Document and Entity Information
Document and Entity Information | |
3 Months Ended
Mar. 31, 2010 | |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | 2010-03-31 |
Document Fiscal Year Focus | 2,010 |
Document Fiscal Period Focus | Q1 |
Trading Symbol | BK |
Entity Registrant Name | Bank of New York Mellon CORP |
Entity Central Index Key | 0001390777 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Large Accelerated Filer |
Entity Common Stock, Shares Outstanding | 1,212,940,571 |
Consolidated Income Statement
Consolidated Income Statement (USD $) | |||||||||||||||||||
In Millions, except Share data in Thousands | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Dec. 31, 2009 | 3 Months Ended
Mar. 31, 2009 | ||||||||||||||||
Net interest revenue | |||||||||||||||||||
Interest revenue | $883 | $854 | $979 | ||||||||||||||||
Interest expense | 118 | 130 | 204 | ||||||||||||||||
Net interest revenue | 765 | 724 | 775 | ||||||||||||||||
Provision for credit losses | 35 | 65 | 59 | ||||||||||||||||
Net interest revenue after provision for credit losses | 730 | 659 | 716 | ||||||||||||||||
Noninterest expense | |||||||||||||||||||
Staff | 1,220 | 1,221 | 1,169 | ||||||||||||||||
Professional, legal and other purchased services | 241 | 278 | 237 | ||||||||||||||||
Net occupancy | 137 | 141 | 139 | ||||||||||||||||
Distribution and servicing | 109 | 109 | 107 | ||||||||||||||||
Software | 94 | 98 | 81 | ||||||||||||||||
Furniture and equipment | 75 | 80 | 77 | ||||||||||||||||
Sub-custodian | 52 | 55 | 39 | ||||||||||||||||
Business development | 52 | 76 | 44 | ||||||||||||||||
Other | 350 | 226 | 202 | ||||||||||||||||
Subtotal | 2,330 | 2,284 | 2,095 | ||||||||||||||||
Amortization of intangible assets | 97 | 107 | 107 | ||||||||||||||||
Restructuring charges | 7 | 139 | 10 | ||||||||||||||||
Merger and integration expenses | 26 | 52 | 68 | ||||||||||||||||
Total noninterest expense | 2,460 | 2,582 | 2,280 | ||||||||||||||||
Income | |||||||||||||||||||
Income (loss) from continuing operations before income taxes | 884 | 672 | 572 | ||||||||||||||||
Provision (benefit) for income taxes | 258 | (41) | 161 | ||||||||||||||||
Income (loss) from continuing operations | 626 | 713 | 411 | ||||||||||||||||
Discontinued operations: | |||||||||||||||||||
Income (loss) from discontinued operations | (70) | (183) | (65) | ||||||||||||||||
Provision (benefit) for income taxes | (28) | (64) | (24) | ||||||||||||||||
Income (loss) from discontinued operations, net of tax | (42) | (119) | (41) | ||||||||||||||||
Net income (loss) | 584 | 594 | 370 | ||||||||||||||||
Net (income) loss attributable to noncontrolling interests | (25) | (1) | (1) | ||||||||||||||||
Preferred dividends | (47) | ||||||||||||||||||
Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation | 559 | 593 | 322 | ||||||||||||||||
Basic: | |||||||||||||||||||
Net income (loss) from continuing operations | 0.5 | [1] | 0.59 | [1] | 0.31 | [1] | |||||||||||||
Net income (loss) from discontinued operations | -0.04 | -0.1 | -0.04 | ||||||||||||||||
Net income applicable to common stock | 0.46 | 0.49 | 0.28 | [2] | |||||||||||||||
Diluted: | |||||||||||||||||||
Net income (loss) from continuing operations | 0.49 | [1] | 0.59 | [1] | 0.31 | [1] | |||||||||||||
Net income (loss) from discontinued operations | -0.03 | -0.1 | -0.04 | ||||||||||||||||
Net income (loss) applicable to common stock | 0.46 | 0.49 | 0.28 | [2] | |||||||||||||||
Average common shares and equivalents outstandings | |||||||||||||||||||
Basic | 1,202,533 | 1,200,359 | 1,146,070 | ||||||||||||||||
Common stock equivalents | 10,042 | 10,052 | 6,417 | ||||||||||||||||
Participating securities | (6,289) | (6,942) | (5,544) | ||||||||||||||||
Diluted | 1,206,286 | 1,203,469 | 1,146,943 | ||||||||||||||||
Anti-dilutive securities | 83,019 | [3] | 84,522 | [3] | 102,792 | [3] | |||||||||||||
Reconciliation of net income (loss) from continuing operations applicable to the common shareholders of The Bank of New York Mellon Corporation | |||||||||||||||||||
Net income (loss) from continuing operations | 626 | 713 | 411 | ||||||||||||||||
Net (income) loss attributable to noncontrolling interests | (25) | (1) | (1) | ||||||||||||||||
Preferred dividends | (47) | ||||||||||||||||||
Net income (loss) from continuing operations applicable to common shareholders of The Bank of New York Mellon Corporation | 601 | 712 | 363 | ||||||||||||||||
Net income (loss) from discontinued operations | (42) | (119) | (41) | ||||||||||||||||
Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation | 559 | 593 | 322 | ||||||||||||||||
Operations | |||||||||||||||||||
Securities servicing fees: | |||||||||||||||||||
Asset servicing | 637 | 650 | 609 | ||||||||||||||||
Issuer services | 333 | 368 | 364 | ||||||||||||||||
Clearing services | 230 | 223 | 253 | ||||||||||||||||
Total securities servicing fees | 1,200 | 1,241 | 1,226 | ||||||||||||||||
Asset and wealth management fees | 678 | 736 | 616 | ||||||||||||||||
Foreign exchange and other trading activities | 262 | 246 | 307 | ||||||||||||||||
Treasury services | 131 | 134 | 125 | ||||||||||||||||
Distribution and servicing | 76 | 85 | 111 | ||||||||||||||||
Financing-related fees | 50 | 57 | 48 | ||||||||||||||||
Investment income | 108 | 78 | (17) | ||||||||||||||||
Other | 37 | 3 | 15 | ||||||||||||||||
Total fee revenue | 2,542 | 2,580 | 2,431 | ||||||||||||||||
Securities gains (losses) - other-than-temporary-impairment | (20) | 8 | (1,585) | ||||||||||||||||
Noncredit-related (losses) on securities not expected to be sold (recognized in OCI) | (27) | (7) | (1,290) | ||||||||||||||||
Net securities gains (losses) | 7 | 15 | (295) | ||||||||||||||||
Total fee and other revenue | 2,549 | 2,595 | 2,136 | ||||||||||||||||
Asset Management | |||||||||||||||||||
Securities servicing fees: | |||||||||||||||||||
Investment income | 155 | ||||||||||||||||||
Interest of note holders | 90 | ||||||||||||||||||
Total fee and other revenue | 65 | ||||||||||||||||||
Discontinued operations: | |||||||||||||||||||
Net (income) loss attributable to noncontrolling interests | (24) | ||||||||||||||||||
Reconciliation of net income (loss) from continuing operations applicable to the common shareholders of The Bank of New York Mellon Corporation | |||||||||||||||||||
Net (income) loss attributable to noncontrolling interests | ($24) | ||||||||||||||||||
[1]Basic and diluted earnings per share under the two-class method were calculated after deducting earnings allocated to participating securities of $5 million in the first quarter of 2010, $6 million in the fourth quarter of 2009 and $3 million in the first quarter of 2009. | |||||||||||||||||||
[2]Does not foot due to rounding. | |||||||||||||||||||
[3]Represents stock options, restricted stock, restricted stock units, participating securities and warrants outstanding but not included in the computation of diluted average common shares because their effect would be anti-dilutive. |
Consolidated Income Statement (
Consolidated Income Statement (Parenthetical) (USD $) | |||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Dec. 31, 2009 | 3 Months Ended
Mar. 31, 2009 |
Net (income) loss attributable to noncontrolling interests | $25 | $1 | $1 |
Earnings allocated to participating securities | 5 | 6 | 3 |
Asset Management | |||
