Author Topic: BK - Bank of New York Mellon  (Read 15109 times)

BRK7

  • Full Member
  • ***
  • Posts: 143
Re: BK - Bank of New York Mellon
« Reply #20 on: April 15, 2020, 12:50:44 PM »
Hi anyone taking a look at BK?

I didn't want to start a new thread. I took a look at the business and it's down about 40-50%, it's a stable fee paying business and it's about 0.70 Book value and about 1.8 Tangible book. I found out the High Tangible book number is from the preferred shares they issued around the time of the financial crisis. At about 30$ it looks pretty good as 83% of their income is from fees and not interest income and they are less affected by the recent action of taking interest rates to 0.25%. Their NIM is 1.1% so that remaining 17% of the business will be hurt, but relatively to the other big american banks BNY mellon should come out of the situation better.

Any Thoughts?

Looks interesting. 

My understanding is that $37T in assets held within the fee-paying Investment Services business (the 80% piece) are approximately 2/3 fixed income and 1/3 equity.  To the extent that fixed income asset values have declined less than equities, this seems a mitigating factor for BK.   

The remaining 20%-ish piece is Investment Management, also primarily fee-based, I believe.  Compared with Investment Services, this business segment is more impacted by the value of market indices, according to the 2019 10-K.

Net Interest Revenue is earned by BOTH the I-Services & I-Mgmt segments, though primarily on the I-Services side, from securities lending and spreads on F/X.  Low rates are generally not helpful, but I agree that this is probably less of an issue for BK, compared to more traditional banks for which lending is the primary business.
« Last Edit: April 15, 2020, 12:52:37 PM by BRK7 »


rb

  • Hero Member
  • *****
  • Posts: 3791
Re: BK - Bank of New York Mellon
« Reply #21 on: April 15, 2020, 01:00:53 PM »
It's not bad.

The asset management bit is just gonna suck and NII is gonna evaporate almost completely if not completely.

The investor services business is their crown jewel. But that's gonna hurt as well. It's not just custody fees it's also transactions. What I think is gonna happen is that they're gonna have a pretty good quarter. Lot's of transactions (FX also helps a lot - huge margins). But what happens after the crazy dies down is that you're gonna have AUM from equity down in line with the market, fixed income AUM, probably ok. But transactions down substantially. So you're looking at a 20-30% decline in non-interest revenue as well. But that's probably the trough.

vinod1

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1502
    • Vinod
Re: BK - Bank of New York Mellon
« Reply #22 on: April 16, 2020, 06:00:52 AM »
I would be shocked if NII is going to be evaporate. It is going to be hit. They have like $125 billions in Agency securities (FNMA), margin loans, etc that are going to get 2% returns. Their funding costs are going down to 10 to 20 bps.  Treasury/Cash is where it is going to be zilch. So NIM might end up at 0.7% rather than 1%.

Investor services, I think will take a 10% hit to revenue at most in any 12 month period. Wild guess is transactions account for say 30% and they fall 40%, that would still only be a 12% hit to revenue.

Vinod
The fundamental algorithm of life: repeat what works. –Charlie Munger

BRK7

  • Full Member
  • ***
  • Posts: 143
Re: BK - Bank of New York Mellon
« Reply #23 on: April 20, 2020, 03:23:56 PM »
I would be shocked if NII is going to be evaporate. It is going to be hit. They have like $125 billions in Agency securities (FNMA), margin loans, etc that are going to get 2% returns. Their funding costs are going down to 10 to 20 bps.  Treasury/Cash is where it is going to be zilch. So NIM might end up at 0.7% rather than 1%.

Investor services, I think will take a 10% hit to revenue at most in any 12 month period. Wild guess is transactions account for say 30% and they fall 40%, that would still only be a 12% hit to revenue.

Vinod

Thanks for the insights, Vinod.  Overall, how would you characterize the risk/reward here @ $36 or so?

vinod1

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1502
    • Vinod
Re: BK - Bank of New York Mellon
« Reply #24 on: April 20, 2020, 05:59:20 PM »
I would be shocked if NII is going to be evaporate. It is going to be hit. They have like $125 billions in Agency securities (FNMA), margin loans, etc that are going to get 2% returns. Their funding costs are going down to 10 to 20 bps.  Treasury/Cash is where it is going to be zilch. So NIM might end up at 0.7% rather than 1%.

Investor services, I think will take a 10% hit to revenue at most in any 12 month period. Wild guess is transactions account for say 30% and they fall 40%, that would still only be a 12% hit to revenue.

Vinod

Thanks for the insights, Vinod.  Overall, how would you characterize the risk/reward here @ $36 or so?

