The Bank of New York Mellon Corporation

Good morning and welcome to the first quarter earnings conference call hosted by BNY Mellon. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference call webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY Mellon's consent. I will now turn the call over to BNY Mellon. You may begin.

Good morning. This is Magda Pauczynska, Head of Investor Relations. Today, BNY Mellon released its results for the first quarter of 2019. The earnings press release and the financial highlights presentation to accompany this teleconference are both available on our website at BNYMellon.com. Charlie Sharp, BNY Mellon's chairman and CEO, will lead this morning's conference call. Then, Mike Santomasimo, our CFO, will take you through our earnings presentation. Following Mike's prepared remarks, there will be a Q&A session. Before we begin, please note that our remarks today may include forward-looking statements. Actual results may differ materially from those indicated or implied by our forward-looking statements as a result of various factors, including those identified in the cautionary statement in the earnings press release, the financial highlights presentation, and in our documents filed with the SEC, all available on our website. Forward-looking statements made on this call speak only out of today, April 17th, 2019, and will not be updated. With that, I will hand over to Charlie.

Thanks, Magda. Good morning, everyone, and thanks for joining us. Before turning it over to Mike to take you through the first quarter financials in more detail, let me share some high-level thoughts about our performance. Reported earnings per share were 94 cents, down from $1.10 a year ago. Revenue was down 7%. Both fees and net interest income declined. Expenses were down 1%, and after-tax earnings decreased 20%. Return on tangible common equity was 21%. A few thoughts on our results. Our performance this quarter was mixed. Several of our fee-based metrics in investment services were consistent with recent results. while we experienced weakness in investment management and net interest income. The year-over-year declines in revenue and earnings per share were primarily driven by the changing mix and cost of our deposits and the impact of the prior year asset management outflows. We also saw lower foreign exchange volumes and volatility, volume reductions and spread compression in securities lending, and lower clearance volumes in purging. In addition, the impact of divestitures and asset gains and particularly strong markets and deposit balances in last year's first quarter also made the year-over-year comparison more difficult. Last quarter, we said that if our rate assumptions played out, we would expect net interest revenue to be flat to a little up versus the fourth quarter. As you'll see, it was down 5%. Subsequent to our last earnings call, rates across the entire yield curve declined versus our assumptions, deposit balances declined, and we saw changes to the mix between interest and non-interest bearing deposits. We see significant competitive pressure for deposits. I'll let Mike discuss that in more detail. As we've said, we remain focused on our expense base and our overall expenses remained well controlled while we continued to significantly increase our investment in technology and infrastructure. Our assets under custody and or administration reached $34.5 trillion, up 3%, reflecting higher market values and net new business, partially offset by a change in foreign currency translation rates. Let's go through our businesses, starting with asset servicing. Asset servicing fees were down year over year, largely due to lower foreign exchange and securities lending volumes and lower activity from existing clients. On a linked quarter basis, fee-based metrics were generally consistent. We continued to see growth in alternatives with recent wins and a strong pipeline in real estate, credit funds, private debt, and private equity. Let me make a few additional comments about our BlackRock Strategic Alliance. We have said we will work with third parties to more closely integrate the front-to-back operating model, and this is one meaningful example of how we will use data and tools to benefit our clients, working on our own solutions and with third parties. For the past few years, we've been working with BlackRock to transform the investment manager operating model. Through our collaboration, we've driven increased quality and efficiency with high straight-through processing rates, increased transparency throughout the investment lifecycle, accelerated information delivery, and synchronized data that supports core functions for asset managers. Those benefits are available to our common clients, in addition to benefits related to our new integration. By integrating our data insight, accounting, and servicing tools into Aladdin, we offer seamless connectivity, transparency, and near real-time insight to our common clients through a single platform. These joint capabilities bring immediate benefits across the investment lifecycle by helping clients simplify workflows, improve efficiency, and drive performance. In addition, we're working closely with BlackRock to bring more tools and functionality to the market soon. This is the beginning of us offering additional value added services ourselves and working with third parties. In Pershing, revenue was down year over year, primarily due to the impact of the two previously disclosed client losses, which will no longer impact year over year growth after the first quarter. We