Higher Fee Income to Aid BNY Mellon's Q3 Earnings, Subdued NIR to Hurt

The Bank of New York Mellon Corporation BK is scheduled to report third-quarter 2024 results on Oct. 11, before market open. The company's revenues and earnings are expected to have increased on a year-over-year basis.

In the last reported quarter, BK's earnings surpassed the Zacks Consensus Estimate. Results were primarily aided by a rise in fee revenues and lower expenses. The assets under custody and/or administration (AUC/A) and assets under management balances grew on a solid market rally. However, a decline in net interest revenues (NIR) acted as a headwind.

BNY Mellon has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 9.92%.

Key Factors to Impact BK's Q3 Results

Fee Revenues: The Zacks Consensus Estimate for total investment services fees (comprising more than 50% of the company's total revenues) is pegged at $2.34 billion, suggesting a rise of 5% from the year-ago quarter. Our estimate for the same is $2.39 billion.

The consensus mark for financing-related fees stands at $52.5 million, which suggests a 16.6% year-over-year rise. Our estimate for financing-related fees is $55.9 million.

The consensus estimate for distribution and servicing fees is pegged at $41.7 million, implying a 6.8% increase. Our estimate for the same is pegged at $42.7 million.

In the third quarter, foreign exchange (FX) trading activity was driven by heightened market volatility and increased hedging demand amid global economic uncertainties. Nonetheless, the implementation of the rate cut weakened the dollar to some extent. Thus, increased FX trading volumes are likely to have had a modest impact on BNY Mellon's FX revenues. The consensus estimate for foreign exchange revenues is pegged at $179.6 million, suggesting a rise of 16.6%. Our estimate for the same is $165.5 million.

The consensus estimate for total fees and other revenues is $3.55 billion, suggesting a rise of 5.6%. We project the metric to be $3.59 billion.

Net Interest Revenues: On Sept. 18, the Federal Reserve implemented a 50-basis point rate cut for the first time since March 2020. Nonetheless, the impact on BK's NIR during the third quarter is unlikely to have been significant.

Further, the inverted yield curve for most of the quarter and high funding costs are expected to have weighed on interest income.

Yet, indications of future rate cuts by the Fed and a stabilizing macroeconomic backdrop are likely to have supported the overall lending scenario. Per the latest Fed data, overall loan demand remained decent for the first two months of the quarter.

The consensus mark for NIR is pegged at $967.8 million, indicating a 4.8% year-over-year decline. Our estimate for NIR is $898.3 million.

Expenses: Because of higher restructuring charges, BNY Mellon's expenses have been elevated over the past few years. Nevertheless, overall costs are expected to have been manageable in the quarter under review, given the elimination of unnecessary management layers.

Our estimate for non-interest expenses is $3.12 billion, suggesting a marginal year-over-year fall.

What the Zacks Model Unveils for BNY Mellon

According to our quantitative model, the chances of BNY Mellon beating the Zacks Consensus Estimate this time are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better.

Earnings ESP: The Earnings ESP for BNY Mellon is +0.14%.

Zacks Rank: The company currently carries a Zacks Rank #2 (Buy).

Other Bank Stocks That Warrant a Look

A couple of other bank stocks that have the right combination of elements to post an earnings beat in their upcoming releases are First Community Corporation FCCO and 1st Source Corp SRCE.

FCCO has an Earnings ESP of +1.12% and it carries a Zacks Rank of 2 at present. The company is slated to report third-quarter 2024 results on Oct. 16.

SRCE is scheduled to release third-quarter 2024 earnings on Oct. 24. The company, which sports a Zacks Rank of 1 (Strong Buy) at present, has an Earnings ESP of +4.80%.

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