BNY Mellon (NYSE: BK) could be one of the better financial services stocks in today’s market.
To explain, Mr. Market priced BNY Mellon (BK) reasonably at $55.22 on 31 August 2021. Yet, The Bank of New York Mellon (BK) offers enormous value. For example, Mellon had $198.061 billion in cash and short-term investments on 30 June 2021. Additionally, BNY had $466.963 billion in Total Assets on 30 June 2021.
BNY Mellon is a growing stock. Its share price grew from $36.98 on 31 August 2020 to $55.22 on 31 August 2021. Yet it appears the pandemic hurt BNY Mellon.
The Pandemic Hurt BNY Mellon
The Bank of New York Mellon (NYSE: BK) is making less money because of the pandemic.
To explain, BNY Mellon’s quarterly gross profit fell from $4.108 billion on 31 March 2020 to $3.96 billion on 30 June 2021. Similarly, the quarterly revenues fell from $4.864 billion on 31 March 2020 to $3.931 billion on 30 June 2020.
Conversely, the quarterly operating income grew slightly from $1.227 billion on 31 March 2020 to $1.268 billion on 30 June 2021. Yet, BNY Mellon is generating more cash.
Notably, the quarterly operating cash flow rose from -$1.685 billion on 31 March 2020 to $2.829 billion on 30 June 2021. Dramatically, BNY Mellon’s quarterly ending cash flow fell from $9.0805 billion on 31 March 2020 to $101 million on 30 June 2021.
Yet Bank of New York Mellon can generate enormous amounts of money from its business. For instance, BNY Mellon reported a quarterly financing cash flow of $82.88 billion on 31 March 2020. However, the quarterly financing cash flow ell to $37.373 billion on 31 March 2021.
Similarly, BNY reported a quarterly investing cash flow of $19.855 billion on 31 March 2020 to $4.678 billion on 31 March 2021. Thus, BNY Mellon’s business, international banking, still generates enormous amounts of money.
BNY Mellon is a Healthy Company
I consider BNY Mellon (BK) a splendid company because it came through the pandemic with less debt.
Mellon’s total debts fell from $69.383 billion on 31 March 2020 to $62.209 billion on 30 June 2020. Hence, Mellon could reduce its debts despite making less money.
Conversely, Mellon has a had a hard time maintaining growth during the pandemic. For example, Stockrow estimates BNY Mellon suffered six straight quarters of revenue shrinkage.
In detail, BNY’s revenues shrank by 2.29% in the quarter ending on 31 March 2020, 22.67% in the quarter ending on 30 March 2020, 24.7% in the quarter ending on 30 September 2020, 33.20% in the quarter ending on 31 December 2020, 19.16% in the quarter ending on 31 March 2021, and 0.08% in the quarter ending on 30 June 2021.
Why I consider BNY Mellon (BK) an excellent Company
I think BNY Mellon is a splendid company because it still has $198.061 billion in cash and short-term investments after six straight quarters of revenue shrinkage. Yet, the cash and short-term investments fell from $214.579 billion on 31 March 2020.
I conclude BNY Mellon (BK) has a high margin of safety because it retained most of its cash and value during a global pandemic. A pandemic that disrupted global trade and travel, upon which Mellon depends. Notably, BNY Mellon’s Total Assets fell slightly from $468.155 billion on 31 March 2020 to $466.963 billion on 30 March 2021.
The other reason I think the Bank of New York Mellon is an excellent company is that it rarely appears in the news. BNY Mellon is a boring company, it just makes enormous amounts of money. Which is why Warren Buffett likes it.
Mellon fits into one of my rules of value investing. That rule is if you regularly see a company in the news sell the stock. The thinking is journalists only cover companies when something bad happens.
The more boring a company is, the more attractive the stock is. Buffett, in particular, loves no-drama companies. That helps Uncle Warren make money, but it caused him to miss out on some great investments, including Amazon (AMZN) and Alphabet (GOOG).
The World’s Largest Custodian Bank
BNY Mellon Inc. (NYSE: BK) retains value because it is the world’s largest custodian bank with $41 trillion in assets under management.
A custodian bank is a financial institution that holds customers’ securities for safekeeping. In contrast to investment banks such as Goldman Sachs (GS) a custodian bank like BNY tries to keep money safe. Hence, BNY Mellon takes few risks.
Yet BNY Mellon keeps pursuing new opportunities. For example, BNY Mellon launched a digital custody unit that could hold digital assets such as NFTs, stablecoins, and cryptocurrencies, CoinDesk claims. The New York State Department of Financial Services has given its blessing to BNY’s digital custody scheme Coinbase claims. Notably, BNY Mellon can hold digital assets without a special license under New York State Law.
BNY Mellon launched its Digital Assets Unit in February 2021, a press release reveals. The unit will offer an integrated service for storing and transmitting digital assets, Roman Regelman says. Regelman is BNY Mellon’s Head of Digital and CEO of Asset Servicing.
Hence, BNY Mellon is entering massive new markets. Some digital assets, including cryptocurrencies, already have enormous value. CoinMarketCap estimates that the most popular cryptocurrency Bitcoin (BTC) had a Market Capitalization of $920.962 billion and a fully diluted Market Cap of $1.029 billion on 29 August 2021.
BNY Mellon could Cash in on Stablecoins
Meanwhile, the most stablecoin Tether (USDT) had a Market Capitalization of $65.556 billion, a Fully Diluted Market Cap of $67.5384 billion, and a 24-Hour Market Volume of $61.654 billion on 31 August 2021. I think stablecoins such as Tether could be an enormous opportunity for BNY Mellon.
To explain, a stablecoin is a cryptocurrency that contains a digital mechanism (smart contract). When you spend a stablecoin, the smart contract releases payment in fiat currency held in a trust account at a Custodian Bank such as BNY Mellon (BK). For example, the Tether smart contract releases payment in US dollars when you spend USDT.
I think tens of millions of people around the world could want stablecoins. That could be an opportunity for Mellon because many of those people will want payment in the world’s reserve currency the US dollar. As America’s largest custodian bank, BNY Mellon will be a logical candidate to hold the dollars the stablecoins will spend.
Hence, I think issuing its own US Dollar stablecoin or buying an existing stablecoin such as EOSDT (EOSDT) or TerraUSD (UST) could be a gangster move for BNY Mellon. By issuing a USD stablecoin, BNY Mellon could attract tens of millions of dollars worth of new business.
In addition, I think BNY Mellon could tap consumer markets around the world by issuing a stablecoin. Amazon (AMZN) for example could take payment in the BNY Mellon stablecoin from a customer in Venezuela.
Then BNY Mellon will pay Amazon US Dollars from its accounts in New York, when Amazon cashes the stablecoins in. Other customers for a BNY Mellon stablecoin could include podcasters, gaming platforms, and trading platforms. All of which could maintain stablecoin accounts at BNY Mellon.
BNY Mellon (BK) is a steady moneymaker
Despite that, BNY Mellon (BK) is a steady moneymaker. In particular, BNY pays a growing dividend.
Notably, the quarterly dividend grew from 31₵ on 11 May 2021 to 34₵ on 9 August 2021. Overall, Mellon offered a last-twelve months dividend of $1.27 and a dividend yield of 2.25% on 31 August 2021.
In the final analysis, I still consider BNY Mellon a good dividend stock that is a value investment. If you are looking for a cheap stock with a high margin of safety and growth potential. I think BNY Mellon is worth investigating. I consider BNY Mellon a value in finance stocks because of its low price and safety.
Originally published at https://marketmadhouse.com on August 31, 2021.
