BNY Mellon Posts Strong Q2 Earnings, Record Revenue, 10% Rise in AUM

Bank of New York Mellon (BK) announced Wednesday net income to shareholders of $833 million, or $0.71 per common share, on record revenue (GAAP) of $4.009 billion in its second quarter, ended June 30.

Net income, which was up from a loss of $237 million in Q1 of this year and net income $465 million in 2012’s second quarter, was aided by an after-tax gain of $109 million related to the firm’s equity investment in Convergex (CVGX), a global brokerage and trading service, during the quarter.

GAAP revenue rose 11% compared to 2012’s second quarter, and 11% over Q1 of 2013.

In BNY Mellon’s quarterly earnings call on Wednesday, Hassell noted the bank’s “strong revenue growth across all our businesses, without exception,” along with highlighting increased collaboration among different divisions of the company. Specifically, he mentioned a new separately managed account product coming out of Hong Kong, led by John Brett, and noted “we’ve started making private banking loans to Pershing customers,” to which “we’re already seeing a nice level of receptivity.” (Pershing Advisor Solutions’ CEO Mark Tibergien spoke of the private banking loan initiative and other internal collaborations benefiting Pershing customers in a June interview with ThinkAdvisor at the annual Pershing Insite conference.)

Chairman and CEO Gerald Hassell said in a prepared statement that during the second quarter, BNY Mellon “generated nearly $900 million of capital, approximately $500 million of which we used to step up share buybacks by more than 50% and increase our quarterly dividend by 15%.”

During the quarter, BNY repurchased 11.9 million shares of its stock for $330 million, and on July 17 it announced a dividend of $0.15 per common share payable Aug. 6. Assets under management increased 6% over 2012’s second quarter, to $1.43 trillion, and were up slightly from 2013’s first quarter. Assets under custody or administration (ACUA) increased 4% to $26.2 trillion compared to the prior year, but were down slightly from 2013’s first quarter.

Clearing services revenue increased 4% to $321 million in the quarter, which the company attributed to “higher mutual fund fees” and a 21% year-over-year increase in daily average revenue trades (DARTs) to 227,500.

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Check out ThinkAdvisor's 2013 Q2 Earnings Calendar for the Finance Sector.

TD Ameritrade Tops Q2 Earnings Estimates on Strong Revenue

TD Ameritrade (AMTD) said its second-quarter earnings improved close to 20% on Tuesday, beating analysts’ estimates: Net income was $184 million, or $0.33 a share, versus $154 million, or $0.28 a share, a year ago.

Total revenue increased 9% year over year and 7% from the prior quarter to $725 million.

"TD Ameritrade had a strong third quarter in virtually all metrics, as we continue to execute well against our growth strategy while being disciplined on expenses," said President & CEO Fred Tomczyk, in a press release. "We had record interest rate sensitive assets, record net revenues and record market fee-based revenue during the quarter."

Net new client assets for the period were roughly $11 billion, representing an annualized growth rate of 8%. However, client asset flows were higher in the prior quarter, at $13 billion, and slightly lower a year ago, at $10 billion.

Average daily client trades per day hit about 399,000, an activity rate of close to 7%.

Of its total second-quarter revenue, $384 million, or 53%, was asset based.

Commissions and trading fees grew to $321 million, up from $266 million a year ago and $287 million in the prior quarter. Investment product fees increased to $65 million, up 23% from $54 million last year and a jump of nearly 5% from $62 million last quarter.

Client assets now total nearly $524 billion vs. $554 billion a year ago and $517 billion on March 31.

"We are pleased with our performance this quarter," said Bill Gerber, executive vice president and chief financial officer, in a statement. "We benefited from the improved trading environment, and we kept our eyes focused on disciplined expense management and maintaining our strong balance sheet. We have good momentum, and we're well positioned as we look ahead to fiscal 2014."

In additional news, the company announced a new “Veo Integrated” logo that it says makes it easy for registered investment advisors (RIAs) to identify technology providers that have built integrations with TD Ameritrade Institutional’s Veo platform. RIAs in the market that purchase technology can look for the logo on participating technology providers’ marketing materials including Web sites, brochures and videos.

