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BNY Mellon (BK) Earnings Beat in Q3, Revenues Decline Y/Y

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Bank of New York Mellon Corporation’s (BK - Free Report) third-quarter 2020 earnings per share of 98 cents surpassed the Zacks Consensus Estimate of 96 cents. The figure was 8.4% lower than the prior-year quarter’s level.

Results primarily benefited from growth in asset balance. However, slightly lower revenues and rise in expenses were the undermining factors.

Net income applicable to common shareholders was $876 million, down 12.6% from the prior-year quarter.

Revenues Decline & Expenses Rise

Total revenues (GAAP basis), excluding income from consolidated investment management funds, declined 1% year over year to $3.82 billion. The figure lagged the Zacks Consensus Estimate of $3.84 billion.

Net interest revenues — on a fully taxable-equivalent basis (non-GAAP basis) — were $705 million, down 3.8% year over year. The decline was due to lower interest rates on interest-earning assets, partially offset by benefits from low deposit and funding rates, and higher deposits, securities portfolio and loan balances.

Non-GAAP net interest margin (FTE basis) contracted 21 basis points year over year to 0.79%.

Total fee and other revenues declined marginally year over year to $3.12 billion. The fall was due to a decline in total investment services fees, foreign exchange and other trading revenues, and distribution and servicing fees.

Total non-interest expenses were $2.68 billion, up 3.5% from the prior-year quarter. The majority of the increase was due to the impact of third-quarter 2019 net reduction of reserves for tax-related exposure of certain investment management funds. The remainder of the increase was due to higher professional, legal and other purchased service-related costs, software and equipment costs, sub-custodian and clearing costs, and other expenses.

Asset Position Strong

As of Sep 30, 2020, assets under management (AUM) were $2.04 trillion, up 8.5% year over year. The rise was mainly driven by higher market values, the favorable impact of a weaker U.S. dollar and net inflows.

Assets under custody and/or administration of $38.6 trillion grew 7.8% year over year, reflecting higher market values, net new business, higher client inflows and the favorable impact of a weaker U.S. dollar.

Credit Quality: Mixed Bag

As of Sep 30, 2020, non-performing assets were $84 million, down 4.5% year over year.

However, allowance for loan losses — as a percentage of total loans — was 0.59%, up 36 basis points from the prior-year quarter. Moreover, provision for credit losses was $9 million against a provision benefit of $16 million recorded in the year-ago quarter.

Capital Ratios Solid

As of Sep 30, 2020, common equity Tier 1 ratio was 13.0% compared with 11.1% on Sep 30, 2019. Tier 1 Leverage ratio was 6.5%, unchanged from the Sep 30, 2019, level.

Our Viewpoint

BNY Mellon’s global reach, strong balance sheet position and solid AUM balance will go a long way in supporting profitability. However, near-zero interest rates will likely continue to hurt margins in the near term.

Currently, BNY Mellon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Aided by robust mortgage banking revenues, Wells Fargo (WFC - Free Report) reported third-quarter 2020 adjusted earnings of 56 cents per share, beating the Zacks Consensus Estimate of 47 cents. Results, however, compared unfavorably with the prior-year quarter figure of 92 cents.

Citigroup (C - Free Report) delivered an earnings surprise of 38.6% in third-quarter 2020 on robust market revenues. Earnings per share of $1.40 for the quarter handily outpaced the Zacks Consensus Estimate of $1.01. Results were, however, down significantly from the prior-year quarter.

Unexpected lower provisions along with improvement in trading and mortgage banking businesses drove JPMorgan’s (JPM - Free Report) third-quarter 2020 earnings of $2.92 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $2.35.

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