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Low Rates, Muted Lending to Hurt BNY Mellon's (BK) Q2 Earnings

Zacks Equity Research

The Bank of New York Mellon Corporation BK is scheduled to report second-quarter 2019 results on Jul 17, before the market opens. Its revenues and earnings for the to-be-reported quarter are expected to decline year over year.

In the last reported quarter, the company’s earnings lagged the Zacks Consensus Estimate. Decline in revenues along with lower assets under management (AUM) hurt results. However, fall in expenses was a positive.

Nevertheless, BNY Mellon has a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in two and matched in one of the trailing four quarters. The average positive surprise was 1.9%.

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

Activities of the company in the second quarter were not adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of 94 cents declined 2.1% over the past 30 days. Moreover, it indicates a decline of 8.7% from the year-ago reported number.

Further, the Zacks Consensus Estimate for sales for the to-be-reported quarter is pegged at $3.91 billion, indicating a decline of 5.3% from the previous-year quarter’s reported figure.

Looking at BNY Mellon’s price performance, its shares have lost 13.6% in the past six months against 6.2% growth recorded by the industry it belongs to.

Will the price performance improve post second-quarter earnings? To a great extent, it depends on whether the company will be able to beat earnings estimates this time around.

Before we take a look at what our quantitative model predicts, let’s check the factors that are likely to impact second-quarter results.

Factors to Influence Q2 Results

The Zacks Consensus Estimate for AUM for the second quarter is pegged at $1.88 trillion, which indicates growth of 2.2% from the previous quarter’s reported figure. Further, the consensus estimate for total assets under custody and administration of $35.32 trillion suggests growth of 2.4% from the prior quarter. Thus, driven by expected growth in assets, investment management and performance fee is likely to be positively impacted in the second quarter.

The consensus estimate for total investment services fee indicates that this component is also likely to increase in the quarter. The consensus estimate for the same is pegged at $1.95 billion, which suggests growth of 2.4% from the previous quarter’s reported number.

Thus, supported by growth in the two most important components of fee revenues, it is expected that total fee revenues will increase. The consensus estimate for fee revenues for the second quarter is pegged at $3.10 billion, suggesting growth of 2.3% from the prior quarter’s reported figure.

However, the lending scenario has not been great in the second quarter. Thus, dismal loan growth along with the central bank’s accommodative stance and flattening of the yield curve will likely hurt BNY Mellon’s net interest revenue (NIR) growth.

Notably, management expects NIR in the second quarter to decline nearly 3-5% sequentially. This is based on expectations of a decrease in non-interest-bearing deposit balances and relatively flat yield on the securities portfolio.

Despite taking cost-saving initiatives, the company’s expenses have remained elevated over the past few years mainly because of higher litigation and restructuring charges. Moreover, due to continued rise in investment-related costs, overall expenses are expected to increase slightly in the to-be-reported quarter.

Now, let’s take a look at what our quantitative model predicts.

According to our quantitative model, it cannot be conclusively predicted whether BNY Mellon will be able to beat the Zacks Consensus Estimate in the second quarter. 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 0.00%.

Zacks Rank: BNY Mellon 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 this quarter, per our model.

TD Ameritrade Holding Corporation AMTD is slated to release results on Jul 22. It has an Earnings ESP of +0.15% and currently carries a Zacks Rank #3.

T. Rowe Price Group, Inc. TROW has an Earnings ESP of +0.39% and sports a Zacks Rank #1 (Strong Buy) at present. The company is expected to release results on Jul 24.

Ares Capital Corporation ARCC is expected to release results on Jul 30. It presently has an Earnings ESP of +1.02% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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