The Bank of New York Mellon Corporation

Please stand by. We're about to begin. Good morning and welcome to the second quarter 2019 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'll now turn the call over to Magda Pulchinska, BNY Mellon's Global Head of Investor Relations. Please go ahead.

Good morning. Today, BNY Mellon released its results for the second quarter of 2019. The earnings press release and a financial highlights presentation to accompany this call are both available on our website at bnymellon.com. Charlie Scharf, BNY Mellon's chairman and CEO, will lead the call. Then, Mike Santomasimo, our CFO, will take you through our earnings presentation. Following Mark's prepared remarks, there will be a Q&A session. As a reminder, please limit yourself to two questions. 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 as of today, July 17, 2019, and will not be updated. With that, I will hand over to Charlie.

Thank you, Magda. Good morning, everyone. Thanks for joining us. I'll share some overall thoughts about our second quarter performance. Then I'll hand off to Mike, who will then take you through the financials in more detail. We reported earnings per share of $1.01, down 2% versus a year ago. Total revenue was down 5% year on year. As we anticipated, the level and shape of the yield curve negatively impacted our results through lower NII. In addition, continued low levels of volatility and overall muted market activity negatively impacted our foreign exchange and securities lending activities in asset servicing. And our asset management business suffered from the impact of lower assets under management and the impact of divestitures. Against that backdrop, we continue to maintain strong expense discipline without sacrificing investments for the future of our franchise. Total expenses were down 4%. This includes a significant increase in our technology investment, which was more than offset by savings in other areas. So we're being very judicious and ruthlessly prioritizing investments while also benefiting from our continued progress in increasing our underlying efficiency. On the capital front, return on tangible common equity was 21%. Our capital ratios remain strong and we continue to return a substantial amount of capital back to our shareholders. We're increasing our quarterly common stock dividend by 11% to 31 cents per share starting in Q3. We also plan to repurchase up to $3.94 billion of common stock through the second quarter of 2020, an increase of around 20%. The significant impact of lower NII on our business certainly impacts our thinking of how we manage the company in the short term, but it does not change our longer-term focus and our work to build out our franchises. Our business mix is unique, our market positions are strong, and we see opportunities across the company to build out a stronger, longer-term growth profile. Pershing is a great example. We occupy a great position serving the wealth community and continue to invest in our market-leading platform to serve independent broker-dealers, but we also continue to invest significantly to capture more of the fast-growing RIA segment. We held our annual client event this quarter with attendance by a couple of thousand of our clients and partners. At that meeting, we announced a series of initiatives aimed at improving our clients' experiences. We're streamlining and digitizing customer onboarding for our clients to enable them to spend more time with what they do best. We're also rolling out a new capability that will allow firms and advisors to use net asset flows and KPIs to measure their overall business performance and identify trends in their business more quickly. We've also just released a new technology assessment tool to help advisory firms pinpoint their technology needs, identify the right technology stacks, and drive better returns on technology investments at a time when clients are increasingly struggling with those topics. And as we said over the last few quarters, we're moving beyond the impact of the client losses that impacted our results over the last year, and expect to see continued improvement in our revenue growth as we onboard a series of new mandates later this year. In addition, our sales pipeline continues to be strong. In clearance and collateral management, you see another example where we have distinct competitive advantages and are seeing continued strong performance. Given our role in servicing both the buy and sell side and our status as the sole provider of U.S. government clearing, we can help clients optimize their funding needs in a way that others just can't. We continue to generate additional revenue through collateral optimization services as well as attracting incremental balances. In addition, client activity and market demand is driving increased security settlement volumes and growth in collateral management balances. We continue to see strong U.S. government security settlement volumes driven by elevated levels of U.S. Treasury issuance and secondary market trading. This business should continue to be a source of strong organic growth. Both banks as well as non-banks are seeking access to our government security settlement platforms and access to U.S. dollar funding market through TriParty and other repo clearing capabilities. As we increase the coordination of our government securities clearance platform and our global collateral management capabilities, we expect to provide enhanced capabilities across regions, especially as we develop interoperability across those regions and assets. We're currently working to build a next generation global collateral platform to support these capabilities, as well as enhanced resiliency and data and analytic capabilities not currently available in the market. We think it will significantly boost our ability to attract new market participants, as well as additional business from our existing clients. In addition, the business remains focused on technology enabled solutions for our clients, facilitating optimization of collateral across our platform, as well as for collateral held away from us and the ability to monitor intraday liquidity and credit usage on demand with our proprietary APIs. We're also seeing progress in issuer services. Our reduced CLO platform has been received well by clients and should provide the foundation for us to compete more effectively. We