Net (income) loss attributable to noncontrolling interests | $24 |
Consolidated Balance Sheet
Consolidated Balance Sheet (USD $) | ||
In Millions | Mar. 31, 2010
| Dec. 31, 2009
|
Securities: | ||
Total assets | $220,551 | $212,224 |
Total liabilities and equity | 220,551 | 212,224 |
Deposits: | ||
Total liabilities | 190,096 | 183,221 |
Equity | ||
Total equity | 30,455 | 29,003 |
Common stock-par value $0.01 per common share; authorized 3,500,000,000 common shares; issued 1,214,641,965 and 1,208,861,641 common shares | 12 | 12 |
Additional paid-in capital | 21,994 | 21,917 |
Retained earnings | 9,340 | 8,912 |
Accumulated other comprehensive loss, net of tax | (1,614) | (1,835) |
Less: Treasury stock of 1,701,394 and 1,026,927 common shares, at cost | (49) | (29) |
Total The Bank of New York Mellon Corporation shareholders' equity | 29,683 | 28,977 |
Operations | ||
Cash and due from: | ||
Banks | 3,307 | 3,732 |
Interest-bearing deposits with the Federal Reserve and other central banks | 14,720 | 7,362 |
Interest-bearing deposits with banks | 50,170 | 56,302 |
Federal funds sold and securities purchased under resale agreements | 4,449 | 3,535 |
Securities: | ||
Held-to-maturity (fair value of $4,059 and $4,240) | 4,115 | 4,417 |
Available-for-sale (March 31, 2010 includes $883 previously securitized) | 51,462 | 51,632 |
Total securities | 55,577 | 56,049 |
Trading assets | 5,844 | 6,001 |
Loans | 33,887 | 36,689 |
Allowance for loan losses | (520) | (503) |
Net loans | 33,367 | 36,186 |
Premises and equipment | 1,583 | 1,602 |
Accrued interest receivable | 748 | 639 |
Goodwill | 16,077 | 16,249 |
Intangible assets | 5,449 | 5,588 |
Other assets | 16,358 | 16,737 |
Assets of discontinued operations | 334 | 2,242 |
Total assets | 207,983 | 212,224 |
Deposits: | ||
Noninterest-bearing (principally domestic offices) | 30,330 | 33,477 |
Interest-bearing deposits in domestic offices | 31,528 | 32,944 |
Interest-bearing deposits in foreign offices | 69,769 | 68,629 |
Total deposits | 131,627 | 135,050 |
Federal funds purchased and securities sold under repurchase agreements | 3,882 | 3,348 |
Trading liabilities | 6,277 | 6,396 |
Payables to customers and broker-dealers | 10,328 | 10,721 |
Commercial paper | 6 | 12 |
Other borrowed funds | 1,463 | 477 |
Accrued taxes and other expenses | 4,268 | 4,484 |
Other liabilities (including allowance for lending related commitments of $118 and $125, also includes $373 and $610, at fair value) | 4,416 | 3,891 |
Long-term debt | 16,335 | 17,234 |
Liabilities of discontinued operations | 1,608 | |
Total liabilities | 178,602 | 183,221 |
Equity | ||
Noncontrolling interests | 21 | 26 |
Asset Management | ||
Securities: | ||
Trading assets | 671 | |
Loans | 11,251 | |
Other assets | 646 | |
Total assets | 12,568 | |
Deposits: | ||
Total liabilities | 11,494 | |
Equity | ||
Noncontrolling interests | $751 |
Consolidated Balance Sheet (Par
Consolidated Balance Sheet (Parenthetical) (USD $) | ||
In Millions, except Share data | Mar. 31, 2010
| Dec. 31, 2009
|
Common stock, par value | 0.01 | 0.01 |
Common stock, authorized | 3,500,000,000 | 3,500,000,000 |
Common stock, issued | 1,214,641,965 | 1,208,861,641 |
Treasury stock, common shares | 1,701,394 | 1,026,927 |
Operations | ||
Held-to-maturity, fair value | $4,059 | $4,240 |
Available-for-sale, previously securitized | 883 | |
Other assets, fair value | 758 | 863 |
Other liabilities, allowance for lending related commitments | 118 | 125 |
Other liabilities, fair value | $373 | $610 |
Consolidated Statement of Cash
Consolidated Statement of Cash Flows (USD $) | |||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Dec. 31, 2009 | 3 Months Ended
Mar. 31, 2009 |
Operating activities | |||
Net income (loss) | $584 | $594 | $370 |
Net (income) loss attributable to noncontrolling interests | (25) | (1) | (1) |
Income (loss) from discontinued operations, net of tax | (42) | (119) | (41) |
Income (loss) from continuing operations attributable to The Bank of New York Mellon Corporation | 601 | 410 | |
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | |||
Provision for credit losses | 35 | 65 | 59 |
Pension contribution | 50 | ||
Depreciation and amortization | 113 | 151 | |
Deferred tax benefit | (3) | (99) | |
Securities losses and venture capital income | (11) | 316 | |
Change in trading activities | (249) | (539) | |
Change in accruals and other, net | 704 | (764) | |
Net effect of discontinued operations | 1 | (9) | |
Net cash provided by (used for) operating activities | 1,191 | (425) | |
Investing activities | |||
Change in interest-bearing deposits with banks | 4,935 | 2,145 | |
Change in interest-bearing deposits with Federal Reserve and other central banks | (7,358) | 23,622 | |
Change in margin loans | (206) | 460 | |
Purchases of securities held-to-maturity | (5) | ||
Paydowns of securities held-to-maturity | 64 | 153 | |
Maturities of securities held-to-maturity | 41 | 111 | |
Purchases of securities available-for-sale | (2,294) | (609) | |
Sales of securities available-for-sale | 877 | 86 | |
Paydowns of securities available-for-sale | 1,554 | 1,349 | |
Maturities of securities available-for-sale | 896 | 644 | |
Net principal received from loans to customers | 2,703 | 958 | |
Sales of loans and other real estate | 266 | 409 | |
Change in federal funds sold and securities purchased under resale agreements | (914) | (548) | |
Change in seed capital investments | (13) | 12 | |
Purchases of premises and equipment/capitalized software | (44) | (126) | |
Acquisitions, net cash | (6) | ||
Dispositions, net cash | 133 | ||
Proceeds from the sale of premises and equipment | 1 | ||
Other, net | (123) | (156) | |
Net effect of discontinued operations | (1) | 48 | |
Net cash provided by investing activities | 512 | 28,552 | |
Financing activities | |||
Change in deposits | (1,738) | (23,467) | |
Change in federal funds purchased and securities sold under repurchase agreements | 534 | 202 | |
Change in payables to customers and broker-dealers | (393) | (859) | |
Change in other funds borrowed | 844 | (5,277) | |
Change in commercial paper | (6) | 141 | |
Net proceeds from the issuance of long-term debt | 603 | ||
Repayments of long-term debt | (1,256) | (219) | |
Proceeds from the exercise of stock options | 13 | 3 | |
Issuance of common stock | 5 | 9 | |
Treasury stock acquired | (20) | (13) | |
Common cash dividends paid | (109) | (277) | |
Preferred dividends paid | (38) | ||
Net effect of discontinued operations | (39) | ||
Net cash (used for) financing activities | (2,126) | (29,231) | |
Effect of exchange rate changes on cash | (2) | (105) | |
Change in cash and due from banks | |||
Change in cash and due from banks | (425) | (1,209) | |
Cash and due from banks at beginning of period | 3,732 | 4,889 | |
Cash and due from banks at end of period | 3,307 | 3,732 | 3,680 |
Supplemental disclosures | |||
Interest paid | 62 | 231 | |
Income taxes paid | 54 | 931 | |
Income taxes refunded | $104 | $3 |
Consolidated Statement of Chang
Consolidated Statement of Changes in Equity (USD $) | |||||||||||||||||||
In Millions | Operations
Non-controlling interests | Asset Management
Non-controlling interests | Common stock
| Additional paid-in capital
| Retained earnings
| Accumulated other comprehensive income (loss), net of tax
| Treasury stock
| Total
| |||||||||||
