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Asset Growth to Aid BNY Mellon (BK) Q3 Earnings Amid Low Rates

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The Bank of New York Mellon Corporation (BK - Free Report) is scheduled to report third-quarter 2020 results on Oct 16, before market open. Its revenues and earnings in the quarter are expected to have witnessed a decline on a year-over-year basis.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from growth in fee income and an improvement in assets under management (AUM) balance. However, significantly higher provisions, a decline in net interest revenue (NIR) and a slight rise in expenses were the undermining factors.

BNY Mellon has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with a surprise of 8.6%, on average.

Moreover, the Zacks Consensus Estimate for the company’s third-quarter earnings of 96 cents has been revised 2.1% upward over the past 30 days. However, the figure indicates a decline of 10.3% from the year-ago quarter’s reported number.

The consensus estimate for sales is pegged at $3.85 billion, indicating a marginal decline from the prior-year quarter’s reported figure.

Now, before we take a look at what our quantitative model predicts, let’s check the factors that are likely to have impacted BNY Mellon’s third-quarter performance.

Fee Revenue: Despite continued fears relating to the impact of the coronavirus, the third quarter witnessed overall asset inflows. Thus, driven by inflows, BNY Mellon is expected to have recorded an improvement in total AUM balance in the quarter.

Notably, the Zacks Consensus Estimate for the company’s total AUM of $1.97 trillion for the to-be-reported quarter suggests a marginal rise from the previous quarter’s reported figure. Moreover, the consensus estimate for total assets under custody and administration of $37.49 trillion indicates marginal growth from the previous quarter.

Supported by an increase in assets, the company’s investment management and performance fee is likely to have been positively impacted in the quarter. The consensus estimate for the same is pegged at $789 million, suggesting marginal growth on a sequential basis.

Moreover, the consensus estimate for total investment services fee (comprising almost 50% of total revenues) of $2.04 billion indicates a rise of 1% from the previous quarter’s reported number.

However, the consensus estimate for foreign exchange and other trading revenues is pegged at $159 million, suggesting a decline of 4.2% sequentially. The consensus mark for financing-related fee is $50 million, which suggests a decline of 13.8% sequentially.

Also, the Zacks Consensus Estimate for investment and other income of $45 million indicates a sequential decline of 57.1%.

Thus, despite expected growth in assets, total fee revenues are not expected to have witnessed much growth in the quarter. Notably, the consensus estimate for fee revenues is pegged at $3.14 billion, suggesting a marginal decline sequentially.

Net Interest Revenue: With the economic slowdown and the persistent scare related to the pandemic, demand for loans was soft during the third quarter. Thus, muted loan growth along with near-zero interest rates is likely to have hurt the company’s NIR to some extent.

Notably, management expects NIR in the third quarter to decline 8-11% sequentially.

Expenses: Because of higher litigation and restructuring charges, the company’s expenses have been elevated over the past few years. Nevertheless, overall costs are expected to have remained manageable in the quarter, given the elimination of unnecessary management layers.

What the Zacks Model Unveils

According to our quantitative model, chances of BNY Mellon beating the Zacks Consensus Estimate this time are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — which is required to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for BNY Mellon is +0.33%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Other Stocks That Warrant a Look

Here are some other finance stocks that you may want to consider as these too have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

The Earnings ESP for CullenFrost Bankers, Inc. (CFR - Free Report) is +2.61% and the company carries a Zacks Rank of 3, at present. The company is slated to report quarterly results on Oct 29. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Huntington Bancshares Incorporated (HBAN - Free Report) is set to release earnings figures on Oct 22. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +2.88%.

The Earnings ESP for Civista Bancshares, Inc. (CIVB - Free Report) is +26.31% and the company carries a Zacks Rank #2 (Buy), currently. It is scheduled to report quarterly numbers on Oct 23.

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