The operator introduces the 2023 Third Quarter Earnings Conference Call hosted by BNY Mellon. Marius Merz, Head of Investor Relations, and Robin Vince, President and CEO, will be speaking, with Dermot McDonogh, CFO, presenting the earnings. The call will include forward-looking statements and non-GAAP measures. Robin Vince addresses the recent terrorist attack in Israel and the ongoing conflict in the region.

The speaker expresses gratitude and pride for the employees in Israel who have continued to provide uninterrupted service to clients despite difficult circumstances. The company has reported solid financial performance and progress in transforming the company. This includes a 5% increase in earnings per share and a 20% return on tangible common equity. The company has also reduced wholesale funding and contained unrealized losses in their investment portfolio. The speaker reflects on their work over the past year and affirms their key assets through strategic reviews.

The article discusses the three main assets of the company - client reach, market leading businesses, and culture of teamwork. The company has committed to improving its financial performance and has communicated three strategic pillars to its employees. The CEO is optimistic about the progress being made towards making the company a better run organization and breaking down silos within the business.

The company has been operating like a conglomerate, leading to inefficiencies and a lack of joined-up thinking. They have implemented an efficiency initiative and have made progress in reducing expenses. They are now focusing on adopting a platform operating model and embracing new technologies to improve productivity and focus on growth. Their financial results in the quarter reflect their efforts to be more for their clients.

In the summer months, some of BNY Mellon's businesses performed well, such as clearance and collateral management, Pershing, and asset servicing. However, investment management fees and foreign exchange revenue were lower due to market conditions. To increase growth, the company is focused on acquiring new clients, improving services for existing clients, and developing new products. The new Chief Commercial Officer is implementing a strategy to improve the client experience and leverage the connections between different business areas. The recently launched wealth management platform, Wove, has already gained clients and has a growing pipeline. One example is Integrity, a large insurance and financial services firm, which has chosen Wove to support their wealth management business and will have access to solutions from other BNY Mellon businesses.

Pershing has expanded their relationship with Lincoln Investment and signed on a new client for their buy-side trading solutions. They are planning to start disclosing financial information next year and are focused on innovation to solve evolving client challenges across all of their businesses. In Treasury Services, they are one of the first banks to go live on FedNow, and they have also launched a new open banking payment solution. The company is optimistic about their strategic objectives and is remaining disciplined in delivering positive operating leverage and margin expansion.

In the third quarter, BNY Mellon saw a 2% increase in total revenue, with a 10% increase in net interest revenue and flat fee revenue. Assets under custody/administration and assets under management also saw increases, while expenses were down 16% due to a goodwill impairment last year. Excluding notable items, expenses were up 3% year-over-year. The company is on track to deliver its promised results for 2023 and is focused on its strategic priorities.

The company's provision for credit losses remained low in the quarter, with only $3 million set aside for potential losses. Reported earnings per share were $1.22, or $1.27 excluding notable items, representing a 5% growth year-over-year. The company also saw positive operating leverage, with a pre-tax margin of 29% and a return on tangible common equity of 20%. Capital and liquidity remained strong, with a 40 basis point improvement in the Tier 1 leverage ratio and a 30 basis point improvement in the CET1 ratio. Liquidity ratios also improved, with a 1 percentage point increase in the liquidity coverage ratio and a 136% net stable funding ratio.

In this paragraph, the speaker discusses the net interest revenue and underlying balance sheet trends for the quarter. They mention that net interest revenue decreased by 8% due to changes in balance sheet size and mix, but was partially offset by higher interest rates. They also note a decrease in average deposits and an increase in loan balances. Moving on to expenses, they report a 16% decrease year-over-year, but a 3% increase excluding notable items. The increase was driven by higher investment and revenue related expenses, as well as the impact of the weaker dollar and inflation. The speaker also mentions efficiency savings and the Alcentra divestiture. They end by briefly discussing their outlook for expenses and moving on to the business segments, starting with security services.

The paragraph discusses the performance of the Security Services and Market and Wealth Service segments, focusing on investment services fees. In Security Services, total revenue was up 1%, with flat fee revenue and a decline in foreign exchange revenue. Asset servicing saw 3% growth in investment services fees, driven by higher market values and net new business. In Issuer Services, investment services fees were down 2% due to a decrease in depository receipt cancellation activity. In Market and Wealth Services, total revenue was up 6%, with 5% growth in fee revenue and a 6% increase in net interest revenue.

In the third quarter, investment services fees at Pershing were up 2%, with $23 billion in net new assets on the platform. The momentum around Wove is growing and investments in the core platform have positioned the company well to capitalize on changes in the RIA community. In Treasury services, fees decreased by 1%, but clearance and collateral management fees were up 16% due to higher client activity and growth in domestic clearance volumes. Recent macro trends, such as volatility and regulatory requirements, have reinforced the value of the company's tri-party collateral management service. The company continues to expand its platform and innovate new solutions for clients. In investment and wealth management, the company saw growth in assets under management.

