Growth in Assets to Support BNY Mellon's (BK) Q2 Earnings

The Bank of New York Mellon Corporation BK is scheduled to report second-quarter 2020 results on Jul 15, 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 growth in revenues, partly offset by a slight increase in expenses along with a decline in assets under management (AUM) balance.

BNY Mellon has an impressive earnings surprise history. Its earnings have surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with a positive surprise of 8.6%, 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

Moreover, the Zacks Consensus Estimate for the company’s second-quarter earnings of 94 cents has been revised 5.6% upward over the past seven days. However, the figure indicates a decline of 6.9% from the year-ago reported number.

The consensus estimate for sales is pegged at $3.91 billion, indicating a marginal decline from the prior-year quarter’s reported figure.

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

Despite the coronavirus-induced economic uncertainty, the second quarter mostly witnessed asset inflows, resulting in an improvement in total AUM balance.

For BNY Mellon, the Zacks Consensus Estimate for AUM for the to-be-reported quarter is pegged at $1.91 trillion, which suggests a rise of 6.3% from the previous quarter’s reported figure. Moreover, the consensus estimate for total assets under custody and administration of $37.72 trillion indicates growth of 7.2% from the previous quarter. Thus, supported by increase in assets, the company’s investment management and performance fee is likely to have been positively impacted to some extent.

However, the consensus estimate for total investment services fee (comprising more than 45% of total revenues) of $2.01 billion indicates a decline of 1.5% from the previous quarter’s reported number.

The consensus estimate for foreign exchange and other trading revenues is pegged at $207 million, suggesting a decline of 35.1% sequentially.

Thus, total fee revenues are expected to have declined in the quarter. The consensus estimate for fee revenues is pegged at $3.13 billion, suggesting a 5.7% decline sequentially.

Moreover, the company’s net interest revenue (NIR) is also expected to have declined in the quarter. Despite modest growth in loans, lower interest rates are likely to have negatively impacted NIR. The Federal Reserve’s move to reduce rates to near-zero in March to support the U.S. economy from coronavirus-induced slowdown might have further dampened the banks’ margins in the second quarter.

Notably, management expects NIR in second-quarter 2020 to decline 2-5% sequentially.

On the cost front, 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 this time are high. This is because it has 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 +0.46%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Other Stocks That Warrant a Look

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

The Earnings ESP for PNC Financial PNC is +37.70% and it carries a Zacks Rank of 3 at present. The company is slated to report quarterly numbers on Jul 15.

BlackRock, Inc. BLK is scheduled to release earnings figures on Jul 17. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +5.59%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Associated Banc-Corp ASB is +7.31% and the stock carries a Zacks Rank #3, currently. It is scheduled to report quarterly numbers on Jul 23.

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