A month has gone by since the last earnings report for Bank of New York Mellon (BK). Shares have lost about 3.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Bank of New York Mellon due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
BNY Mellon Q1 Earnings Lag Estimates as Revenues Fall
BNY Mellon’s first-quarter 2019 earnings per share of 94 cents lagged the Zacks Consensus Estimate of 96 cents. Moreover, the figure reflected a decline of 15% from the prior-year quarter.
Results were adversely impacted by a decline in revenues. Moreover, a fall in AUM hurt results. Higher provision for credit losses was another negative for the company. However, lower expenses supported results to some extent.
Net income applicable to common shareholders for the quarter under review was $910 million, down from $1.1 billion recorded in the prior-year quarter.
Revenues Decline, Costs Drop
Total revenues (GAAP basis), excluding income from consolidated investment management funds, declined nearly 8% year over year to $3.87 billion. The figure missed the Zacks Consensus Estimate of $3.99 billion.
Net interest revenues, on a fully taxable-equivalent basis (non-GAAP basis), were $845 million, down 9% year over year. This decline was due to lower non-interest bearing deposits, and loan balances and higher deposit rates, partly offset by higher asset yields.
Also, non-GAAP net interest margin (FTE basis) contracted 3 basis points year over year to 1.20%.
Total fee and other revenues declined 7% year over year to $3.03 billion. This decrease was due to a fall in all components of fee revenues.
Total non-interest expenses were $2.70 billion, down nearly 1% year over year. This reflects a decrease in all expense components, except for professional, legal, and other purchased services, software and equipment, and other expenses.
Mixed Asset Position
As of Mar 31, 2019, AUM was $1.8 trillion, down 1% year over year. This reflects net outflows and the unfavorable impact of a stronger U.S. dollar, partly offset by higher market value.
However, assets under custody and/or administration of $34.5 trillion increased 3% year over year, reflecting higher market values and net new businesses, partly offset by the unfavorable impact of a stronger U.S. dollar.
Credit Quality: Mixed Bag
As of Mar 31, 2019, non-performing assets were $174 million, up from $85 million registered at the end of the prior-year quarter. Provision for credit losses during the quarter under review was $7 million against a benefit of $5 million in the year-ago quarter. However, allowance for loan losses decreased 6% year over year to $146 million.
Capital Position Improves
As of Mar 31, 2019, common equity Tier 1 ratio was 11% compared with 10.7% as of Mar 31, 2018. Tier 1 Leverage ratio was 6.8%, up from 6.5% registered as of Mar 31, 2018.
Capital Deployment Update
During the first quarter, BNY Mellon bought back 10.5 million shares for $555 million. Further, it paid dividends worth $270 million to common shareholders.
NIR in the second quarter is projected to decline nearly 3-5% sequentially. This is based on expectations of a decrease in non-interest-bearing deposit balances and relatively flat yield on the securities portfolio.
On the expense front, technology spend is anticipated to increase in 2019, reflecting the ramp-up of spend in 2018. Notably, even with these investments, excluding the notable items, overall operating expenses are not expected to rise substantially in 2019.
The effective tax rate is anticipated to be around 21% for 2019.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.31% due to these changes.
At this time, Bank of New York Mellon has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Bank of New York Mellon has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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