continue to see good business momentum in corporate trust as we gain market share in a number of our key debt products. In treasury services, while we're challenged by the impact of the yield curve, We do see some success in our focus on expanding our client relationships, which has resulted in higher deposit balances. While these are interest-bearing deposits predominantly, they are from strong relationships across multiple geographies, and we think strengthens our business over the long term. We remain focused on building our liquidity, trade finance, and payments businesses as well. In asset servicing, although equity markets, particularly in the U.S., have been strong, reduced client activity and the impact of the yield curve has negatively impacted our financial results, but we continue to experience important new wins across client segments and geographies. Just to highlight two of them, we were recently awarded mandates by ATP, Denmark's largest pension fund. And in the U.S., we renamed Microsoft's new global custodian for their treasury operations, the first time in nearly a decade that Microsoft has switched custodians. And we continue to expand our servicing capabilities for higher growth asset classes, such as alternatives and ETFs. In fact, assets under custody related to ETF servicing are up roughly 50% versus a year ago, a sign of our traction in the marketplace. client response to our commitment to work with third parties to more closely integrate the front-to-back operating model has been positive. Our alliance with BlackRock has also been well-received, and we're in the process of enabling our integrated functionality to several joint clients and continue to have extensive discussions across existing and potentially new clients. And as I mentioned, and Mike will cover in more detail, low levels of volatility and market activity have significantly impacted our foreign exchange and securities lending activities. While we haven't seen a change in these trends just yet, they can and will change very quickly at some point. We will be the beneficiary of that. In our asset management business, though our performance in asset management was negatively impacted from cumulative outflows over the past year, The level of outflows in our higher margin products has slowed, and we're seeing continued improvement in investment performance, particularly in some of our larger equity strategies. In our wealth business, we were negatively impacted by the interest rate environment, but our assets under management flows, where we get paid for investment advice, continue to be positive. On the expense side, you see the impact of our continued focus on using our resources wisely. We have not announced a special program to reduce expenses, but as I think you can see in our results and will continue to see, we're embedding quality improvement and a clear focus on increasing efficiency into the BNY Mellon culture and how we manage the company. This includes eliminating unnecessary management layers across every area of the firm, from staff to sales to operations, automating processes, which are today manual, and rethinking the flow of activity between us and our clients. Just a reminder, while these activities will result in lower expenses, it's actually more important that they will increase the quality of the work we do for our clients. While it sounds more strategic to discuss new capabilities we are building, which we are, there's a meaningful opportunity to improve our growth trajectory by differentiating our firm through the quality of the work we deliver day in and day out. We're far from done here. This is a multi-year journey. and the ability to continue to drive benefits for both our clients and ourselves continues to be extremely meaningful. And as I mentioned earlier, though our expenses decline this quarter, they continue to include a significant increase in technology and product development investments. While some of these expenses are discretionary to some extent, we remain committed to these investments to build the business for the future. We will continue to keep an eye on the impact of the environment and our business and know that we have this lever and others to pull if we choose to reduce the expense base even more significantly. But we believe we should protect these investments as much as we can, as they will drive much of the future success of the company. Having said that, we remain confident that our ability to continue to drive improved quality and drive efficiency will offset these investments for the next couple of quarters. We also continue to bring in and elevate exceptional talent to help us accelerate our progress. There have been a couple of talent changes worth highlighting. Bill Daley has joined as vice chairman and will be responsible for overseeing our government affairs, philanthropy, and corporate and social responsibility efforts. I've known Bill for many years and couldn't be more excited to attract someone with his reputation, abilities, experience, and judgment. Jim Crowley has become CEO of Pershing. Jim has spent his career at Pershing and has overseen a broad range of responsibilities from sales to operations, most recently serving as the Chief Operating Officer. He knows our clients, systems, and organization, so it's been a quick and seamless transition. Most importantly, Jim understands the importance of not missing a beat with our business while thinking through where we can go to play an even bigger role in the support of the growing wealth business. And we just announced that JoLynn Anderson will be joining in September as head of human resources. I've known and worked with JoLynn and know how important she will be in our journey of creating a high-performance culture that can support the growth of our business. So in closing, we in the industry will have to continue navigating market challenges as the yield curve creates headwinds in the shorter term, but believe that we will be beneficiaries of central bank actions as we are confident they will ultimately result in stronger global economic growth and stronger market activity. We have not changed our belief that opportunities across the franchise to drive higher growth exist, and we continue to remain focused on balancing our short-term performance with building our company for the longer term. With that, let me turn the call over to Mike.