Purchased Bank of New York Mellon Corporation

Bank of New York

The banking pool of the Value Investment Fund purchased 232.9373 shares of Bank of New York Mellon Corporation trading at $41.93 at close of business on Friday January 22, 2021. Total investment is $10,000 for 232.9373 shares at $42.93 including a $1 per share exchange fee.

After careful analysis, it was determined that the bank’s stock price is selling at or below intrinsic value. Furthermore, a reasonable market recovery share price is determined to be $52 per share and that this price will bear sometime during 2021. The underlying reasoning is as follows.

On 01/12/2018 (three years ago) the stock was selling in the market at $58.42 per share. Today, the stock is selling at $41.93 and the fourth quarter preliminary report was just issued. Here are the comparatives.

                     Market             Annual                     Per Share                                                             Book                                            Common Equity
Date             Price      Revenue   Expenses   Earnings  Dividends    Loans   Securities   Value/SH  Tangible/SH    Employees      Tier 1 Ratio        Deposits 
01/18/2017   $58.42    $15.5 B      $11.0 B        $3.72         $.96          $57.9 B   $120.3 B        $37.21          $18.24           52,500               10.7%              $244.3 B
01/22/2021   $41.93    $15.8 B      $11.0 B        $3.83       $1.24          $56.5 B   $156.4 B        $46.53          $25.44           48,500               13.1%               $341.5 B

Every single one of the measurement metrics are in a much superior position against the market high price three years ago. The bank is in a position to perform very well over the next year and with that, the market price will follow suit. 

Banks are one of the few investment pools whereby intrinsic value and book value correlate closely. This is due to two driving forces. First, banks have a strong current assets portfolio especially with government securities. Secondly, banks are thinly capitalized, typically below 15% of total assets. Bank of New York holds a strong equity position with a total Tier 1 capital ratio of 15.8%. BNY’s tangible book value (adjusted for intangible rights and goodwill) is currently $25.44 per share. At one point during the last three years, the market price did drop to $29 per share. This was in February 2020 directly tied to the COVID-19 market sell-off. At $42 per share, the current market price is between tangible and full book value per share.

One last interesting note, since 2017, Bank of New York’s equity has increased $5.8 Billion to $45.5 Billion. Act on Knowledge.

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