Beginning Balance at Sep. 30, 2009 | $26 | $12 | $21,917 | $8,912 | ($1,835) | ($29) | |||||||||||||
Employee benefit plans: | |||||||||||||||||||
Ending Balance at Dec. 31, 2009 | 26 | 12 | 21,917 | 8,912 | (1,835) | (29) | 29,003 | ||||||||||||
Adjustment for the cumulative effect of applying ASC 810, net of tax | 52 | 24 | 76 | ||||||||||||||||
Adjustment for the cumulative effect of applying ASC 825, net of tax | (73) | (73) | |||||||||||||||||
Adjusted Beginning Balance | 26 | 12 | 21,917 | 8,891 | (1,811) | (29) | 29,006 | ||||||||||||
Purchase of subsidiary shares from noncontrolling interest | (6) | (18) | (24) | ||||||||||||||||
Other net changes in noncontrolling interests | 1 | 4 | 5 | ||||||||||||||||
Consolidation of asset management funds | 742 | 742 | |||||||||||||||||
Comprehensive income: | |||||||||||||||||||
Net income | 1 | 24 | 559 | 584 | |||||||||||||||
Other comprehensive income: | |||||||||||||||||||
Unrealized gain (loss) on securities available for sale | 419 | 419 | |||||||||||||||||
Employee benefit plans: | |||||||||||||||||||
Pensions | 10 | 10 | |||||||||||||||||
Other post-retirement benefits | 1 | 1 | |||||||||||||||||
Foreign currency translation adjustments | (1) | (19) | (234) | (254) | |||||||||||||||
Net unrealized gain (loss) on cash flow hedges | 5 | 5 | |||||||||||||||||
Reclassification adjustment/other | (4) | (4) | [1] | ||||||||||||||||
Total comprehensive income | 5 | 559 | 197 | 761 | [2] | ||||||||||||||
Dividends on common stock at $0.09 per share | (109) | (109) | |||||||||||||||||
Repurchase of common stock | (20) | (20) | |||||||||||||||||
Common stock issued under employee benefit plans | 9 | 9 | |||||||||||||||||
Common stock issued under direct stock purchase and dividend reinvestment plan | 4 | 4 | |||||||||||||||||
Stock awards and options exercised | 82 | 82 | |||||||||||||||||
Other | (1) | (1) | |||||||||||||||||
Ending Balance at Mar. 31, 2010 | $21 | $751 | $12 | $21,994 | $9,340 | ($1,614) | ($49) | $30,455 | |||||||||||
[1]Includes $(4) million (after-tax) related to OTTI. | |||||||||||||||||||
[2]Comprehensive income attributable to The Bank of New York Mellon Corporation shareholders for the three months ended March 31, 2010 and 2009 was $756 million and $481 million, respectively. |
1_Consolidated Statement of Cha
Consolidated Statement of Changes in Equity (Parenthetical) (USD $) | ||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Dividends on common stock, per share | 0.09 | |
Reclassification adjustment/other, related to OTTI | ($4) | |
Total comprehensive income, comprehensive income attributable to The Bank of New York Mellon Corporation shareholders | $756 | $481 |
Basis of presentation
Basis of presentation | |
3 Months Ended
Mar. 31, 2010 | |
Basis of presentation | Note 1 Basis of presentation The accounting and financial reporting policies of BNY Mellon, a global financial services company, conform to U.S. generally accepted accounting principles (GAAP) and prevailing industry practices. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates based upon assumptions about future economic and market conditions which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that in the near term, actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Amounts subject to significant estimates are items such as the allowance for loan losses and lending-related commitments, goodwill and intangible assets, pension accounting, the fair value of financial instruments and other-than-temporary impairments. Among other effects, such changes could result in future impairments of investment securities, goodwill and intangible assets and establishment of allowances for loan losses and lending-related commitments as well as increased pension and post-retirement expense. The accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods have been made. Certain other immaterial reclassifications in addition to discontinued operations (see Note 4 of the Notes to Consolidated Financial Statements) have been made to prior periods to place them on a basis comparable with current period presentation. |
Accounting changes and new acco
Accounting changes and new accounting guidance | |
3 Months Ended
Mar. 31, 2010 | |
Accounting changes and new accounting guidance | Note 2 Accounting changes and new accounting guidance ASU 2009-16 - Accounting for Transfers of Financial Assets In December 2009, the FASB issued ASU 2009-16 Accounting for Transfers of Financial Assets. This formally codified SFAS No.166, Accounting for Transfers of Financial Assets, an Amendment to FASB Statement No.140. This ASU removed (1)the concept of a qualifying special purpose entity (QSPE) from SFAS No.140 (ASC 860 - Transfers and Servicing) and (2)the exceptions from applying FASB Interpretation No. (FIN) 46 (R)(ASC 810 - Consolidation) to QSPEs. This ASU revised the derecognition requirements for transfers of financial assets and the initial measurement of beneficial interests that are received as proceeds by a transferor in connection with transfers of financial assets. This ASU also required additional disclosure about transfers of financial assets and a transferors continuing involvement with such transferred financial assets. This ASU was effective Jan. 1, 2010, at which time any QSPEs were evaluated for consolidation in accordance with SFAS No.167, which amended FIN 46 (R)(ASC 810). Accordingly, the Grantor Trust into which we securitized certain of our investment securities no longer qualifies as a QSPE, resulting in $394 million being added to both our investment securities portfolio and liabilities at March31, 2010. ASU 2009-17 Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities In December 2009, the FASB issued ASU 2009-17 Improvements to Financial Reporting by Entities Involved with Variable Interest Entities. This formally codified SFAS No.167, Amendments to FASB Interpretation No.46 (R). This ASU amended FIN 46 (R)(ASC 810) to require ongoing assessments to determine whether an entity is a variable interest entity (VIE) and whether an enterprise is the primary beneficiary of a VIE. This ASU also amended the guidance for determining which enterprise, if any, is the primary beneficiary of a VIE by requiring the enterprise to initially perform a qualitative analysis to determine if the enterprises variable interest or interests give it a controlling financial interest. Consolidation is based on a companys ability to direct the activities of the entity that most significantly impact the entitys economic performance. If a company has control and the right to receive benefits or the obligation to absorb losses which could potentially be significant to the VIE, then consolidation is required. This ASU was effective Jan. 1, 2010 and primarily impacts our asset management businesses. This ASU does not change the economic risk related to these businesses and therefore, BNY Mellons computation of economic capital required by our businesses will not change. This statement also requires additional disclosures about an enterprises involvement in a VIE, including the requirement for sponsors of a VIE to disclose information even if they do not hold a significant variable interest in the VIE. At March31, 2010, our consolidated balance sheet included $13.5 billion of assets of VIEs that would not have been included in our consolidated balance sheet prior to effectiveness of the |
