The Bank of New York Mellon(BK) ZACKS·2024-12-27 16:36Economic and Market Overview - The US economy started strong in 2024 due to optimism about potential Federal Reserve interest rate cuts, a robust labor market, rising consumer spending, and technological advancements [1] - However, optimism about rate cuts faded as inflation remained persistent, leading to uncertainty about the pace of future cuts [1] - The Fed has reduced interest rates by 100 basis points since September 2023 but hinted at fewer cuts in 2025 [1] Banking Sector Outlook - Deal-making activities are expected to surge in 2025, leading to increased revenues and expanded net interest margins (NIM) for banks [2] - Mortgage banking income is unlikely to improve in 2025 due to elevated mortgage rates [3] - Weakness in asset quality is expected to persist in credit cards, auto loans, and commercial real estate loans [3] - Despite challenges, 2025 is anticipated to be a favorable year for banks [3] Selected Banking Stocks - The Bank of New York Mellon Corp (BK), Northern Trust Corporation (NTRS), and Stock Yards Bancorp Inc (SYBT) are well-positioned for growth in 2025 [2] - These stocks have a Zacks Rank of 1 (Strong Buy) or 2 (Buy) and have rallied more than 20% in 2024 with market caps of 57 billion, and its stock has risen 50.5% in 2024 [7] - Earnings are expected to grow by 15.6% in 2024 and 13.2% in 2025 [7] Northern Trust Corporation (NTRS) - NTRS's revenues grew at a CAGR of 3.5% over the three years ended 2023, driven by higher non-interest income and net interest income (NII) [8] - Loans and lease balances grew at a CAGR of 7.7% over the same period, despite a temporary decline in loans in 2024 [8] - NTRS is focusing on the Asset Servicing and Wealth Management segments to drive organic growth [8] - Earnings are expected to grow by 19.8% in 2024 and 5.6% in 2025 [9] - NTRS has a market cap of 2.2 billion and has risen 42% year-to-date [22] - Earnings are expected to grow by 3.8% in 2024 and 5.7% in 2025 [22] - SYBT has a Zacks Rank of 2 and has consistently paid dividends, with a dividend payout ratio of 34% [11] Industry Trends and Strategies - Banks are focusing on AI and technology to enhance client experience and expand online presence to capture the growing mobile banking population [13] - Strategic acquisitions and collaborations are being used to deepen global presence and diversify revenue streams, which will bolster fee income in 2025 [13] - The Federal Reserve's rate cuts are expected to drive consumer and commercial loan demand, stabilize funding costs, and boost NII and NIM [12] - The US presidential election has fueled optimism around banks due to anticipated tax cuts, favorable regulations, and expansionary fiscal measures [12] Capital Distributions and Share Repurchases - BK has increased dividends four times in the past five years with an annualized growth of 8.9% and announced a $6 billion share repurchase program in April 2024 [17] - SYBT extended its share repurchase program in May 2023, authorizing the repurchase of up to 1 million shares, with 0.7 million shares remaining as of September 30, 2024 [11] - SYBT announced a 25-million share repurchase program in October 2021, with 13.3 million shares remaining as of September 30, 2024 [23]