雅虎香港財經 High Rates to Support BNY Mellon's (BK) Top Line Amid Cost Woes
The Bank of New York Mellon Corporation’s BK global expansion efforts, robust assets under management balance and solid balance sheet are expected to keep aiding the top line. The company’s business transformation plan will likely bolster market share.
Analysts seem optimistic regarding BK’s earnings growth potential. Over the past 60 days, the Zacks Consensus Estimate for BNY Mellon’s current-year earnings has been revised marginally higher.
In the past three months, BK shares have gained 2.4% compared with the industry’s growth of 0.3%.
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However, elevated expenses, mainly due to technology upgrades, may hurt the bottom line to an extent. Concentration risk arising from BK’s significant dependence on fee-based revenues is another headwind. The company currently carries a Zacks Rank #3 (Hold).
Looking at its fundamentals, while BNY Mellon’s net interest revenues (NIR) and net interest margin (NIM) declined in 2020 and 2021 because of the low interest rate regime, both rebounded solidly thereafter, driven by higher rates. NIR recorded a five-year (ended 2023) compound annual growth rate (CAGR) of 3.8%. Likewise, NIM improved to 1.25% in 2023 from 0.97% in 2022, 0.68% in 2021 and 0.84% in 2020.
Though the metrics declined in the first quarter of 2024 due to higher funding costs, they are anticipated to stabilize gradually in the next few quarters and then witness improvement over time. While we expect NIR to decline in 2024, the metric is expected to rebound and grow 2.1% and 6.2% in 2025 and 2026, respectively. NIM is expected to be 1.11% in 2024, 1.12% in 2025 and 1.19% in 2026.
BNY Mellon’s capital distribution activities seem impressive. In April 2024, the company announced a new share repurchase program worth $6 billion. Following the clearance of the 2023 stress test, the company hiked its quarterly cash dividend by 14% to 42 cents per share. Driven by a strong capital position and earnings strength, the company will likely be able to sustain efficient capital distributions, thus enhancing shareholder value.
Moreover, BK has been trying to gain a foothold in foreign markets and is undertaking several growth initiatives (including launching services, digitizing operations and making strategic buyouts). In 2021, the company, through its subsidiary, acquired Optimal Asset Management. In 2022, it divested BNY Alcentra Group Holdings, Inc. to Franklin Resources and in April 2024, it announced signing an agreement to divest BNY Trust Company of Canada to Computershare.
However, the company’s non-interest expenses saw a five-year (ended 2023) CAGR of 3.3%, with the uptrend continuing in the first quarter of 2024. The company’s multi-year transformation program is expected to result in higher expenses in the quarters ahead.
Given the inflationary pressure and the company’s efforts to upgrade operations with updated technology and automation, overall costs are expected to remain elevated in the near term. While we project non-interest expenses to decline 5.6% in 2024, the metric is expected to increase 2.2% in 2025 and 1.1% in 2026.
BNY Mellon’s largest source of revenue is fee income, which constituted 73% of total revenues in the first quarter of 2024. The metric witnessed a five-year (2018-2023) CAGR of just 0.1%. Though fee income majorly supported the company’s top line in the first quarter of 2024, significant volatility in the capital markets is worrisome and puts doubts on the sustainability of solid growth, going forward.
Stocks Worth Considering
A couple of better-ranked stocks from the finance space are First Community Bankshares, Inc. FCBC and Origin Bancorp, Inc. OBK. FCBC and OBK currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for FCBC’s current year’s earnings has been revised 8.8% upward over the past 60 days. Over the past year, FCBC’s share price has increased 16.1%.
OBK’s current-year earnings estimates have been revised 9.1% upward over the past 60 days. OBK shares have lost 3.9% over the past year.
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