The paragraph introduces the 2024 First Quarter Earnings Conference Call hosted by BNY Mellon. The call will be recorded and copyrighted material. Marius Merz, Head of Investor Relations, will be leading the call with Robin Vince, President and CEO, and Dermot McDonogh, CFO. The financial highlights presentation can be found on the company's website. Forward-looking statements and non-GAAP measures will be discussed, but will not be updated. Vince notes that the company had a solid start to the year and is making progress in its transformation. Dermot will discuss the financials in more detail.

The first three months of the year were generally positive for BNY Mellon, with global markets showing signs of growth. Equity and credit markets performed well, while foreign exchange markets remained relatively stable. However, there are still potential risks and uncertainties, and BNY Mellon is focused on being resilient and prepared for various scenarios. In the first quarter, BNY Mellon saw double-digit EPS growth, pre-tax margin and ROTCE expansion, and positive operating leverage. Total revenue increased by 3%, driven by growth in investment services fees, while expenses were up 2%, in line with the company's goal of generating operating leverage.

In the third paragraph, the company reports strong financial performance with a high pre-tax margin and return on equity. They also highlight their focus on improving client services and implementing a new strategic plan to enhance their financial performance. The company showcases their unique portfolio of businesses and their efforts to collaborate and provide holistic solutions for clients. They also recognize the potential for growth by delivering more to existing clients.

BNY Mellon has expanded their relationship with CIFC, a credit specialist, to bring their US direct lending strategy onto their global distribution platform. This highlights the value of asset servicing and their intention to grow revenue in the market and wealth services segment. They have also launched new solutions and are working on simplifying processes and embracing new technologies to better serve clients and drive growth.

The company has recently implemented a new operating model, with 15% of employees already working in it. They are confident that this change will benefit clients, increase efficiency, and improve risk management. They are also investing in digitization and new technologies, such as AI. The company values its employees and has made efforts to support their development and well-being. They are also welcoming a new Chief People Officer in June.

In the first quarter, BNY Mellon adopted five core principles to guide their teams in driving success. Their performance in the quarter showed potential, with improved profitability and investments in their future. However, they acknowledge that their transformation is a multi-year endeavor and are determined to become more for their clients and deliver higher performance for shareholders. The consolidated financial results for the quarter showed a 3% increase in total revenue, with fee revenue up 5%. Assets under custody and management also saw increases, largely due to higher market values. The adoption of new accounting guidance resulted in a $50 million increase in investment and other revenue.

The adoption of new accounting guidance has had a neutral impact on net income and earnings per share for the company. Net interest income decreased due to changes in deposit composition, but expenses were up due to investments and employee merit increases. Provision for credit losses was $27 million, mainly from commercial real estate exposure. Earnings per share were $1.25, up 11% year-over-year, and pre-tax margin was 29%. Capital and liquidity ratios remained strong, with a tier 1 leverage ratio of 5.9% and a CET1 ratio of 10.8%. The company returned $1.3 billion of capital to shareholders in the quarter.

In the first quarter, the consolidated liquidity coverage ratio remained steady at 117% and the consolidated net stable funding ratio increased to 136%. Net interest income decreased by 8% year-over-year and 6% quarter-over-quarter due to changes in deposit composition. Average deposit balances increased by 2% and average interest earning assets increased by 1%. The institutional solutions segment was moved from Pershing to Clearance and Collateral Management in the Market and Wealth Services segment. Security Services reported a 1% increase in total revenue, with investment services fees up by 8% year-over-year.

In the asset servicing division, investment services fees increased by 8% due to higher market values, new business, and client activity. ETF assets under custody and/or administration reached $2 trillion, with a 40% increase year-over-year. Alternative fund launches were slower, but investment services fees for alternatives still saw a 10% increase. In issuer services, investment services fees were up 11% due to new business and higher cancellation fees. Foreign exchange revenue and net interest income were down. Expenses remained flat, resulting in a 4% increase in pre-tax income and a 28% pre-tax margin. In Market and Wealth Services, total revenue increased by 3%, with a 7% increase in investment services fees. In Pershing, investment services fees were up 3%, but net new assets were negative due to ongoing deconversion of lost business. Demand for the Wealth Advisor platform, Wove, remains strong.

The company saw growth in the first quarter, with nine new client agreements signed and four clients onboarded onto the platform. Investment services fees increased by 5%, while expenses and pre-tax income also saw slight changes. In Investment and Wealth Management, revenue and assets under management increased, but net inflows and outflows were mixed. Overall, the company is pleased with the solid growth and continues to invest in sales, service, and technology.

The article discusses the strength in the company's short-term cash strategies, with net inflows of $16 billion and an 11% increase in wealth management client assets. The company's balance sheet is positioned for different interest rate scenarios and they expect net interest income to be down 10% and expenses to be flat for the full year 2024. They are determined to deliver positive operating leverage and expect their effective tax rate to be between 23% and 24%.

