Bank of New York Mellon Corp Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Quarter Performance: BNY reported strong third quarter results with $4.6 billion total revenue, up 5% year-over-year. Reported earnings per share of $1.50 were up 22% year-over-year. Over $50 trillion of assets under custody and/or administration at quarter-end for the first time.
• Strategic Initiatives: Announced acquisition of Archer, a managed account solutions provider, expected to close by year-end. Introduced Alts Bridge, a data, software, and services solution for wealth advisers. Conducted Commercial Lift Off event to align client coverage teams globally. Transitioned to a platform operating model with ~13,000 employees (quarter of total) in the new model.
• Market Commentary: Macro shifts with policy rate cuts, market recovery after August sell-off. Acknowledged ongoing market volatility and risks including geopolitical tensions, fiscal deficits, and regulatory/election impacts.

Segment Performance

• Security Services: Total revenue of $2.2 billion, up 6% year-over-year. Total investment services fees up 4%. Asset Servicing saw investment services fees grow by 5%, with ETF AUC/A of $2.7 trillion up over 70% year-on-year and funds serviced up 20% year-on-year. Issuer Services had investment services fees up 1%, with net new business and higher client activity in Corporate Trust offset by lower deposit receipt fees. Foreign exchange revenue up 28% year-over-year. Segment expenses down 3% year-over-year, pre-tax income $642 million, up 38% year-over-year, pre-tax margin 29%.
• Market and Wealth Services: Total revenue of $1.5 billion, up 7% year-over-year. Investment services fees up 7%. Pershing had investment services fees down 1% (impact of lost business), but excluding deconversion, ~4% annualized net new asset growth. Wove signed 14 additional clients, on track for $30M-$40M revenue in 2024. Clearance and Collateral Management saw investment services fees up 16% due to higher collateral management fees and clearance volumes. Treasury Services had investment services fees up 11% due to net new business. Segment expenses up 5% year-over-year, pre-tax income $704 million, up 8% year-over-year, pre-tax margin 46%.
• Investment and Wealth Management: Total revenue of $849 million, up 2% year-over-year. Investment Management revenue up 1% (higher market values, improved seed capital results, partially offset by lower performance fees and AUM flows). Wealth Management revenue up 6% (higher market values, net interest income, partially offset by product mix changes). Segment expenses flat year-over-year, pre-tax income $176 million, up 7% year-over-year, pre-tax margin 21%. Assets under management $2.1 trillion up 18% year-over-year, wealth management client assets $333 billion up 14% year-over-year.

Guidance

• Net Interest Income: Q4 net interest income expected slightly below Q3, but resilient in first nine months with full-year net interest income growth rate outperforming January guidance by ~5 percentage points.
• Expenses: Core expenses (excluding notable items) expected to be roughly flat for full-year 2024.
• Tax Rate: Effective tax rate for full-year 2024 expected at lower end of 23%-24% range.
• Capital Return: Expect to return 100% or more of 2024 earnings to shareholders through dividends and buybacks, with 103% returned year-to-date.

Risks

• Geopolitical tensions and conflicts.
• Fiscal deficits.
• Impact of impending regulations and elections.
• Uncertainty in monetary policy and market conditions.

Question and Answer

Q: Curious about ETF wins, how much from BlackRock and fee rates?

A: Don't get into specifics on one client, but ETF is a growing market. $2.7 trillion on the platform, up 70% year-on-year, with strong investment in technology for best-in-class service.

Q: Deposit beta and deposit growth?

A: Deposit betas symmetrical, first rate cut 100% passed on. Early in easing cycle, so impact on deposits yet to be fully seen.

Q: M&A outlook and acquisition of Archer?

A: Looking forward to closing Archer, prepositions for separately managed accounts transition. Opportunistic with capital and strategic fit, focusing on capabilities that accelerate growth.

Q: Margin and spending?

A: Aim to maintain 33% margins, set targets to deliver positive operating leverage, balancing growth investment and margin management.

Q: AI role in platform strategy?

A: AI hub with ~200 people, investing in AI for revenue and efficiency, part of platform operating model strategy to drive top-line growth and better company operation.