In the investment and wealth management segment, total revenue decreased by 4% due to declines in fee revenue and net interest revenue. However, assets under management increased by 3% due to a weaker dollar and higher market values, partially offset by a divestiture. In the investment management segment, revenue was down 4%, while in the wealth management segment, revenue decreased by 5%. The company is confident in meeting its net interest revenue growth target for the full year and is making progress in reducing expenses.

The company expects a sequential increase in expenses and continued stock buybacks in the fourth quarter. They plan to return 100% of earnings to shareholders in 2023 while maintaining strong capital ratios. The company's financial results highlight progress in balance sheet management and operational efficiency. They are confident that revenue growth will follow over time. The first question in the Q&A is about the NII outlook, specifically regarding deposit trajectory and where NIBs will ultimately settle as a percentage of deposits. The company has consistently guided for 20% NII growth for the year and reconfirmed this guidance.

The speaker discusses the events that have affected the company over the past year and how they have impacted their deposits. They mention a slowdown in the decline of deposits and a potential increase in yields. They also mention their commitment to improving operating margins and driving expenses lower in the face of a potentially challenging revenue backdrop.

The speaker discusses the importance of bending the cost curve and their efforts to do so. They have outperformed their 4% guidance and are determined to push that number closer to 3%. They are currently in the middle of budget season and plan to continue bending the cost curve in the future. They are using various strategies such as rationalizing vendors and locations and increasing campus hiring. They are confident that they will be able to continue bending the cost curve in 2024 and beyond. The speaker also mentions their use of the word "trough" when discussing deposits and explains that this is due to a mix of factors such as client behavior and the current economic climate. They are confident that this was the lowest point and do not anticipate any negative surprises in the future.

The speaker discusses their strategy for managing the Fed's interest rate hikes and the impact on their balance sheet. They mention the stability of their deposit base and the various reasons clients come to them, as well as recent fluctuations in deposits. They express confidence in their current deposit balance and project a 20% NII.

The speaker explains that $0.5 billion of their investments are self-funded, which shows discipline and financial efficiency. They are confident that these investments will lead to further efficiency and revenue opportunities. They have doubled their efficiency saves and are working on projects to drive down expense growth and achieve operating leverage. They are not cutting expenses, but rather sowing the seeds for future efficiencies and fee growth.

The speakers, Ebrahim Poonawala and Ken Usdin, thank each other and move on to a question from Jefferies. Ken asks about the stability of the 20% for the year and the moving parts that will affect it going forward. Dermot McDonogh declines to give guidance for next year, but feels good about the 20% and the deposit pipeline. He notes that the bank's clients are sophisticated and there is no material pricing lag. Robin Vince adds that they feel good about their current position but will give more detailed guidance in January.

The company's NII growth guidance of 20% for the year has been impacted by the changing environment, but the Global Equities Solutions team has proven their agility. The team has successfully adapted to changes and maintained consistency. The diversification of the company's deposits franchise, including issuer services, clearing and collateral management, treasury services, and asset servicing, has helped drive different outcomes. The fourth quarter NII is a good starting point for considering next year's guidance. The company is seeing positive momentum with Pershing's wave start.

During the third quarter earnings call, it was mentioned that there was a client deconversion expected to occur over several quarters. This deconversion was seen in both the second and third quarters, with more expected in the second. However, the company remains confident in its ability to offset this with organic growth. The company is also focused on breaking down silos within its different businesses in order to drive stronger fee growth in the future. This is a key pillar of their three to five year plan, and they are already taking steps to implement this approach.

The company is reorganizing its operations to have more consistent and efficient client-facing platforms. This includes rearranging business units and adopting a more platform-like operating model. An example of this is consolidating call centers into a single contact center that can provide better and cheaper service to clients.

The company is implementing a platform's operating model which they believe will simplify their work, improve the client experience, and benefit their employees. They have other proof points, such as better outcomes in deposits and a consistent approach to KYC, to support their confidence in achieving positive operating leverage next year. This is due to their investments in both revenue and expenses, including the platform's operating model, which will provide long-term efficiencies. They have not yet seen the full benefits of these investments.

The company is seeing short-term benefits from its efforts to unify its operations under one BNY Mellon. The Chief Commercial Officer's approach is expected to bring medium-term benefits, while long-term benefits will come from product investments. The company's capital ratios have improved and it plans to continue its buyback program, but will reassess in the future due to changing market conditions.

The speaker discusses various factors that could impact the company's buyback stance, including volatility in the rate environment, geopolitical uncertainty, and potential changes to Basel 3 regulations. They also mention that the company has unrealized losses in their AFS portfolio, but expects some of it to come back into capital in the next 12 months. The speaker also mentions the growth in their clearance and collateral management business, attributing it to market volatility and innovation.

The speaker discusses the success of their international business and their plans to continue growing it. They also mention the innovation happening within the company to serve clients' needs and optimize their balance sheets. The speaker then moves on to address questions about Pershing, stating that the strength in revenues was driven by higher fees on sweep balances. They do not provide specific guidance on the decommissioning but express confidence in the underlying strength of the business.

The speaker expresses confidence in their ability to improve their business in Pershing. They mention the different types of fees that contribute to their success and highlight their market-leading position and new products that are attracting clients. The other speaker adds that there has been strong momentum in the business, with even self-clearing companies joining their platform.

The speaker discusses the growth of their company, particularly in terms of providing solutions for advisors and investors. They also mention an increase in noninterest bearing deposits, but note that it is modest and has reached a natural level. They feel confident in their outlook and guidance for a 20% growth.

The company is focused on its strategic priority of "do more for clients" and has seen progress in various areas, such as delivering more to existing clients and offering more products and services. This could potentially lead to increased revenue and operating leverage in the future.

The company is focused on breaking down silos and integrating products and services to better serve clients and gain market share. This includes leveraging their existing relationships with Fortune 100 companies and global banks, as well as bundling products into solutions and expanding into new markets. The Chief Commercial Officer is leading this effort to make it a reality.

Robin Vince discusses the potential impact of FedNow, an immediate payment system, on the banking industry. The US is currently behind other countries in terms of payment speed and efficiency, and FedNow presents a rare opportunity for disruption. As an early adopter, Robin explains that their large client base and lack of conflict of interest make them well-positioned to embrace instant payments. They have been live on both the clearinghouse rails and the FedNow service, and will now focus on building the necessary network effect to fully adopt these new payment methods.

The speaker discusses the potential uses and benefits of new payment rails, such as the ability to request and receive instant payments and enhance security. They also mention their recently launched Bankify service and believe that over time, this technology will provide value to clients. The speaker is unable to predict the impact of QT on deposits in 2024, but states that their balance sheet is positioned for longer periods of higher rates.

The company's fixed income securities will be rolling off over the next few years, providing a yield of 200-300 basis points. The company is confident in its NII and deposit franchise, and is prepared for potential market changes. The company aims to retain cash through its various products and services, and is positioning itself to be adaptable to future market changes.

Dermott and the Treasury have done a good job coordinating with the Fed to manage the issuance of bills and the roll down of $1 trillion in RRP. There has been less foreign buying in the treasury market this year, which could impact the supply and demand dynamic further out the curve. In the Q&A, a question is asked about the pressure on net interest revenue in the security services segment compared to the market and wealth segment. The speaker explains that there is no significant difference between the segments and there are no noticeable changes in the underlying factors.

The paragraph discusses the performance of the issuer services segment, which includes asset servicing, depository receipts, and corporate trust. The business of corporate trust tends to attract higher levels of net interest income, but the third quarter was quieter due to muted debt issuance activity. The overall deposits are managed as one platform. The other investment and other revenue line has been growing due to the strength of fixed income trading. The fixed income trading has been the key driver of growth in this business.

The speaker discusses the ability to predict and control client behaviors in relation to deposit efforts. They mention a diversified deposit platform due to a portfolio of businesses that attract different types of deposits. Additionally, they highlight the importance of managing and pricing deposits consistently through the global liquidity solutions team.

In this paragraph, the speaker discusses the effects of various factors on their deposit franchise and expresses confidence in its current state. They mention the BNY Mellon effect, strategy effect, and line of business effect as contributing to this confidence. When asked about deposit data, they mention that 75% of their book is in dollars, with the rest being in other currencies. They also mention cumulative betas for each currency and state that they feel good about their pricing and client response. When asked about deposit betas by line of business, the speaker does not have that information but offers to follow up offline. Another question is asked about deposit data, but the speaker does not have that information either.

The speaker, Robin Vince, responds to James Mitchell's question about the company's success in improving organic growth and pursuing collateral management. Vince acknowledges that investment management has not seen the same success, with negative long-term flows last year. The company is working to address this issue by tackling structural expense inefficiencies, rolling out new products, and energizing their distribution platform. While some asset management boutiques are performing well, others require more attention and the company is actively working to improve their performance.

The speaker is optimistic about the company's potential and opportunities, but acknowledges that they have not yet lived up to it. They are working hard to unlock this potential and have identified a need for cultural change to de-silo and operate more effectively. The main risk to the company is not putting in the necessary work to achieve their goals.

The speaker discusses the importance of execution and a platform mindset in evolving the company's culture and unlocking its potential. They also mention the risks associated with not doing these things and the external factors that can impact the company, such as geopolitical tensions and economic uncertainties. The company focuses on preparing for these risks and helping clients adapt to the environment.

The paragraph invites listeners to ask any additional questions to Marius and the IR team and announces the end of the conference call and webcast. It also mentions that a replay will be available on the BNY Mellon Investor Relations website at 2 p.m. EST.

This summary was generated with AI and may contain some inaccuracies.