Profitability suffers due to low interest rates and global weakness
A key element gripping the US banking sector (XLF) (VFH) is the prevalent low interest rate environment that is acting as a drag on banks. Global weakness also impacted trading desks in 2016 and slowed mergers and acquisitions activity. This sluggishness could impact future earnings of custodian banks like Bank of New York Mellon (BK).
Custody banks keep records, track performance, and lend securities for institutional investors. BNY Mellon also manages investments for individuals and institutions. In order to boost profitability in a low interest rate environment, banks are reducing expenses by restructuring their businesses and focusing on their core segments.
Return ratios for BNY Mellon
Bank’s (XLF) valuations are derived by the returns they are able to generate on their assets and shareholders’ equity. These are key measures of profitability for banks. During 4Q16, BNY Mellon (BK) posted return on equity (or ROE) of 9.3% compared to 7.1% during 4Q15. In the previous quarter, its ROE was 10.8%.