlights significant risks including the ongoing severe stress in global financial markets and the economy, increased regulatory scrutiny (especially from the EESA), challenges in valuing assets and estimating credit losses due to market volatility, potential difficulties in accessing credit, intensified competition, and higher FDIC premiums. The interconnectedness of financial institutions and potential credit rating downgrades are also noted as significant risks.

Dividend payments on common stock are subject to restrictions. For three years, dividends are limited to a maximum of $0.24 per share, tied to the U.S. Treasury's holdings. Additionally, the recent issuance of $3 billion in Series B preferred stock to the U.S. Treasury, which ranks senior to common stock and carries significant dividend rates, may further impact the company's ability to pay common stock dividends.

BK explicitly states that it does not expect the difficult conditions in the financial markets to improve in the near future. They anticipate that a worsening of these conditions would likely exacerbate the adverse effects on the company and the broader financial institutions industry.

The filing mentions several legal proceedings, including a substantial $22.5 billion claim from the Federal Customs Service of the Russian Federation related to a past funds transfer matter. Other proceedings include tax-related disputes with the IRS concerning foreign tax credits, a bankruptcy adversary proceeding related to Sentinel Management Group, SEC investigations into trading activities, and FINRA inquiries regarding Auction Rate Securities and tender offers. While the company believes it has defenses and does not expect these to materially affect its consolidated financial position or liquidity (after reserves and insurance), they could materially affect net income in a given period.