Bank of New York Mellon: A Solid Bet
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.
With a market capitalization of $25.7 billion, and assets under custody and administration in the region of $26 trillion, Bank of New York Mellon (NYSE: BK) is one of 29 banks globally considered too big to fail by the G20. Shares have crept forward from a 52-week low of $17.10 seen late last year to around $21 today.
Results released on January 18 caused the shares to fall around 4% on the day. Fourth quarter earnings fell by 26%, with restructuring charges and decreasing client activity causing earnings per share to come in at $0.42 as against $0.54 a year earlier. The market had expected revenues to turn out at $3.75 billion, but these in fact fell to $3.54 billion. The majority of this fall in revenue was seen in its fee-based businesses, though foreign exchange revenues, as well as trading revenues, also fell back. On the brighter side, directly managed assets rose by 8% to $1.26 trillion.
This year, there have been several company positive announcements:
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On January 18, it announced that it had come to a partial settlement over a long standing lawsuit with regards to foreign exchange trading.
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On January 26, Mellon announced that it was introducing an automated loan facility for hedge fund clients.
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On January 30, Global Custodian Magazine gave Bank of New York Mellon a number of coveted awards, including fisrt in its class of global custodians and the best of its peer group (that includes State Street (NYSE: STT), JP Morgan (NYSE: JPM), and Citigroup (NYSE: C).
In my view, being labelled as ‘too big to fail’ puts something of a floor under the shares. Shareholders can rely on governments, or the international banking regulators to protect them from a reoccurrence of the financial crisis or extensive problems sweeping over from the European debt issues.
Automation of business lines will help to keep a tight handle on costs, as well as offering a more complete end to end experience for clients. What’s good for a client is good for the bottom line (usually).
Industry awards are a great way to promote services and win new client accounts. Its latest account win is its selection as the provider of services to AdvisorShares Rockledge SectorSAM ETF.
The company is also making headway to reach closure on its legal issues. The foreign exchange trading settlement may bode well for others to follow suit.
In conclusion, I find the shares attractive at their current level with a limited downside. Shareholders have the potential for capital growth, and the yield of 2.5% is a nice bonus. I believe the shares could pop, with a target of $26 to $28. BUY.
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