BNY Mellon stock (NYSE: BK) has lost 28% YTD as compared to the 21% drop in the S&P500 index over the same period. Further, at its current price of $42 per share, it is trading approximately 28% below its fair value of $58 – Trefis’ estimate for BNY Mellon’s valuation.
The bank stated on 27 June that it has passed the Federal Reserve’s 2022 Comprehensive Capital Analysis and Review (“CCAR”) stress test. Notably, the Fed conducts the process annually to assess, regulate, and supervise large banks and financial institutions. The Fed has left the Stress Capital Buffer Requirement (SCB) of the bank unchanged at the minimum level of 2.5%, equal to the regulatory floor (effective October 1, 2022). Further, the company now intends to raise the quarterly dividend on common stock by 9% from $0.34 to $0.37 from the third quarter, subject to approval by the Board of Directors.
The custody banking giant posted mixed results in the first quarter of 2022, with revenues missing the mark but earnings being in-line with the estimates. It reported total revenues of $3.9 billion, which is at the same level as the year-ago period. While the total fee income fell by 3%, the negative effect was offset by a 7% rise in the net interest income due to higher interest rates on interest-earning assets. The fee income primarily suffered because of a 3% drop in the investment services fee and a 1% decline in the investment management and performance fees. Further, the provisions for credit losses and noninterest expenses as a % of revenues increased in the quarter, resulting in a 19% y-o-y decrease in the adjusted net income to $699 million.
The company’s top line marginally grew to $15.9 billion in 2021. It posted a 4% y-o-y growth in the total fee & other income, almost offset by a 12% drop in the net interest revenues. Further, its two key metrics – Assets under Management (AuM) and the Assets under Custody & Administration (AuC/A), improved by 16% and 17% respectively on a year-on-year basis. Moving forward, we expect the growth in assets to continue in 2022 as well. Notably, AuM was up 2% y-o-y to $2.26 trillion and AuC/A rose by 9% to $45.5 trillion in the first quarter. Overall, BNY Mellon’s revenues are forecast to touch $16.8 billion for full-year FY2022. Additionally, the adjusted net income margin is likely to remain around the same level as 2021, leading to a net income of around $3.7 billion. It will likely result in an EPS of $4.67, which coupled with a P/E multiple of just above 12x, will lead to a valuation of $58.
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