Dj Bank Of New York Mellon Corp. Stock Underperforms Tuesday When Compared To Competitors

Shares of The Bank of New York Mellon Corporation BK, popularly known as BNY Mellon, have performed remarkably well this year. Last week, the stock touched a new 52-time high of $80.29 during Wednesday’s trading session, ending just 3% below this level on Friday.

BK stock has soared 48% this year. It has widely outperformed its industry, the S&P 500 Index and close peers —Northern Trust NTRS and State Street STT.

Year-to-Date Price Performance

Last week was an impressive one for the U.S. equity markets. The S&P 500 Index recorded its best week of the year and even briefly touched the 6,000 level. The rally was driven by Donald Trump's win in the U.S. presidential election and the Federal Reserve's 25 basis point cut in interest rates.

The developments spurred a massive rally in financial sector stocks and BK wasn’t untouched. Trump’s re-election raises hopes of a de-regulation in the sector that has been reeling under stringent regulatory requirements. Further, lower interest rates will support the sector’s top-line growth, which is presently hampered by high funding costs.

Lower Interest Rates: A Key Factor Driving BNY Mellon Stock

The Fed lowered interest rates for the second time last week. Earlier in September, the central bank cut rates by 50 basis points for the first time since March 2020. Cooling inflation numbers and a slowdown in the labor market drove it to take this step.

BNY Mellon, together with STT and NTRS, has been facing funding cost pressure since last year. This has hurt their net interest income (NII) and squeezed margins.

BK’s NII has seen a five-year (2018-2023) compound annual growth rate of 3.8%. In the first nine months of 2024, its funding costs stabilized, driving NII higher. Also, net interest margin recorded a slight improvement during the period.

With the Fed expected to keep cutting interest rates, BNY Mellon is expected to gain from it. Management now projects NII to be down 5% this year, a change from prior guidance of a 10% decline. This is based on the market-implied forward interest rates and assumptions of higher investment yields, deposit margin compression and modest deposit run-off.

Other Factors Supporting BNY Mellon’s Performance

BNY Mellon’s growth initiatives are impressive. The company has been launching several new services and products, digitizing operations and making strategic acquisitions.

Earlier this month, BK completed the acquisition of Berwyn, PA-based Archer Holdco, LLC, a leading technology-enabled service provider of managed account solutions to the asset and wealth management industry. This will enable the company to enhance its enterprise platform to support retail-managed accounts. Further, Archer will provide BNY Investments and BNY Pershing’s Wove wealth platform for advisors with expanded distribution of model portfolios and access to its multi-custodial network.

Additionally, in September, BNY Mellon announced plans to launch Alts Bridge, an extensive data, software and services solution, by fall. It will cater to rising demand from wealth intermediaries seeking simplified access to alternative and private market investment products. The platform has been designed to integrate seamlessly into intermediaries' existing desktops, starting with BNY Pershing X’s Wove advisory platform and NetX360+, incorporating cutting-edge artificial intelligence and analytics tools.

BNY Mellon has a solid balance sheet. As of Sept. 30, 2024, the company had a total debt of $52.7 billion, significantly lower than its cash and due from banks, and interest-bearing deposits of $108.5 billion. It maintains investment-grade long-term senior debt ratings of A1, A and AA- from Moody’s, S&P Ratings and Fitch Ratings, respectively, which render it favorable access to the debt markets.

BNY Mellon is expected to keep enhancing shareholder value through efficient capital distributions. After clearing the 2024 stress test, the company hiked its quarterly cash dividend by 12% to 47 cents per share. In the last five years, the company increased its dividend four times. It has an annualized dividend growth rate of 8.92%, with a payout ratio of 34%.

Dividend Yield (TTM)

BlackRock Inc. BLK is negotiating with Millennium Management to acquire a minority stake in the hedge fund, according to people familiar with the matter. This was first reported by The Financial Times.

Millennium, one of the world’s leading hedge funds, was founded by Israel Englander in 1989 and currently manages roughly $70 billion in assets.

The discussions between BLK and Millennium are in the initial phase and may not lead to a finalization of the deal.

Reasons Behind BLK’s Pursuit

This move aligns with BlackRock’s pursuit of becoming a one-stop shop for its investors through various offerings, including stocks, bonds, private strategies and financial consulting for strategic and governmental clients, boosting its revenues and profits.

BlackRock, the world’s largest asset manager, has been trying to expand into profitable alternatives assets investment as these generate more fees compared with traditional ones. Hence, the company has been expanding aggressively into this asset class. Last month, it acquired Global Infrastructure Partners, creating an industry leader in infrastructure.

Moreover, this September, BLK collaborated with Partners Group to introduce a multi-private markets model solution, boosting retail investors’ accessibility to alternative investments. Further, this June, the company agreed to acquire Preqin, a premier provider of private markets data, to enhance its private markets capabilities.

Recently, it was reported that BLK is in talks to acquire HPS Investment Partners. HPS, which manages more than $100 billion and is one of the largest independent managers in the private credit market.

BlackRock’s Zacks Rank & Price Performance

Year to date, shares of BlackRock have gained 27.6% compared with the industry’s 39.4% growth.

Currently, BLK sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Acquisitions Pursued by Other Finance Firms

Earlier this month, The Bank of New York Mellon Corporation BK acquired Archer Holdco, LLC, a leading technology-enabled service provider of managed account solutions to the asset and wealth management industry. The financial terms of the deal, announced on Sept. 5, were kept under wraps.

Archer’s clients will gain access to fully integrated solutions covering the entire managed account lifecycle, benefiting from the broader capabilities of the BNY enterprise. This deal uniquely positions BK as the leading service provider, aiding asset managers across all fund types for institutional and retail investors.

Similarly, Barclays PLC BCS completed the acquisition of the retail banking business of Tesco Personal Finance plc. The deal was announced in February.

The deal is anticipated to result in the recognition of an estimated pre-tax profit of £0.3 billion in the fourth quarter of 2024, generating a 50-basis point accretion for 2024 group return on tangible equity for BCS.

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