BNY Mellon (BK) executives are betting cryptocurrency services can rescue their bank’s revenue growth.
Bank of New York Mellon (BK) became the first of America’s eight systematically important banks to become a custody manager for cryptocurrency and other digital assets this fall, Reuters reports. To elaborate, the New York State Department of Financial Services gave BNY Mellon permission to hold digital currencies in its custody platform.
Consequently, BNY Mellon’s Digital Asset Custody platform is now live. BNY Mellon is building the platform with Chainlysis and Fireblocks. Chainanalysis monitors on-chain transactions and provides Know Your Transaction (KYT) and Know Your Virtual Asset Service Provider (VASP) or KYV services. Asset custody managers need KYT and KYV to deter money laundering and other illegal actions.
Fireblocks builds wallet infrastructure for cybersecurity, scalability and innovation. Thus, Fireblocks integrates BNY Mellon’s with the blockchain with multi-party computation (MPC).
BNY Mellon needs Digital Asset Custody Services
Currently, BNY Mellon (NYSE: BK) manages digital assets in 21 funds. Those funds include the Grayscale Bitcoin Trust and other crypto funds.
The Grayscale Bitcoin Trust (OTC: GBTC) had $13.191 billion in assets under management on 8 November 2022. Grayscale is the only fund, BNY Mellon currently supports, but they plan pure crypto funds.
BNY Mellon’s management believes custody of digital assets is a growing business. BNY Mellon claims to be the world’s largest asset custodian, with over $43 trillion in traditional assets under custody and $2 trillion payments cleared and settled daily.
The crypto markets are enormous. CoinMarketCap estimates the entire global Crypto Market Capitalization of was $811.13 billion on 9 November 2022. Plus, the Total Cryptocurrency 24-Hour Market Volume was $180.64 billion on 9 November 2022.
The Growing Cryptocurrency Market
Moreover, the most popular cryptocurrency Bitcoin (BTC) had a $311.926 billion Market Cap and a 100.492 billion 24-Hour Market Volume on 9 November 2022. Plus, the second-largest cryptocurrency Ethereum (ETH) had a Market Capitalization of $141.49 billion and a 24-Hour Market Volume of $38.667 billion on 9 November 2022.
The value of other digital assets is growing. For example, the 24-Hour Market Volume for all stablecoins was $172.33 billion on 9 November 2022. Stablecoins comprised 95.4% of the Global Cryptocurrency 24-Hour Market Volume on 9 November 2022. Stablecoins are popular because they are digital assets make payments in fiat currencies such as the US Dollar.
Can BNY Mellon (BK) Cash in on Stablecoins?
The most popular stablecoin, Tether (USDT), had a Market Capitalization of $69.534 billion and a 24-Hour Market Volume of $111.945 billion on 8 November 2022. Tether’s popularity is high because of the growing strength Tether makes payments in US dollars.
I think stablecoins could be an enormous opportunity for BNY Mellon (BK) because stablecoin operators hold the fiat currency they use in trust accounts and payment systems. Stablecoin holdings can be enormous. For example, Tether held $66.409 billion in assets (mostly US Treasury bills) on 30 June 2022.
Similarly, in September 2022, they claim another popular stablecoin Binance USD (BUSD) had $22 billion in net assets. Those assets comprised $5.34 billion US Treasury Debt, $14.32 billion in US Treasury Collateralized Repurchase Agreements, and $1.59 billion in cash deposits.
Stablecoins are an enormous business. Notably, CoinMarketCap estimates stablecoins accounted for 95.4% of the total crypto 24-Hour market volume on 9 November 2022. BNY Mellon can cash in stablecoins by offering custody services for stablecoin operators or offering its own stablecoin.
I think Stablecoins resemble checks and checking accounts. For example, Binance now pays interest on its BUSD stablecoin. Hence, stablecoins could be natural products for banks to offer. Another way BNY Mellon could profit from stablecoins is to buy stablecoin organizations such as Circle (the company behind the popular USD Coin (USDC) stablecoin), Tether, or Binance.
Can BNY Mellon cash in on DeFi and Central Bank Digital Currencies?
Finally, decentralized finance (DeFi) digital assets had a 24-hour Market Volume of $8.07 billion on 9 November 2022, ConMaketCap estimates.
Defi comprises digital assets built for finance, such as decentralized autonomous organizations (DAOs) and tokens issued by financial services platforms. DeFi accounted for just 4.47% of the Global 24-Hour Market Crypto Market Volume on 9 November 2022.
Interestingly, a DAO is a digital corporation they build in the blockchain. DAO’s issue tokens that serve as investments similar to stock. Some DeFi platforms sell tokens linked to lending and other financial services. Thus, the digital asset market is enormous and growing.
