Thursday, April 21, 2011

Morning Call: The Bank of New York Mellon's CEO Discusses Q1 2011 Results - Earnings Call Transcript

http://seekingalpha.com/article/264271-the-bank-of-new-york-mellon-s-ceo-discusses-q1-2011-results-earnings-call-transcript

During our morning calls we spend time analyzing a certain headline and dissecting it.  We addressed the following questions today to the article mentioned above:

Questions:
1. What were the acquisitions that BK made as discussed in the earnings call? Why were they made?
2. What do you think that helped the fee in investment service grew 27% (9% without acquisition), or deeper, the record level of client assets?
3. Find news/information about the litigations associated with BK and briefly discuss what both the short-term financial and long-term strategical impact, if there's any, to the company.
4. Why is the volatility on currency trading of BK is the lowest since 2007?
5. Do you think the company management's judgement about not adding provision for credit losses is supported by any sufficient reason? If yes, what is/are the reasons(s). If no, why?
6. Generally, do you agree with the "cautiously optimistic" view of the company management after reading the last several paragraphs?

A very brief outline of what each of us stated to the questions above is listed below.  This certainly isn't the complete description of our call:


1. What were the acquisitions that BK did during the first quarter? Why were they made?


All the three acquisition activities by BK were expanding its global diversification. It acquired Global Investment Servicing, Inc., BHF Asset Servicing GmbH, and I3 Advisors of Toronto in the second half of 2010 in cash.

All the three acquired companies met BK's globalization strategy and are seen to help it's oversee growth.


2. What do you think that helped the fee in investment service grew 27% (9% without acquisition), or deeper, the record level of client assets?


Investment services fees for 2011 1Q was $1.7 billion, an increase of 27% year-over-year. Investment services fees for BK include asset servicing ($923 M for 2011 1Q, increasing 44.90% from the prior year quarter), issuer services ($351 M, an increase of 5.41% from the prior year quarter), clearing services ($292 M for 2011 1Q, increasing 26.96% from the prior year quarter), as well as treasury services fee revenue ($128 M for 2011 1Q, a decrease of 2.29% from the prior year quarter). As concluded, the primary contributor for the increase in investment services fees is asset servicing.


3. Find news/information about the litigations associated with BK and briefly discuss what both the short-term financial and long-term strategical impact, if there's any, to the company.


Bank of New York Mellon Corp. currency traders used a foreign-exchange system called "Charlie" to create fake trades and overcharge Virginia pension funds by at least $20 million. They offered the Virginia pension fund the worst price for the day and made their profit by exchanging at the interbank rate. Hence, personally I feel that their declining performance in the FX is not due to the high volatility as they quoted but an after effect of this incident.


4. Why is the volatility on currency trading of BK is the lowest since 2007?

Volatility is a measure of variation in price of a financial instrument - it is a measure of risk. A billion things contribute towards an instruments risk. I tried looking for what specific FX indices or currencies they were trading but I couldnt find the information.
the basic concept is, the market is getting calmer. The nuclear, earthquake, usa budget controversy etc. is sorta sinking in with the investors. They are coming to terms with it all and so price discripencies are shrinking.
another thig, volatility depends hugely on the combination of assets you have (sorta like diversification) and you just need to find the right mix.

6. Generally, do you agree with the "cautiously optimistic" view of the company management after reading the last several paragraphs?

I think the bank when talking about NIR and how this is being affected by low interest rate is true . Most banks if not all are enjoying low cost borrowing right now and it is interesting to see how this plays when the interest rate starts going up. Furthermore, the bank is talking about reducing cost by using technology. I think this is a superman like statement that is every firm in the country I'd saying but hard to apply and measure in the real world. I think it was a broad statement without specifics.

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