also experienced lower clearance volumes than a year ago quarter when they were particularly strong. This was partially offset by growth in total client assets. We have been successful in converting our broker-dealer pipeline into signed business and are currently onboarding more new business than we have in many years. This will start to show up in our results in the latter part of the year and will have a more meaningful impact next year. In addition, the pipeline remains strong. In issuer services, revenue is down, reflecting lower fees in depository receipts. The corporate trust business continued to grow despite a slower debt issuance market. We are acting with a greater sense of urgency, and our work in repositioning our sales and service teams has yielded incremental growth in rising asset classes like insurance-linked securities and CLOs. We're continuing to focus on the structured finance market, where we are capturing additional market share and will benefit when issuance volumes recover. We have begun converting clients onto our new CLO platform, which we got up and running in less than six months. Clients are already benefiting from our loan reporting platform, which provides them with access to high quality loan and CLO compliance data. The combination of the two platforms will allow us to automate a number of functions and become more scalable. In treasury services, revenue is down slightly due to lower net interest revenue. While total client deposits continued their upward trend, The benefit was offset by the change in mix between non-interest bearing and higher cost interest bearing deposits as clients more actively managed their balances. We're focusing our relationship and sales teams on growing higher margin areas of our business, including electronic payments, liquidity and trade, and associated deposits from our global clients. We have seen some very positive results year to date in terms of client wins in these higher margin areas. Our focus on FX payments is showing early signs of progress with a growing pipeline. In clearance and collateral management, we reported 8% revenue growth. We again benefited from the full run rate of the newly converted government clearing broker-dealer clients, higher clearance volumes related to the heightened level of U.S. Treasury issuances and increased market volatility, and growth in collateral management activity from new clients as well as increased activity from existing clients. We're investing to extend the service to market participants, help clients optimize their funding needs, and provide more options for our clients. As part of those investments, we've been developing capabilities to help market participants with new margin requirements for derivative transactions not cleared with the Central Counterparty Clearinghouse. Since 2016, we've been providing services to over half of institutions that are currently affected, and we'll start to assist smaller institutions that are coming into scope later this year. Turning to investment management, it was another tough quarter for asset management with revenues down 17% reflecting the impact of divestitures and of cumulative assets under management outflows over the last 12 months. On the positive side, outflows have slowed significantly from the fourth quarter and investment performance across some key strategies has been strong, which contributed to the improvement in flows and generated solid performance fees. To further abate outflows, we're developing multi-asset capabilities at Mellon, where we're realizing savings in support and back office functions and reinvesting in developing enhanced capabilities that deliver solutions for our clients. Wealth management fee revenue was mainly impacted by lower net interest revenue and lower fees. While still small, we have seen positive flows over the last few quarters. In terms of talent, last month we announced that Senthil Kumar will be joining our executive committee as chief risk officer in July. Senthil is an accomplished risk executive with extensive experience. He knows the global financial markets. He has a deep understanding of the regulatory agenda, and he's the right leader to continue to strengthen our risk culture and capabilities while partnering with our business to support our growth agenda. Lester Owens has joined us as head of operations and is beginning to revisit how we process securities and cash with the goal of gaining material efficiencies and improving service quality. And we made several important hires in the digital area to focus on building and launching new digital offerings and reimagining the end-to-end client journey. As we look ahead, while the current expectations for the yield curve will likely negatively impact our revenue growth for the next several quarters, We will remain disciplined on expenses and continue to build out capabilities which should eventually enable stronger growth. As you can see on page three of the financial highlights document, we're adding new capabilities and unique functionality to help our clients become more efficient and make better investment decisions. We're building and upgrading platforms in many of our businesses to better support our clients, attract new clients, and capture market share. and we're investing in technology and digitization to drive a more efficient and complete product set than we have today. While we certainly aren't happy with this level of performance, we remain focused on building the franchise and remain confident in the actions we're taking. With that, let me turn the call over to Mike.