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BNY Mellon (BK) Rides on Organic Growth Amid Rising Expenses
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The Bank of New York Mellon Corporation’s (BK - Free Report) is well-placed to benefit from higher interest rates. This, along with robust assets under management (AUM), solid balance sheet position and global expansion initiatives, will likely drive revenues in the quarters ahead. However, a rise in expenses and concentration risk due to higher dependence on fee-based revenues is worrisome.
With the Federal Reserve expected to keep interest rates high in the near term, BK's net interest revenue (NIR) and net interest margin (NIM) are anticipated to improve in the quarters ahead. The company’s NIR and NIM declined in 2020 and 2021 but rebounded solidly in 2022. NIR recorded a four-year (ended 2022) compound annual growth rate (CAGR) of 3.2%. Likewise, NIM improved to 0.97% last year from 0.68% in 2021.
Both metrics witnessed an uptrend in the first quarter of 2023. Our estimates for NIR suggest a CAGR of 6.3% over the next three years. Likewise, NIM is expected to be 1.19% in 2023, 1.07% in 2024 and 0.98% in 2025.
As of Mar 31, 2023, the company had total debt worth $59.6 billion, significantly lower than its cash and cash equivalents, and due from banks of $122.6 billion. BK maintains investment-grade long-term senior debt ratings of A1/A/AA- and a stable outlook from Moody’s Investors Service, S&P Ratings, and Fitch Ratings, respectively. Thus, with sound liquidity and a manageable debt level, the company is expected to be able to meet its near-term debt obligations even if the economic situation worsens.
BK has been trying to improve its market share internationally and is also undertaking several growth initiatives. In 2021, BNY Mellon, through its subsidiary, acquired Optimal Asset Management. The company's international revenues (constituting 35% of total revenues in the first quarter of 2023) are expected to keep improving as the demand for personalized services rises worldwide.
Analysts seem pessimistic regarding BK’s earnings growth prospects. The Zacks Consensus Estimate for 2023 and 2024 earnings has been revised marginally lower over the past seven days. The company currently carries a Zacks Rank #3 (Hold).
However, BK has been witnessing a persistent rise in expenses over the recent few years. The company’s costs witnessed a CAGR of 6.1% in the last four years (ended 2022), with the uptrend continuing in the first quarter of 2023. Excluding notable items, management anticipates 2023 expenses to increase approximately 4%. While we project non-interest expenses to decline this year, the metric is expected to increase 1.6% in 2024.
Fee income constituted more than 74% of BNY Mellon’s total revenues at the end of the first quarter of 2023. Concentration risk emanating from higher dependence on fee-based revenues could significantly alter the company’s financial position if there is any change in individual investment preferences, regulatory amendments or a slowdown in capital market activities.
In the past six months, shares of BNY Mellon have declined 10.1% compared with the industry's 15.4% fall.
Image Source: Zacks Investment Research
Banks Worth a Look
A couple of better-ranked stocks from the finance space are Pathward Financial, Inc. (CASH - Free Report) and First Citizens BancShares (FCNCA - Free Report) .
The Zacks Consensus Estimate for Pathward Financial’s current-year earnings has been revised 1.8% upward over the past 30 days. Its shares have gained 2.9% in the past six months. Currently, CASH carries a Zacks Rank #2 (Buy).
First Citizens BancShares currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 67% upward over the past 30 days. In the past six months, FCNCA’s shares have rallied 62.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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BNY Mellon (BK) Rides on Organic Growth Amid Rising Expenses
The Bank of New York Mellon Corporation’s (BK - Free Report) is well-placed to benefit from higher interest rates. This, along with robust assets under management (AUM), solid balance sheet position and global expansion initiatives, will likely drive revenues in the quarters ahead. However, a rise in expenses and concentration risk due to higher dependence on fee-based revenues is worrisome.
With the Federal Reserve expected to keep interest rates high in the near term, BK's net interest revenue (NIR) and net interest margin (NIM) are anticipated to improve in the quarters ahead. The company’s NIR and NIM declined in 2020 and 2021 but rebounded solidly in 2022. NIR recorded a four-year (ended 2022) compound annual growth rate (CAGR) of 3.2%. Likewise, NIM improved to 0.97% last year from 0.68% in 2021.
Both metrics witnessed an uptrend in the first quarter of 2023. Our estimates for NIR suggest a CAGR of 6.3% over the next three years. Likewise, NIM is expected to be 1.19% in 2023, 1.07% in 2024 and 0.98% in 2025.
As of Mar 31, 2023, the company had total debt worth $59.6 billion, significantly lower than its cash and cash equivalents, and due from banks of $122.6 billion. BK maintains investment-grade long-term senior debt ratings of A1/A/AA- and a stable outlook from Moody’s Investors Service, S&P Ratings, and Fitch Ratings, respectively. Thus, with sound liquidity and a manageable debt level, the company is expected to be able to meet its near-term debt obligations even if the economic situation worsens.
BK has been trying to improve its market share internationally and is also undertaking several growth initiatives. In 2021, BNY Mellon, through its subsidiary, acquired Optimal Asset Management. The company's international revenues (constituting 35% of total revenues in the first quarter of 2023) are expected to keep improving as the demand for personalized services rises worldwide.
Analysts seem pessimistic regarding BK’s earnings growth prospects. The Zacks Consensus Estimate for 2023 and 2024 earnings has been revised marginally lower over the past seven days. The company currently carries a Zacks Rank #3 (Hold).
However, BK has been witnessing a persistent rise in expenses over the recent few years. The company’s costs witnessed a CAGR of 6.1% in the last four years (ended 2022), with the uptrend continuing in the first quarter of 2023. Excluding notable items, management anticipates 2023 expenses to increase approximately 4%. While we project non-interest expenses to decline this year, the metric is expected to increase 1.6% in 2024.
Fee income constituted more than 74% of BNY Mellon’s total revenues at the end of the first quarter of 2023. Concentration risk emanating from higher dependence on fee-based revenues could significantly alter the company’s financial position if there is any change in individual investment preferences, regulatory amendments or a slowdown in capital market activities.
In the past six months, shares of BNY Mellon have declined 10.1% compared with the industry's 15.4% fall.
Image Source: Zacks Investment Research
Banks Worth a Look
A couple of better-ranked stocks from the finance space are Pathward Financial, Inc. (CASH - Free Report) and First Citizens BancShares (FCNCA - Free Report) .
The Zacks Consensus Estimate for Pathward Financial’s current-year earnings has been revised 1.8% upward over the past 30 days. Its shares have gained 2.9% in the past six months. Currently, CASH carries a Zacks Rank #2 (Buy).
First Citizens BancShares currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 67% upward over the past 30 days. In the past six months, FCNCA’s shares have rallied 62.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.