Brace yourselves, investors -- Bank of New York Mellon stock is about to plummet after it announces earnings on Wednesday. The reason is simple: Its function as a trust bank seemingly locks it into the performance of its large banking customers. If the experience Wells Fargo stock had last week after releasing record earnings is any indicator, BNY Mellon could also be hampered by declining net interest margin.
Though it has the word "bank" in its name, BNY Mellon isn't a traditional bank that you or I would do business with. It doesn't offer traditional banking products like checking accounts or mortgages, but instead acts as an intermediary between larger institutions conducting enormous financial transactions. That said, it makes a lot of money charging interest on the money it holds in the short term for its customers, so low interest rates are impacting the bottom line.
I could be completely wrong in this assessment, however. One of the reasons that investors have flocked to BNY Mellon in the past is its relative safety in comparison to the larger banks. Because it isn't in the mortgage business, it doesn't have to worry about toxic assets coming back to harm its balance sheet. It also has some of the most dedicated customers in the world, and banks like Wells Fargo aren't going to take their business elsewhere on a whim.
What it means to you
With all that said, I think the bank is poised for at least a small drop-off after its earnings release. Not only is its success tied to its business model and the performance of its customers, but it is also trading near its 52-week high. It seems to me that the bank has ridden the wave of success that the financial sector seems to be enjoying right now, and it might be time for a slight pullback. Be sure to check back here on Wednesday to see how the market reacts to the bank's earnings release.
While some big banks continue to limp through their post-crisis recovery, Bank of New York Mellon has bounced right back. Though the bank is an 800-pound gorilla in the custody and asset management business, a new regulatory environment could be either a big new opportunity or a considerable risk. To help figure out whether this banker's bank is worthy of a spot on your watchlist, you're invited to check out The Motley Fool's new premium research report on BNY Mellon. Click here now to claim your copy, and receive a full FREE year of key updates and guidance as news develops.
The article 1 Reason BNY Mellon Will Plunge After Announcing Earnings originally appeared on Fool.com.Robert Eberhard has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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