The company expects to return 100% of 2024 earnings to shareholders through dividends and buybacks. They will manage share repurchases based on various factors and maintain their tier 1 leverage ratio. They are encouraged by the progress made in achieving their 2024 target and see growth potential in various businesses. The company's organic growth rate aspirations for the next few years are positive, and they are seeing early momentum in this area. They also address the recent activity in Clearance and Collateral Management and the potential for recurrent growth in this area.

The company has been focused on improving its operations and driving growth in the short, medium, and long term. They have hired a Chief Commercial Officer and are working on integrating their services to provide more for their clients. The first quarter saw good results in Clearance to Collateral Management due to the active market and trading volumes in the US Treasury market. This is a good baseline to think about going forward.

In the paragraph, Robin and Dermot discuss the growth potential of US Treasuries and the investments made in the operating model of Clearance and Collateral Management. They also mention the positive response from clients to the streamlined conversation about their clearing business. Steven then asks about RWA growth and how the excess capital will be deployed, as well as the cadence of the buyback in relation to planned balance sheet actions and growth potential. Dermot responds by mentioning the 6% target for tier 1 leverage and how the buyback will be managed in light of this and potential growth opportunities.

In the first quarter, there was an increase in capital and RWA due to temporary factors and strong demand for the agency securities lending program. The company's buyback strategy is consistent with last year's, with a guidance of 100% or more of earnings. The investment and wealth margins are still below target, but the company is making investments in the business. The primary drivers for reaching the 25% margin target include revenue growth and expense optimization.

In the paragraph, Dermot McDonogh discusses the pre-tax margin for Q1 and how it would have been higher if adjusted for seasonal volatility. He also mentions the investments being made in the business and the potential for growth in certain areas, as well as the focus on improving efficiency. The next question from Betsy Graseck is about the potential benefits of AI on the expense ratio and the expected time frame for these benefits to be seen.

The speaker, Robin Vince, responds to a question about BNY Mellon's investment in AI and its impact on expenses. He believes that the benefits of AI will not be seen until 2026 and beyond. He explains that the company is embracing AI through three pillars, with a focus on providing solutions for clients and improving efficiency. An example of this is their software for predictive trade analytics.

The company is focused on streamlining business processes, increasing productivity, and utilizing AI to empower employees. They have seen a 25% increase in productivity from developers using GitHub Copilot. The company is creating hubs and centers of excellence to avoid past issues of everyone going in their own direction. They are using their AI hub to collect different use cases and deliver solutions that can be used in multiple places within the company.

The speaker is asked about the impact of an accounting change on the company's tax rate guidance. They explain that the change will have no economic impact and that the offsets will be reflected in the interest and other revenue line. They also mention that they have restated prior periods for comparison. The next question is about the company's outlook on deposits and their impact on net interest income (NII) and margin. The speaker states that at the end of the quarter, deposits were at $310 billion and that the quarter end fell on a holiday with closed markets.

During the last quarter, there was a surge in deposits due to clients making payments, but the levels have returned to normal. Sequentially, deposits are down 6% and 8% year-over-year. The company's guide at the beginning of the year was down 10%, but there are no changes expected. The company feels good about their guidance for the year. There has been progress in aligning businesses within the enterprise, but cultural integration is still ongoing.

The company's original strategy review focused on determining if they were doing the right things in the right way with the right people. They found some areas that needed to be reorganized and made changes to better serve clients. The company is now focused on working together to provide clients with more comprehensive solutions and creating a new commercial coverage model. They also realized that clients want integrated solutions rather than individual products.

The speaker discusses the progress of Pershing and how they are overcoming challenges in the offboarding process. They also mention the recent acquisition of Atria by LPL and how it may impact the headwinds faced by Pershing. Overall, the company is continuing to invest in Pershing and remains optimistic about its growth.

The business is optimistic about their position in the growing Pershing market and their ability to win market share. They are currently dealing with a deconversion, but expect to be done by Q3. They are not concerned about competition from LPL Atria and continue to invest in their business. They have a strong pipeline and have added nine clients in Q1, on track to meet their revenue goals for the year. Additionally, they are also growing with their clients and receiving clients through roll-ups and acquisitions.

The speaker discusses the impact of roll-ups on their clients and how they balance out over time. They also mention the growth of net new assets and the unexpected trend of deposit balances. They expect deposits to decline due to QT and higher rates, which will affect the composition of interest bearing and non-interest bearing deposits. Overall, they do not see a reason to update their guidance of a 10% NII decline year-over-year.

In response to a question about the decrease in non-interest bearing deposits, Robin Vince explains that the strong growth in servicing fees, which increased by 8% year-over-year, is due to a combination of a strong pipeline, increased market activity, and the bank's focus on client profitability. The bank has been successful in winning a majority of the deals it competes for and is able to be more competitive in pricing by improving margins and focusing on cost to serve.