Acquisitions and dispositions
Acquisitions and dispositions | |
3 Months Ended
Mar. 31, 2010 | |
Acquisitions and dispositions | Note 3 Acquisitions and dispositions There were no material acquisitions or dispositions completed in the first quarter of 2010. On Jan. 15, 2010, we completed the sale of MUNB. See Note 4 of the Notes to Consolidated Financial Statements for additional information. We sometimes structure our acquisitions with both an initial payment and later contingent payments tied to post-closing revenue or income growth. For acquisitions completed prior to Jan. 1, 2009, we record the fair value of contingent payments as an additional cost of the entity acquired in the period that the payment becomes probable. For acquisitions completed after Jan. 1, 2009, subsequent changes in the fair value of a contingent consideration liability will be recorded through the income statement. No material contingent payments were made in the first quarter of 2010. At March31, 2010, we were potentially obligated to pay additional consideration which, using reasonable assumptions for the performance of the acquired companies and joint ventures based on contractual agreements, could range from approximately $80 million to $130 million over the next four years. Acquisition in 2009 In November 2009, we acquired Insight Investment Management Limited (Insight) for 235million ($377 million of cash and stock). Insight specializes in liability-driven investment solutions, active fixed income and alternative investments. Insight had $138 billion in assets under management at acquisition. Goodwill related to this acquisition is non-tax deductible and totaled $202 million. Intangible assets (primarily customer contracts) related to the transaction, with a life up to 11 years, totaled $111 million. The impact of this acquisition is not expected to be material to earnings per share in 2010. |
Discontinued operations
Discontinued operations | |
3 Months Ended
Mar. 31, 2010 | |
Discontinued operations | Note 4 Discontinued operations On Jan. 15, 2010, BNY Mellon sold MUNB, its national bank subsidiary located in Florida. We have applied discontinued operations accounting to this business. The income statements for all periods in this Form 10-Q are presented on a continuing operations basis. This business, which was previously reported in the Other segment, no longer fit our strategic focus on our asset management and securities servicing businesses. In the first quarter of 2010, we recorded an after-tax loss on discontinued operations of $42 million primarily reflecting the lower of cost or market write-downs on the retained loans held for sale. Summarized financial information for discontinued operations is as follows: Discontinued operations Quarter ended (in millions) March31, 2010 Dec.31, 2009 March31, 2009 Fee and other revenue $ - $ 2 $ 2 Net interest revenue 3 12 17 Provision for credit losses - 83 21 Net interest revenue after provision for credit losses 3 (71 ) (4 ) Noninterest expense: Staff 2 12 6 Professional, legal and other purchased services 1 1 1 Net occupancy - 1 1 Other 1 1 5 Goodwill impairment - - 50 Total noninterest expense 4 15 63 Income (loss) from operations (1 ) (84 ) (65 ) Loss on sale of MUNB (1 ) - - Loss on assets held for sale (68 ) (99 ) - Provision (benefit) for income taxes (28 ) (64 ) (24 ) Income (loss) from discontinued operations, net of tax $ (42 ) $ (119 ) $ (41 ) Discontinued operations assets and liabilities (in millions) March31, 2010 Dec.31, 2009 Cash and due from banks $ - $ 446 Securities - 488 Loans, net of allowance for loan losses 261 1,225 Premises and equipment - 12 Other assets 73 71 Assets of discontinued operations $ 334 $ 2,242 Deposits: Noninterest-bearing $ - $ 539 Interest-bearing - 958 Total deposits - 1,497 Other liabilities - 111 Liabilities of discontinued operations $ - $ 1,608 All information in these Financial Statements and Notes reflects continuing operations, unless otherwise noted. |
Securities
Securities | |
3 Months Ended
Mar. 31, 2010 | |
Securities | Note 5 Securities The following tables set forth the amortized cost and the fair values of securities at March31, 2010 and Dec. 31, 2009. Securities at March31, 2010 Amortized cost Gross unrealized Fair value (in millions) Gains Losses Available-for-sale: U.S. Treasury $ 7,036 $ 51 $ 4 $ 7,083 U.S. Government agencies 1,138 19 - 1,157 State and political subdivisions 630 8 53 585 Agency MBS 17,533 325 36 17,822 Alt-A RMBS 568 13 63 518 Prime RMBS 1,620 5 178 1,447 Subprime RMBS 745 - 282 463 Other RMBS 1,913 - 307 1,606 Commercial MBS 2,669 75 152 2,592 Asset-backed CLOs 289 - 20 269 Other asset-backed securities 680 2 22 660 Other debt securities 10,867 184 23 11,028 (a) Equity securities 1,448 10 1 1,457 (b) Grantor Trust Alt-A RMBS 2,462 157 14 2,605 Grantor Trust Prime RMBS 1,928 110 14 2,024 Grantor Trust Subprime RMBS 127 20 1 146 Total securities available-for-sale 51,653 979 1,170 51,462 Held-to-maturity: State and political subdivisions 146 2 - 148 Agency MBS 495 32 - 527 Alt-A RMBS 274 1 37 238 Prime RMBS 179 - 13 166 Subprime RMBS 28 - 5 23 Other RMBS 2,975 66 99 2,942 Commercial MBS 11 - 3 8 Other debt securities 3 - - 3 Other securities 4 - - 4 Total securities held-to-maturity 4,115 101 157 4,059 Total securities $ 55,768 $ 1,080 $ 1,327 $ 55,521 (a) Includes $10.4 billion, at fair value, of government-sponsored and guaranteed entities, and sovereign debt. (b) Includes money market or fixed income funds of $1,426 million, at fair value, at March 31, 2010. Securities at Dec. 31, 2009 Amortized cost Grossunrealized Fair value (in millions) Gains Losses Available-for-sale: U.S. Treasury $ 6,358 $ 30 $ 10 $ 6,378 U.S. Government agencies 1,235 25 - 1,260 State and political subdivisions 538 6 24 520 Agency MBS 18,247 303 95 18,455 Alt-A RMBS 588 12 63 537 Prime RMBS 1,743 3 234 1,512 Subprime RMBS 758 - 311 447 Other RMBS 2,199 1 430 1,770 Commercial MBS 2,762 31 203 2,590 Asset-backed CLOs 424 15 50 389 Other asset-backed securities 869 5 38 836 Other debt securities 11,419 86 48 11,457 (a) Equity securities 1,314 8 1 1,321 Grantor Trust Class B certificates (b) 4,049 111 - |
Goodwill and intangible assets
Goodwill and intangible assets | |
3 Months Ended
Mar. 31, 2010 | |