“We reached a significant milestone with 50 vendors now on the platform with which advisors can now integrate,” said Jon Patullo, managing director of technology, TD Ameritrade Institutional.

“In order to participate in the Veo open access initiative, all third-party technology providers must meet a set of stringent security requirements and have the ability to deliver quality service to advisors,” Patullo said. “It’s important that firms eligible to display the ‘Veo Integrated’ logo demonstrate a high standard of care and commitment to RIAs.”

TD Ameritrade Institutional president Tom Nally added that overall advisor adoption of Veo open access integrations is up 104% in 2013. The customized Salesforce CRM app is one of the most widely adopted, with more than 1,000 users.

Nally also noted that iRebal, which he announced at the company’s annual conference in February, would be added to Veo and free for TD advisors, is now in beta and on track for release in August.

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Check out ThinkAdvisor’s 2013 Q2 Earnings Calendar for the Finance Sector.

Warren Buffett and Charlie Munger Q&A Part 2

These notes were taken live as GuruFocus covered the annual shareholder meeting of Berkshire Hathaway (BRK.A)(BRK.B) in Omaha on Saturday.

Question: Ackman questions the legitimacy of Herbalife (HLF). Berkshire Hathaway (BRK.A)(BRK.B) owns Pampered Chef. Has there been any impact on Pampered Chef? It's a multi-level marketing company.

WB: I've never looked at the 10K of Herbalife. The key is whether it's based on selling profits. Pampered Chef is miles away from selling to level A and level B. People get paid based on who they recruit. But people are based on selling to end user. There are thousands of parties a week selling to people who want to use the products. And that should be the distinguishing characteristic.

Charlie: And there's likely more flim flam in selling magic potions than pots and pans.

Question: Berkshire's returns in the last 10 years are based on repeating and extensive deals than in the past when you were a value investor doing extensive analysis. How will your successor achieve the same returns?

Warren: My successor will have more capital and when markets are in distressed fewer people have capital and willingness to commit. My successor will have unusual capital and ability to say yes. Berkshire is the 800-number when there is really panic in markets and people need capital. It's not our main business, but fine. It will happen again. When the Dow Jones drops 1,000 points you find out who's been swimming naked. They will call Berkshire. And Berkshire's reputation does not rest on any single individual.

Charlie: Buffett had success in value investing because competition was less intense. It's ridiculous to think the way he did things in the past he should have stayed in.

Warren: Goldman Sachs, GE, Bank of America are trying.

Charlie: Other people were not getting calls.

Warren: They don't have money and speed.

Question: What are the three keys to influencing people to sell who didn't want to ! sell?

Warren: There was a death at See's and the rest of the family didn't want to run the business, so they put it up for sale. I didn't hear about it until after one person had already fallen through. I didn't persuade them to sell. It traded actively, I bought key pieces and stock. Sanborn was not the most attractive business. I bought stock in the market from Stanton and Case. They were happy to sell. I never met Stanton. I did not convince them to sell their stock. I talked to Betty Peters about avoiding a transaction I thought was dumb.

Question: Over the years you have built Berkshire to be sustainable. I have difficulty explaining to people the long term sustainable advantage of Berkshire. Can you give it in a Peter Lynch two-minute speech?

Charlie: The competitive advantage is it's getting bigger. The golden rule – we treat people like we want to be treated. The long term competitive advantage is we are a good partner to people who need money.

Warren: Years ago a person in 60s said one year to think about selling his business. We had experience buying business years earlier, this person died and he wanted to put to bed what had happened. That one year and that if he sold to a competitor, which is a logical buyer, it would put its people in charge and it would mean it would fire his people, and come in like Atila the Hun. He could sell to a private equity firm and lose control. To me, we're not the most attractive, but we were the only guy left standing. We promised him he could keep doing what he loved, and not worry. The competitive advantage was we had no competitor. And the shareholder base we've developed – we look at them as partners.

