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Category: Stock Market and Bank of New York Mellon
Date: 15 July 2020 Stock Price of Bank of New York: $36.24 We take a look at the 2nd quarter earnings report of their 2020 fiscal year of Bank of New York Mellon, a global investment company with over $1.8 trillion in assets under management and revenue topping just over $4 billion for the 2nd quarter of 2020
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As we look ahead to the remainder of 2020, downside risks remain from the economic uncertainty and the significant pressure from low interest rates. Despite this, our underlying business remains strong, benefiting from the improving quality and efficiency of our operations and the level of the client experience - Todd Gibbons, Chief Executive Officer"
About Bank of New York Mellon
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries. As of Dec. 31, 2019, BNY Mellon had $37.1 trillion in assets under custody and/or administration, and $1.9 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).
Overview of Bank of New York Mellon's 2nd quarter 2020 earnings report
Data below refers to quarterly data unless specified otherwise:
- Total revenue: $4.010 billion (up from $3.924 billion for the same period of the previous year)
- Total revenue increased by 2.2% over the last 12 months
- Total noninterest expenses: $2.686 billion (up from $2.647 billion for the same period of the previous year)
- Total noninterest expenses increased by 1.5% over the last 12 months
- Net income: $965 million (down from -5.48% from $1.021 billion for the same period of the previous year)
- Diluted earnings per share: $1.01 (unchanged from $1.01 for the same period of the previous year)
- PE ratio of Bank of New York Mellon: 8.9
- Dividend declared: $0.31
- Dividend yield: 3.5%
- Diluted weighted-average shares outstanding: 885.862 million (down from 942.662 million for the same period of the previous year)
- Book value per share: $44.21 (up 9.7% from $40.30 for the same period of the previous year)
- Cash and cash equivalents: $4.776 billion
- Cash and cash equivalents per share: $5.39
- Cash and cash equivalents makes up 14.8% of Bank of New York Mellon's market capital
- Cash and cash equivalents makes up 1.1% of Bank of New York Mellon's total assets
- Loans net of allowances for losses: $55.095 billion
- Loans net of allowances makes up 12.5% of Bank of New York Mellon's total assets
- Goodwill: $17.253 billion
- Goodwill makes up 3.9% of Bank of New York Mellon's total assets
- Goodwill per stock: $19.47
- Stockholders equity in Bank of New York Mellon: $43.809 billion
- Stockholders equity per share: $49.45
- So Bank of New York Mellon is trading a 0.73 times its stockholders equity which is well outside the expected range of between 2 and 4 which most firms tend to trade at.
- For some perspective the S&P 500 has a price to book value of 3.34. Read more about the S&P 500 here
Bank of New York Mellon's management commentary on their 2nd quarter 2020 earnings
NEW YORK, July 15, 2020 – The Bank of New York Mellon Corporation (“BNY Mellon”) (NYSE: BK) today reported:
“For the second quarter, we delivered solid results, with all of our Investment Services businesses demonstrating resilient fee performance. Our EPS of $1.01 was flat year on year despite the impact of the lower interest rate environment and higher allowance for credit losses. We further bolstered our Common Equity Tier 1 ratio to 12.6 percent, and achieved a strong return on tangible common equity of 19 percent,” Todd Gibbons, Chief Executive Officer, said. “We are seeing momentum across most of our businesses as we continue to drive improved performance and capabilities across the company, and as we benefit from higher volumes and volatility versus a year ago,”
Mr. Gibbons added. “As we look ahead to the remainder of 2020, downside risks remain from the economic uncertainty and the significant pressure from low interest rates. Despite this, our underlying business remains strong, benefiting from the improving quality and efficiency of our operations and the level of the client experience. This should provide opportunities to deepen our relationships with clients. I remain deeply proud of our 48,000+ employees and how they continue to adapt and deliver great client service during this challenging time,” Mr. Gibbons further noted. “I would be remiss if I didn’t reflect on the first half of 2020—a period when we have been faced with the gravity of a global pandemic and with societal unrest spurred by racial injustice. Both have significant implications for how we operate as a business and as a corporate citizen. Our clients, communities and society at large can continue to rely on BNY Mellon to be a trusted steward. We have a relentless ambition to have a more profound impact on the world around us—helping us deliver sustainable long-term value to our shareholders,” Mr. Gibbons concluded.