Goodwill and intangible assets | Note 6 Goodwill and intangible assets Goodwill The level of goodwill decreased in 2010 primarily due to foreign exchange translation on non-U.S. dollar denominated goodwill. Goodwill impairment testing is performed annually at the business segment level. The table below provides a breakdown of goodwill by business segment. Goodwill by segment (in millions) Asset Management Wealth Management Asset Servicing Issuer Services Clearing Services Treasury Services Other Total Balance at Dec. 31, 2009 $ 7,609 $ 1,703 $ 3,397 $ 2,488 $ 918 $ 127 $ 7 $ 16,249 Foreign exchange translation (103 ) - (43 ) (3 ) (9 ) - - (158 ) Other (a) - - (10 ) (4 ) - - - (14 ) Balance at March 31, 2010 $ 7,506 $ 1,703 $ 3,344 $ 2,481 $ 909 $ 127 $ 7 $ 16,077 (a) Other changes in goodwill include purchase price adjustments and certain other reclassifications. Goodwill by segment (in millions) Asset Management Wealth Management Asset Servicing Issuer Services Clearing Services Treasury Services Other Total Balance at Dec. 31, 2008 $ 7,218 $ 1,694 $ 3,360 $ 2,463 $ 902 $ 123 $ 138 $ 15,898 Foreign exchange translation (23 ) - (23 ) (1 ) (3 ) - - (50 ) Other (a) - 1 (1 ) 6 1 - - 7 Gross goodwill at March31, 2009 7,195 1,695 3,336 2,468 900 123 138 15,855 Accumulated impairment losses at Jan. 1, 2009 - - - - - - - - Impairment losses - - - - - - (50 ) (50 ) Accumulated impairment losses at March31, 2009 - - - - - - (50 ) (50 ) Balance at March31, 2009 $ 7,195 $ 1,695 $ 3,336 $ 2,468 $ 900 $ 123 $ 88 $ 15,805 (a) Other changes in goodwill include purchase price adjustments and certain other reclassifications. Intangible assets Intangible assets not subject to amortization are tested annually for impairment or more often if events or circumstances indicate they may be impaired. The decrease in intangible assets at March31, 2010 compared with Dec. 31, 2009 resulted from intangible amortization and foreign exchange translation on non-U.S. dollar denominated intangible assets. Intangible amortization expense was $97 million in the first quarter of 2010, $108 million (including $1 million related to discontinued operations) in the first quarter of 2009 and $107 million in the fourth quarter of 2009. The table below provides a breakdown of intangible assets by business segment. Intangible assets net carrying amount by segment (in millions) Asset Management Wealth Management Asset Servicing Issuer S |
Allowance for credit losses
Allowance for credit losses | |
3 Months Ended
Mar. 31, 2010 | |
Allowance for credit losses | Note 7 Allowance for credit losses The allowance for credit losses is maintained at a level that, in managements judgment, is adequate to absorb probable losses associated with specifically identified loans, as well as estimated probable credit losses inherent in the remainder of the credit portfolio at the balance sheet date. We conduct a quarterly portfolio review to determine the adequacy of our allowance for credit losses. Following this review, senior management analyzes the results and determines the allowance for credit losses. The Risk Committee of our Board of Directors reviews the allowance as of the end of each quarter. Transactions in the allowance for credit losses are summarized as follows: For the quarter ended March31, 2010 (in millions) Allowance for loan losses Allowance for lending- related commitments Allowance for credit losses Balance at Dec. 31, 2009 $ 503 $ 125 $ 628 Charge-offs: Financial institutions (20 ) - (20 ) Other residential mortgages (12 ) - (12 ) Commercial real estate (5 ) - (5 ) Total charge-offs (37 ) - (37 ) Recoveries Commercial 12 - 12 Net charge-offs (25 ) - (25 ) Provision 42 (7 ) 35 Balance at March31, 2010 $ 520 $ 118 $ 638 For the quarter ended March31, 2009 (in millions) Allowance for loan losses Allowance for lending- related commitments Allowance for credit losses Balance at Dec. 31, 2008 $ 415 $ 114 $ 529 Charge-offs: Commercial (12 ) - (12 ) Financial institutions (10 ) - (10 ) Commercial real estate (17 ) - (17 ) Other residential mortgages (12 ) - (12 ) Total charge-offs (51 ) - (51 ) Recoveries - leasing 1 - 1 Net charge-offs (50 ) - (50 ) Transferred to discontinued operations 21 - 21 Provision 84 (25 ) 59 Balance at March31, 2009 $ 470 $ 89 $ 559 |
Other assets
Other assets | |
3 Months Ended
Mar. 31, 2010 | |
Other assets | Note 8 Other assets Other assets (in millions) March31, 2010 Dec.31, 2009 Corporate/bank owned life insurance $ 3,920 $ 3,900 Accounts receivable 3,063 3,528 Equity in joint ventures and other investments (a) 2,728 2,816 Income taxes receivable 1,852 1,867 Fails to deliver 1,205 911 Prepaid expenses (b) 975 1,089 Margin deposits 751 459 Prepaid pension assets 729 714 Software 641 595 Due from customers on acceptances 272 502 Other 222 356 Total other assets $ 16,358 $ 16,737 (a) Includes Federal Reserve Bank stock of $398 million and $397 million, respectively, at cost. (b) Includes $255 million and $295 million related to the prepayment of quarterly fees to the FDIC, respectively. Seed capital and private equity investments valued using net asset value per share In our Asset Management segment, we manage investment assets, including equities, fixed income, money market and alternative investment funds for institutions and other investors; as part of that activity we make seed capital investments in certain funds. Seed capital is included in trading assets, securities available-for-sale and other assets depending on the nature of the investment. BNY Mellon also holds private equity investments which consist of investments in private equity funds, mezzanine financings and direct equity investments. Private equity investments are included in other assets. Consistent with our policy to focus on our core activities, we continue to reduce our exposure to private equity investments. The fair value of these investments has been estimated using the net asset value (NAV) per share of BNY Mellons ownership interest in the funds. The table below presents information about BNY Mellons investments in seed capital and private equity investments. Seed capital and private equity investments valued using NAV March31, 2010 (dollar amounts in millions) Fairvalue Unfundedcommitments Redemptionfrequency Redemptionnoticeperiod Hedge funds (a) $ 30 $ - Monthly-quarterly 3-45days Private equity funds (b) 140 51 N/A N/A Other funds (c) 68 - Monthly-yearly (c) Total $ 238 $ 51 (a) Hedge funds include multi-strategy funds that utilize a variety of investment strategies and equity long-short hedge funds that include various funds that invest over both long-term investment and short-term investment horizons. (b) Private equity funds primarily include numerous venture capital funds that invest in various sectors of the economy. Private equity funds do not have redemption rights. Distributions from such funds will be received as the underlying investments in the funds are liquidated. (c) Other funds include various market neutral, leveraged loans, real estate and structured credit funds. |
Net interest revenue
Net interest revenue | |
3 Months Ended
Mar. 31, 2010 | |
Net interest revenue | Note 9 Net interest revenue Net interest revenue Quarter ended (in millions) March31, 2010 Dec.31, 2009 March31, 2009 Interest revenue Non-margin loans $ 189 $ 192 $ 239 Margin loans 19 18 17 Securities: Taxable 497 456 450 Exempt from federal income taxes 6 7 8 Total securities 503 463 458 Other short-term investments- U.S. government-backed commercial paper - (1 ) 10 Deposits in banks 142 152 217 Deposits with the Federal Reserve and other central banks 10 9 21 Federal funds sold and securities purchased under resale agreements 7 7 5 Trading assets 13 14 12 Total interest revenue 883 854 979 Interest expense Deposits 39 30 76 Borrowings from Federal Reserve related to ABCP - - 7 Federal funds purchased and securities sold under repurchase agreements 1 1 - Other borrowed funds 14 12 14 Customer payables 1 1 2 Long-term debt 63 86 105 Total interest expense 118 130 204 Net interest revenue $ 765 $ 724 $ 775 |
Employee benefit plans
Employee benefit plans | |
3 Months Ended
Mar. 31, 2010 | |
