Up 57% This Year, What’s Driving BNY Mellon’s Stock?

Custody banking giant BNY Mellon stock (NYSE: BK) has had a solid year, rising by 57% since early January, almost 2x the return of the S&P 500 over the same period, aided by a surge in asset prices globally. In comparison, BNY Mellon’s peer BlackRock (NYSE: BLK) is up 34% year-to-date. So what’s happening with BNY stock? 

While the stock has done well this year, it has seen considerable volatility over the last few years. Returns for the stock were 41% in 2021, -19% in 2022, and 19% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could BK face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

BNY, whose key businesses include custody, treasury services, markets, wealth, as well as investment management, outperformed the street estimates in the third quarter of 2024. Total revenue was up 5% year-over-year to $4.6 billion. The gains come as the company has expanded assets under custody and administration by 14% year-over-year to $52 trillion, followed by an 18% rise in Assets under Management to $2.1 trillion, led by higher asset valuations as well as inflows. This helps BNY given that it generates fees based on the amount of assets that clients keep with the bank. Overall, fee-based revenue rose about 5% compared to last year while net interest-related revenue grew by 3%, led by improved investment securities portfolio yields as well as balance sheet growth. Profits grew at an even quicker pace. Earnings per share stood at $1.50, up 22% year-over-year as non-interest-related expenses remained roughly flat compared to last year, as the company has been streamlining its operations to cut costs while focusing on higher-margin businesses.

So what lies ahead for BNY stock? The markets have generally been bullish post the U.S. election, with Donald Trump set to assume the presidency for a second term.  Investors are betting that the Trump administration’s focus on deregulation could translate into a more lenient approach to financial oversight compared to the Biden administration. This could help banks such as BNY in a couple of ways. For instance, lower compliance costs which could boost profitability. Moreover, higher potential economic growth, coupled with lower interest rates, should bode well for asset prices, helping custody banks like BNY.  Trump has also been in favor of tax cuts, which could also help the bottom lines of banks. We have a $76 per share price estimate for BNY, which is roughly in line with the market price. See our analysis of BNY Mellon’s valuation. 

[1] Returns as of 12/12/2024
[2] Cumulative total returns since the end of 2016

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