Rise in AUM to Aid BNY Mellon (BK) Q4 Earnings Amid Low Rates

The Bank of New York Mellon (NYSE:BK) Corporation BK is scheduled to report fourth-quarter and 2020 results on Jan 20, before market open. Its revenues and earnings in the to-be-reported quarter are expected to have witnessed a decline on a year-over-year basis.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from growth in assets under management (AUM) balance. However, slightly lower revenues and a rise in expenses were the undermining factors.

BNY Mellon has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with a surprise of 7.1%, on average.

Moreover, the Zacks Consensus Estimate for the company’s fourth-quarter earnings of 93 cents has been revised 1.1% upward over the past seven days. However, the figure indicates a decline of 7.9% from the year-ago quarter’s reported number.

The consensus estimate for sales is pegged at $3.85 billion, indicating a 19.2% decline from the prior-year quarter’s reported figure.

Now, before we take a look at what our quantitative model predicts, let’s check the factors that are likely to have impacted BNY Mellon’s fourth-quarter performance.

Fee Revenues: Despite lingering concerns related to the impact of the coronavirus outbreak on financials, the fourth quarter witnessed overall asset inflows. Thus, driven by inflows, BNY Mellon is expected to have recorded an improvement in total AUM balance in the to-be-reported quarter.

Notably, the Zacks Consensus Estimate for the company’s total AUM is pegged at $2.11 trillion for the to-be-reported quarter, which suggests a rise of 3.2% from the previous quarter’s reported figure. Moreover, the consensus estimate for total assets under custody and administration of $39.74 trillion indicates 2.9% growth from the previous quarter’s reported figure.

Supported by an expected increase in assets, the company’s investment management and performance fee is likely to have been positively impacted in the quarter. The consensus estimate for the same is pegged at $884 million, suggesting 5.9% growth on a sequential basis.

The consensus estimate for foreign exchange and other trading revenues is pegged at $149 million, suggesting a rise of 8.8% sequentially.

However, the consensus estimate for total investment services fee (comprising more than 50% of total revenues) of $2.00 billion indicates a marginal decline from the previous quarter’s reported number. Also, the consensus mark for financing-related fee is pegged at $48.82 million, which suggests a marginal decline sequentially.

Despite expected growth in assets, total fee revenues are not expected to have witnessed much growth in the fourth quarter. Notably, the consensus estimate for fee revenues is pegged at $3.11 billion, suggesting a marginal decline sequentially.

Net Interest Revenues: With the global economic slowdown resulting from the coronavirus outbreak, the demand for loans was muted during the fourth quarter. Thus, muted loan growth along with continued near-zero interest rates is likely to have hurt the company’s NIR to some extent.

Notably, management expects NIR in the fourth quarter to decline 3-5% sequentially.

Expenses: Because of higher litigation and restructuring charges, the company’s expenses have been elevated over the past few years. Nevertheless, overall costs are expected to have remained manageable in the quarter, given the elimination of unnecessary management layers.

Management expects expenses (excluding notable items) in 2020 to be stable year over year.

What the Zacks Model Unveils

According to our quantitative model, chances of BNY Mellon beating the Zacks Consensus Estimate this time are high. This is because it has 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 +0.37%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Other Stocks That Warrant a Look

Here are some other finance stocks that you may want to consider as these too have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

The Earnings ESP for Commerce Bancshares (NASDAQ:CBSH), Inc. CBSH is +0.99% and it carries a Zacks Rank #3, currently. The company is scheduled to report quarterly numbers on Jan 20.

BankUnited (NYSE:BKU), Inc. BKU is slated to release earnings figures on Jan 21. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +2.46%.

Capital One Financial Corporation (NYSE:COF) COF is slated to release earnings figures on Jan 26. The company currently carries a Zacks Rank #2 and has an Earnings ESP of +3.50%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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