What BNY Mellon can tell us about the Economy

BNY Mellon (NYSE: BK) has had a rough time lately. Revenues and revenue growth have fallen while hedge fund interest has grown at Bank of New York Mellon.

For instance, BNY Mellon’s quarterly revenues fell from $4.007 billion on 31 December 2018 to $3.899 billion on 31 March 2019. However, those quarterly revenues rose slightly to $3.924 billion on 30 June 2019, but dropped to $3.861 billion on 30 September 2019.

Meanwhile, Stockrow estimates BNY Mellon experienced three straight quarters of significant revenue growth shrinkage. The Bank of New York Mellon reported a -6.68% revenue growth rate on 31 March 2019, a -5.11% revenue growth rate on 30 June 2019, and a -6.68% revenue growth rate on 31 September 2019.

How Much Money is BNY Mellon Making?

Oddly, the gross profit and revenue shrinkage is having little effect on BNY Mellon’s income. To clarify, the gross profit and the revenue are the same number at big banks such as Bank of New York Mellon.

In fact, BNY Mellon’s net income has grown during 2019. To explain, BNY Mellon started the year with $832 million in quarterly net income. That quarterly net income grew to $910 million on 31 March 2019; $969 million on 30 June 2019, and $1.002 billion on 30 September 2019.

In the same period, the quarterly operating income went from $1.031 billion in December 2018 to $1.284 billion in September 2019. In detail, BNY Mellon reported quarterly operating income of $1.183 billion in March, and $1.932 billion in June.

How Much Cash does BNY Mellon Have?

Hence, BNY Mellon is generating less revenue but earning less income. Bank of New York Mellon (NYSE: BK) is still generating a lot of cash; however.

For example, BNY reported a quarterly operating cash flow of $5.081 billion on 30 September 2019. That quarterly operating cash flow grew from $1.565 billion on 30 June 2019.

Additionally, BNY Mellon reported a quarterly investing cash flow of $6.156 billion on September 30, 2019. That operating cash flow grew from $-32.196 billion in June. Interestingly, BNY Mellon reported a quarterly investing cash flow of $20.810 billion in March.

Additionally, BNY Mellon reported a quarterly financing cash flow of $-9.791 billion on 30 September 2019. That number shrank from $33.082 billion in June. Finally, Bank of New York Mellon reported a free cash flow of $4.686 billion on 30 September 2019. That number was up from -$2.018 billion on 30 June 2019.

BNY Mellon Has a Lot of Cash

BNY Mellon still runs a lot of cash through its till and keeps that cash. Importantly, Bank of New York Mellon had $95.946 billion in cash and equivalents on 30 September 2019. That number was up from $90.747 billion on 30 June 2019 and $88 billion on 31 December 2019.

However, BNY Mellon has not reported short-term investments since March 2019; when it reported $72.067 billion in short term investments. In March 2019, BNY Mellon reported $152.427 billion in cash and short-term investments. That numbered exceeded the Bank of New York’s total current assets of $135.127 billion.

I like BNY Mellon (NYSE: BK) because it is cheap and has a lot of cash. BNY Mellon shares were trading at $49.76 on 5 December 2019. Moreover, Mr. Market gave Bank of New York Mellon a market cap of $45.889 billion on the same day.

Why are Hedge Funds Buying BNY Mellon?

Hence, it is easy to see why hedge funds are interested in BNY Mellon. To explain, Yahoo! Finance claims hedge funds are buying BNY shares.

I think the hedge fund managers are buying BNY Mellon because they want companies with lots of cash. I suspect hedge fund bosses want cash-rich companies because they think a market correction or market turbulence is imminent.

Cash-rich companies thrive in turbulent markets and bear markets because they can buy other businesses and assets that are cheap. In addition, cash-rich companies find it easier to borrow money in times of higher inflation or lower interest rates.

