Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

The Value at Bank of New York Mellon

The Bank of New York Mellon (NYSE: BK) or BNYMellon is one of my favorite banking stocks. I like BNYMellon because it stays off the radar but makes a lot of money.

For example, Bank of New York Mellon had $88 billion in cash and equivalents in hand on 31 December 2018. Additionally, BNYMellon had $362.872 billion in assets on the same day. However, BNYMellon’s cash was down from $94.291 billion in September 2018 and $108.871 billion in December 2017.

More importantly, Bank of New York Mellon reports a gross profit of $4.007 billion for 4th Quarter 2018. Plus, the Bank records an operating income of $1.02 billion and a net income of $1.111 billion for the same period.

Bank of New York Mellon is generating a lot of Cash

Revealingly, BNYMellon reports a financing cash flow of $13.458 billion, an operating cash flow of $3.184 billion, and a free cash flow of $2.85 billion for 4th Quarter 2018. Hence, the Bank of New York Mellon generates a lot of cash from its business.

That business includes international money transfers between financial institutions and corporations and wealth management. In addition, BNYMellon conducts a lot of research and development work in financial technology.

Hence, I consider BNY Mellon both a bank and a financial technology (fintech) company. Moreover, the focus on fintech can lead to new products, services, and revenue streams.

Bank of New York Melon Explores Crypto Custody

For example, BNY Mellon is exploring Crypto Custody for the banking of blockchain assets.

To explain, a Crypto Custody service safeguards crypto assets like altcoins, stablecoins, decentralized applications (DApps), smart assets, utility tokens, smart contracts, crypo securities, and blockhain equities. The hope is that wealthy people will want to keep their crypto safe and insured by putting it in a bank.

Regulated Crypto Custody is the ultimate aim for Bank of New York Mellon. To explain regulated crypto custody would be crypto accounts governments regulate and insure like traditional bank accounts.

However, American authorities like the Federal Deposit Insurance Corporation (FDIC) and Securities and Exchange Commission (SEC) are in no hurry to regulate or insure crypto. Thus, it could be years before authorities make regulated Crypto Custody available in the United States.

BNY Mellon is interested in Crypto Custody because it could be big business. In fact, Sam McIngvale; leader of Coinbase’s Crypto Custody efforts, estimates the potential value of Crypto Custody at $20 billion.

Moreover, Crypto Custody could become a big revenue stream for BNY Mellon. In fact, Bloomberg claims, Coinbase charges a $100,000 set up fee for large Crypto Custody customers.

BNY Mellon could offer the ultimate in Crypto Security

Notably, BNY Mellon is exploring the possibility of storing crypto offline, Bloomberg reports. For example, BNY Mellon could store cryptocurrency on disks, tape, or hard drives, kept offline in its vaults.

Thus, the Bank of New York Mellon could offer the ultimate in cryptocurrency security. That is a cryptocurrency stash criminals will have to physically steal to access. In addition, it will be harder for tax and debt collectors to track or seize, hard crypto assets.

However, hard crypto assets kept offline will not be useful. For example, it could be difficult to sell hard crypto, or borrow against it. Notably, a creditor could have a hard time accessing the value of hard crypto locked up in a bank vault.

In detail, one of the big advantages to crypto is that you can access it fast and quickly determine its value. Thus, hard Crypto Custody destroys one of the main advantages of crypto and digital assets, ease of access. Under those circumstances, I think hard crypto currency will not be popular.

Is the Bank of New York Mellon a good Dividend Stock?

I think the Bank of New Mellon is a good dividend stock because it paid a 28¢ dividend on shares that traded for $51.23 on 7 March 2019.

To explain, BNYMellon paid a 28¢ dividend on February 8, 2019, but it shares traded at $51.23 on 7 March 2019. Hence, the Bank of New York Mellon offers a decent dividend and a low stock price.

Additionally, the BK dividend grew by 4¢ in 2018. To explain, BNY Mellon paid a 24¢ dividend on May 11, 2018, and a 28¢ dividend on August 10, 2018. Meanwhile, credits BNYMellon with six years of dividend growth.

In addition, reports Bank of New York Mellon offered stockholders a dividend yield of 2.15%, an annualized payout of $1.12, and a payout ratio of 26.8% on March 4, 2019.

Why Bank of New York Mellon is a value investment

I consider BNY Mellon, a value investment because it is a somewhat obscure stock with a low price. Yet, the Bank of New York Mellon is a company that generates a lot of cash. In addition, BNY Mellon pays a nice dividend for a $51 stock.

If you are looking for a cheap fintech stock that can generate a lot of money, BNY Mellon is a good choice. The old-line New York bank is definitely a value investment that could make money for years to come.