The Bank of New York Mellon Corporation Third Quarter EPS at $0.26, Income at $305 million

Results include 46 cents per share for merger and integration expense, tax settlements and support agreement charges

Operating performance benefited from diversity of businesses, market volatility and new business wins

NEW YORK, October 16, 2008 -- The Bank of New York Mellon Corporation (NYSE:BK) today reported income from continuing operations of $305 million, or $0.26 per share, in the third quarter of 2008. This compares to income from continuing operations of $642 million, or $0.56 per share, in the third quarter of 2007 and $302 million, or $0.26 per share, in the second quarter of 2008.

"In the face of unprecedented market volatility our operating performance exceeded expectations, driven by the strength and diversity of our securities servicing and asset management businesses. We supported our clients in these extraordinarily turbulent markets and I am very proud of the tireless dedication and focus of our employees," said Robert P. Kelly, chairman and chief executive officer of The Bank of New York Mellon.

"We recently announced our participation in the U.S. Treasury's program to invest capital in nine leading U.S.financial institutions. In addition, we are honored to have been selected by the Treasury as the sole provider of a broad range of custodial and trustee services for the government's Troubled Asset Relief Program (TARP)."

In the third quarter of 2008, the Company recorded an after-tax charge of $0.06 per share associated with merger and integration ("M&I") expenses and $0.03 per share related to the settlement with the IRS of tax structured lease transactions ("SILO/LILO"), as well as the settlement of several audit cycles. Additionally, in the third quarter of 2008, the Company recorded an after-tax charge of $0.37 per share, or $433 million, associated with various support agreements.

The operating results for the third quarter of 2008 also included pre-tax costs associated with the write-down of certain investment securities ($162 million).

Total revenue was $3.626 billion, comprised of $2.923 billion of fee and other revenue including the write-down of certain investment securities ($162 million) and $703 million of net interest revenue including a pre-tax charge for the SILO/LILO tax settlement ($112 million).

Assets under management, excluding securities lending assets, totaled $1.067 trillion at quarter end. This represents a decrease of 4% compared with the prior year and the sequential quarter. Net asset inflows in the third quarter of 2008 totaled $8 billion and were more than offset by market depreciation and the impact of a stronger U.S. dollar. Assets under custody and administration totaled $22.4 trillion, a decrease of 1% compared with prior year and a decrease of 3% sequentially, as the benefit of new business conversions was offset by weaker market values and the impact of a stronger U.S. dollar.

Securities servicing fees totaled $1.542 billion, an increase of 6% on a reported basis and approximately 10% adjusted for the sale of the B-Trade and G-Trade execution businesses in the first quarter of 2008. The increase on an adjusted basis reflects growth in asset servicing, issuer services and clearing services. Securities servicing fees declined 2% sequentially, primarily driven by the normal seasonality in the third quarter associated with securities lending.

Asset and wealth management fees totaled $792 million, a decline of 7% compared to the prior year and 6% sequentially reflecting the global weakness in market values, partially offset by net inflows of money market assets over both periods.

Foreign exchange and other trading activities totaled a record $385 million, an increase of 62% compared with $238 million in the prior year and an increase of 25% (unannualized) compared with $308 million in the second quarter of 2008. The increase compared to both periods reflects the benefit of higher market volatility and volumes associated with our client activity and the current market environment.

Securities losses totaled $162 million. This compares with a loss of $9 million in the third quarter of 2007 and a loss of $152 million in the second quarter of 2008.

Net interest revenue (FTE) totaled $708 million with a net interest margin of 1.96%. The third quarter of 2008 included a pre-tax charge for the final SILO/LILO tax settlement of $112 million. Excluding this charge, net interest revenue was a record $820 million and the net interest margin was 2.27%. This compares with net interest revenue of $674 million and a net interest margin of 2.02% in the third quarter of 2007 and net interest revenue of $792 million and a net interest margin of 2.21% in the second quarter of 2008, excluding a $377 million (pre-tax) SILO charge.

The provision for credit losses was $30 million in the third quarter of 2008 compared to no provision for credit losses in the third quarter of 2007 and $25 million in the second quarter of 2008.

Total noninterest expense was $3.332 billion. This compares to noninterest expense of $2.706 billion in the third quarter of 2007 and $2.754 billion in the second quarter of 2008.

Total noninterest expense (excluding M&I expense and intangible amortization) included a $726 million support agreement charge during the third quarter of 2008. Excluding this amount, expenses increased 1% compared with the prior year and declined 5% (unannualized) sequentially. Total staff expense declined compared to both periods, reflecting the benefit of continuing expense synergies and lower incentive levels. Strong expense control contributed to significant positive operating leverage of approximately 700 basis points year-over-year and approximately 400 basis points sequentially.

The effective tax rate for the third quarter of 2008 was a negative 15.5%. The negative tax rate reflects the absolute level of charges associated with the support agreements, securities losses and the final SILO/LILO settlement, as well as the settlement of prior tax audit cycles. Excluding these items, as well as M&I expenses, the effective tax rate was 32.4% in the third quarter of 2008.

The capital ratios for the third quarter of 2008 reflect the record level of client deposits generated subsequent to the market turmoil that began in mid-September. Noninterest-bearing deposits were $82 billion at Sept. 30, 2008, $31 billion at June 30, 2008 and $27 billion at Sept. 30, 2007. The Company placed an increased level of deposits principally with either the Federal Reserve or in overnight deposits with large global banks. At the end of the third quarter, total assets were $268 billion and averaged $199 billion during the quarter.

The unrealized net of tax loss on our securities portfolio was $2.8 billion at Sept. 30, 2008 compared with $1.8 billion at June 30, 2008. The increase primarily resulted from wider credit spreads.

On Oct. 14, 2008, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of 24 cents per share. This cash dividend is payable on Nov. 3, 2008 to shareholders of record as of the close of business on Oct. 24, 2008.

Source : Equity Bulls

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