Question: I heard Warren's way to conserve energy is to write 20 things he wanted to do, choose five and forget 15. How does that work?

Warren: Not the case. That is more disciplined than I am. Charlie and I live simple lives. We know what we enjoy and we do it pretty much now. Charlie is a real arch! itect now! . I never made lists in my life. Maybe I should start!

Charlie: I can see here, I don't know when it started that marketing psychology that you shouldn't make decisions when you're tired, and if that's true, we live on auto pilot, it's habitual. We don't waste decision-making energy. We use caffeine and sugar.

Warren: When we write our book on nutrition it will be a hit.

Charlie: Warren's style is idea for human cognition.

Question: Buying newspapers doesn't seem to make sense economically to get a higher rate of return on a business that is smaller, and you like big elephants.

Warren: We will get a decent rate of return. Compared to Heinz we have a structural advantage because write offs and after tax return declined to 10% after tax, maybe higher. To date, we meet or beat 10%. Never move the needle. $100 million in pretax earnings would not move the needle but give a decent return. We wouldn't have done it in another business. We promise to give figures annually of investments, but at low price to earnings.

Charlie: It's an exception and you like doing it. That's what I heard you say.

Warren: I wish I had no asked.

Question (Doug Kass): You suggested for the first time when you go, you would move to a more centralized approach to management. In past respect of Henry Singleton, he was 100% rational. Prior to his death Berkshire should you move Berkshire to three companies? Teradyne was harder to manage given its size. Compared to Berkshire, should you split it along business lines?

Buffett: A tiny bit more in terms of small companies. No change of significance Henry Singleton can give views on what he did right and wrong. Breaking up would not give the present result now and in the future.

Charlie: Henry Singleton's geniun was he managed his companies more centralized than us. In the end he wanted to sell tous. He loved you and the business, but we didn't want to issue Berkshire stock.

Warren: He issued ! stock lik! e crazy. GM worked wonderfully if diluted created how ended up.

Charlie: We're more avuncular than Henry Singleton was. I like us better.

Question: Taxes and deficit. What are two things policymakers can focus on to stay competitive.

Warren: Health care costs are 12% of GDP. Rivals 9.5 to 11.5%. There are only 100 cents in a dollar. Give up 8 cents just like raw material. It will be a major problem in US competitiveness. Overall since the crisis it works, but number one is health care costs.

Charlie: Grossly swollen alternatives markets. You can graduate from MIT in derivatives markets. They are crazy markets. I agree on health care but find the other more revolting.

Warren: Charlie is very Old Testament.

Continue reading part 3 here.

Facebook to Launch Graph Search - Analyst Blog

Facebook's (FB) new tool Graph Search that was in beta stage since January will be rolled out as a full-fledged service over the next few weeks. The company recently announced its plans to expand the new search tool to users who use Facebook in U.S. English.

According to Facebook, Graph Search will search for a specific query among contents that are shared by users and are publicly available within the social networking platform.

Moreover, the search results can be customized according to specific time frames, locations or other information that are available on user profiles.

To make it more effective, Facebook is using Microsoft's (MSFT) Bing search engine to deliver additional search results when Graph Search is unable to find relevant answers. The company also said that it is working on a mobile version. However, Facebook did not announce a specific launch date.

Facebook's Graph Search service is expected to increase user engagement; thereby increasing traffic on the site. This will bring in more advertisers to the social networking platform, which will further boost advertisement revenues.

Further, the personalized search service is expected to improve the company's competitive position against Google (GOOG), going forward.

Facebook has significant growth opportunities from increasing online advertising spending compared to traditional formats. According to eMarketer, the U.S. digital video advertising market is expected to grow 41% in 2013 to $4.1 billion from $2.9 billion in 2012.

Moreover, eMarketer predicts that the mobile video market is expected to double this year, touching $518.0 million, which represents a tremendous growth prospect for Facebook. We believe that it needs to focus on rolling out the mobile version of the Graph Search to capitalize on this tremendous growth opportunity.

