BNY Mellon (BK) is the bank most in danger from recent events. Both the Ukraine War and the US banking crisis threaten BNY’s business.
To explain, Bank of New York Mellon (BK) is a global investments company that owns a large US investment bank. The Ukraine War fallout threatens BNY Mellon because it offers investment, wealth management, and investment services in 35 countries.
In particular, BNY provides banking and wealth management services to big business and rich people. For example, BNY Mellon could provide payroll services and process payments for a US oil company operating in Venezuela. Additionally, BNY can manage a wealthy Colombian’s US money investments.
How the Ukraine War threatens BNY Mellon
Hence, BNY Mellon’s business suffers when international trade and finance shifts away from the US. The Ukraine War is driving such a shift.
For example, the People’s Bank of China (PBOC) is clearing yuan, or renminbi (RMB), transactions in Brazil, Reuters reports. One goal of this arrangement is to redirect financial transactions from New York to Shanghai. Obviously, such an arrangement can take business from American investment banks such as BNY Mellon (NYSE: BK).
Moreover, sanctions have cut the world’s 11th largest economy Russia off from the global financial system. Consequently, Russian money is now flowing to Shanghai and the Persian Gulf.
Conversely, Russia’s wealthy are getting richer despite sanctions. The overall wealth of Russian billionaires rose from $353 billion in 2022 to $505 billion in 2023, The Moscow Times claims. Plus, the number of Russian billionaires grew from 88 in 2022 to 110 in 2023, The Moscow Times claims.
Russian billionaires have more money because of higher commodity prices. The billionaires are making money by selling oil to Chinese and Indian customers. Obviously, those billionaires are not banking at BNY Mellon.
How the Banking Crisis Threatens BNY Mellon
BNY Mellon (BK) resembles the institutions the banking crisis is hurting. To explain, Credit Swiss, Silicon Valley Bank, Signature Bank, and First Republic Bank are investment banks and wealth managers.
Three of those institutions collapsed. Moreover, BNY Mellon spent $1 billion to help bailout First Republic Bank. Mellon was part of a consortium of banks that spent $30 billion to save First Republic from collapse. BNY Mellon’s contribution was an uninsured deposit.
Skeptics will wonder why BNY Mellon and other banks were doing the Federal Deposit Insurance Corporation’s (FDIC) job? Notably, the FDIC backed all Silicon Valley Bank deposits by organizing a bridge bank. The bridge bank saved the deposits until they sold Silicon Valley Bank to First Citizens.
Cynics will say BNY Mellon wasted $1 billion trying to do the government’s job. The same cynics will say BNY Mellon is vulnerable to a liquidity crisis like the one at Silicon Valley Bank. Silicon Valley Bank collapsed because of high interest rates and economic turmoil in Silicon Valley.
Notably, BNY Mellon faces economic turmoil abroad because of the Ukraine War and rising interest rates. For example, the Federal Reserve’s Open Market Committee raised the federal funds rate from 4.75% to 5% on 22 March 2023, despite banking turmoil. Hence, BNY Mellon faces the storm that destroyed Silicon Valley Bank.
BNY Mellon Makes Less Money
BNY Mellon (BK) is generating less money and revenue. For example, BNY Mellon’s quarterly revenues fell from $6.059 billion on 31 December 2022 to $3.235 billion on 31 March 2023.
Similarly, the quarterly gross profit fell from $3.918 billion on 31 December 2022 to $3.235 billion on 31 March 2023. Plus, the quarterly operating income fell from $685 million on 31 December 2022 to $108 million on 31 March 2023.
BNY Mellon didn’t report cash-flow numbers on 31 March 2023. However, the quarterly operating cash flow fell from $3.725 billion on 30 September 2022 to $2.924 billion on 31 December 2022.
Conversely, the quarterly investing cash flow rose from $19.345 billion on 30 September 2022 to $25.124 billion on 31 December 2022. Similarly, the quarterly ending cash flow rose from -$26 million on 30 September 2022 to $1.929 billion on 31 December 2022.
How Much Debt Does BNY Mellon Have?
BNY Mellon (NYSE: BK) is paying enormous amounts of debt. For example, BNY reported a quarterly financing cash flow of -$23.061 billion on 30 September 2022 that rose to -$26.150 billion on 31 December 2022.
Impressively, BNY Mellon’s total debts fell from $72.524 billion on 31 December 2022 to $33.027 billion on 31 March 2023. Thus, BNY Mellon has less debt in a time of turmoil which is healthy.
Appealingly, BNY Mellon has more cash. Its cash and short-term investments grew from $148.06 billion on 31 December 2022 to $173.638 billion on 31 March 2023.
Thus, BNY Mellon has strong value characteristics despite the threats to its business. In particular, it is a cash-rich company that is accumulating more cash.
What Value does BNY Mellon Offer?
Interestingly, BNY Mellon (BK) is gaining value. For example, the Total Assets grew from $405.783 billion on 31 December 2022 to $425.112 billion on 31 March 2023.
In contrast, BNY Mellon’s share price fell from $46.30 on 3 January 2022 to $44.05 on 21April 2023. Hence, BNY Mellon has a stable stock with a growing value. However, I think its risks are rising because of the Ukraine War and international turmoil.
Conversely, I think BNY Mellon has less risk because the FDIC is now willing to guarantee all commercial bank accounts. To explain, the FDIC guaranteed all accounts at Silicon Valley Bank. I think the FDIC will guarantee all accounts at BNY Mellon if it nears collapse.
BNY Mellon has Less Risk because of the FDIC
Hence, BNY Mellon has far less risk because the FDIC will bail it out. Thus, Uncle Sam is backing BNY Mellon investors.
The lower risk is important because BNY Mellon is a respectable dividend stock. For example, BK was offering a $1.48 forward dividend and a 3.36% forward yield on 21 April 2023. They have scheduled eleven 37₵ quarterly BK dividends between 11 May 2023 and 9 May 2025. Hence, the Federal government could guarantee BNY Mellon’s dividend.
Therefore, BNY Mellon now resembles Treasury bonds and other federal securities. Treasuries are a safe investment because the Congress can always raise taxes or the debt ceiling to cover its obligations. Now, the FDIC could extend that value to banks such as BNY Mellon.
Finally, BNY Mellon (NYSE: BK) could experience enormous growth if the Ukraine War ends and international turmoil settles down. In particular, all the investors who are staying out of the US market could come back in if the war ends. For example, all the new Russian billionaires who will seek apartments on Park Avenue and mansions in Palm Beach. They will need an American bank such as BNY Mellon.
If you want a secure value investment in finance, that has some growth prospects. I think BNY Mellon is worth examining.
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