Book-Value Bank Buys

09/24/2019 5:00 am EST


Kelley Wright

Managing Editor, Investment Quality Trends

Per the norm, the Street went a little nuts selling the financials because of the drop in interest rates, explains dividend investing expert Kelley Wright, editor of Investment Quality Trends.

In my opinion this trade is way over done, as is the heavy buying of Treasuries. I suspect the yield curve will get fixed before long and money will flow back to the financials. In the meantime, they represent low downside risk, high upside potential, and just good value.

The Bank of New York Mellon (BK) and Unum Group (UNM) are the eight hundred-pound gorillas in their respective spaces, BK is trading just slightly below book value, and UNM Group is trading well below book value.

As there is nothing fundamentally wrong with either company, at or below book value is a lot of bang for the buck.

The Bank of New York Mellon provides a comprehensive array of services that enable institutions and individuals to move and manage financial assets in more than 100 markets worldwide.

The company specializes in institutional services, private banking and asset management. Key products include advisory and asset management services.

BK has acquired more than 90 businesses in the past decade or so, almost exclusively in its securities servicing and asset management areas. In April 2019, BK and BlackRock, Inc. (BLK) announced that they have formed a strategic alliance to deliver integrated data, technology and asset management servicing capabilities to each firm’s respective clients.

The partnership marries BK’s data insights, accounting and servicing tools to Black- Rock’s Aladdin investment and operating platform for investment managers, which should allow BK to enhance its current suite of offerings to its custody clients.

Through its subsidiaries, UNUM Group is the largest provider of disability insurance products in the United States and in the U.K. Also, it offers other products including life insurance, group benefits and related services.

UNM Group targets its employer-sponsored benefits as the most effective way to provide protection to the incomes and lifestyles of employees and their families.

The firm also positions its products, either as stand-alone products or combined with other coverage, to create comprehensive benefits solutions for employers of all sizes by helping them attract and retain a stronger workforce.

UNM Group has taken steps to improve its product line, including improving its underwriting standards. UNM Group continues to innovate and introduce new products.

Another goal for the company is to improve its capital management and financial strength. UNM businesses are sensitive to economic and financial market movements, including consumer confidence, employment levels and interest rates.

One of the company’s financial goals is to maintain a low debt to total capital ratio and further enhance its financial flexibility through solid operating and investment performance, as well as prudent capital management.

During the five years ending December 31, 2018, UNM Group grew its revenue base at a compound annual growth rate of 2.2%. While seemingly modest, it was still well above the average for the life insurance industry of under 2% during the same period.

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