Corporate America is Hoarding Cash

In such an environment, investors and speculators need to watch cash-rich companies. Cash rich companies include:

  • Berkshire Hathaway (NYSE: BRK.B) – $74.776 billion in cash and equivalents on 30 September 2019.
  • Alphabet (NASDAQ: GOOGL) – $121.177 billion in cash and short-term investments on 30 September 2019.
  • Microsoft (NASDAQ: MSFT) – $136.636 billion in cash and short-term investments on 30 September 2019.
  • Oracle (NYSE: ORC) – $35.704 billion in cash and short-term investments on 31 August 2019.
  • Facebook (NASDAQ: FB) – $52.269 billion in cash and short-term investments on 30 September 2019.
  • Amazon (NASDAQ: AMZN) – $43.401 billion in cash and short-term investments on 30 September 2019.
  • Bank of America (NYSE: BAC) – $436.246 billion in cash and equivalents on 30 September 2019.
  • Goldman Sachs (NYSE: GS) – $94.094 billion in cash and equivalents on 30 September 2019.
  • JPMorgan Chase & Company (NYSE: JPM) – $256.597 billion in cash and equivalents on 30 September 2019.
  • Wells Fargo & Company (NYSE: WFC) – $148.731 billion in cash and equivalents on 30 September 2019.
  • Ford (NYSE: F) – $37.331 billion in cash and equivalents on 30 September 2019.
  • Apple Inc. (NASDAQ: AAPL) – $100.57 billion in cash and equivalents on 30 September 2019.

Why are Companies Hoarding Cash?

Many companies in different industries are hoarding cash. Hence, ordinary Americans will worry.

An obvious reason why companies are hoarding cash is today’s executives lived through the Great Economic Meltdown of 2007-2008 when the financial system crashed. As a result, executives behave as survivors of the Great Depression act.

Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years,”  – Warren Buffett.

Executives pile up cash and short-term investments for the same reason your grandfather hid cash in the mattress. Business leaders do not trust the financial system and want to survive the next crash.

Furthermore, executives want to emulate Warren Buffett and go shopping when the times get bad. Berkshire Hathaway famously bought the Burlington Northern Santa Fe railway after the crash of 2008.

Why are Billionaires Hoarding Cash?

Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” – Warren Buffett.

Notably, one of the biggest cash hoarding companies is Microsoft. Co-founder and Buffett buddy Bill Gates still helps run Microsoft.

Gates still works behind the scenes at Microsoft, Redmond reports. In addition, Gates is an important adviser to Microsoft CEO Satya Nadella.

Hence, some very smart people including Warren Buffett, Satya Nadella, Bill Gates, Mark Zuckerberg, Oracle CEO Larry Ellison, and Jeff Bezos are hoarding cash. Ordinary people need to ask why.

Why are the Billionaires scared?

I think the obvious reason is fear of a recession. Other fears could include inflation, stagflation, and zero interest rates. I believe stagflation; which occurs when there is no economic growth and inflation is the greatest threat

The Trade War, and political turbulence generated by the presidential election, impeachment, and fears of left-wing politicians such as U.S. Senator Bernie Sanders (I-Vermont). I think Sanders is the strongest candidate in the Democratic primary, and I believe Sanders could beat President Donald J. Trump (R-New York) in the general election.

Adding to the fears is all the internet and social media chatter about an “intelligence community coup” against President Trump. I believe the intelligence coup scenario is a fantasy; but some smart people including journalist Matt Taibbi think the notion is credible. Frighteningly, nobody knows how Mr. Market could react to an intelligence coup or impeachment.

All these reasons give the billionaires reason to fear. I think such fears explain why hedge funds are interested in BNY Mellon (NYSE: BK). The hedge funds and the billionaires are hedging against American failure or crisis.

Is BNY Mellon a Value Investment?

I think the current climate of fear makes cash-rich companies such as BNY Mellon, value investments. To explain, demand for cheap cash-rich businesses will grow as political and economic turmoil increases.

BNY Mellon (NYSE: BNY) is cheap and it pays a decent dividend. BNY Mellon shares paid 31₵ on 25 October 2019.

Meanwhile, Stockrow credited BNY Mellon with a dividend yield of 2.52%, an annualized payout of $1.24, and a payout ratio of 28.15% on 5 December 2019. BNY Mellon also offers six years of dividend growth.

I think the dividend data shows another reason hedge funds are buying Bank of New York Mellon. The fund managers are looking for income to replace bank and bond interest. To clarify, the managers fear zero interest rates, so they want safe dividend income to take the place of the lost bond and bank interest.

I advise ordinary people to consider the same strategy because CNBC claims President Donald J. Trump (R-New York) loves zero-interest rates. The Donald could implement zero-rates if he wins reelection next year.

In today’s environment, BNY Mellon is a value investment. However, Bank of New York Mellon (NYSE: BK) could take a fast drop if the political and financial turmoil does not develop.