BNY Mellon Wins Fed Approval To Return Over $4 Billion To Shareholders Through Q2 2018

The Bank of New York Mellon Corporation (NYSE:BK) is looking to return more than $4 billion to shareholders over the next twelve months, and has secured the Federal Reserve’s approval to do so as part of this year’s stress test for banks. The capital return plan was revealed by the global custody banking giant immediately after the the Fed detailed results for the latest iteration of its annual Comprehensive Capital Analysis and Review (CCAR) for banks earlier this week (see Fed Clears Capital Plans Of All U.S. Banks Subject To Stress Tests For The First Time In Seven Years). BNY Mellon has had little difficulty clearing the stress tests over the years thanks to its business model focusing on custody banking and asset management. The stress tests are primarily aimed at traditional loans-and-deposits banks as well as investment banks.

The proposed capital return plan entails a 26% hike in quarterly dividends from $0.19 per share to $0.24 per share, and a share buyback program to repurchase $2.6 billion worth of the bank’s shares over the next four quarters. The bank can also repurchase an additional $500 million in common shares over the period provided it successfully raises $500 million through a preferred stock issuance – taking the total potential buyback figure to $3.1 billion.

We are current in the process of updating our price estimate for BNY Mellon’s stock to reflect the newly announced capital return plan.

See our full analysis for BNY Mellon here

BNY Mellon paid out quarterly dividends of over $0.20 a share between 2005 and 2008, with the figure remaining at its peak level of $0.24 for seven quarters until Q4 2008. As the recession set in and the bank faced losses, the dividend was slashed to $0.09 per share in Q1 2009 and remained at that level until Q1 2011 – when the figure was increased to $0.13 per share. These dividends were maintained for two years, with the bank choosing to return additional cash to investors through share repurchases, until it hiked them to $0.15 per share in Q2 2013. Following the 2014 stress tests, BNY Mellon boosted quarterly dividends to $0.17 a share in Q2 2014, and maintained it at that level until Q2 2016. The figure is increase to $0.19 from Q3 2016, and is expected to jump to $0.24 from the next quarter.

The table below summarizes Bank of New York Mellon’s capital return figures for each year since 2005 and has been compiled using figures reported in annual reports:

As BNY Mellon paid $0.19 in dividends per share over the first two quarter of 2017, and proposes to pay $0.24 per share over the remaining two quarters, total dividends for the year should be $0.86 per share. This works out to total dividends of just under $900 million for the year, assuming the total number of share outstanding remains constant at the current level of 1.04 billion. As for the share buyback program, assuming BNY Mellon successfully issues the required preferred stock over coming months, total buybacks should be $3.1 billion over the next four quarters. Out of the $2.7 billion the bank was authorized to repurchase as a part of the 2016 capital plan, the bank had existing permissions in place to repurchase stock worth about $1.4 billion over the first half of 2017. Taken together with $1.55 billion in expected purchases for the rest of the year (half of the total potential buybacks of $3.1 billion), this points to total share repurchases of almost $3 billion in 2017. Along with the $900 million in dividends, this points to total payouts of almost $3.9 billion from BNY Mellon to shareholders in 2017 – well above the $3.5 billion in net income we forecast for the bank this year.

We include dividend payouts and share repurchases in our analysis of BNY Mellon in the form of an adjusted dividend payout rate as shown in the chart below. You can understand how a change in the bank’s adjusted dividend payout affects its share value by making changes to the chart.

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