Bank of New York Mellon: Shutdown Day 3 Loser

NEW YORK ( TheStreet) -- Bank of New York Mellon ( BK) was the loser among the nation's largest banks on Thursday, with shares sliding 1.6% to close at $29.98.

The broad indices all ended 1% lower, adding to the previous session's declines, after President Obama said late Wednesday that investors "should be concerned" about the federal government shutdown -- now in its third day -- and the possibility of a default by the U.S. Treasury if the federal debt ceiling is not raised soon.

The KBW Bank Index ( I:BKX) ended 0.5% lower at 62.22, trimming earlier losses.

Economic news was mixed. The Department of Labor -- despite the government shutdown -- said initial unemployment claims for the week ended Sept. 28 rose to 308,000 from 307,000 the previous week. Economists polled by Thomson Reuters were expecting jobless claims to rise to 313,000. The four-week moving average declined to 305,000 claims from 308.750 the previous week.

The Labor Department on Wednesday said its monthly Employment Situation report -- which includes the national unemployment rate -- for September originally scheduled for release on Friday would be delayed "due to the lapse in funding" to the Bureau of Labor Statistics.

The Commerce Department's August factory report was scheduled for Thursday but was also delayed because of the shutdown. The Institute for Supply Management's non-manufacturing index for September came in at 54.4, declining from the previous month's revised reading of 58.6. Economists on average were expecting the non-manufacturing index reading to be 57.4. An index reading above 50 indicates economic expansion.

Rafferty Capital Markets analyst Richard Bove on Thursday expressed dismay at the muted public reaction to the possibility of a U.S. default on interest payments, which he blames on " financially challenged legislators."

In a note to clients, the analyst wrote that "The devastation to the United States would be so severe that it would take decades to recover from the Depression caused by a default and the attendant dumping of trillions of dollars of U.S. Treasury securities on the global financial markets."

Shares of Bank of New York Mellon have returned 18% this year, following a 32% return during 2012. The shares trade for 2.4 times their reported June 30 tangible book value of $12.41, and for 11.8 times the consensus 2014 earnings estimate of $2.54 a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $2.29.

Jefferies analyst Ken Usdin rates BNY Mellon a "hold," and on Thursday lowered his price target for the shares by a dollar to $34, while lowering his 2014 EPS estimate to $2.40 from $2.50, and his 2015 EPS estimate to $2.80 from $2.70.

Usdin estimates the company will post third-quarter EPS of 57 cents, declining from 62 cents the previous quarter and 61 cents a year earlier.

"BK has a tough outlook for revenues this quarter, as the flat short end of the yield curve applies further pressure to spread income and transactional fee lines face seasonal pressures," Usdin wrote in his earnings preview for trust banks.

"There is little chance of offsetting the weaker revenues with cost controls given several expense headwinds: the annual merit increase, a rebound in the "other" line and less help from the efficiency plan," he added.

BK Chart BK 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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