Employee benefit plans | Note 10 Employee benefit plans The components of net periodic benefit cost (credit) are as follows: Net periodic benefit cost (credit) Quarter ended March 31, 2010 March 31, 2009 (in millions) Domestic pension benefits Foreign pension benefits Health care benefits Domestic pension benefits Foreign pension benefits Health care benefits Service cost $ 23 $ 7 $ 1 $ 24 $ 5 $ 1 Interest cost 43 7 3 39 5 4 Expected return on assets (76 ) (9 ) (2 ) (72 ) (7 ) (2 ) Other 14 3 2 3 1 2 Net periodic benefit cost (credit) $ 4 $ 8 $ 4 $ (6 ) $ 4 $ 5 |
Restructuring charges
Restructuring charges | |
3 Months Ended
Mar. 31, 2010 | |
Restructuring charges | Note 11 Restructuring charges Global location strategy As part of an ongoing effort to improve efficiency and develop a global operating model that provides the highest quality of service to our clients, BNY Mellon continues to execute its global location strategy. This strategy includes migrating positions to our global growth centers and is expected to result in moving and/or eliminating over 2,300 positions in 2010. In the fourth quarter of 2009, we recorded a pre-tax restructuring charge of $139 million. In the first quarter of 2010, we recorded additional charges of $7 million associated with the global location strategy. As of March31, 2010, we have moved or eliminated approximately 200 positions. Severance payments related to these positions are primarily paid over the salary continuance period in accordance with the separation plan. Workforce reduction program In the fourth quarter of 2008, we announced that, due to weakness in the global economy, we would reduce our workforce by an estimated 1,800 positions, and as a result, recorded a pre-tax restructuring charge of $181 million. In 2009, we recorded additional charges of $11 million associated with this workforce reduction. As of March31, 2010, we have reduced our workforce by approximately 1,600 positions, and expect to substantially complete the remainder of the program in the second quarter of 2010. Severance payments related to these positions are primarily paid over the salary continuance period in accordance with the separation plan. The restructuring charges are recorded as a separate line item on the income statement. The following tables present the activity in the restructuring reserves through March31, 2010. Global location strategy 2009 restructuring charge reserve activity (in millions) Severance Asset write-offs/other Total Original restructuring charge $ 102 $ 37 $ 139 Utilization - (23 ) (23 ) Balance at Dec. 31, 2009 $ 102 $ 14 $ 116 Additional charges/(recovery) 7 - 7 Utilization (6 ) (1 ) (7 ) Balance at March31, 2010 $ 103 $ 13 $ 116 Workforce reduction program 2008 restructuring charge reserve activity (in millions) Severance Stock-based incentive acceleration Other compensation costs Other non-personnel expenses Total Original restructuring charge $ 166 $ 9 $ 5 $ 1 $ 181 Additional charges/(recovery) 4 (2 ) (1 ) 10 11 Utilization (105 ) (7 ) (4 ) (11 ) (127 ) Balance at Dec. 31, 2009 $ 65 $ - $ - $ - $ 65 Utilization (19 ) - - - (19 ) Balance at March31, 2010 $ 46 $ - $ - $ - $ 46 The restructuring charges are presented below by business segment. The charges were recorded in the Other segment as these restructurings were corporate initiatives and not directly related to the operating |
Income taxes
Income taxes | |
3 Months Ended
Mar. 31, 2010 | |
Income taxes | Note 12 Income taxes The statutory federal income tax rate is reconciled to our effective income tax rate below: Effective tax rate Quarterended March31, 2010 March31, 2009 Federal rate 35.0 % 35.0 % State and local income taxes, net of federal income tax benefit 4.4 4.9 Credit for low-income housing investments (1.9 ) (2.5 ) Tax-exempt income (1.8 ) (2.9 ) Foreign operations (5.2 ) (7.7 ) Other net (1.4 ) 1.4 Effective rate 29.1 % 28.2 % Our total tax reserves as of March31, 2010 were $342 million compared with $335 million at Dec. 31, 2009. If these tax reserves were unnecessary, $342million would affect the effective tax rate in future periods. We recognize accrued interest and penalties, if applicable, related to income taxes in income tax expense. Included in the balance sheet as of March31, 2010 is accrued interest, where applicable, of $85 million. The additional tax expense related to interest for the three months ended March31, 2010 was $4 million. Our federal consolidated income tax returns are closed to examination through 2002. Our New York State and New York City return examinations have been completed through 2004. Our United Kingdom income tax returns are closed through 2007. |
Securitizations and variable in
Securitizations and variable interest entities | |
3 Months Ended
Mar. 31, 2010 | |
Securitizations and variable interest entities | Note 13 Securitizations and variable interest entities Variable Interest Entities Accounting guidance on the consolidation of Variable Interest Entities (VIEs), is included in ASC 810, Consolidation, and ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, an Amendment of the FASB Accounting Standards Codification. Effective Jan. 1, 2010, the FASB approved ASU 2010-10 Amendments for Certain Investment Funds which defers the requirements of ASU 2009-17 for asset managers interests in entities that apply the specialized accounting guidance for investment companies or that have the attributes of investment companies and for interests in money market funds. Accounting guidance on the consolidation of VIEs applies to certain entities in which the equity investors: do not have sufficient equity at risk for the entity to finance its activities without additional financial support, lack one or more of the following characteristics of a controlling financial interest: - The power through voting rights or similar rights, to direct the activities of an entity that most significantly impact the entitys economic performance (ASU 2009-17 model). - The direct or indirect ability to make decisions about the entitys activities through voting rights or similar rights (ASC 810 model). - The obligation to absorb the expected losses of the entity. - The right to receive the expected residual returns of the entity. BNY Mellons VIEs generally include retail, institutional and alternative investment funds offered to its retail and institutional customers in which it acts as the funds investment manager. BNY Mellon earns management fees on these funds as well as performance fees in certain funds. It may also provide start-up capital in its new funds. These VIEs are included in the scope of ASU 2010-10 and are reviewed for consolidation based on the guidance in ASC 810. BNY Mellon applies ASC 810 to its mutual funds, hedge funds, private equity funds, collective investment funds and real estate investment trusts. If these entities are determined to be VIEs, primary beneficiary calculations are prepared in accordance with ASC 810 to determine whether or not BNY Mellon is the primary beneficiary and required to consolidate the VIE. The primary beneficiary of a VIE is the party that absorbs a majority of the entitys expected losses, receives a majority of its expected residual returns or both, as a result of holding variable interests. The primary beneficiary calculations include estimates of ranges and probabilities of losses and returns from the funds. The calculated expected gains and expected losses are allocated to the variable interest holders of the funds, which are generally the funds investors and which may include BNY Mellon, in order to determine which entity is required to consolidate the VIE, if any. BNY Mellon has other VIEs, including securitization trusts, which are no longer considered QSPEs, and special investment vehicles (SIVs), in which BNY Mellon serves as the investment manager and may hold a subordinated interest in the SIVs. |
