A $2 trillion banking scandal could destroy Buffett favorite BNY Mellon (NYSE: BK).
The Bank of New York (BK) is one of four big banks accused of moving and laundering money for suspected criminals by BuzzFeed News. BuzzFeed News alleges U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) ignored $2 trillion worth of suspicious financial transactions.
The Guardian claims the leak exposes $2 trillion worth of suspicious financial transactions. The BuzzFeed article does not identify any suspicious BNY Mellon transactions, but it claims the Bank of New Mellon takes part in the traffic.
Does Mr. Mellon Undervalue BNY Mellon?
Berkshire Hathaway (NYSE: BRK.B) held 72.4 million shares of BNY Mellon on 17 August 2020, Investors; Business Daily estimates. Investors’ Business Daily estimates BNY Mellon is Berkshire’s ninth-largest stock holding.
I consider BNY Mellon (BK) a value investment because Mr. Market paid $33.14 for its shares on 24 September 2020. However, BK Mellon had $196.337 billion in cash and short-term investments on 30 June 2020. In addition, BNY Mellon had $442.316 billion in total assets on 30 June 2020.
Thus, Bank of New York is a cash-rich company with enormous assets with a low stock price. Additionally, BNY paid a 31₵ quarterly dividend on 24 July 2020. Overall, Dividend.com estimates BNY Mellon offered a $1.18 LTM Dividend and a 3.47% dividend yield on 23 September 2020.
Hence, I consider Bank of New York Mellon (NYSE: BK) a value stock that pays a nice dividend. Predictably, Buffett is right about BNY Mellon.
BNY Mellon’s Revenues Shrink
Coronavirus is affecting BNY Mellon’s revenues. Bank of New York Mellon (BK) reported $5.684 billion in quarterly revenues on 31 December 2019.
BNY’s quarterly revenues fell to $4.864 billion on 31 March 2020 and $4.173 billion on 30 June 2020. In contrast, Mellon reported quarterly revenues of $5.087 billion on 30 June 2019.
Dramatically, Stockrow estimates BNY Mellon’s quarterly revenues shrank by 17.97% in the quarter ending on 30 June 2020. Comparatively, Stockrow estimates Bank of New York’s revenues grew by 6.53% in the quarter that ended on 30 June 2019.
How Much Money is Bank of New York Mellon (BK) making?
Bank of New York (BK) still makes enormous amounts of money. BNY reported a quarterly gross profit of $4.01 billion and a quarterly operating income of $1.81 billion on 30 June 2020.
Those numbers fell from $4.108 billion and $1.227 billion on 31 March 2020. In comparison, BNY reported a quarterly gross profit of $3.924 billion and a quarterly operating income of $1.285 billion on 30 June 2020.
Furthermore, BNY Mellon reported a quarterly common net income of $900 million on 30 June 2020. That number fell from $941 million on 31 March 2020 and $965 million on 30 June 2019. Interestingly, Mellon began 2020 with a quarterly operating income of $1.822 billion and a quarterly common net income of $1.385 billion.
How Much Cash Does BNY Mellon Generate?
BNY (NYSE: BK) reported a quarterly operating cash flow of $6.81 billion on 30 June 2020. Bank of New York’s quarterly operating cash flow rose from -$1.685 billion on 31 March 2020 and -$2.471 billion on 31 December 2019.
BNY Mellon reported a quarterly investing cash flow of $19.855 billion on 30 June 2020. However, BNY Mellon reported a negative quarterly financing cash flow of -$29.49 billion on 30 June 2020.
Moreover, Mellon reported a quarterly financing cash flow of $82.88 billion on 31 March 2020. However, BNY Mellon reported a negative ending cash flow of -$2.819 billion on June 2020. The quarterly ending cash flow fell from $9.805 billion on 31 March 2020.
I like BNY Mellon because it generates enormous amounts of cash from its business. With or without the FinCEN scandal, Mellon can generate enormous amounts of cash.
BK Mellon is a Cheap and Cash-Rich Value Stock
If you want a cheap, cash-rich value stock that pays a dividend, BNY Mellon (BK) is a splendid choice.
However, BuzzFeed’s FinCEN allegations show there could be serious ethical problems at BNY Mellon. Thus, BK is a good cheap value stock if you can tolerate money laundering and companies that do business with bad people.
Originally published at https://marketmadhouse.com on September 24, 2020.
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