BNY Mellon stock (NYSE: BK) has lost 11% YTD as compared to the 8% rise in the S&P500 index over the same period. Further, at its current price of $40 per share, it is trading approximately 24% below its fair value of $53 – Trefis’ estimate for BNY Mellon’s valuation. The custody banking giant outperformed the street estimates in the first quarter of 2023, with revenues increasing 11% y-o-y to $4.36 billion. It was primarily due to a 62% jump in the net interest income, which benefited from growth in interest-earning assets and a higher net interest margin. Further, the total fee and other income posted a marginal increase. Notably, the Assets under management (AuM) decreased by 16% y-o-y to $1.9 trillion in the quarter, while the Assets under Custody & Administration (AuC/A) rose by 2% to $46.6 trillion. Overall, the net income improved 29% y-o-y to $905 million.
The company’s top line grew 3% y-o-y to $16.4 billion in FY 2022. It was mainly due to growth in the NII driven by higher interest rates and an increase in interest-earning assets. That said, the total fees and other income decreased by 3% y-o-y. Markedly, total fees & other income contribute around 75% of the total revenues. On the cost front, the noninterest expenses as a % of revenues increased from 72% to 79%. Altogether, the adjusted net income decreased 33% y-o-y to $2.36 billion.
Moving forward, we expect the Q2 results to follow the same trend as Q1. All in all, BNY Mellon’s revenues are estimated to touch $17.66 billion in FY2023. Additionally, the adjusted net income margin is likely to improve in the year, leading to an adjusted net income of $3.73 billion. This will likely result in an EPS of $4.81, which coupled with a P/E multiple of just above 11x, will lead to the valuation of $53.
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