After announcing earnings this morning, Bank of New York Mellon's stock dropped around 3%. Investors looking for a reason behind that move don't have to look any further than the decline in net interest revenue and net interest margin.
As I predicted yesterday, BNY Mellon joined Wells Fargo in being hampered by a decline in net interest margin. BNY Mellon saw this important metric decline to 1.09% during the fourth quarter, which is down from 1.27% in the same quarter of 2011 and 1.20% in the third quarter of 2012. Lowering margins resulted in lower net interest income as well, which saw a decline to $725 for the quarter.
Traditional banks can often overcome declining numbers like these by increasing lending activity or finding additional income in fees. Because BNY Mellon doesn't offer checking accounts or mortgages, it is much more difficult to find revenue elsewhere. BNY Mellon still saw a year-over-year increase of 17% in investment management fees, as well as a slight 1% increase in investment service fees.
A temporary blip
It is not all bad news for investors of the nation's largest trust bank. Assets under management also saw a 10% increase from the previous year, which indicates that the bank's clients still value the services it performs. In addition to its modest quarterly dividend, BNY Mellon also spent over $1 billion in 2012 repurchasing shares, helping to increase shareholder value slightly over the past 12 months.
In the short term, the market may react negatively to the declining revenue and net interest income, but this will probably end up being a universal theme across the majority of the bank earnings over the next few weeks. It doesn't mean we are heading for another catastrophe. It is simply a slight correction to bring the prices of banks back in line with what should be expected after multiple quarters in a low interest rate environment.
I honestly think that today's performance is a short-term blip on the road to great performance down the road for Bank of New York Mellon.To help figure out whether this banker's bank is worthy of a spot on your watchlist, you're invited to check out The Motley Fool's new premium research report on BNY Mellon. Click here now to claim your copy, and receive a full FREE year of key updates and guidance as news develops.
This article was originally published as We Know Why BNY Mellon Fell After Releasing Earningson Fool.com
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