Although Facebook's mobile monthly active users (MAU's) continue to grow significantly (up 54.0% year-over-year to 751 million at th! e end of first quarter), we believe that increasing competition from Google and LinkedIn (LNKD) remains a major headwind in the near term.

Additionally, increasing investments related to infrastructure development may hurt Facebook's near-term profitability.

Nonetheless, the continued investments should improve the quality, engagement and value of its ads, which will further boost advertiser demand in 2013.

Currently, Facebook has a Zacks Rank #2 (Buy).

Service Sector Growth Jumps in July

Toby Talbot/AP WASHINGTON -- U.S. service firms expanded in July at the fastest pace since February, fueled by a brisker month of sales and a jump in new orders. The increase suggests economic growth could be picking up after a weak first half of the year. The Institute for Supply Management said Monday that its index of service-sector growth rose in July to 56.0, up from 52.2 in June. Any reading above 50 indicates expansion. The survey covers businesses that employ 90 percent of the workforce, such as retail, construction, health care and financial services. A measure of business activity, which includes current sales, rose to 60.4. That's the highest since December and was driven in part by faster home construction. And a gauge of new orders, which indicates sales over the next few months, increased to 57.7 -- a five-month high. Jennifer Lee, senior economist at BMO Capital Markets, noted that 16 of the 18 industries surveyed reported growth in July, "encouraging news for the broader U.S. economy." Paul Dales, senior U.S. economist at Capital Economics, said the July gains in the service sector, along with a solid month of manufacturing growth, suggest the economy is growing at an annual rate of 3 percent in the July-September quarter. That's nearly double the rate in the April-June quarter. One concern is that a measure of employment at service companies fell in July. That echoed last week's government employment report that showed hiring has slowed. Employers added 162,000 jobs last month, the Labor Department said Friday. That's down from 188,000 in June. Nearly all of the hiring took place at service firms. And most new jobs were in low-paying industries -- half were at retail business or restaurants and bars. Growth in the service industry depends largely on consumers, whose spending drives roughly 70 percent of economic activity. On Friday, the government said consumers increased their spending in June at the fastest pace in four month. The economy grew at a tepid 1.7 percent annual rate from April through June. That's up only slightly from the 1.1 percent annual rate in the previous quarter and the third straight month of subpar economic growth. Still, the rise in consumer spending and service activity follows other reports that point to stronger growth. Home sales and prices continue to rise, and Americans' confidence in the economy stayed last month close to a 5½-year high. U.S. factories have begun to rebound after slumping at the start of the year. A separate ISM released last week showed manufacturing activity jumped in July to the highest level in two years, reflecting a surge in new orders, increasing hiring and rising factory output.

3 Stocks Near 52-Week Lows Worth Buying

Just as we examine companies each week that may be rising past their fair value, we can also find companies potentially trading at bargain prices. While many investors would rather have nothing to do with companies tipping the scales at 52-week lows, I think it makes a lot of sense to determine whether the market has overreacted to the downside, just as we often do when the market reacts to the upside.

Here's a look at three fallen angels trading near their 52-week lows that could be worth buying.

A discount in plain view
It may not seem like it, but higher payroll taxes combined with the IRS furloughing its employees in order to save money, and thus delaying tax refunds for millions of Americans, really walloped the retail and grocery sector. Wal-Mart, the world's largest retail chain, reported a same-store sales decline of 1.4% in the first quarter. It blamed everything but the kitchen sink for its disappointing results, including inclement weather and little grocery inflation, but also alluded to higher payroll taxes and delayed tax refunds.

Much of the same can be said about The Pantry (NASDAQ: PTRY  ) , a predominantly Southeastern U.S. convenience store chain that operates under the Kangaroo Express name. Food inflation has been minimal, the weather hasn't been as cooperative, and consumer traffic fell 4.6% in its most recent quarter. But where other investors see weakness, I see an opportunity.

For one thing, food inflation costs are rarely predictable, but they don't normally remain stagnant for long periods of time, either. As food costs inevitably push higher, The Pantry will be able to pass along price hikes to consumers and eke out slightly beefier margins. Even a single basis point is important in the margin-tight grocery business, so look for food inflation increases in the upcoming quarter to aid The Pantry's bottom line.

