UPDATE 4-BNY Mellon's profit climbs 23 percent, shares slide
* Q4 profit 53 cents/share vs 42 cents a year ago
* Investment management and performance fees rise 17 pct
* Assets under management up 10 pct
* Deposit surge hurt net interest margin
(Adds CEO Hassell's comments on deposit surge)
BOSTON, Jan 16 (Reuters) - BNY Mellon Corp said fourth-quarter earnings rose 23 percent, matching Wall Street estimates, boosted by higher investment management and performance fees at the world's largest custody bank.
Shares of the bank, though, fell 2.60 percent to $26.08 on Wednesday as some analysts were disappointed with BNY Mellon's trading revenue and expense management. With interest rates scraping along bottom, BNY Mellon's net interest margin - largely the difference between what it gets from loans and what it pays on deposits - was 1.09 percent in the fourth quarter, down from 1.27 percent a year ago.
With the fiscal cliff looming, the bank experienced a surge in deposits, hurting that margin, BNY Mellon Chief Executive Gerald Hassell explained on a conference call.
"We saw a run-up of $20 billion, $30 billion in our deposits," Hassell said. "I think the debt ceiling is going to put another potential concern in the eyes of investors. ... We are seeing people trying to put some money to work, but still there's an enormous amount of cash sitting on the sidelines waiting for better certainty and clarity."
The bank also has been hurt by declines in revenue in some business segments that have relatively high fixed costs, BNY Mellon Chief Financial Officer Todd Gibbons said in a telephone interview. But that has been offset by strong gains in revenue, for example, from the bank's investment management business.
Nomura analyst Glenn Schorr said strong investment management fees, good deposit growth and solid capital ratios were partially offset by higher expenses, weak trading revenue and flat servicing fees.
"All in, progress on some fronts and great asset management results, but the net earnings picture still hovers in a similar range," Schorr said in a research note. "Expect the stock to be a bit soft post the recent run."
Net income was $622 million, or 53 cents a share, up from $505 million, or 42 cents a share, a year earlier.
Investment management and performance fees surged 17 percent to $853 million on buoyant stock market returns. Assets under management were up 10 percent at $1.39 billion. Fees from investment services rose 1 percent to $1.6 billion.
Assets under custody and administration climbed 9 percent to $26.7 trillion.
Revenue from trading foreign currencies continued to be a weak spot. Foreign exchange revenue totaled $106 million, down 42 percent on declining volatility and volumes.
The bank is battling several lawsuits, defending itself against allegations of overcharging pension funds and other customers on forex fees, a charge it denies.
(Reporting by Tim McLaughlin; Editing by John Wallace, Grant McCool and Marguerita Choy)