Is Bank Of New York Mellon Stock A Buy?

Bank of New York Mellon Corp (NYSE:BK) is one of the oldest banks in America and the world. It was founded by Thomas Mellon, Alexander Hamilton, and Aaron Burr before they became the most infamous political rivals in American history.

The company itself was the target of many hostile takeovers through the years, and it became the master custodian of the 2007 Troubled Asset Relief Program (TARP).

It outperformed other banks in the aftermath of the foreclosure crisis and focused its funds on information technology (IT) infrastructure, but is Bank of New York Mellon stock a buy?

In fact, the bank’s business model is considered one of the strongest in its industry. Other banks crumbled through 2020 as both consumer and business customers relied on credit to get through the pandemic. Stimulus delays and other economic factors plunged other banks, but BNY Mellon stayed afloat.

Examining the books of this centuries-old bank reveals why it’s such a trusted name in finance.

Bank of New York Mellon Is No Ordinary Bank

Unlike most other banks, Bank of New York Mellon is a custody or trust bank. This means it typically holds money for massive pension and mutual funds, investment funds, insurance companies, and institutional investors.

By comparison, a bank like JPMorgan (JPM) or Bank of America (BAC) relies on commercial banking customers and investment banking income for profits.

BNY Mellon makes its money charging fees for holding client assets. It’s a more predictable income stream than transaction fees and gives the company higher liquidity to pass federal stress tests.

These tests determine a bank’s ability to back its held investments in the event of a run on the bank.

 

Of course, the bank still has its investment management and wealth management products. This provides money services for high-net-worth individuals and institutions. It also provides loans and other services – they’re just a smaller part of the overall earnings.

Still, the company has few competitors and a high barrier to entry in an expensive market.

Is Bank Of New York Mellon Stock A Buy?

Bank of New York Mellon has a market capitalization around $37 billion at the start of 2021, with a P/E ratio around 9-10x. Share prices have seen a 52-week low of $26.40 but most recently rebounded above $40 per share.

BK share price failed to climb to the levels it once reached prior to the economic hardships that hit last year. Still, its P/E ratio appears to be at a discount when compared to rivals like JP Morgan (16x) and Bank of America (15x).

BK stock pays a $0.31 quarterly cash dividend. That comes to an annual dividend yield of $1.24, or 2.99 percent.

Its third quarter 2020 earnings report showed $3.8 billion in total revenue, a decrease from both the prior quarter and the same quarter in the prior year. This comes out to $0.98 diluted earnings per share (EPS).

The bank provides custodial services for over $38 trillion in assets, along with $2.0 trillion in assets under management. While this makes the bank highly successful, there are risks involved with investors.

Will BK Share Price Fall?

One of the biggest obstacles facing BNY Mellon is stagnating revenues. Analysts fear a turbulent economy and stiff competition will stagnate annual revenues around $16 billion.

While only 20 percent of the company’s revenues come from investments, the company is growing its presence. The BNY Mellon Investor Solutions portal provides asset allocation, account servicing, and more. This could prove to be a problem if the market tumbles into a recession.

It’s unclear how well bank stocks will perform moving further into the 2020s and a post-pandemic society.

Famed investor Warren Buffett also unloaded some of his BK stock, although he still kept a notable portion of the company. The Oracle of Omaha famously loves bank stocks, and BNY Mellon has a stable income and dividend payout that keeps him satisfied.

This doesn’t mean the bank is without competition.

Bank of New York Mellon Competes Against…

BNY Mellon faces competition from all sides. In addition to the banks listed above, it also competes with the likes of BlackRock, Goldman Sachs (GS), UBS, Deutsche Bank, and State Street.

Each of these banks poses a threat to its high-value clients and could limit the speed at which its investment branch could expand.

The bank is considered one of the “too big to fail” banks because of its large asset holdings. It’s one of the banks that holds so many important assets that the U.S. Federal Reserve believes it would be detrimental to the country if it went bankrupt.

And the company is regularly targeted by regulators. Being too big to fail doesn’t mean it’s immune to the same rules to which everyone else is held. Because of its high profile, the company’s mistakes are highlighted and accentuated compared to other businesses.

Still, this long-standing bank has a lot of assets under its management. It knows how to make money, and it’s one of the safest banks in the country.

Is Bank Of New York Mellon Stock A Buy? 

Bank of New York Mellon is one of the oldest financial institutions in the country. And unlike other banks, it primarily makes its money by holding large sums of cash for high-value clients. In fact, when other banks failed, it was chosen to keep everyone else in line.

This doesn’t make the bank immune to market conditions though. Banks are facing an unstable future in the 2020s.

Investors seeking exposure in the financial industry without taking on too much risk may enjoy BNY Mellon. Its revenue streams are more stable than those of a typical bank because it doesn’t have the same exposure to credit defaults and investments.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.