Wide-moat-rated Bank of New York Mellon BK reported a decent start to the year. Revenue of $4.36 billion and adjusted EPS of $1.13 in the first quarter were roughly in line with the FactSet consensus estimates of $4.40 billion and $1.12 billion. Net interest income of $1.13 billion was up 7% sequentially, a stark contrast to the 3% sequential decline at peer State Street. We attribute the difference to non-interest-bearing deposits declining less than State Street, BNY Mellon’s diversified deposit base, including asset servicing, Pershing, and wealth management, and securities repositioning. Average deposits declined 3% with non-interest-bearing deposits declining 8% and interest-bearing deposits declining 2%. We will maintain our fair value estimate of $55 on BNY Mellon’s shares.
Fee revenue declined 2% sequentially with broad-based lackluster sequential trends. Despite a 4% sequential increase in assets under custody or administration, asset servicing fee revenue declined 2% sequentially as lower foreign exchange revenue and client activity more than offset the market rebound during the quarter. Market and wealth services fee revenue increased 1% sequentially with stable trends at Pershing. Investment and wealth management fees were flat sequentially. Investment management fees were up modestly due to the rebound, but client derisking weighed on wealth management fees.
Expenses were up 3%, a healthy result in our view. Looking ahead, BNY Mellon still expects 20% growth in net interest income and constant currency expense growth of 4.5% for 2023.
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