Why Is The Bank of New York Mellon Corporation (BK) Down 2.1% Since Last Earnings Report?

A month has gone by since the last earnings report for The Bank of New York Mellon Corporation (BK). Shares have lost about 2.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is The Bank of New York Mellon Corporation due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

BNY Mellon Beats on Q3 Earnings as Fee Income Improves

BNY Mellon’s third-quarter 2021 earnings of $1.04 per share beat the Zacks Consensus Estimate of $1.02. The bottom line represents a rise of 6% from the prior-year quarter.

Results gained from provision benefit and higher fee income. Growth in asset balances was another tailwind. However, a fall in net interest income, increase in fee waivers, and higher expenses were the undermining factors.
 
Net income applicable to common shareholders was $881 million, up 1% year over year.

Revenues & Expenses Rise

Total revenues grew 5% year over year to $4.04 billion. The top line also outpaced the Zacks Consensus Estimate of $3.97 billion.

Net interest revenues, on a fully taxable-equivalent (FTE) basis, were $644 million, down 9% year over year. The fall was mainly due to lower interest rates on interest-earning assets, partially offset by benefits from low deposit and funding rates, and higher deposit and loan balances.

Net interest margin (FTE basis) contracted 11 basis points (bps) to 0.68%.

Total fee and other revenues rose 8% to $3.39 billion. The increase was driven by higher investment services fees, foreign exchange revenues, and investment management and performance fees, partly offset by decline in financing-related fees, and distribution and servicing fees.

Money market fee waivers were $262 million, up significantly from $110 million recorded in the year-ago quarter. Excluding fee waivers, fee income increased 11%.

Total non-interest expenses (GAAP basis) were $2.92 billion, up 9%. The rise was attributable to the unfavorable impact of a weaker U.S. dollar, investments in efficiency, infrastructure and growth efforts, and higher revenue-related expenses. Excluding the litigation reserve of $72 million, expenses increased 6%.

Asset Position Strong

As of Sep 30, 2021, assets under management (AUM) were $2.3 trillion, up 13% 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 $45.3 trillion grew 17%, reflecting higher market values, net new business, and client inflows.

Credit Quality: Mixed Bag

Allowance for loan losses as a percentage of total loans was 0.36%, down 23 bps from the prior-year quarter. The company recorded a provision benefit of $45 million against provision for credit losses of $9 million in the year-ago quarter.

As of Sep 30, 2021, non-performing assets were $108 million, up 29% year over year.

Capital Ratios Deteriorate

As of Sep 30, 2021, common equity Tier 1 ratio was 11.7%, down from 12.6% in the prior quarter. Tier 1 Leverage ratio was 5.7%, down from 6.3% on Jun 30, 2021.

Share Repurchase Update

During the reported quarter, BNY Mellon repurchased 38.1 million shares for $2 billion.

Outlook

NIR is expected to decline 14% in 2021.

Fee waivers (net of distribution and servicing expenses) in the third quarter of 2021 are projected to be relatively stable on a sequential basis.

As growth in the third quarter fee income exceeded management expectations and on the back of the continued momentum across the franchise, the company now expects fees (excluding fee waivers) for 2021 to be up closer to 8.5%. Earlier, the company had targeted 2021 fees (excluding fee waivers) to increase 7-8%.

Overall expenses (excluding notable items) are projected to increase 5% for 2021.

Effective tax rate is expected to be approximately 19% for 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, The Bank of New York Mellon Corporation has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, The Bank of New York Mellon Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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