Profit for the separate companies was $1.86 billion a year earlier, including a $1.38 billion gain at the former Bank of New York from the swap of its branch network for JPMorgan Chase's corporate trust unit.
Excluding several special items, operating profit was 77 cents per share, 7 cents above the average analyst forecast, according to Reuters Estimates.
Revenue totaled $3.8 billion, topping the average forecast of $3.76 billion. Fees grew 25 percent from securities servicing and 14 percent in asset management.
"Core trends were solid as almost every revenue line item advanced," wrote Lehman Brothers Inc analyst Jason Goldberg. The bank's shares were up $1.56, or 3.5 percent, to $46.65 in morning trading on the New York Stock Exchange.
The bank took a charge of $118 million, or 10 cents per share, to write down 47 percent of the value of collateralized debt obligations, a complex security often tied to mortgages.
CDOs have caused losses at many financial companies, including Citigroup and Merrill Lynch.
Bank of New York also took a charge of $180 million, or 16 cents per share, to move a conduit, Three Rivers Funding, onto its balance sheet, citing widening credit spreads.
"These write-downs assume a really severe housing market over the next couple of years," Chief Executive Robert Kelly said on a conference call. The company said it expects to recoup the charge for the conduit over the next several years.
Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, was surprised at the write-downs. "Though CDO problems may not be an ongoing event, it is part of their business and investors can't overlook it," he said.
But Cassidy also said, "Core businesses such as asset management and servicing grew nicely. They also shot the lights out on foreign exchange." He rates the bank "sector perform."
Profit from continuing operations was $700 million, or 61 cents per share. It was 67 cents per share excluding merger costs, and 77 cents per share also excluding the CDO write-down.
Bank of New York set plans to buy back up to 35 million shares, a little over 3 percent of the total outstanding.
Servicing, Asset Management Grow
Among other custody banks, quarterly profit fell 28 percent at Boston's State Street and 27 percent at Chicago's Northern Trust, both reflecting one-time charges. At JPMorgan Chase, a large custodian better known for retail and investment banking, profit fell 34 percent.
Bank of New York's $18.3 billion purchase of Pittsburgh-based Mellon created the world's largest provider of back-office and other custody services for institutional investors, now handling $23.1 trillion of assets. It also created a large asset manager, now overseeing $1.1 trillion.
Bank of New York's business was weighted toward securities servicing, which consists of holding securities and processing trades for institutional investors. Mellon's was weighted toward asset management, including the Dreyfus mutual funds.
In an interview, Kelly said the bank is looking for asset management acquisitions. He also plans to boost marketing spending 5 percent because the name recognition of the company among many prospective clients, despite its size, is "very low."
Fees from securities servicing totaled $1.56 billion in the fourth quarter, up from $1.25 billion at the separate companies a year earlier, as foreign exchange fees nearly doubled. Asset and wealth management fees rose to $887 million from $775 million. Expenses rose 8 percent.
Founded in 1784 by Alexander Hamilton, Bank of New York is the oldest U.S. banking company. Mellon was founded in 1869 and grew to prominence under financier Andrew Mellon.