The large custody bank roiled much of the U.S. mutual fund industry in August when one of the accounting systems it uses to generate prices for funds collapsed. The problems lasted more than a week and affected about $400 billion in assets. [http://reut.rs/1kkLxgG]

Speaking on a conference call with analysts to discuss its earnings, BNY Mellon Chief Financial Officer Thomas Gibbons said expenses in the period were higher because of concessions the company gave to clients as a result of the glitch.

The bank did not break out an exact figure but said payment waivers or refunds to clients were accounted for in its "other" non-interest expense line of $268 million during the quarter, which was 7 percent higher than in the previous quarter and year-ago quarter. The "other" category also was the only type of non-interest expense to increase compared with a year ago, BNY Mellon said.

Because of the outage, clients "went through a challenging week, so we wanted to make sure we were proactive in covering their costs and taking care of them," BNY Mellon Chief Executive Gerald Hassell said on the conference call.

Hassell said the bank is "actively working with the clients, working with their fund boards, making sure that they fully understand what happened and how we recovered and why the system is stable and safe."

For the three months ended Sept. 30, BNY Mellon said profit fell 23 percent from the year-ago period, which included one-time gains, but topped estimates. Overall its non-interest expenses fell as it cut staff costs.

The bank has been under pressure from activist hedge fund Marcato Capital Management to show progress on cost-cutting. The hedge fund has said BNY Mellon has too many employees. [http://reut.rs/1W2Ukop]

BNY Mellon said it had 51,300 full-time workers as of Sept. 30, 400 more than a year ago, but cut total staff costs to $1.44 billion in the quarter from $1.48 billion a year earlier, reflecting the impact of a stronger U.S. dollar, a curtailed U.S. pension plan and lower incentive expenses.

For the three months ending Sept. 30, net income fell to $820 million, or 74 cents a share, from $1.07 billion, or 93 cents per share, in the same period a year earlier.

Adjusted for items including the sale of its One Wall Street building and stake in Hong Kong bank Wing Hang Bank Ltd, net income in the year-ago quarter was $734 million, or 64 cents per share.

Analysts surveyed by Thomson Reuters I/B/E/S expected earnings of 71 cents per share in the most recent quarter. Shares in BNY Mellon were up 2.1 percent to $41.03 on the New York Stock Exchange.

Assets under custody and administration, a key measure, were $28.5 trillion as of Sept. 30, flat from the prior quarter but up 1 percent from a year ago.

Revenue was $3.79 billion, down 18 percent from a year ago, but up 1 percent on an adjusted basis.

(Reporting by Ross Kerber Editing by W Simon, JS Benkoe and Paul Simao)

By Ross Kerber