BNY Mellon Investors Can Thank The Crapo Bill For Newly Approved $830 Million Payout

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Bank of New York Mellon

The Bank of New York Mellon Corporation (NYSE:BK) recently announced that it had received the Federal Reserve’s approval to hike share repurchases under the current capital return plan by $830 million. Taken together with the $2.4-billion in buybacks approved by the Fed as a part of its most recent stress test cycle for banks in June, this represents total repurchases in excess of $3.2 billion for the custody banking giant over the four-quarter period from Q3 2018 to Q2 2019. We believe that this windfall for BNY Mellon’s investors can largely be attributed to the partial rollback of the Dodd-Frank Act that was signed into law in May. As we pointed out in our detailed analysis of the impact of Crapo Bill on U.S. banks, the changes boosted the capital ratios of custody banks BNY Mellon and State Street the most – freeing up millions in dollars in tied-up capital.

Historically, BNY Mellon has had little difficulty clearing the Fed’s annual stress tests, as its business model focuses on custody banking and asset management, while the stress tests are primarily aimed at traditional loans-and-deposits banks and investment banks. But with the Crapo Bill diluting some of the stringent regulations imposed by the Dodd-Frank Act and also relaxing deposit requirements specifically for custody banks, BNY Mellon investors can expect higher dividends and share repurchases over coming years. We capture the trends in Bank of New York Mellon’s dividend payouts as well as share repurchases over the years in an interactive dashboard, along with our forecast for these key metrics.

Historical Payouts

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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 increase to $0.19 from Q3 2016, to $0.24 from Q3 2017 and finally to $0.28 from Q3 2018 after subsequent rounds of annual stress tests.

Notably, BNY Mellon has relied on share repurchases to return a bulk of its free cash to investors since the downturn. Over the ten-year period 2008-17, the bank has returned a little over $12.5 billion in cash to shareholders through buybacks, which dwarfs the dividend payouts of $7.2 billion over the same period. Also, the total payout of just under $19.8 billion over this period works out to an average payout of almost $2 billion a year by the bank – representing almost 90% of its average retained earnings of $2.2 billion for this period.

The chart below details BNY Mellon’s total shareholder payouts for each year since 2012, and includes our forecast through 2021.

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.

If you don’t agree with our forecast, you can come up with your own by making changes to our interactive dashboard for BNY Mellon’s dividend payout and share repurchases.

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