Trust Banks Face Ongoing Headwind Of Low Rates - Goldman
September 21 2009 - 9:31AM
Dow Jones News
Trust banks such as State Street Corp. (STT) and Bank of New
York Mellon Corp. (BK) may be a safer bet than commercial banks in
uncertain times, but low interest rates are one caution Goldman
Sachs highlighted Monday morning.
The firm cut its sector view of trust banks to neutral from
attractive, saying rates could be an "ongoing headwind" that
counteracts strong markets.
Bank of New York Mellon was singled out for a downgrade to
neutral from buy by Goldman analysts led by Brian Foran, who said
that revenues from the bank's money market mutual funds and its
corporate bond trustee business may be disappointing if low rates
persist.
Nearly one-third of Bank of New York Mellon's revenues come from
money market mutual funds and issuer services, which includes the
bond trustee business, and "both of these businesses are likely to
be declining over time," the analysts wrote.
Credit write-downs will also be a factor: The bank has $7
billion of Alt-A securities, $1.5 billion in commercial mortgages
and $500 million in construction loans, of which Goldman predicts
$350 million in third-quarter losses.
The firm cut its third-quarter earnings view for Bank of New
York Mellon to 30 cents per share from 50 cents, and its 2010
earnings estimate to $2.25 from $2.75.
The more sober view of Bank of New York Mellon contrasts with
the view of some on Wall Street who continue to keep favorable
ratings on the shares.
Last week, Rochdale Securities banking analyst Richard Bove
credited what he called the bank's "home run" agreement with the
Russian government to resolve a $22.5 billion lawsuit by Russia's
Customs Service.
"This stock is very attractive and should be bought," Bove wrote
in a note to clients.
Bank of New York Mellon Corp. shares fell 2.6% in premarket
trading Monday, to $29.52.
-By Brendan Conway, Dow Jones Newswires; (212) 416-2670;
brendan.conway@dowjones.com