Rise in Fee Income to Aid BNY Mellon's Q4 Earnings, Weak NII to Hurt

The Bank of New York Mellon Corporation BK is scheduled to report fourth-quarter and full-year 2024 results on Jan. 15, before market open. The company’s quarterly revenues and earnings are expected to have increased on a year-over-year basis.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.In the last reported quarter, BK’s earnings surpassed the Zacks Consensus Estimate. Results were primarily aided by a rise in fee revenues and net interest income (NII). The assets under custody and/or administration (AUC/A) and assets under management (AUM) balances grew on a solid market rally. However, a rise in non-interest expenses and provisions hurt the results to some extent.BNY Mellon has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average beat being 9.02%.The Bank of New York Mellon Corporation Price and EPS Surprise The Bank of New York Mellon Corporation price-eps-surprise | The Bank of New York Mellon Corporation QuoteThe consensus estimate for the company’s fourth-quarter earnings is pegged at $1.56 per share, which has been revised 2.6% upward over the past seven days. This indicates a rise of 21.9% from the year-ago quarter’s reported number.The consensus estimate for sales is pegged at $4.66 billion, implying 8.2% growth.Factors to Impact BNY Mellon’s Q4 ResultsFee Revenues: The Zacks Consensus Estimate for total investment services fees (comprising more than 50% of the company’s total revenues) is pegged at $2.40 billion, suggesting a rise of 5.7% from the year-ago quarter. Our estimate for the metric is the same as the consensus estimate.The consensus mark for financing-related fees stands at $50.2 million, which suggests an 11.6% year-over-year rise. Our estimate for financing-related fees is $53.4 million.The consensus estimate for distribution and servicing fees is pegged at $38.3 million, implying a 6.6% decline. Our estimate for the same is $38.2 million.In the fourth quarter, foreign exchange (FX) trading activity was driven by heightened market volatility and increased hedging demand amid global economic uncertainties. Further, implementing the rate cuts and Donald Trump’s victory in the presidential elections strengthened the dollar. Thus, increased FX trading volumes and strong dollar performance are likely to have positively impacted BNY Mellon’s FX revenues. The consensus estimate for foreign exchange revenues stands at $181.5 million, suggesting a rise of 27%. Our estimate for the same is $167.8 million.The consensus estimate for total fees and other revenues is $3.60 billion, suggesting a rise of 12.3%. We project the metric to be $3.58 billion.NII: The Federal Reserve has reduced interest rates by 100 basis points since September 2024. Thus, this is likely to have adversely impacted BK’s NII during the fourth quarter, given lower yields on interest-earnings assets, partially offset by deposit repricing.However, the yield curve steepened for most of the quarter and then normalized, which is likely to have offered some support in reinvestment yields. Nonetheless, the impact is unlikely to be significant.Also, indications of future rate cuts by the Fed and a stabilizing macroeconomic backdrop are likely to have improved the overall lending scenario. Per the latest Fed data, overall loan demand improved in the quarter.Management anticipates fourth-quarter NII to be down marginally on a sequential basis.The consensus mark for NII is pegged at $1.05 billion, indicating a 5% year-over-year decline. We expect NII to be $1.01 billion.Expenses: Because of higher restructuring charges and buyouts, BNY Mellon’s expenses have been elevated over the past few years. Nevertheless, overall costs are expected to have been manageable in the quarter under review, given cost-saving initiatives.Our estimate for non-interest expenses is $3.10 billion, suggesting a 22.3% year-over-year decline.BNY Mellon’s Outlook for 2024Management expects NII to decline 5% due to deposit margin compression and modest deposit run-off alongside higher investment yields.Management estimates fee revenues to improve driven by higher organic growth, slight normalization in FX revenues and equity market appreciation.Excluding notable items, expenses are expected to be relatively stable as the effects of efficiency savings offset higher revenue-related expenses and continued investments.Management expects the effective tax rate to be at the lower end of 23% to 24%.What the Zacks Model Unveils for BNY MellonAccording to our quantitative model, the chances of BNY Mellon beating the Zacks Consensus Estimate this time are low. This is because it lacks the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better.You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.Earnings ESP: The Earnings ESP for BNY Mellon is -0.28%.Zacks Rank: The company currently carries a Zacks Rank #3.Bank Stocks That Warrant a LookA couple of bank stocks that have the right combination of elements to post an earnings beat in their upcoming releases are Truist Financial Corporation TFC and State Street Corporation STT.TFC has an Earnings ESP of +2.27% and it carries a Zacks Rank of 3 at present. The company is slated to report fourth-quarter and full-year 2024 results on Jan. 17.STT is also scheduled to release fourth-quarter and full-year 2024 earnings on Jan. 17. The company has an Earnings ESP of +0.67% and a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.1% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report The Bank of New York Mellon Corporation (BK): Free Stock Analysis Report State Street Corporation (STT): Free Stock Analysis Report Truist Financial Corporation (TFC): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks