The Bank of New York Mellon Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Reported record revenue of $5. billion, up 9% year over year, with broad-based strength across segments and 500 basis points of positive operating leverage.
• Pretax margin improved to 36%, and return on tangible common equity was 26%. Earnings per share were $1.88, up 25% year over year.
• The U.S. economy remained resilient with equity markets climbing, credit spreads tight, and Fed resuming rate cuts. Client balances and trading activity were strong.
• Core transformation programs: new commercial model and platforms operating model. New commercial model in year two focusing on embedding habits of operating as one company and delivering integrated solutions. Wins with Franklin Templeton and TIAA.
• AI initiatives: collaboration with Carnegie Mellon to create AI Lab at CMU, launch of ELISA 2.0, 117 AI solutions in production, and deployment of digital employees via AgenTiC AI.

Segment Performance

• Security Services: Reported total revenue of $2.5 billion, up 11% year over year. Total investment services fees also up 11% year over year. Asset servicing investment services fees increased by 12%, driven by higher client activity and market values. ETF AUCA increased by 35% year over year, and alternatives by 12% year over year. Pretax income was $806 million, up 26% year over year, with a pretax margin of 33%.
• Markets and Wealth Services: Total revenue of $1.8 billion, up 14% year over year. Total investment services fees up 9% year over year. Pershing investment services fees up 7%, with net new assets of $3 billion in the quarter. Clearance and Collateral Management investment services fees up by % year over year, with average collateral balances increasing by 14% year over year. Treasury Services investment services fees up 7% year over year. Pretax income was $875 million, up % year over year, and a pretax margin of %.

Guidance

• Net interest income expected flat sequentially in Q4, with full-year 2025 net interest income up 12% year over year.
• Expenses excluding notable items expected up approximately 3% year over year for full year.
• Effective tax rate for Q4 projected at approximately 21%, bringing full-year effective tax rate to range of 21%-22%.
• Expect to continue returning capital with total payout ratio of 90%-100% for full-year 2025.

Risks

• Geopolitical conditions, trade policies, fiscal deficits around the world, and sustainability of enthusiastic markets pose tail risks.
• Uncertainty from finalization of U.S. tax legislation and prospect of deregulation.

Question and Answer

Q: How much of the growth year over year is attributed to actions taken versus market backdrop?

A: Dermot McDonogh stated it's a mix of commercial model and platform operating model positioning to take advantage of market opportunities, with organic growth, higher market levels, and FX contributing.

Q: Expand on derisking the balance sheet and interest rate risk management?

A: Dermot mentioned sophistication in risk management tools, clean balance sheet, and liquidity funnel, with seasonal deposit decline offset by capital markets activity and M&A escrow business.

Q: Trends in securities lending on back of M&A and IPO activity?

A: Dermot said no step function change highlighted, but securities lending is a good business adjacent to collateral management.

Q: Color on Wove win with TIAA and Pershing DARTs?

A: Dermot discussed Wove win with TIAA, and Pershing performance with deconversion behind and growth expected in net new assets.

Q: Thoughts on money market ecosystem and stablecoins?

A: Robin Vince viewed evolution as opportunity, with investment in digital assets and platforms to serve transition, seeing stablecoins as part of broader digital asset ecosystem.

Q: Operating leverage and expense growth?

A: Dermot said consistent positive operating leverage for years, flywheel of culture and execution, with 3% full-year expense growth and redeployment of efficiency savings into growth.

Q: TAM for crypto and stablecoin space?

A: Robin Vince said broad opportunity in digital assets custody, mobility, and stablecoin ecosystem, with investment in traditional services for clients.

Q: Share buybacks and dilution?

A: Dermot said buyback appetite relatively unchanged, with focus on returning capital if no excess deployment opportunities.

Q: Stablecoin issuance by BNY Mellon?

A: Robin Vince said focused on enabling stablecoin ecosystem and infrastructure, not definitively answering on issuing own stablecoin but enabling others.

Q: Business wins with TIAA and Franklin Templeton?

A: Robin Vince said due to commercial model embedding knowledge and adjacent products, with 40% increase in clients buying 3+ services over two years.