Decline in AUM, Low Rates to Mar BNY Mellon's (BK) Q1 Earnings

The Bank of New York Mellon Corporation BK is scheduled to report first-quarter 2020 results on Apr 16, before market open. Its revenues and earnings in the quarter are expected to have witnessed a decline on a year-over-year basis.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from a slight decline in expenses along with growth in assets under management (AUM) and revenues.

BNY Mellon has an impressive earnings surprise history. Its earnings have surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with a positive surprise of 3.9%, on average.

The Bank of New York Mellon Corporation Price and EPS Surprise

The Bank of New York Mellon Corporation Price and EPS Surprise

The Bank of New York Mellon Corporation price-eps-surprise | The Bank of New York Mellon Corporation Quote

However, activities of the company in the first quarter were not adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for BNY Mellon’s earnings of 91 cents for the to-be-reported quarter has been unchanged over the past seven days. Moreover, it indicates a decline of 3.2% from the year-ago reported number.

The Zacks Consensus Estimate for sales is pegged at $3.82 billion, indicating a 1.3% decline from the prior-year quarter’s reported figure.

Before we take a look at what our quantitative model predicts for the first quarter, let’s check the factors that are likely to have impacted BNY Mellon’s performance.

Key Factors to Note

The Zacks Consensus Estimate for first-quarter AUM is pegged at $1.76 trillion, which indicates a decline of 8% from the previous quarter’s reported figure. Moreover, the consensus estimate for total assets under custody and administration of $33.53 trillion suggests a 9.6% decline from the prior quarter’s reported figure. Thus, due to the expected decrease in assets, investment management and performance fee is likely to have been negatively impacted in the quarter.

The consensus estimate for total investment services fee (comprising more than 40% of total revenues) of $1.97 billion indicates a marginal decline from the previous quarter’s reported number.

The consensus estimate for foreign exchange and other trading revenues is pegged at $189 million, suggesting growth of 12.5% sequentially.

Total fee revenues are expected to have declined in the quarter. The consensus estimate for fee revenues is pegged at $2.97 billion, suggesting a 25.2% decline sequentially.

Notably, the lending backdrop was strong in the first two months of the first quarter. However, the virus outbreak in March resulted in a drop in loan demand, as business and consumer activities came to a grinding halt. Thus, the overall lending scenario remained decent during the quarter.

Despite modest growth in loans, BNY Mellon is expected to have recorded a decline in net interest revenue (NIR) in the quarter, owing to lower interest rates. In fact, the Federal Reserve’s move to lower rates to near-zero in March to support the U.S. economy from coronavirus-induced slowdown might have dampened the banks’ margins to an extent.

Management projects NIR in the first quarter to decline a little less than 5% sequentially. This is based on expectations of a decline in the yield on the securities portfolio and relatively lower reinvestment yield.

Because of higher litigation and restructuring charges, the company’s expenses have remained elevated over the past few years. Nevertheless, overall costs are expected to have remained manageable in the quarter, given the elimination of unnecessary management layers.

What the Zacks Model Unveils

According to our quantitative model, chances of BNY Mellon beating the Zacks Consensus Estimate in the first quarter are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — which is required to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for BNY Mellon is -3.36%.

Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).

Stocks That Warrant a Look

Here are some finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

BCB Bancorp, Inc. (NJ) BCBP is expected to release quarterly results soon. The company has an Earnings ESP of +4.17% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Carolina Financial Corporation CARO is +1.43% and it carries a Zacks Rank of 3 currently. The company is expected to report quarterly numbers in the coming days.

SB ONE BANCORP SBBX is likely to report quarterly earnings soon. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +1.56%.

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