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Big Banks: Housing and Earnings Winners

Bank of New York Mellon


Shares of Bank of New York Mellon (BK) rose 5.5% to close at $24.86, after the trust and custody giant reported third-quarter earnings applicable to common shareholders of $720 million, or 61 cents a share, beating the consensus estimate of a 54-cent profit, among analysts polled by Thomson Reuters.

Earnings increased from 466 million, or 39 cents a share, during the second quarter (which included a $212 (18 cents a share) after-tax litigation charge), and $651 million, or 53 cents a share, during the third quarter of 2011.

Third-quarter revenue also came in ahead of expectations, totaling $3.675 billion, increasing from $3.579 billion the previous quarter, and $3.683 billion, a year earlier.

The company's third-quarter return on tangible common equity was a strong 22%.

Bank of New York Mellon bought back $288 worth of common shares during the third quarter, and the company's estimated Basel III Tier 1 common equity ratio was a solid 9.3% as of Sept. 30.

Jefferies analyst Ken Usdin called the company's third-quarter results a "decent beat" that was "supportive of [the] 2013 consensus," and said that although "some may view the run-rate as unsustainable given overearning in fixed income/seed capital gains, we peg the EPS run-rate as no worse than the mid-$0.50's."

Usdin estimated that excluding one-time items, Bank of New York Mellon's third-quarter operating profit was 57 cents a share, and noted that "investment & other income and FX & other (driven by fixed income trading) came in much stronger than expected, which may not be sustainable."

Usdin rates Bank of New York Mellon a "Hold," with a $25 price target.

Bank of New York Mellon's shares have now returned 27% year-to-date, following a 33% decline during 2011.

The shares trade for 10.5 times the consensus 2013 EPS estimate of $2.38. Based on a quarterly payout of 13 cents, the shares have a dividend yield of 2.09%.

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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