Banking, finance, and taxes

Looking Under the Hood of 2 Major Banks That Reported Friday Morning

Chris Lange

Published: October 16, 2020 10:16 am

A new earnings season has kicked off, with major banks leading the way. This week has already been rife with solid earnings performances from big banks, but a couple more reported on Friday morning.

Here, 24/7 Wall St. takes a closer look at the most recent quarterly results from Bank of New York Mellon Corp. (NYSE: BK) and State Street Corp. (NYSE: STT). We have included some brief highlights from the reports, as well as how the stock responded and what analysts were saying going into it.

Bank of New York Mellon reported that it had $0.98 in earnings per share (EPS) and $3.8 billion in revenue. That compared with consensus estimates of $0.94 in EPS and revenue of $3.83 billion, as well as the $1.07 per share and $3.86 billion posted in the same period of last year.

During the latest quarter, fee revenue decreased 1% to $3.11 billion, primarily reflecting higher money market fee waivers, partially offset by higher client activity and balances in Pershing and Asset Servicing, higher market values and the favorable impact of a weaker U.S. dollar.

Net interest revenue decreased 4% to $703 million. The decrease would have been 8% larger due to the impact of last year’s third quarter’s lease-related impairment of $70 million. The decrease primarily reflects lower interest rates on interest-earning assets, partially offset by the benefit of lower deposit and funding rates, higher deposits, securities portfolio and loan balances.

Provision for credit losses of $9 million reflects a fairly consistent macroeconomic outlook compared with the second quarter of this year. Book value per common share was $45.58, and tangible book value per share was $24.60.

State Street also released its most recent quarterly results first thing Friday. This bank posted EPS of $1.45 and $2.78 billion in revenue, while consensus estimates that called for $1.41 in EPS and revenue of $2.77 billion. Last year’s third quarter reportedly had $1.51 in EPS on $2.9 billion in revenue.

Fee revenue increased 2%, largely due to improving servicing and management fees, stronger CRD revenue and FX trading services, partially offset by a decline in securities finance revenue.

In terms of its fee revenue breakdown, the company reported:

• Servicing fees increased 2.3% year over year to $1.30 billion.
• Management fees increased by 2.2% to $455 million.
• Foreign exchange trading services fees increased 3.5% to $294 million.
• Securities finance revenue decreased by 27.6% to $84 million.
• Software and processing fees increased 21.1% to $172 million.

Net interest income decreased 26%, primarily due to lower market rates, a true-up of roughly $20 million. These were partially offset by higher investment portfolio and loan balances.

Net provisions for credit losses, calculated under the Current Expected Credit Loss accounting standard, was nil in this quarter, compared to $52 million in second quarter of this year, reflecting slightly improving economic forecasts and limited negative credit migration.

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Bank of New York Mellon stock traded up more than 3% early Friday at $38.75, in a 52-week range of $26.40 to $51.60. The consensus price target is $43.32.

State Street stock retreated more than 3% to $64.72. The 52-week range is $42.10 to $85.89, and the consensus price target is $72.12.