Bank of NY Mellon profit up, yet shares drop

By Jonathan Stempel

NEW YORK (Reuters) - Bank of New York Mellon Corp (BK.N: Quote, Profile, Research) said on Thursday first-quarter profit rose 9 percent, as market volatility helped boost fees from providing custodial and other back-office services to institutional investors.

Profit fell just short of some analysts' estimates, as fees declined in most major categories from the fourth quarter.

The bank also said market disruptions caused unrealized losses in its securities portfolio to more than quintuple since year-end to $1.79 billion from $342 million. Though it wrote down $74 million tied to these securities, it said it does not expect material losses in the $45.5 billion portfolio.

Bank of New York Mellon shares fell $1.37, or 3.1 percent, to $42.63 in early afternoon trading on the New York Stock Exchange.

"Results were strong but mixed," said Tom McCrohan, an analyst at Janney Montgomery Scott LLC in Philadelphia. "Market volatility is benefiting all the custody banks, and net interest income was also strong. On the flip side, asset management had headwinds because fees depend on equity markets, which have fallen." McCrohan rates the bank "neutral."

In the third quarter since the merger of Bank of New York Co with Mellon Financial Corp created the world's largest trust bank, profit totaled $746 million, or 65 cents per share. A year earlier, profit was $686 million for the combined banks, and $434 million for Bank of New York alone.

Operating profit was $749 million, or 65 cents per share, and was 72 cents per share excluding merger costs. Results also included a $25 million write-down for investments tied to a former hedge fund affiliate, and a $42 million gain associated with credit card network Visa Inc's (V.N: Quote, Profile, Research) initial public offering last month. Revenue rose 14 percent to $3.75 billion.

Analysts on average expected a profit of 73 cents per share on revenue of $3.84 billion, according to Reuters Estimates.