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

Bank of New York Mellon Corporation’s BK 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.

The Bank of New York Mellon Corporation Price, Consensus and EPS Surprise


The Bank of New York Mellon Corporation Price, Consensus and EPS Surprise

The Bank of New York Mellon Corporation price-consensus-eps-surprise-chart | The Bank of New York Mellon Corporation Quote

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 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 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 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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