BNY Mellon's Stock: Worse than the S&P500

BNY Mellon stock (NYSE: BK) has lost 28% YTD as compared to the 21% drop in the S&P500 index over the same period, while at its current price of $42 per share, it is trading approximately 28% below its fair value of $58 – Trefis' estimate for

On 27 June, the bank announced that it passed the Federal Reserve's 2022 Comprehensive Capital Analysis and Review (“CCAR AR”) stress test. The Fed conducts this process annually to assess, regulate, and supervise large banks and financial institutions. The Fed did not change the Stress Capital Buffer Requirement of the bank from its minimum level of 2.5%, which is also a regulatory floor (effective October 1, 2022). Further, the company now plans to increase its quarterly dividend on common stock by 9% from $0.34 to $0.37 starting in Q3 2019, pending approval by its 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 was at the same level as last year's period. While total fee income fell by 3%, it was offset by a 7% rise in net interest income due to higher interest rates on interest-earning assets. The fee income primarily suffered because of a 3% drop in investment services fees and a 1% decline in investment management and performance fees. Further, provisions for credit losses and noninterest expenses as % of revenues increased, resulting in a 19% y-o-y decrease in adjusted net income to $699 million.

In 2021, the top line of the company grew to $15.9 billion. It posted a 4% y-o-y growth in total fee & other income, almost offset by a 12% drop in net interest revenues. Further, its two key metrics - Assets under Management (AuM) and 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 o to $2.26 trillion and AuC/A rose by 9%, to $45.5 trillion in the first quarter of FY2022.BNY Mellon's revenues are forecast to touch $16 billion for full year FY2022 while adjusted net income margin is likely to remain around same level as 2021 leading to an EPS of around "$4."67". It will likely result in a valuation of "$58."

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