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Bank of New York Mellon: Financial Winner

NEW YORK (TheStreet) -- Bank of New York Mellon (BK) was the winner among the largest U.S. financial names on Friday, with shares rising 1% to close at $23.30.

The broad indexes ended mixed, with very little movement from their previous closing levels, after the Financial Times reported that European Union officials were working toward on a new rescue package for Spain and unlimited bond purchases by the European Central Bank, by helping Spain develop an economic reform program, to be announced next week.

Speaking before the Atlanta Institute of Internal Auditors, Federal Reserve Bank of Atlanta CEO Dennis Lockhart on Friday said that the Federal Reserve's latest move to stimulate economic growth by increasing its purchases of long-term mortgage-backed securities to $85 billion a month, "is well-timed given recent improvement in the housing market."

"Sales activity has picked up in many markets," he said, "and it appears that the recent increase in purchases is being driven primarily by mortgage-financed buyers for owner occupancy rather than cash investors." Lockhart added that "house prices are beginning to rise in many markets," "multi-family housing development continues to be a favored sector of commercial real estate," and "New single-family permitting and home building have picked up somewhat."

Despite Lockhart's upbeat assessment of the U.S. housing market, the KBW Bank Index (I:BKX) pulled back 0.5% to close at 50.22, with all but seven of the 24 index components rounding out the week with declines.

Shares of Bank of New York Mellon have now returned 19% year-to-date, following a 33% decline during 2011.

The shares trade for twice their reported June 30 tangible book value of $11.47, and for 10 times the consensus 2013 earnings estimate of $2.40 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $2.06.

Based on a quarterly payout of 13 cents, the shares have a dividend yield of 2.23%.

Credit Suisse analyst Howard Chen has a neutral rating on Bank of New York Mellon, with a price target of $23.50, saying that outperformance for the shares "relies on the ability to improve revenue trajectory, further control costs amidst a weaker revenue outlook and digest remaining credit headwinds as we exit the cycle."

Bank of New York Mellon expects between $160 million and $170 million in cost reductions during 2013.

Chen estimates the company will earn 55 cents during the third quarter. The analyst's full-year EPS estimate for 2012 is $2.20, and he matches the 2013 consensus estimate of $2.40.

BK ChartBK data by YCharts

Interested in more on Bank of New York Mellon? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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