“For the second quarter, we delivered solid results, with all of our Investment Services businesses demonstrating resilient fee performance. Our EPS of $1.01 was flat year on year despite the impact of the lower interest rate environment and higher allowance for credit losses. We further bolstered our Common Equity Tier 1 ratio to 12.6 percent, and achieved a strong return on tangible common equity of 19 percent,” Todd Gibbons, Chief Executive Officer, said. “We are seeing momentum across most of our businesses as we continue to drive improved performance and capabilities across the company, and as we benefit from higher volumes and volatility versus a year ago,”
Mr. Gibbons added. “As we look ahead to the remainder of 2020, downside risks remain from the economic uncertainty and the significant pressure from low interest rates. Despite this, our underlying business remains strong, benefiting from the improving quality and efficiency of our operations and the level of the client experience. This should provide opportunities to deepen our relationships with clients. I remain deeply proud of our 48,000+ employees and how they continue to adapt and deliver great client service during this challenging time,” Mr. Gibbons further noted. “I would be remiss if I didn’t reflect on the first half of 2020—a period when we have been faced with the gravity of a global pandemic and with societal unrest spurred by racial injustice. Both have significant implications for how we operate as a business and as a corporate citizen. Our clients, communities and society at large can continue to rely on BNY Mellon to be a trusted steward. We have a relentless ambition to have a more profound impact on the world around us—helping us deliver sustainable long-term value to our shareholders,” Mr. Gibbons concluded.
KEY DRIVERS (comparisons are 2Q20 vs. 2Q19, unless otherwise stated)
Assets under custody and/or administration (“AUC/A”) and Assets under management (“AUM”)
Capital and liquidity
- Total revenue increased 2% primarily reflecting:
- Fee revenue increased 2% primarily reflecting higher fees in Pershing and Asset Servicing, partially offset by money market fee waivers, lower investment management fees and the unfavorable impact of a stronger U.S. dollar.
- Net interest revenue decreased 3% primarily reflecting lower interest rates on interest-earning assets, partially offset by the benefit of lower deposit and funding rates and higher deposits, securities portfolio and loans.
- Provision for credit losses of $143 million primarily reflecting increased downgrades and the continuation of the challenging macroeconomic outlook.
- Noninterest expense increased 1% primarily reflecting the continued investments in technology and higher staff and pension expenses, partially offset by lower business development (travel and marketing) expense and the favorable impact of a stronger U.S. dollar.
- Effective tax rate of 18.3%.
Assets under custody and/or administration (“AUC/A”) and Assets under management (“AUM”)
- AUC/A of $37.3 trillion, increased 5%, primarily reflecting higher client inflows, market values and net new business, partially offset by the unfavorable impact of a stronger U.S. dollar.
- AUM of $2.0 trillion, increased 6%, primarily reflecting higher market values and net inflows, partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).
Capital and liquidity
- Open market share repurchases temporarily suspended for 2Q20 and 3Q20.
- Paid $278 million in dividends to common shareholders.
- Return on common equity (“ROE”) of 9%; Return on tangible common equity (“ROTCE”) of 19% (a).
- Common Equity Tier 1 (“CET1”) ratio – 12.6%.
- Tier 1 leverage ratio – 6.2%.
- Supplementary leverage ratio (“SLR”) – 8.2% (b).
- Average liquidity coverage ratio (“LCR”) – 112%.
- Total Loss Absorbing Capacity (“TLAC”) ratios exceed minimum requirements.
Bank of New York Mellon (NYSE: BK) stock price history
The image below, obtained from Google, shows the stock price history of Bank of New York Mellon over the last 5 years. And it's been an average time for Bank of New York Mellon stockholders. 5 years ago the stock was trading at around $42.80 a stock and its currently trading at $37.25 a stock. That's a loss of -8% suffered by Bank of New York Mellon stockholders over the last 5 years.