Most of its lines of businesses would be under pressure going forward. Assumptions are low interest rates, continuing pressure on fee reductions from its clients as they themselves need to cut costs, its asset management also faces fee pressure. Cannot take advantage of stock price as buybacks are stopped even though it has no need to do that.

Good news is that unlike other financials there is no tail risk to really worry about.

Even with all that it is likely to generate low double digit returns. Not too exciting at this time given what else is available.

Vinod
The fundamental algorithm of life: repeat what works. –Charlie Munger

BRK7

  • Full Member
  • ***
  • Posts: 143
Re: BK - Bank of New York Mellon
« Reply #25 on: April 20, 2020, 06:11:43 PM »

Most of its lines of businesses would be under pressure going forward. Assumptions are low interest rates, continuing pressure on fee reductions from its clients as they themselves need to cut costs, its asset management also faces fee pressure. Cannot take advantage of stock price as buybacks are stopped even though it has no need to do that.

Good news is that unlike other financials there is no tail risk to really worry about.

Even with all that it is likely to generate low double digit returns. Not too exciting at this time given what else is available.

Vinod

Thanks, yup, that make sense.  Low double digit returns with "low-ish" risk (relative to other banks) is an interesting combo to me.  But since you are not too excited about it, would you mind elaborating on your comment about "what else is available"?  Are you talking about other banks (e.g., WFC) or just equities generally?  Thanks!

vinod1

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1502
    • Vinod
Re: BK - Bank of New York Mellon
« Reply #26 on: April 21, 2020, 01:04:16 PM »

Most of its lines of businesses would be under pressure going forward. Assumptions are low interest rates, continuing pressure on fee reductions from its clients as they themselves need to cut costs, its asset management also faces fee pressure. Cannot take advantage of stock price as buybacks are stopped even though it has no need to do that.

Good news is that unlike other financials there is no tail risk to really worry about.

Even with all that it is likely to generate low double digit returns. Not too exciting at this time given what else is available.

Vinod

Thanks, yup, that make sense.  Low double digit returns with "low-ish" risk (relative to other banks) is an interesting combo to me.  But since you are not too excited about it, would you mind elaborating on your comment about "what else is available"?  Are you talking about other banks (e.g., WFC) or just equities generally?  Thanks!

This is a target rich environment. One of the 3-4 opportunities that we would probably get in a lifetime. In that sense, this looks meh.

Vinod
The fundamental algorithm of life: repeat what works. –Charlie Munger

Palantir

  • Hero Member
  • *****
  • Posts: 2624
Re: BK - Bank of New York Mellon
« Reply #27 on: April 25, 2020, 08:12:27 AM »

This is a target rich environment. One of the 3-4 opportunities that we would probably get in a lifetime. In that sense, this looks meh.

Vinod

Could you please elaborate?
My Portfolio: AMZN, PYPL

vinod1

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1502
    • Vinod
Re: BK - Bank of New York Mellon
« Reply #28 on: April 25, 2020, 06:27:06 PM »

This is a target rich environment. One of the 3-4 opportunities that we would probably get in a lifetime. In that sense, this looks meh.

Vinod

Could you please elaborate?

What I mean is that the current investment opportunity set is likely one of very attractive opportunities. Likely on par with what we had during 2008-9 period.

While looking at overall market it might seem like a small 15% correction, there are many that have taken quite a hit and my expectation is that there are likely lots of opportunities within them.

When there is real uncertainty, I think it gives us small investors some advantage and at least for me it has been a very fertile environment for investments. Right now, no one knows how severe the downturn would be, how long it would be and what the recovery looks like. So there is a lot of uncertainty and for whatever reason, many businesses would not be priced as efficiently as during more normal times. I saw this in 2008-9 period with a range of businesses, 2012-14 with financials, 2016 again with banks.

So I do not want to settle for good returns in this environment. Spending more time to look for opportunities might be more fertile.

Still going through them and for many I had to rebuild my estimates from the ground up as Covid had a major impact.

Vinod
The fundamental algorithm of life: repeat what works. –Charlie Munger

BRK7

  • Full Member
  • ***
  • Posts: 143
Re: BK - Bank of New York Mellon
« Reply #29 on: April 25, 2020, 09:36:19 PM »

While looking at overall market it might seem like a small 15% correction, there are many that have taken quite a hit and my expectation is that there are likely lots of opportunities within them.


Good point -- the S&P 500 is market-cap weighed and skewed by the likes of Amazon, with its $1.2T market cap and 30% YTD gain.  Meanwhile, the Russell 2000 (while also market cap weighted, it's a better proxy for small cap performance) is down approx 26%. And then there are lots of companies in hospitality/travel/leisure/consumer discretionary that have been absolutely clobbered.