Financial ETFs are gaining traction with the turnaround in the manufacturing sector. The Energy Select Sector SPDR went up by 8.7% in the last week. The Materials SPDR (NYSEARCA:XLB) rose by 9.23% and the Utilities SPDR (NYSEARCA:XLU) surged by 3.99%. And likewise, the Financial Select Sector SPDR went up by almost 8%. But it must be noted that the growth rates are still low. In fact, the expenditure on the construction is reportedly low.
And all these facts are going to help us in the analysis of the Bank of New York Mellon Corporation (NYSE:BK), which recently came into news for hiring Credit Suisse (NYSE:CS) to sell Alcentra, which manages the majority of its assets, worth around $17 billion in CLOs and high-yield bonds, in both United States and Europe. As an investor, should you start to consider Mellon as an investment yet?
Now, you must know that even though there has been a rise of around 8.87% in the last week, it has fallen by over 30% in the last six months. It's said that when going gets tough, the tough get going. So let's see how BNY Mellon has fared during the rough times, how well-prepared it is for the days to come, and how the particular decision of selling Alcentra will affect the future prospects of the company.
To begin with, BNY Mellon operates mostly in the investment management, including wealth and assets management, and the investment services sector, including issuer services, securities services, Treasury services and clearing services, as realigned in 2011.
Going by the 10-quarter report, the company's revenue from the asset services and clearing services was decent at $980 million and $127 million respectively, which picked up the total investment services fee revenue to $1,764 million, compared to $1,392 million in the second quarter last year. Even the investment management and performance fees, which indicate net new businesses and capital market value appreciation of the assets, seemed to have taken up since 2009.
In this quarter, the total investment management and performance fees went up to $779 million, compared to $645 million in the second quarter of 2009. Yes, the financial market has improved since 2009 at least, and the company seems to have stood the test of time.
But there are a few businesses that got affected as well, primarily the foreign exchange and other trading revenue, distribution and servicing fees, and financing-related fees. Foreign exchange and other trading revenue, which indicates the level of currency volatility, risk management and cross-border assets under custody, ended at $222 million this quarter, compared to $237 in the second quarter 2009.
Distribution and servicing fees, which mainly depend on average assets of mutual funds and net sales commissions, declined to $49 million last quarter, against $90 million second quarter in 2009. Financing-related fees, which mainly rely on capital market fees, loan commitment fees and credit-related fees, dropped to $49 million last quarter from $54 million in the second quarter of 2009.
Needless to say, this is due to the slow action in the financial investment scenario in the current distressed global economy. And BNY Mellon also seems to have been affected by the current stagnancy in the real estate sector, since the lease residential income reflected a loss of $5 million last quarter.
Perhaps the Alcentra unit contained a lot of non-performing or under-performing assets, and that is why the company took the decision to sell it before it resulted in further loss. And a little more cash can always be invested in a better way, right?
It's time to hold BNY Mellon for a couple of quarters ahead.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.