Taking a page right out of its larger counterparts, The Pantry is also emphasizing unique brands to push product out the door. From its self-branded Kangaroo gasoline to its exclusive Bean Street Coffee, the convenience chain is using unique brands to differentiate itself from its competition and drive higher sales. Although traffic was down last quarter (which I feel is a short-term issue caused by delayed tax refund checks), average sales per customer rose 2.6% -- not bad considering that food inflation is minimal. With the stock at just 11 times forward earnings, I see room for The Pantry to head higher.

You have the wrong idea
Seeing gold and other commodities fall off a cliff has admittedly given a lot of investors plenty of reasons to avoid resource-rich emerging-market countries. Over the past couple of months we've seen numerous emerging-market ETFs drop precipitously, all while the S&P 500 continues its march to new highs. One such ETF that's only bounced modestly off its lows is the Market Vectors Africa Index ETF (NYSEMKT: AFK  ) , which, as you might expect, invests in various African companies.

I freely admit that my first suspicion when I saw the drop over the past couple of weeks was that the ETF owned stock in a large number of mining companies. I mean, it would make sense to see the ETF retreat if metal prices are dropping and miners are shuttering production in the meantime. However, very little of the Market Vectors Africa Index is tied up in mining. Simply put, investors have the wrong idea about this ETF!

In actuality, this ETF is going to give you a porterhouse-size helping of banks and other financial services in Africa. As of June 30, nearly 37% of its holdings were in the financial sector, with another 18% in the necessity energy sector and another 13% in materials. In total, the fund owns 109 different companies that pay out a yield of 3.5% with a net expense ratio of just 0.8% annually. These sectors still have decades of double-digit growth opportunity in Africa, and I don't believe investors are giving them nearly enough credit.

I also would urge investors not to overreact to that fact that 25% of this ETF's investments are tied up in Egypt. Although regime change is often tumultuous, Egypt has the basic infrastructure in place to pick up growth right where it left off under now-deposed Egyptian President Mohamed Morsi. With investments in other more stable regions of Africa making up another good chunk of its remaining investments, I feel the Market Vectors Africa Index ETF could surprise investors moving forward.

Thinking really long-term
Sometimes we need to put on our Warren Buffett goggles and think like Buffett if we hope to find the market's best buy-and-hold opportunities. This week I feel could represent the perfect opportunity to nab shares of medical diagnostics company Quest Diagnostics (NYSE: DGX  ) , which are still relatively close to a 52-week low.

The weakness in diagnostic companies lately can be blamed squarely on reduced government spending domestically and overseas. In addition to deriving revenue from biotechnology companies, Quest works with government agencies and universities that are funded by government money. With the U.S. instituting austerity measures designed to reduce its federal deficit, and much of Europe in a similar situation, diagnostic device makers have struggled to improve their top and bottom lines in recent quarters.

Looking long-term, though, there is an incredible demand for medical diagnostics. The baby boomer population is aging and diagnostic equipment is becoming faster, more accurate, and more affordable, meaning insurance companies are more likely to back diagnostic products now more than ever.

Consolidation in medical diagnostics also gives us visible clues to the sector's potential. For example, Thermo Fisher Scientific agreed in April to buy Life Technologies for a hefty $13.6 billion. In 2012 Life Technologies introduced a new bench-top molecular diagnostic tool that can analyze the human genome in 24 hours or less for just $1,000, proving how far molecular diagnostics has come in just two decades. Diagnostic companies like Life Technologies and Quest Diagnostics speak to a level of personalized medicine that is just starting to bloom and could be the basis of many treatments down the road.

Boasting a yield of 2% and a forward P/E under 13, I feel this is another great set-it-and-forget-it candidate.

Foolish roundup
Sometimes the trend really is our friend. For The Pantry, rarely are food inflation costs tame for a long period of time, which would bode well for its ability to raise its prices. With regard to the Market Vectors Africa Index ETF, it's about the potential for steady double-digit growth from a number of regions for decades to come. And finally, for Quest Diagnostics, it's about the increasing importance of personalized medical care moving forward.

