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Rise in AUM to Aid BNY Mellon's (BK) Q1 Earnings Amid Low Rates

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The Bank of New York Mellon Corporation (BK - Free Report) is scheduled to report first-quarter 2021 results on Apr 16, before market open. Its revenues and earnings in the to-be-reported quarter are expected to have witnessed a decline on a year-over-year basis.

In the last reported quarter, the company’s adjusted earnings surpassed the Zacks Consensus Estimate. Results benefited from growth in assets under management (AUM) balance and a decline in expenses. However, lower revenues were the undermining factor.

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 7.4%, on average.

Moreover, the Zacks Consensus Estimate for the company’s first-quarter earnings of 87 cents has been revised 1.2% upward over the past seven days. However, the figure indicates a decline of 17.1% from the year-ago quarter’s reported number.

The consensus estimate for sales is pegged at $3.84 billion, indicating a 7.3% 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 first-quarter performance.

Fee Revenues: Despite the continued concerns related to the pandemic, the first quarter witnessed overall asset inflows. Thus, driven by inflows, BNY Mellon is expected to have recorded an improvement in total AUM balance in the to-be-reported quarter.

Notably, the Zacks Consensus Estimate for the company’s total AUM is pegged at $2.22 trillion for the to-be-reported quarter, which suggests a rise of 1.1% from the previous quarter’s reported figure. Moreover, the consensus estimate for total assets under custody and administration of $41.27 trillion indicates marginal growth from the previous quarter’s reported figure.

Despite an expected increase in assets, the company’s investment management and performance fee is not likely to have improved in the quarter. The consensus estimate for the same is pegged at $873 million, suggesting a decline of 1.2% from the previous quarter’s reported number.

However, the consensus estimate for foreign exchange and other trading revenues is pegged at $171 million, suggesting a rise of 2.4% sequentially.

The consensus estimate for total investment services fee (comprising more than 50% of total revenues) of $1.99 billion indicates a 1.2% rise from the previous quarter’s reported number. Also, the consensus mark for financing-related fees is pegged at $49.56 million, which suggests a rise of 7.7% sequentially.

Thus, the consensus estimate for total fee revenues is pegged at $3.16 billion, suggesting a 1.4% rise sequentially.

Net Interest Revenues: Similar to 2020, the overall lending scenario remained weak in the first quarter due to the slow resumption of business activities. Thus, while steepening of the yield curve is likely to have offered some support to BNY Mellon’s interest income, its NIR is expected to have been hurt because of muted loan growth and the near-zero interest rate environment.

Notably, the company expects first-quarter 2021 fee waivers (net of distribution expense benefit) to be nearly $175 million.

Expenses: Because of higher litigation and restructuring charges, BNY Mellon’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.

Management expects expenses (including the impact of currency) in the first quarter to be up 3-4% year over year.

What the Zacks Model Unveils

According to our quantitative model, the 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 +1.27%.

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.

Citigroup (C - Free Report) is slated to report quarterly results on Apr 15. The company has an Earnings ESP of +3.14% and currently carries a Zacks Rank of 3.

BankUnited (BKU - Free Report) is scheduled to release earnings on Apr 22. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.64%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Invesco (IVZ - Free Report) is +6.31% and it carries a Zacks Rank #2 (Buy) at present. The company is slated to report quarterly numbers on Apr 27.

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