Magazine article American Banker

Mellon Stock off despite Upgrade; Curve Takes Toll

Magazine article American Banker

Mellon Stock off despite Upgrade; Curve Takes Toll

Article excerpt

Shares of Mellon Financial Corp. of Pittsburgh slipped Tuesday, despite an upgrade, as what may have been the first brief yield-curve inversion in five years trickled through to bank stocks.

The curve is considered inverted when short-term rates top long-term rates. Observers say such events suggest economic slowdown ahead. The American Banker index of 225 bank stocks fell 1.77%, while the S&P 500 slipped 0.96%.

Mellon's stock dipped 1.35 % despite an upgrade from Richard Bove, an analyst with Punk, Ziegel & Co., to "buy," from "market perform." He also increased his per-share earnings estimates by 3 cents for next year, to $2.10, and by 8 cents for 2007, to $2.34.

In recent months Mellon has come under increasing pressure to sell off business units to raise its stock price. The latest prod was a Dec. 22 letter from Highfields Capital Management LP, a Boston investment management firm.

But Mr. Bove said Tuesday that even if it makes no divestitures, continued pressure for higher returns and a higher share price will force Mellon to improve earnings in the next several quarters.

"The drumbeat is getting louder," he said.

Highfields wrote that by keeping its asset management and asset-servicing units together Mellon "has denied shareholders the opportunity to reap" cost and revenue "synergies" through selling at least one of them.

"These opportunities far outweigh whatever modest benefit may accrue from keeping them together," its letter said. …

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