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Why Is The Bank of New York Mellon Corporation (BK) Down 10.1% Since Last Earnings Report?

A month has gone by since the last earnings report for The Bank of New York Mellon Corporation (BK). Shares have lost about 10.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is The Bank of New York Mellon Corporation due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

BNY Mellon Q1 Earnings Beat Estimates on Higher Revenues

BNY Mellon’s first-quarter 2023 adjusted earnings of $1.13 per share surpassed the Zacks Consensus Estimate of $1.09. The bottom line reflects a rise of 20.2% from the prior-year quarter. Our estimate for earnings was 91 cents.

Results have been aided by a rise in net interest revenues and marginally higher fee revenues. However, the assets under management (AUM) balance witnessed a decline. Higher expenses and provisions hurt the results to some extent.

Net income applicable to common shareholders (GAAP basis) was $905 million or $1.12 per share, up from $699 million or 86 cents per share recorded in the year-ago quarter. Our estimate for net income was $645.9 million.

Revenues Improve, Expenses Rise

Total revenues increased 11.1% year over year to $4.36 billion. The top line marginally surpassed the Zacks Consensus Estimate of $4.35 billion. Our estimate for revenues was $4.16 billion.

Net interest revenues, on a fully taxable-equivalent (FTE) basis, were $1.13 billion, up 60.9% year over year. The rise reflected higher interest rates on interest-earning assets, partially offset by higher funding expenses.

The net interest margin (FTE basis) expanded 53 basis points (bps) year over year to 1.29%. Our estimate for NIM was 1.22%.

Total fee and other revenues increased marginally to $3.24 billion. The rise was driven by an increase in investment services fees, financing-related fees, distribution and servicing fees, and investment and other revenues. Our estimate for the same was $3.07 billion.

Total non-interest expenses (GAAP basis) were $3.10 billion, up 3.1% year over year. The rise was due to an increase in almost all cost components, except for net occupancy costs, sub-custodian and clearing costs, costs related to the amortization of intangible assets, and other expenses. Our estimate for expenses was $3.22 billion.

Asset Balances Mixed

As of Mar 31, 2023, AUM was $1.9 trillion, down 15.8% year over year. The decline was due to lower market values, the unfavorable impact of a stronger U.S. dollar and the divestiture of Alcentra, partially offset by net inflows. Our estimate for AUM was $1.99 trillion.

Assets under custody and/or administration of $46.6 trillion increased 2% year over year, primarily reflecting client inflows and net new business, partially offset by lower market values and the unfavorable impact of a stronger U.S. dollar.

Credit Quality: A Mixed Bag

Allowance for loan losses, as a percentage of total loans, was 0.27%, up 2 bps from the prior-year quarter. In the reported quarter, the company recorded a provision for credit losses of $27 million, up significantly from the $2 million reported in the year-ago quarter. We projected provisions of $20.5 million for the first quarter.

As of Mar 31, 2023, non-performing assets were $105 million, down 11.8% year over year.

Capital Position Improves

As of Mar 31, 2023, the common equity Tier 1 ratio was 11%, up from 10.1% as of the Mar 31, 2022 level. Tier 1 leverage ratio was 5.8%, up from 5.3% as of Mar 31, 2022.

2023 Outlook

Management assumes current market-implied interest rates and deposit run-offs to be modest. Given such a scenario, NIR is expected to be up 20%, with further upside.

Excluding notable items, expenses are expected to increase almost 4%, assuming exchange rates remain flat at where they were at 2022-end. On a constant currency basis, non-interest expenses (GAAP basis) are projected to rise nearly 4.5%.

The effective tax rate is projected to be 21-22%, mainly due to the increase in the corporation tax rate in the U.K. this year.

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How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, The Bank of New York Mellon Corporation has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, The Bank of New York Mellon Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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