Here's why New York Mellon Bank shares fell to 9% Wednesday – The Fool Motley

What happened

Actions of Bank of New York Mellon (NYSE: BK) declined by more than 9% on Wednesday after the company posted mixed results in the first quarter and announced that it was expecting continued pressure over the quarter due to the need to pay interest rates. Interest higher to attract deposits.

So what

Bank of New York Mellon reported earnings of $ 0.94 per share for a business turnover of $ 3.9 billion in the first quarter, below earnings of $ 0.96 per expected share of $ 4 billion dollars that analysts were waiting. The company, a large deposit-taking bank that also operates in the areas of asset management, private banking and institutional services, has blamed weak investment management and net income from its operations. ;interests.

Net interest income declined 8.5% in the quarter, compared to a year prior to $ 841 million. The bank also suffered from the relative calm of the markets during the first three months of the year, which led to a slowdown in customer activity and lower fee income.

In March, the Federal Reserve unexpectedly canceled its intention to continue raising the federal funds rate and announced that it was not planning any further increases this year. This change took banks and investors by surprise and laid the groundwork for interest rate planning at banks such as New York Mellon.

If the weak results were not bad enough, the company's outlook for the current quarter has given a new impetus to investors' rush on exits. Charlie Scharf, chairman and CEO, warned that "current expectations regarding the yield curve are likely to negatively impact our revenue growth over the coming quarters," and that net revenues for the coming quarter are likely to be negative. Interest would decline by 3% to 5% in the second quarter.

Now what

The Bank of New York Mellon is considered a well-run bank, strong enough to attract an investment from Warren Buffett last year. But the perception in the market is that current trading and interest rate conditions will make it a year of sluggish growth for the company.

Of course, trading activity can change rapidly and the competition between banks' interest rates could weaken over the course of the year, and the Fed is staying the course on rates. After Wednesday's decline, the Bank of New York Mellon is trading at about 11 times earnings. This is not cheap enough to entice me to buy now, but the stock price is approaching a tempting level, which means it's worth it to look closely.