Bank of New York Mellon Corp. (BK:US), the world’s largest custody bank, is considering imposing a charge for holding client cash in Europe, after the European Central Bank cut its deposit rate to zero.
The reduction in the ECB’s rate will cost BNY Mellon $20 million to $25 million in the second half, Todd Gibbons, the New York-based bank’s chief financial officer, said in a telephone interview. BNY Mellon hasn’t yet decided whether to impose the charge.
BNY Mellon, along with other money fund managers, this month restricted deposits into its European money funds, after the ECB decision left them unable to park cash with the central bank at a profit. Last year, BNY Mellon said it would impose a temporary fee for “excess” deposits in the U.S., after the debate over an extension of the country’s debt ceiling prompted clients to move assets into cash. The fee was never levied on clients, Gibbons said.
“Europe is an absolute mess, I can’t describe it any other way,” BNY Mellon Chief Executive Officer Gerald Hassell said today on a conference call with investors after the bank released its second-quarter earnings.
BNY Mellon today reported a 37 percent decline in second- quarter profit as low interest rates and declining stock markets cut into revenue and the bank settled a lawsuit. The net interest margin (BA:US), the difference between what a bank pays on deposits and receives on loans and investments, was 1.25 percent in the quarter, an all-time low, according to Gibbons.
The bank, which earned 39 cents a share in the quarter, said waiving fees on money funds reduced profits by 4 to 5 cents a share.
More than half of Europe’s money market funds by assets have closed because securities they invest in pay negative returns after the ECB cut interest rates, Standard & Poor’s said earlier this month. Funds with assets totalling 79 billion euros ($97 billion) have closed, out of a pool of 133 billion euros rated by the New York-based firm, S&P said in a report.
The $2.5 trillion U.S. money fund industry has seen revenues fall from $12.5 billion in 2008 to $4.7 billion in 2011, according to Crane Data LLC, a research firm based in Westborough, Massachusetts. Yields that reached 5 percent in 2007 now average about 0.06 percent, President Peter Crane said in a telephone interview today.
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