The speaker is discussing the company's recent financial quarter and the mix between fees and deposits. They mention that they don't lead with deposits, but rather clients leave deposits with them as they do multiple things with the company. They also mention that with a higher interest rate environment, it's natural for people to move out of lower yielding deposits. The speaker is proud of the team's efforts in winning deposits and pricing them competitively. The other speaker chimes in to say there was nothing unusual about the quarter and the company is not considering selling its asset management division. They mention the goal of One BNY Mellon and how asset management fits into that.

The speaker discusses the progress made in implementing a strategy to align the $2 trillion manufacturing platform of the company with the $3 trillion retail distribution capacity. This strategy aims to capitalize on the potential benefits of this alignment, which have not been fully utilized in the past. Early signs of progress include attracting other investment managers to join the platform and rounding out the company's offerings. The speaker also mentions the targets set for this strategy.

The company is focused on expanding its pre-tax margin in the business to over 25% and has not grown expenses in that segment. They have taken an important step forward this quarter and will continue to work on these opportunities. T+1, a market structure change, will result in some expenses for the company but they view it as part of running the business. The benefits of T+1 will mainly accrue to clients and may improve liquidity and capital requirements. The industry has come a long way from T+5 or T+3.

The speaker discusses the opportunities that arise from helping clients navigate changes in the post-trade landscape, such as real-time payments and T plus 1. They also mention the potential for platform sales and outsourcing. They believe these changes are good for the market and mention the strength of their NII in the last two quarters, with a clean balance sheet and well-positioned CIO book. The speaker also notes that securities are maturing at a 2% to 3% rate and being deployed at current market yields.

Dermot McDonogh, the CEO of the company, is confident about the company's performance for the rest of the year despite the recent increase in interest rates. The average loan balances remained flat in Q1 compared to Q4, but there was a temporary increase due to the Good Friday effect. The company has seen an increase in commercial real estate allowances, but the overall portfolio is small and prudently managed.

The speaker discusses the reserve builds in the first quarter and states that they were taken as a precaution for upcoming restructuring situations, but overall the occupancy and payments are satisfactory. They also mention the current market sentiment regarding corporate real estate and how it may be impacted by changes in rates. The speaker believes that the longer-term rates, specifically the curve from five years to 10 years, are the most important factor in determining the outcome for commercial real estate.

The speaker discusses the ongoing efficiency journey of the company and how it has progressed in the past year. They mention that there is still room for improvement and they have their arms wrapped around the current state. They also mention the potential for further improvement through changes in working methods and culture.

The company is focused on running more efficiently and improving margins, with quarterly proof points to demonstrate progress. They have recently authorized $6 billion for buybacks and have already completed $1 billion in the first quarter. The operating model has been implemented for 15% of staff and there is a migration plan in place. It is expected that the efficiency improvements will have a positive impact on both expenses and revenue in the long-term.

The company's new platform Operating Model aims to simplify and improve the client experience, as well as empower employees. This change is expected to result in expense savings and revenue opportunities, and has already shown positive effects on the company's culture. The previous siloed structure was not conducive to a scale platform provider like the company, and the new model allows for quicker problem-solving and less bureaucracy.

The company has identified short, medium, and long-term opportunities for efficiency and has taken decisive action to reduce costs. They have also laid the groundwork for future savings through projects and investments in AI. The platform's operating model is a longer-term opportunity that will bring benefits in 2024 and beyond. The company has invested $0.5 billion in new initiatives and there is a sense of energy and enthusiasm among employees for the new model.

The speaker is asked about the buy side trading solutions initiative and gives an update on its progress. They mention that it is a medium-term project and that they have onboarded a large client. The speaker also discusses the potential market for this initiative and the longer sales cycle it entails. They then answer a question about the growth of the securities book, attributing it to increased confidence and opportunity cost.

The CIO team is focused on optimizing yield and deploying cash where they see opportunities. They expect reinvestments to have a net benefit of around 200 basis points due to higher rates. The duration of the portfolio is roughly two years, and the team is keeping it short and opportunistic. They do not have much exposure to commercial real estate, but the industry as a whole may face challenges with refinancing in 2025 due to the 10-year ASCO commercial real estate. The question was more general in nature and not specific to the company.

Dermot briefly discussed commercial real estate from our perspective, as requested by Gerard. As a less biased observer, I shared my thoughts on the matter. Mike Mayo asked about ASCO's 2025 refinancing story, and I explained that commercial real estate owners typically seek longer-term funding as their debt matures. The risk of refinancing is closely tied to the shape of the treasury curve. The call then concluded.

The speaker thanks BNY Mellon employees for their hard work and acknowledges the company's strong start to the year. They also express gratitude to investors and invite any follow-up questions to be directed to the IR team. The conference call and webcast will be available for replay on the BNY Mellon Investor Relations website.

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