Saturday 21 January 2017

Custody banks' shares slide after lacklustre results

Published 20/01/2011 | 05:00

US custody banks State Street and Bank of New York Mellon, which employ more than 3,000 people here, disappointed shareholders with lacklustre results yesterday.

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Both companies reported more custody and management fees for the quarter, but not enough to impress investors.

And continued low interest rates held back profits from short-term investments and lending.

Shares of BNY Mellon dipped 0.5pc, while State Street fell 4.1pc. The two banks' stocks had gained more than 20pc in the past three months.

Custody banks keep records, track performance and lend securities to institutional investors including mutual funds, pension funds and hedge funds.

State Street also manages investments for individual and institutions under its global advisers unit.

BNY Mellon is the largest custody bank, followed by JPMorgan Chase in New York, and employs 1,200 people in Cork and Dublin.

It said fourth-quarter profit from operations increased 10pc as two acquisitions from last year bolstered fee income.

Excluding items, earnings per share of 59 cents were slightly ahead of analysts' estimates of 57 cents.

The fourth quarter was the best for fee income since the start of the financial crisis in 2008, after a "breathtakingly quick" recovery in the sector, chief executive officer Robert Kelly said.

But Nomura analyst Glenn Schorr said that despite the "pretty good" quarter at BNY Mellon, the stock "has had a big run and could soften" given slight disappointments on expenses and assets.

Assets under custody, the bulk of which are in fixed income, grew only 2pc during the quarter to $25 trillion.

At slightly smaller rival State Street, which employs more than 2,000 people in Dublin, Drogheda, Kilkenny and Naas, quarterly profit had dropped mainly because of the cost of cutting jobs and selling securities.

State Street boss Joseph Hooley, who took over in March, has pushed through a number of changes to put the company on firmer footing, including cutting 5pc of its workforce and repositioning its portfolio.

The world's third-largest custody bank is nevertheless expanding in Ireland, opening a swish headquarters in Dublin's docklands last year and buying Bank of Ireland Asset Management for around €57m last week. (Additional reporting: Bloomberg and Reuters)

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