Mellon earnings linked to client
PITTSBURGH (AP) – The scandal surrounding accounting practices at telecommunications giant WorldCom Inc. was felt by Mellon Financial Services and reflected in their second-quarter earnings report released Tuesday. The Pittsburgh-based financial services company reported second-quarter earnings of $109 million, or 25 cents per share, compared with $79 million, or 17 cents per share, during the same period last year.
But amended results include a special provision for credit losses of 23 cents per share associated with “credit exposure related to customers that have been associated with recent allegations of accounting irregularities.”
Mellon announced last month that it had $100 million in outstanding, unsecured loans to WorldCom. As a result, nonperforming assets for Mellon jumped from $75 million last year to $176 million this year.
“Mellon obviously ran into a buzz saw on the credit side and stock price was effected dramatically,” said Gerard Cassidy, an analyst for BBC Capital Markets.
The company announced the unsecured loans to WorldCom on June 26, and the stock price has been dropping since, though the stock price had already been coming down because of the anemic market.
Mellon’s shares had dropped 77 cents to $27.13 by the end of trading Tuesday on the New York Stock Exchange.
“The special provision for credit exposure is appropriate in view of the continuing difficult and uncertain environment,” said Martin G. McGuinn, chairman and chief executive officer.
Wall Street analysts said the company is moving in the right direction, including Cassidy, who was predicting earnings on the low end of the 22 analysts polled by Thomson Financial/First Call.
Including the special charge of 23 cents, Mellon beat Wall Street expectations by a penny per share. Analysts surveyed by Thomson Financial/First Call had predicted earnings of 47 cents per share for the second quarter, though that number had been coming down for weeks.
“This company has strategically aligned itself in the faster growing wealth management services market which is going put them in a great spot,” Cassidy said. “However, in the near term, with the disrupted capital markets and struggling growth, it’s a rough ride.”
Mellon reported profits from continuing operations of $106 million, or 24 cents per share for the second quarter.
The company also repurchased 7.2 million common shares during the second quarter. Mellon has purchased 14.3 million shares in the first six months of 2002.
“I am pleased that our core business sectors continue to perform reasonably well and that earnings, excluding the special provision, met Street expectations,” McGuinn said.
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