Fair value of financial instrum
Fair value of financial instruments | |
3 Months Ended
Mar. 31, 2010 | |
Fair value of financial instruments | Note 14 Fair value of financial instruments The carrying amounts of our financial instruments (i.e., monetary assets and liabilities) are determined under different accounting methods - see Note 1 to the Consolidated Financial Statements contained in BNY Mellons 2009 Annual Report on Form 10-K. The following disclosure discusses these instruments on a uniform fair value basis. However, active markets do not exist for a significant portion of these instruments, principally loans and commitments. As a result, fair value determinations require significant subjective judgments regarding future cash flows. Other judgments would result in different fair values. Among the assumptions we used are discount rates ranging principally from 0.15% to 6.08% at March31, 2010 and 0.05% to 6.27% at Dec. 31, 2009. The fair value information supplements the basic financial statements and other traditional financial data presented throughout this report. Note 15, Fair value measurement presents assets and liabilities measured at fair value by the three level valuation hierarchy established under ASC 820, as well as a roll forward schedule of fair value measurements using significant unobservable inputs. A summary of the practices used for determining fair value is as follows. Interest-bearing deposits with banks The fair value of interest-bearing deposits with banks is based on discounted cash flows. Securities, trading activities, and derivatives used for ALM The fair value of securities and trading assets and liabilities is based on quoted market prices, dealer quotes, or pricing models. Fair value amounts for derivative instruments, such as options, futures and forward rate contracts, commitments to purchase and sell foreign exchange, and foreign currency swaps, are similarly determined. The fair value of over-the-counter interest rate swaps is the discounted value of projected future cash flows, adjusted for other factors including, but not limited to and if applicable, optionality and implied volatilities, as well as counterparty credit. Loans and commitments For residential mortgage loans, fair value is estimated using discounted cash flow analyses, adjusting where appropriate for prepayment estimates, using interest rates currently being offered for loans with similar terms and maturities to borrowers. To determine the fair value of other types of loans, BNY Mellon uses discounted cash flows using current market rates. The fair value of commitments to extend credit, standby letters of credit, and commercial letters of credit is based upon the cost to settle the commitment. Other financial assets Fair value is assumed to equal carrying value for these assets due to their short maturity. Deposits, borrowings and long-term debt The fair value of noninterest-bearing deposits and payables to customers and broker-dealers is assumed to be their carrying amount. The fair value of interest-bearing deposits, borrowings, and long-term debt is based upon current rates for instruments of the same remaining maturity or quoted market prices for the same or similar issues. Summary of financial instruments March31, |
Fair value measurement
Fair value measurement | |
3 Months Ended
Mar. 31, 2010 | |
Fair value measurement | Note 15 Fair value measurement The guidance related to Fair Value Measurement, included in ASC 820 defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date and establishes a framework for measuring fair value. It establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and expands the disclosures about instruments measured at fair value. ASC 820 requires consideration of a companys own creditworthiness when valuing liabilities. The standard provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The objective is to determine from weighted indicators of fair value a reasonable point within the range that is most representative of fair value under current market conditions. Determination of fair value Following is a description of our valuation methodologies for assets and liabilities measured at fair value. We have established processes for determining fair values. Fair value is based upon quoted market prices, where available. For financial instruments where quotes from recent exchange transactions are not available, we determine fair value based on discounted cash flow analysis, comparison to similar instruments, and the use of financial models. Discounted cash flow analysis is dependent upon estimated future cash flows and the level of interest rates. Model-based pricing uses inputs of observable prices for interest rates, foreign exchange rates, option volatilities and other factors. Models are benchmarked and validated by an independent internal risk management function. Our valuation process takes into consideration factors such as counterparty credit quality, liquidity, concentration concerns, observability of model parameters and the results of stress tests. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. Most derivative contracts are valued using internally developed models which are calibrated to observable market data and employ standard market pricing theory for their valuations. An initial risk-neutral valuation is performed on each position assuming time-discounting based on an AA credit curve. Then, to arrive at a fair value that incorporates counterparty credit risk, a credit adjustment is made to these results by discounting each trades expected exposures to the counterparty using the counterpartys credit spreads, as |
Derivative instruments
Derivative instruments | |
3 Months Ended
Mar. 31, 2010 | |
Derivative instruments | Note 16 Derivative instruments We use derivatives to manage exposure to market risk, interest rate risk, credit risk, foreign currency risk, to generate profits from proprietary trading and to assist customers with their risk management objectives. The notional amounts for derivative financial instruments express the dollar volume of the transactions; however, credit risk is much smaller. We perform credit reviews and enter into netting agreements to minimize the credit risk of foreign currency and interest rate risk management products. We enter into offsetting positions to reduce exposure to foreign exchange and interest rate risk. Use of derivative financial instruments involves reliance on counterparties. Failure of a counterparty to honor its obligation under a derivative contract is a risk we assume whenever we engage in a derivative contract. There were no counterparty default losses in the first quarter of 2010 or in the first quarter of 2009. Hedging derivatives We utilize interest rate swap agreements to manage our exposure to interest rate fluctuations. For hedges of fixed-rate loans, asset-backed securities, deposits and long-term debt, the hedge documentation specifies the terms of the hedged items and the