A final digital assets opportunity for BNY Mellon (NYSE: BK) is Central Bank Digital Currencies (CBDCs). A CBDC is a cryptocurrency or stablecoin a central bank, such as the Bank of England issues. I think CBDC could be popular because Mr. Market and consumers will treat them as fiat currencies. For example, people could view a Bank of England CBDC as pound sterling.
The New York Federal Reserve is researching and testing a wholesale CBDC (wCBDC) for use by banks and other financial institutions through its Project Cedar. The Fed has made no decision on a CBDC, yet it is developing one. I think there could be an enormous demand for a US Dollar wCBDC or CBDC because people could view it as a Digital Dollar.
Such demand could develop because the US Dollar is the global reserve currency and the world’s strongest currency. A reserve currency is the fiat currency banks and other institutions use for international transactions. One reason for BNY Mellon’s custody is its home in the USA, where it can convert assets into dollars and dollars into assets.
A Fed CBDC could grow BNY Mellon’s custody business because many people and institutions will want to convert assets into digital dollars.
Can BNY Mellon Reverse Negative Revenue Growth?
It is easy to see why BNY Mellon’s management is entering new markets. The bank is suffering from negative revenue growth.
For example, BNY Mellon’s revenue growth shrank by -16.34% in the quarter ending on 30 September 2022. Conversely, the revenues grew by 7.58% in the quarter ending on 30 June 2022.
Consequently, BNY Mellon’s quarterly revenues fell from $4.008 billion on 30 September 2021 and $4.229 billion on 30 June 2022 to $3.353 billion on 30 September 2022. I think the strong dollar and the economic chaos unleashed by the Ukraine are hurting BNY Mellon’s business, so managers are seeking additional sources of revenue.
BNY Mellon is Losing Money
Bank of New York Mellon (NYSE: BK) is losing money as its revenues fall.
For instance, BNY Mellon (NYSE: BK) reported a quarterly operating loss of -$296 million on 30 September 2022. The quarterly operating income fell from $1.095 billion on 30 June 2022 and $1.162 billion on 30 September 2021.
Similarly, Mellon’s quarterly gross profit fell from $4.035 billion on 30 September 2021 and $4.254 billion on 30 June 2022 to $3.353 billion on 30 September 2022. Thus, BNY Mellon needs more revenue, income, and profit that digital assets could provide.
Conversely, BNY Mellon’s quarterly operating cash flow grew from $2.829 billion on 30 September 2021 to $3.429 billion on 30 June 2022 to $4.99 billion on 30 September 2022. In contrast, BNY Mellon’s quarterly ending cash flow fell from $101 million on 30 September 2021 to $82 million on 30 September 2022.
BNY Mellon is a Cash-Rich Company
BNY (BK) is a cash-rich company. For example, BNY Mellon reported a quarterly ending cash flow of $9.544 billion on 30 June 2022.
Impressively, BNY Mellon reported a quarterly financing cash flow of $30.095 billion on 30 June 2022. There were also quarterly investing cash flows of $19.931 billion on 31 March 2021 and $9.306 billion on 30 September 2022.
However, BNY Mellon pays off enormous amounts of debt. It reported quarterly financing cash flows of -$14.538 billion on 30 September 2022 and -$24.127 billion on 31 March 2022. Impressively, BNY Mellon’s total debts fell from $63.785 billion on 30 September 2021 to $28.177 billion on 30 September 2022.
Another reason BNY Mellon is moving into digital assets is that it has less cash. For instance, the cash and short-term investments fell from $200.119 billion on 30 September 2021 to $162.157 billion on 30 September 2022.
I consider BNY Mellon a value investment because it has enormous amounts of cash, growing cash flow, and shrinking debts. It’s also entering new markets such as digital assets custody that could generate enormous amounts of cash.
What Value does BNY Mellon (BK) have?
Moreover, BNY Mellon’s value is shrinking. For example, the total assets fell from $470.533 billion on 30 September 2021 to $427.953 billion on 30 September 2022.
Hence, another reason BNY Mellon (BK) is entering digital asset management is shrinking value. However, I think BNY Mellon is a value investment. This is a company with $427.953 billion in assets and a $42.10 stock price on 9 November 2022.
Plus, BNY Mellon pays an impressive dividend. For instance, BK Mellon has scheduled nine 37₵ dividends between 10 November 2022 and 12 November 2024. Overall, BNY Mellon shares delivered a $1.48 forward dividend and a 3.52% dividend yield on 9 November 2022.
If you are seeking a dividend-paying stock that could profit from cryptocurrencies, stablecoins, CBDCs, and other digital assets, BNY Mellon is worth examining.