BNY Mellon (BK) is probably the largest Berkshire Hathaway holding most investors have never heard of.
To explain, BNY Mellon was the ninth-largest Berkshire Hathaway (BRK.B) holding on 30 September 2020, Investor’s Business Daily reports. A Securities and Exchange Commission (SEC) filing reveals Berkshire Hathaway owned 72.4 million shares of BNY Mellon on that day.
BNY Mellon, or Bank of New York Mellon (BK), is a commercial and investment bank. Most people have never heard of BNY Mellon because it specializes in servicing rich people and international corporations.
BNY Mellon’s specialties include the transfer of money between nations. Thus, Bank of New York Mellon is vulnerable to both coronavirus and rising international tensions.
Does BNY Mellon Make Money?
BNY Mellon (NYSE: BK) is a long-time Warren Buffett favorite, but does it make money?
BNY Mellon makes money but COVID-19 hurt the bank in 2020. For instance, BNY Mellon’s quarterly revenues fell from $5.684 billion on 31 December 2019 to $3.163 billion on 31 December 2020.
Similarly, BNY Mellon’s quarterly gross profit fell from $4.778 billion on 31 December 2019 to $3.163 billion a year later. In contrast, the quarterly operating income fell from $1.822 billion on 31 December 2019 to $223 million on 31 December 2020.
How Much Cash is BNY Mellon Generating?
Thus, BNY Mellon is making less money, but how much cash is it generating?
Stockrow did not report a quarterly-operating cash flow for BNY Mellon on 31 December 2019. However, the quarterly operating cash flow rose from -$2.471 billion on 31 December 2019 to $6.81 billion on 30 June 2020 and fell to $778 million on 30 September 2020.
Similarly, BNY Mellon’s quarterly ending cash flow rose from -$1.725 billion on 31 December 2019 to $9.805 billion on 31 March 2020. The quarterly ending cash flow fell to -$2.819 billion on 30 June 2020 and rose to $9 million on 30 September 2020.
BNY Mellon Can Generate Enormous Amounts of Cash
However, BNY Mellon can make enormous amounts of money from its investments. For instance, BNY Mellon reported a $19.855 billion quarterly investing cash flow on 30 June 2020 to $14.445 billion on 30 September 2020.
Interestingly, BNY Mellon’s quarterly investing cash flow rose from -$78.601 billion on 31 March 2020. BNY Mellon began 2020 with a -$5.318 billion quarterly investing cash flow.
Similarly, BNY Mellon reported a quarterly financing cash flow of $82.88 billion on 31 March 2020. The quarterly financing cash flow fell to -$29.490 billion on 30 June and -$15.255 billion on 30 September 2020. BNY Mellon began 2020 with a $6.005 billion on 31 December 2019.
Impressively, BNY Mellon finished 2020 with more cash. Bank of New York Mellon (BK) had $211.506 billion in cash and short-term investments on 31 December 2020. The Bank began 2020 with $158.356 billion in cash and short-term investments on 31 December 2019.
BNY Mellon offers Enormous Value
I think Buffett buys BNY Mellon because it offers enormous amounts of cash and value for a cheap price.
For instance, BNY Mellon reported $469.633 billion in total assets on 31 December 2020. The total assets rose from $381.508 billion on 31 December 2019.
Impressively, BNY Mellon reported just $26.334 billion in Long-Term Debt on 31 December 2020. However, the company reported $423.589 billion in Total Liabilities on the same day.
Conversely, Mr. Market paid $39.83 for BNY Mellon (NYSE: BK) on 29 January 2021. Mr. Market paid $44.97 for BNY Mellon on 28 January 2020.
Could BNY Mellon’s Business Collapse?
Many people will be skeptical of BNY Mellon because its business is shrinking.
In particular, Stockrow estimates BNY Mellon’s revenue growth shrank by 44.35% in the quarter ending on 31 December 2020. In contrast, Mellon’s quarterly revenues grew by 14% in the quarter ending on 31 December 2019.
In fact, BNY’s revenue growth shrank during every quarter of 2020. For instance, BNY Mellon’s revenue growth shrank by -2.29% in the quarter ending on 31 March 2020 and -17.97%% in the quarter ending on 30 June 2020. The revenue growth shrinkage grew to -21.86% in the quarter ending on 30 September 2020.
Will International Business Collapse?
I think BNY’s revenue growth numbers show the bank’s business and international trade are following off. The obvious cause of this collapse is the coronavirus pandemic, which went global in January 2020.
Investors and speculators need to worry because these numbers could mark the beginning of a major collapse in some aspects of international trade. For instance, tourism, air travel, and some aspects of entertainment.
Only history will show if this trend is long term or an aberration. Frighteningly, some epidemiologists think coronavirus surges could continue until 2025, Nature reports.
Therefore, the economic and political effects of COVID-19 could last for several years. Notably, three major powers are experiencing civil unrest. The United States suffered the George Floyd Riots over Summer 2020 and the Capitol Insurrection in January 2021.
Russia has seen a wave of civil unrest sparked by the arrest of opposition leader Alexei Navalny, the Associated Press reports. Similarly, mobs of Indian farmers protesting agricultural reforms are occupying New Delhi.
I think growing civil unrest in different countries could suppress trade and international business. However, unrest could lead increase BNY Mellon’s business by scaring people into moving money and assets to safe=haven countries such as Switzerland, China, or Singapore.
Will America’s Economy collapse?
War or growing international conflicts could create greater disruptions to business. In particular, a growing conflict between the two largest powers the United States and China could upend international trade relationships.
I think one result of such a conflict be to cause many people to pull money of out of the United States. To explain, many people believe cheap Chinese consumer goods drive America’s economy. Cut off the supply of those goods, and the US economy could collapse into depression.
The depression could trigger more violence in the United States and cause America’s political system to collapse. I think the 6 January 2021 capitol riot shows a revolution is now a possibility in the United States. Under those circumstances, BNY Mellon could face doom because money will leave the USA.
Another disruption we need to consider is a major war. Particularly in Asia, where tensions could rise. A strong possibility that America’s irrational neoconservative imperialist ruling class could launch a war to preserve America’s power or distract ordinary Americans from their nation’s dismal economy.
Is BNY Mellon a Value Investment?
I think BNY Mellon (NYSE: BK) is an excellent value investment because it pays a nice dividend.
For instance, BNY Mellon will pay a 31¢ quarterly dividend on 29 January 2021. Overall, each BNY Mellon share offered a $1.24 forward annualized dividend of $1.24 and a forward dividend of yield of 3% on 28 January 2021.
I consider BNY Mellon a value investment because it generates enormous amounts of cash and pays a strong dividend. However, a changing world could disrupt BNY Mellon’s business and destroy its future.
Originally published at https://marketmadhouse.com on January 29, 2021.