The stock of Bank of New York Mellon is trading at closer to its 52 week low of $26.40 than it is to its 52 week high of $51.607 which to us is a clear indication that the short term sentiment and momentum of Bank of New York Mellon's stock is negative, which is hardly surprising considering the massive sell off in global markers in recent months which was triggered by the Covid-19 pandemic and the impact it has had on global growth. Read more on the Covid-19 triggered market sell off here
The stock of Bank of New York Mellon is trading at closer to its 52 week low of $26.40 than it is to its 52 week high of $51.607 which to us is a clear indication that the short term sentiment and momentum of Bank of New York Mellon's stock is negative, which is hardly surprising considering the massive sell off in global markers in recent months which was triggered by the Covid-19 pandemic and the impact it has had on global growth. Read more on the Covid-19 triggered market sell off here
Bank of New York Mellon (BK) stock vs JP Morgan Chase (JPM)
The image below shows the stock price performance of Bank of New York Mellon (BK) and JP Morgan Chase (JPM) over the last 5 years. And as the image shows the stock price trends of these two banking giants are very similar. Over the last 5 years the stock of JP Morgan Chase (JPM) increased by 42.^6% while the stock of Citi Group declined by -14.6% over the same period of time. Thus the stock of JPM has easily outperformed that of Citi over the last 5 years.
Recent coverage of Bank of New York Mellon
The extract below discusses the latest regarding Bank of New York Mellon as obtained from SeekingAlpha.com
Bank of New York Mellon (NYSE:BK) Q2 EPS $1.01 vs. average analyst estimate of 92 cents, demonstrating resilient fee revenue, according to the company. Compares with $1.05 in Q1 and $1.01 in the year-ago quarter.
"We are seeing momentum across most of our businesses as we continue to drive improved performance and capabilities across the company, and as we benefit from higher volumes and volatility versus a year ago," said CEO Todd Gibbons. Q2 provision for credit losses of $143M vs. $169M in Q1 and a credit of $8M in the year-ago quarter.
Assets under custody and/or administration of $37.3T, up 5% Y/Y, primarily reflecting higher client inflows, market values and net new business, partially offset by the unfavorable impact of a stronger U.S. dollar. Assets under management of $2.0T, up 6% Y/Y, primarily reflecting higher market values and net inflows, partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).
Read the full article here
Bank of New York Mellon (NYSE:BK) Q2 EPS $1.01 vs. average analyst estimate of 92 cents, demonstrating resilient fee revenue, according to the company. Compares with $1.05 in Q1 and $1.01 in the year-ago quarter.
"We are seeing momentum across most of our businesses as we continue to drive improved performance and capabilities across the company, and as we benefit from higher volumes and volatility versus a year ago," said CEO Todd Gibbons. Q2 provision for credit losses of $143M vs. $169M in Q1 and a credit of $8M in the year-ago quarter.
Assets under custody and/or administration of $37.3T, up 5% Y/Y, primarily reflecting higher client inflows, market values and net new business, partially offset by the unfavorable impact of a stronger U.S. dollar. Assets under management of $2.0T, up 6% Y/Y, primarily reflecting higher market values and net inflows, partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).
Read the full article here
Bank of New York Mellon (NYSE: BK) latest stock valuation
So what is Bank of New York Mellon stock worth based on the release of their 1st quarter 2020 earnings earnings report? Based on Bank of New York Mellon's latest earnings report our valuation models provide a target price (full valueprice) for Bank of New York Mellon stock at $47.10 a stock (down slightly from our 1st quarter 2020 earnings review valuation of Bank of New York Mellon). We therefore believe that the stock of Bank of New York Mellon is undervalued at its current price of $37.25
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $47.10. Therefore we believe a good entry point into Bank of New York Mellon stock is at $42.40 or below. Since the stock of Bank of New York Mellon is trading at below our suggested entry point we rate the stock of Bank of New York Mellon as a long term buy
Once the Covid-19 pandemic is over and life returns to normal we expect the stock of Bank of New York Mellon to tick up nicely to levels closer to our target price
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $47.10. Therefore we believe a good entry point into Bank of New York Mellon stock is at $42.40 or below. Since the stock of Bank of New York Mellon is trading at below our suggested entry point we rate the stock of Bank of New York Mellon as a long term buy
Once the Covid-19 pandemic is over and life returns to normal we expect the stock of Bank of New York Mellon to tick up nicely to levels closer to our target price
Next earnings release date for Bank of New York Mellon
It is expected that Bank of New York Mellon (NYSE: BK) 3rd quarter 2020 earnings report will be released in the middle of October 2020