Hawkins, Yachtman & Buffett Are All Attracted To The Beaten Up BNY Mellon

There are three very well known value investors that have really taken notice of Bank of New York Mellon Corp., which is the largest custody bank in the world. Their stock price currently remains well below where they were when the financial crisis went berserk in 2008.

Southeastern Asset Management owner Mason Hawkins, and Yacktman Asset Management owner Don Yacktman have decided to join the fray with Warren Buffett and his company Berkshire Hathaway by building up positions in Bank of New York Mellon during the second quarter. This is learned according to security filings that were recently made.

If you don’t know this already, the value investors are starting to make much bigger bets in the bank since the stock is just trading at 10 times forward earnings, but the price-to-book ratio is hovering around multiyear lows. This information is from Brad Hintz at Bernstein Research.

There are three very well known value investors that have really taken notice of Bank of New York Mellon Corp., which is the largest custody bank in the world. Their stock price currently remains well below where they were when the financial crisis went berserk in 2008.

Southeastern Asset Management owner Mason Hawkins, and Yacktman Asset Management owner Don Yacktman have decided to join the fray with Warren Buffett and his company Berkshire Hathaway by building up positions in Bank of New York Mellon during the second quarter. This is learned according to security filings that were recently made.

If you don’t know this already, the value investors are starting to make much bigger bets in the bank since the stock is just trading at 10 times forward earnings, but the price-to-book ratio is hovering around multiyear lows. This information is from Brad Hintz at Bernstein Research.

Berkshire Hathaway has been steadily adding to their position over the last year, and they have increased it by about 10 times of what it was last year at this time. They currently own a total of 18.7 million shares. Yacktman has increased his stake by triple the amount, and his current shares are 7.8 million. Hawkins, on the other hand, has increased the position of his firm by 28%, and they now have a total of 44.2 million shares which we learned too when looking at US regulatory filings.

Don Yacktman, who we know has been putting a lot of his money into consumer stocks, tells us that his Bank of New York Mellon investment is actually intended to spread his money out over a few different positions in the industry of financial services.

Yacktman said that “it’s not a huge position for us.” He mentioned this at the end of June, when the Yacktman Focused Fund only owned 0.78% of BNY shares, and the Yacktman Fund had a total of 1.18%.

Some of the other investors that are focused on value-oriented investments are also beginning to buy more shares of Bank of New York Mellon. The companies that we have noticed doing this so far are First Eagle Investment Management, Gamco investors Inc., and Artisan Partners LP. First Eagle has increased its position by 46%, Gamco’s investors Inc. increase their position by 25% and Artisan Partners LP increase their position by 97%.

When the crash first started taking place in September of 2008, the Bank of New York Mellon stock plunged from roughly $40 a share at that time to $18.25 a share during March of 2009. Today, the stock closed up 1.8% and it is currently worth $22.51 per share. This is roughly 45% below the price that it was worth during September of 2008. Over the same period, S&P 500 index has gained a total of 13%.

It’s important to note that custody and trust banks such as BNY Mellon are currently running at subpar earnings because of the incredibly low interest rates right now. Also, they are suffering from a decline in global activity across the capital market.

Here are some of the tasks that custody trust banks perform: they keep track of the prices of mutual funds, they lend hedge fund securities, they trade in foreign currencies, they are money managers and they make sure that investors get their dividends and interest payments.

According to Bernstein’s Hintz, he believes that most investors are only focused on the business cycle pressures that have lowered the earnings of these custody banks.

“But a protracted disinterest in trust bank stocks suggests long-term earnings power may now be underappreciated,” said Hintz today in a research note. Bernstein has actually raised its target price from $25 per share to $27 per share for the Bank of New York Mellon stock.

Hintz also said that the abatement of fee waivers for money market funds, plus a rise in capital market activity, could be a springboard for growth and future earnings.

It’s also important to note that BNY Mellon has been taking advantage of the low stock price at this time. It repurchased 12.2 million shares during the second quarter for a total of $286 million, at an average of $23.38 per share.

“Our 2012 capital plan includes the repurchase of up to $1.16 billion of outstanding common stock and the continuation of the 13 cents per share quarterly cash dividend,” is what BNY Mellon said when they filed their quarterly report with the US Securities and Exchange Commission.

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