The Bank of New York Mellon Corporation (BK) is set to report its third-quarter 2024 financial results on October 11th, before the market opens. Analysts are anticipating a positive performance, with both revenue and earnings expected to rise compared to the same period last year. However, there are several factors that could influence the company’s bottom line.
In the previous quarter, BNY Mellon exceeded analysts’ expectations, driven by increased fee revenues and a reduction in expenses. The company also saw robust growth in assets under custody and/or administration (AUC/A) and assets under management, reflecting a strong market rally. However, a decline in net interest revenues (NIR) posed a challenge.
BNY Mellon boasts an impressive track record of exceeding earnings estimates, having surpassed the Zacks Consensus Estimate in each of the past four quarters, with an average beat of 9.92%.
For the third quarter, the consensus estimate for earnings is pegged at $1.40 per share, representing a 10.2% increase from the same period in 2023. The consensus estimate for sales is $4.52 billion, implying a 3.3% growth.
Key Factors Impacting BNY Mellon’s Q3 Results
Fee Revenues:
Fee revenues, which constitute over half of BNY Mellon’s total revenue, are expected to grow significantly in the third quarter. The Zacks Consensus Estimate for total investment services fees is $2.34 billion, suggesting a 5% year-over-year increase. BNY Mellon’s financing-related fees are projected to rise by 16.6%, reaching $52.5 million, while distribution and servicing fees are anticipated to increase by 6.8% to $41.7 million.Foreign Exchange (FX):
Increased market volatility and hedging demand driven by global economic uncertainties boosted foreign exchange trading activity in the third quarter. While the implementation of interest rate cuts weakened the dollar somewhat, the heightened trading volumes are likely to have a positive impact on BNY Mellon’s FX revenues. The consensus estimate for foreign exchange revenues is $179.6 million, indicating a 16.6% growth.Net Interest Revenues (NIR):
The Federal Reserve’s 50-basis point rate cut in September, the first since March 2020, is unlikely to have had a significant impact on BNY Mellon’s NIR in the third quarter. The inverted yield curve and high funding costs could have weighed on interest income. However, indications of future rate cuts and a stabilizing macroeconomic environment are likely to have supported the overall lending scenario. Overall loan demand remained healthy for the first two months of the quarter, according to the latest Fed data. The consensus estimate for NIR is $967.8 million, suggesting a 4.8% decline from the year-ago quarter.Expenses:
BNY Mellon’s expenses have been elevated in recent years due to restructuring charges. However, overall costs are expected to have been manageable in the third quarter, thanks to the elimination of unnecessary management layers.Zacks Model Insights:
BNY Mellon’s strong earnings history and positive Earnings ESP (+0.14%) combined with its Zacks Rank #2 (Buy) indicate a high probability of exceeding the Zacks Consensus Estimate for the third quarter.Other Bank Stocks to Watch:
First Community Corporation (FCCO) and 1st Source Corp (SRCE) are two other bank stocks with the potential to beat earnings estimates in their upcoming releases. FCCO has an Earnings ESP of +1.12% and a Zacks Rank of 2, while SRCE has an Earnings ESP of +4.80% and a Zacks Rank of 1 (Strong Buy).
