Look For BNY Mellon At $38 Post Virus

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BK: Bank of New York Mellon logo
BK
Bank of New York Mellon

Comparing the trend in BNY Mellon’s (NYSE: BK) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can recover to the $38 level similar to the trends seen in the last crisis once fears surrounding the coronavirus outbreak are put to rest. This represents a limited upside potential of around 15% for the stock. Our conclusion is based on our detailed comparison of BNY Mellon’s performance against the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did BNY Mellon Stock Fare Compared With S&P 500?

The World Health organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31st and April 1st, BK’s stock has lost 27% of its value (vs. about 26% decline in the S&P 500). A bulk of the decline came after March 8th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

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BNY Mellon’s Stock Has Fallen Considerably Because The Situation On The Ground Has Changed

BNY Mellon is a custody banking giant which generates around 75% of its revenues from Investment Servicing business, and has roughly $35.7 trillion in Assets under Custody & Administration (as per 2019 data).  The company’s stock could suffer sizable losses due to a drop in asset valuations driven by net market losses, as it generates most of its revenues in the form of asset servicing fees which is charged as a percentage of Assets under Custody & Administration (AuC/A).  Similarly, the lower asset valuations would mean a drop in Assets under Management– resulting in a decline in investment management revenues.

We believe BNY Mellon’s Q1 and Q2 results will confirm this reality with a drop in both asset servicing fees and investment management revenues. If signs of coronavirus containment aren’t clear by the April Q1 earnings timeframe, it is likely BNY Mellon’s stock, along with the broader market, is going to see continued drop when results confirm palpable reality.

But BNY Mellon Stock Witnessed Something Similar During The 2008 Downturn

We see BK stock declined from levels of around $35 in October 2007 (the pre-crisis peak) to roughly $18 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 49% of its value from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by about 51%.

However, BK recovered strongly post the 2008 crisis to about $23 in early 2010 – rising by 28% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will BNY Mellon’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that BK stock has fallen by 27% this time around compared to the 49% decline during the 2008 recession, a likely outcome might be for it to recover by 15% to levels of $38 once economic conditions begin to show signs of improving. This marks a partial recovery back to the $45 level BK stock was at before the coronavirus outbreak gained global momentum. The limited upside potential for the stock could be attributed to the drop in asset valuations which will likely hurt the bank’s revenues in the near term, despite its solid balance sheet.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a complete macro picture, and complements our analyses of the coronavirus outbreak’s impact on a diverse set of BNY Mellon’s multinational peers including State Street and Morgan Stanley. The complete set of coronavirus impact and timing analyses is available here.

 

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