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BNY Mellon 4Q profit falls on investment loss

| Friday, Jan. 17, 2014, 11:12 a.m.

Bank of New York Mellon Corp. reported a lower quarterly profit because of a $115 million loss on an investment in a New York trading house that last month settled government securities and wire fraud charges.

BNY Mellon said it is a minority investor in ConvergEx Group LLC, whose subsidiaries agreed to pay $151 million in criminal and civil penalties to the Department of Justice and the Securities and Exchange Commission.

Two former employees of ConvergEx agreed to admit and settle charges against them in connection with a scheme that misled institutional clients who paid substantially higher amounts than disclosed on trades.

BNY Mellon and ConvergEx declined to comment further on the matter.

In its earnings report, BNY Mellon said it continues to spend on an internal program to automate and re-engineer operations that so far has saved it about $700 million a year in costs.

The bank, which focuses on trust, custodian and asset management businesses, said fees and assets increased, and it repurchased 10 million shares for $318 million during the period.

Shares fell $1.23, or 3.6 percent, to $32.69. The stock is up 24.3 percent in the past year.

BNY Mellon reported net income of $503 million, or 44 cents a share, down from $613 million, or 53 cents a share, a year earlier. The results include an after-tax loss of 10 cents a share from the loss from ConvergEx.

Analysts surveyed by Thomson Reuters forecast per-share earnings of 54 cents on revenue of $3.72 billion.

Revenue slipped to $3.59 billion from $3.62 billion a year ago. Revenue from fees declined 2 percent to $2.8 billion.

Assets under management jumped 14 percent from a year ago to $1.58 trillion, while assets under custody and administration increased 5 percent to $27.6 trillion.

The SEC said the former ConvergEx brokers routed customer trading orders to a unit in Bermuda that marked prices up or down to boost profit, causing clients to unknowingly pay more than double on trades. Clients included funds managed for charities, religious groups, universities, retirement plans and others. The two traders admitted concealing the scheme from clients.

The scheme ran from 2006 to 2011, and the Bermuda trading desk was shut down by ConvergEx two years ago.

ConvergEx Group, formerly BNY ConvergEx Group LLC, was formed in 2006 when BNY Mellon's institutional trading businesses combined with GTCR LLC, a Chicago private equity firm. BNY Mellon holds a 33 percent stake.

In a conference call with analysts, CEO Gerald L. Hassell said the bank accomplished its goal to cut costs by up to $700 million a year ahead of schedule. The initiative “is expected to create significant financial benefit over the next few years,” he said.

Two years ago, BNY Mellon said it intended to save $650 million to $700 million by the beginning of 2015 through closings, operating improvements such as consolidating computer applications, centralizing purchasing and bringing software development in-house.

Executives have said the initiative is bringing a “cultural change” to the bank by eliminating low-margin employee processes and management policies. Previous cost-cutting plans, such as shifting work to lower-cost locations, had reached their limits. No significant job cuts are involved.

Headquartered in New York, BNY Mellon employs about 7,600 people in Western Pennsylvania, several hundred more than before the merger of the Bank of New York and Mellon Financial Corp. in 2007.

John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or joravecz@tribweb.com.

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