Assets under custody grew in the fourth quarter for publicly traded financial services firms offering such services, although revenues from securities lending and foreign exchange declined.
Bank of New York Mellon Corp., New York, on Jan. 17 reported $27.6 trillion in assets under custody and administration as of Dec. 31, up 1% from three months earlier and 5% above the end of 2012. However, while its asset servicing fee revenue of $957 million at the end of 2013 was 2% higher than the third quarter and 4% above Dec. 31, 2012, securities lending fee revenue of $21 million was down 19% in the quarter and 32% from the end of 2012.
At Northern Trust Corp., Chicago, its fourth-quarter 2013 earnings report, released Jan. 22, showed $5.58 trillion in assets under custody at year-end, a 6% jump from three months earlier and up 16% from a year earlier. Asset servicing fee revenue for the quarter was $251 million, a leap of 7% from the third quarter and 12% higher than year-end 2012. Securities lending fee revenue of $50.8 million was 4% less than the previous quarter, but 7% above the fourth quarter 2012.
State Street Corp., Boston, on Jan. 24 reported assets under custody and administration as of Dec. 31 of $27.4 trillion, up 5.4% from Sept. 30 and 12.5% above a year earlier, and servicing fees of $1.23 billion for the fourth quarter, up 1.7% from the previous quarter and up 7.1% from the year-earlier quarter. However, securities lending revenue of $76 million for the quarter was 2.7% higher than the previous quarter and up 2.7% at the end of 2013.
All three firms saw declines in foreign-exchange and trading revenue in the quarter, but reported gains for the year. BNY Mellon reported $148 million in such revenue, down 14% from the third quarter but up 16% from the year-earlier quarter; Northern Trust, $51 million, down 19% for the quarter but up 25% from the quarter ended Dec. 31, 2012; and State Street, $125 million, down 15% and up 5.9%, for the respective periods.
Robert Lee, equity analyst at Keefe Bruyette & Woods Inc., New York, said the securities lending declines “certainly didn't help” the banks' overall revenues in the fourth quarter, although it still remains an important revenue source.
“It's one of those revenue lines that's hard to predict,” Mr. Lee said. “It's sensitive to the level of interest rates, the demand for securities lending and the type of securities lending in demand. It's an important revenue line, though it has certainly shrunk in importance in the last five years, with demand down and interest rates down. It's not what it used to be.”
The declines in foreign-exchange revenue come from reduced volatility, Mr. Lee said. “Volumes were good (last quarter), but volatility declined overall,” he said. “When volatility is lower, they don't make as much. That could reverse in this quarter, you just don't know. … Foreign exchange has been historically pretty profitable for them. But it's one of those things that's difficult, if not impossible, to predict.”
Among other publicly traded financial firms with asset servicing lines of business, Goldman Sachs Group Inc., New York, on Jan. 21 reported $337 million in securities services revenue in the fourth quarter, down 1% from the previous quarter but 59% below the year-earlier quarter, a decline the firm attributed to the sale of its hedge fund administration business in 2012.
J.P. Morgan Chase & Co., New York, had $1 billion in securities services revenue in the fourth quarter, up 3% from the third quarter and also 3% higher than the fourth quarter of 2012, according to its Jan. 14 earnings release. Citigroup Inc., New York, had securities and fund services revenue of $675 million, up 1% from the third quarter and 3% from the year-earlier quarter, the bank reported Jan. 16.
For assets under custody, J.P. Morgan Chase had $20.5 trillion as of Dec. 31, up 4% from Sept. 30 and up 9% from year-end 2012, while Citigroup had $14.5 trillion, up 4% and 10%, respectively.
