One quarter ago, I looked at the three leaders in the financial custodial services business -- Mellon Financial
But of course, here at the Fool, we're not about one quarter's performance. We're ideally about helping you find solid long-term money-making ideas. And on that score, I'm starting to soften a bit toward Mellon.
While I saw a few articles paint a somewhat dour picture of Mellon's quarter, I thought it did pretty well on the whole. Adjusting the numbers for a severance package paid to the now-former CEO, and ignoring the impact of the sale of a stake in a Japanese bank, total revenue was up 18%, and income from continuing operations rose a similar amount. That's not too shabby.
Assets under management rose another 11%, to more than $800 billion, and the company boosted its assets under administration/custody by 25% to over $4 trillion. That's a ripe melon, indeed. Although the private wealth-management business was soft (management chalked this up to narrower interest spreads and spending on growth plans), the asset-management and asset-servicing businesses both had strong pre-tax income growth.
The big question now, though, is what new management will do with the business. Expenses have been increasing a little too quickly, and there are still a lot of folks who believe that the company would be better served splitting the custody and asset-management businesses. Given that the new CEO considers both units to be core to the business, I don't think a full split is very likely, although I wouldn't rule out selling specific businesses like treasury services or payment solutions.
All in all, this is a business that produces pretty good returns on equity and can throw off quite a bit of cash. That makes it intriguing to me at the right price. And while the stock might be cheaper than some pure asset managers like T. Rowe Price
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).