interest rate swaps and indicates that the derivative is hedging a fixed-rate item and is a fair value hedge, that the hedge exposure is to the changes in the fair value of the hedged item due to changes in benchmark interest rates, and that the strategy is to eliminate fair value variability by converting fixed-rate interest payments to LIBOR. The fixed rate loans hedged generally have an original maturity of 10 to 11 years and are not callable. These loans are hedged with pay fixed rate, receive variable rate swaps with similar notional amounts, maturities, and fixed rate coupons. The swaps are not callable. At March31, 2010, $1 million of loans were hedged with interest rate swaps, which had notional values of $1 million. The securities hedged generally have a weighted average life of 10 years or less and are callable six months prior to maturity. These securities are hedged with pay fixed rate, receive variable rate swaps of the same maturity, repricing and fixed rate coupon. The swaps are callable six months prior to maturity. At March31, 2010, $210 million of securities were hedged with interest rate swaps that had notional values of $210 million. The fixed rate deposits hedged generally have original maturities of 5 to 11 years and are not callable. These deposits are hedged with receive fixed rate, pay variable rate swaps of similar maturity, repricing and fixed rate coupon. The swaps are not callable. At March31, 2010, $25 million of deposits were hedged with interest rate swaps that had notional values of $25 million. The fixed rate long-term debt hedged generally has an original maturity of 5 to 30 years. We issue both callable and non-callable debt. The non-callable debt is hedged with simple interest rate swaps similar to those described for deposits. Callable debt is hedged with callable swaps where the call dates of the swaps exactly match the call dates of the debt. At March31, 2010, $12.0 |
Commitments and contingent liab
Commitments and contingent liabilities | |
3 Months Ended
Mar. 31, 2010 | |
Commitments and contingent liabilities | Note 17 Commitments and contingent liabilities In the normal course of business, various commitments and contingent liabilities are outstanding which are not reflected in the accompanying consolidated balance sheets. Our significant trading and off-balance sheet risks are securities, foreign currency and interest rate risk management products, commercial lending commitments, letters of credit, securities lending indemnifications and support agreements. We assume these risks to reduce interest rate and foreign currency risks, to provide customers with the ability to meet credit and liquidity needs, to hedge foreign currency and interest rate risks, and to trade for our own account. These items involve, to varying degrees, credit, foreign exchange, and interest rate risk not recognized in the balance sheet. Our off-balance sheet risks are managed and monitored in manners similar to those used for on-balance sheet risks. Significant industry concentrations related to credit exposure at March31, 2010 are disclosed in the Financial institutions portfolio exposure table and the Commercial portfolio exposure table below. Financial institutions portfolio exposure (in billions) March31, 2010 Loans Unfunded commitments Total exposure Insurance $ 0.3 $ 5.7 $ 6.0 Banks 3.5 2.3 5.8 Securities industry 3.2 2.5 5.7 Asset managers 0.9 2.8 3.7 Government 0.1 2.5 2.6 Other 0.3 2.2 2.5 Total $ 8.3 $ 18.0 $ 26.3 Commercial portfolio exposure (in billions) March31, 2010 Loans Unfunded commitments Total exposure Services and other $ 0.8 $ 7.3 $ 8.1 Manufacturing 0.8 6.3 7.1 Energy and utilities 0.5 6.4 6.9 Media and telecom 0.5 2.1 2.6 Total $ 2.6 $ 22.1 $ 24.7 Major concentrations in securities lending are primarily to broker-dealers and are generally collateralized with cash. Securities lending transactions are discussed below. A summary of our off-balance sheet credit risks, net of participations, at March31, 2010 and Dec. 31, 2009 follows: Off-balance sheet credit risks (in millions) March31, 2010 Dec. 31, 2009 Lending commitments (a) $ 31,650 $ 32,454 Standby letters of credit (b) 10,963 11,359 Commercial letters of credit 828 789 Securities lending indemnifications 252,987 247,560 Support agreements 134 86 (a) Net of participations totaling $394 million at March31, 2010 and $541 million at Dec. 31, 2009. (b) Net of participations totaling $2.3 billion at March31, 2010 and $2.2 billion at Dec. 31, 2009. Included in lending commitments are facilities which provide liquidity, primarily for variable rate tax exempt securities wrapped by monoline insurers. The credit approval for these facilities is based on an assessment of the underlying tax-exempt issuer and considers factors other than the financial strength of the monoline insurer. The total potential loss on undrawn lend |
Business segments
Business segments | |
3 Months Ended
Mar. 31, 2010 | |
Business segments | Note 18 Business segments Our segment data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles used for consolidated financial reporting. These measurement principles are designed so that reported results of the segments will track their economic performance. Segment results are subject to reclassification whenever improvements are made in the measurement principles or when organizational changes are made. The accounting policies of the business segments are the same as those described in Note 1 to the Consolidated Financial Statements in BNY Mellons 2009 Annual Report on Form10-K. In addition, client deposits serve as the primary funding source for our investment securities portfolio and we typically allocate all interest revenue to the businesses generating the deposits. Accordingly, the higher yield related to the restructured investment securities portfolio has been included in the segment results. For additional information on our business segments, see Note28 to the Consolidated Financial Statements in BNY Mellons 2009 Annual Report on Form10-K. The following consolidating schedules show the contribution of our segments to our overall profitability. Business segments are reported on a continuing operations basis for all periods presented. For the quarter ended March31, 2010 (dollars in millions) Asset Management Wealth Management Total Assetand Wealth Management Sector Asset Servicing Issuer Services Clearing Services Treasury Services Total Institutional Services Sector Other Segment Total continuing operations Feeandotherrevenue $ 649 (a) $ 146 $ 795 $ 798 $ 358 $ 271 $ 225 $ 1,652 $ 143 $ 2,590 (a) Netinterestrevenue - 55 55 210 252 95 176 733 (23 ) 765 Total revenue 649 201 850 1,008 610 366 401 2,385 120 3,355 Provisionforcreditlosses - - - - - - - - 35 35 Noninterestexpense 503 145 648 723 324 261 188 1,496 316 2,460 Incomebeforetaxes $ 146 (a) $ 56 $ 202 $ 285 $ 286 $ 105 $ 213 $ 889 $ (231 ) $ 860 (a) Pre-taxoperating margin (b) 23 % 28 % 24 % 28 % 47 % 29 % 53 % 37 % N/M 26 % Average assets $ 25,187 $ 9,722 $ 34,909 $ 59,704 $ 52,838 $ 20,338 $ 26,716 $ 159,596 $ 30,012 $ 224,517 (c) For the quarter ended Dec. 31, 2009 (dollars in millions) Asset Management Wealth Management Total Assetand Wealth Management Sector Asset Servicing Issuer Services Clearing Services Treasury Services Total Institutional Services Sector Other |