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Analyst Blog

On Mar 21, 2013, we reiterated our long-term recommendation on The Bank of New York Mellon Corporation (BK - Analyst Report) at neutral based on its continued improvement in asset quality and healthy capital ratios. However, a decline in top-line growth and increase in operating expenses adversely affected the results.

Why Neutral?

BNY Mellon’s fourth-quarter 2012 earnings came in at 53 cents per share, in line with the Zacks Consensus Estimate. Results were mainly driven by improved asset quality and solid capital ratios.

Following its fourth-quarter results, the Zacks Consensus Estimate for 2013 slipped 0.4% to $2.30 per share over the last 60 days. The Zacks Consensus Estimate for 2014 also fell 1.1% to $2.59 per share over the same time frame. Hence, BNY Mellon currently has a Zacks Rank #3 (Hold).

With the approval of BNY Mellon’s capital plan by the Federal Reserve, the company authorized a new share repurchase program under which it plans to buyback $1.35 billion worth of stock during the first quarter of 2014.

Moreover, BNY Mellon’s expense savings program, healthy liquidity position and significant foothold in the foreign markets are expected to auger well for its long-term growth. Further, BNY Mellon has numerous organic growth prospects and stands to benefit from growth in the global market.

On the flip side, BNY Mellon’s escalating expenses and pressure on its net interest margin remains a concern. Moreover, a sluggish economic recovery, a persistent low-interest rate environment and the changing regulatory landscape are expected to undermine its revenue growth in the subsequent quarters.

Other Major Banks to Consider

Other major banks that are performing better than BNY Mellon and are worth a look include State Street Corporation (STT - Analyst Report), Fifth Third Bancorp (FITB - Analyst Report) and Citigroup, Inc. (C - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

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