BNY Mellon 2009 Form 10-K Summary
Business context and reporting period
The Bank of New York Mellon Corporation filed this annual report for the fiscal year ended December 31, 2009. It is a global financial services company focused on asset management, wealth management, custody and administration, issuer and treasury services, clearing, and related businesses. The filing reports approximately $1.1 trillion in assets under management and $22.3 trillion in assets under custody and administration. Results are presented for continuing operations unless otherwise noted.
Financial condition and key metrics
- Regulatory capital at December 31, 2009: total capital ratio of 16.0%, Tier 1 risk-based capital ratio of 12.1%, and leverage ratio of 6.5%. The company stated that all bank subsidiaries were well-capitalized.
- Two principal banks prepaid an aggregate $295 million of estimated FDIC assessments on December 30, 2009, covering estimated assessments for the fourth quarter of 2009 and 2010–2012. A separate 2009 FDIC special assessment totaled approximately $61 million for the bank subsidiaries.
- BNY Mellon repurchased its $3.0 billion TARP Series B preferred stock in June 2009 and repurchased the related warrant for $136 million in August 2009. It paid approximately $95 million in dividends on the preferred shares before repurchase.
- In 2009, the company issued approximately $600 million of FDIC-guaranteed debt, the maximum permitted under the program. Its investment securities portfolio included $2 billion of other companies’ FDIC-guaranteed debt at year-end.
- The filing text provided does not give clear values for revenue, net income, operating cash flow, margins, total debt, or liquidity balances; those financial statements and MD&A are incorporated by reference rather than reproduced in the supplied text.
Material changes and unusual items
- Charges related to restructuring the securities portfolio in 2009 meant that both principal bank subsidiaries would require regulatory consent before paying dividends. Any increase in the ongoing common dividend would require consultation with the Federal Reserve.
- BNY Mellon’s participation in the FDIC temporary deposit-guarantee program ended December 31, 2009; it opted out of the extension through June 2010.
- The company issued 2.0 million common shares to HBOS Insurance and Investment Group and 1.0 million shares to Siguler Guff shareholders in connection with its acquisition of a 20% minority interest in Siguler Guff.
- The filing refers to a February 2010 stock purchase agreement with PNC, but the supplied text does not state its terms or financial impact.
- The filing states that ordinary-course legal and regulatory matters were not expected, individually or in aggregate after reserves and insurance, to materially adversely affect consolidated financial position or liquidity; outcomes could materially affect net income in a given period.
Outlook, management commentary, and risks
The filing provides no specific earnings or revenue guidance in the supplied text. Management described financial markets and the economy as having stabilized somewhat, while highlighting continuing uncertainty, depressed home prices, foreclosures, volatile equity values, high unemployment, and risks to confidence and business activity.
- Low interest rates in 2009 compressed net interest spreads and spread-based revenue; the company also waived certain money-market fund and distribution fees to avoid negative client yields.
- Because much of the business is fee-based, declines in asset values, transaction volumes, securities-lending activity, or cross-border investment may reduce revenue. Competition and pricing pressure are additional risks.
- Potential regulatory changes—including higher capital and liquidity requirements, restrictions on activities or size, compensation rules, and a proposed Financial Crisis Responsibility Fee—could raise costs or constrain business. Based on year-end assets, the company estimated the proposed fee could cost approximately $200 million annually if enacted as proposed.
- Proposed Basel reforms could change capital definitions and impose liquidity measures. The company said it could not yet predict the final requirements or their impact; U.S. parallel calculations under Basel II were expected to begin in the second quarter of 2010.
- Other highlighted risks include investment-security impairment, credit losses, counterparty exposure, access to capital markets, operational and technology disruptions, fiduciary claims, litigation, and reliance on dividends from subsidiaries. The holding company’s bank subsidiaries faced restrictions on dividend payments.
Important facts for investors to verify
- Review the incorporated 2009 Annual Report for full-year and quarterly revenue, net income, cash flow, margins, balance-sheet, debt, liquidity, asset-quality, and segment results; these figures are not clear in the supplied filing text.
- Examine the size, composition, valuation, and impairment history of the restructured securities portfolio and the effect of related charges on capital and subsidiary dividend capacity.
- Confirm the terms and financial implications of the PNC agreement and the Siguler Guff minority investment.
- Track FDIC assessment costs, debt maturities, and the implications of ending participation in the temporary deposit-guarantee program.
- Assess the eventual impact of proposed capital, liquidity, compensation, money-market, and financial-institution tax regulations, along with material litigation and regulatory proceedings.