I'm so confident that these three names will bounce off their lows that I'm going to make a CAPScall of outperform on each one.

As Warren Buffett has shown over five decades, buying solid companies at depressed prices has consistently helped generations of the world's most successful investors preserve capital, minimize risk, and achieve long-term, market-trampling returns. For one such company, read our free report: "The One REMARKABLE Stock to Own Now." Just click here to get started.

Daniel Kahneman: Keeping Score May Be More Dangerous Than You Think

Dr. Daniel Kahneman, winner of the 2002 Nobel Prize in economics joins us to discuss his book, Thinking, Fast and Slow.

In this video segment, Daniel answers a question from the audience and relates an experiment where a financial executive tracked every decision he made for a year, as well as the road not taken. The full version of the interview can be watched here. A full transcript follows the video.

Audience member: Dr. Kahneman, thank you so much for visiting us at The Motley Fool. We are really pleased. We've all learned a lot from you, and we've learned even more in this hour.

When you mentioned, "The more you live, the less you feel that you know," it reminds me of a great quote from, I think it was Archbishop William Temple, who once said, "The greater the island of knowledge, the longer the coastline of mystery." I think that's a wonderful way of thinking about the progression that we all go through over the course of our lives.

I wanted to ask you simply, I see something in the financial world, because that's our world, that looks broken to me and it's probably also broken in other areas of the world, and it's that there is no scorekeeping mechanism.

If people can make predictions and no one's actually holding them accountable or scoring them, then if you think of systems thinking, it's just fundamentally broken and we can't progress. But as soon as you do start to score -- I often liken it to baseball, where everything is scored -- I wish that more for our financial world, for our political world, and others.

Do you see good score systems in the world that we should all learn from, and/or do you have any thoughts about scorekeeping? Thank you.

Daniel Kahneman: I think there is really too little scorekeeping. It's sort of astonishing when you think of those CFOs coming in year after year, and making predictions that make no sense, and they come back next year with the same level of confidence. There is no improvement. There is some absence of scorekeeping there.

On the other hand, there are really many people I think that -- most of us -- have a lot to lose from accurate scorekeeping. That's because of what I said earlier, of our ability for self-delusion, which is really a major asset in our lives. That we can lose.

I have given that advice, to keep score and when you make a decision, document the options that you considered but didn't choose. I was giving that advice a lot, and there was one place -- I didn't know it immediately -- somebody took my advice.

It was in a financial firm. I won't mention what it was. For a year, he kept track of every decision he made and the options he considered and rejected. There was a fair amount of material collected by the end of the year.

Then they told me about it, and we analyzed it. That guy was making well in excess of a million a year, and the conclusion, which I didn't share with anybody, they didn't need him. They could have saved a million dollars. He was adding nothing.

That's the kind of thing that people expose themselves to when they keep score. It's a dangerous activity.

Accenture Gets a New CFO

Management consulting specialist Accenture  (NYSE: ACN  ) has a new bean counter.

The Dublin, Ireland-based consultant announced today that David P. Rowland has taken on the role of CFO effective immediately, succeeding Pamela J. Craig in the position, as she will retire from the company on Aug. 31. The company announced Rowland's appointment back in March.

Rowland, 52, has 30 years of experience at Accenture, and most recently served as senior VP of finance, with global responsibility for the consultant's finance operations. He is also a member of Accenture's global management committee.

After thanking Craig for her 34-year career with the company, Pierre Nanterme, Accenture's chairman and CEO, said in a statement: "David clearly has the financial and operational experience, as well as the leadership capabilities, to excel as Accenture's CFO. I am confident that he will be an outstanding successor to Pam and will move seamlessly into his new role."

Accenture also announced that Richard P. Clark has been appointed chief accounting officer, effective Sept. 1, in addition to his current position as corporate controller. Previously Clark served as Accenture's senior managing director of investor relations and held executive positions in several Accenture business areas. A CPA, Clark will continue to report to Rowland.