The Bank of New York Mellon Corporation

We're about to begin. Good morning and welcome to the 2020 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'll now turn the conference over to Magda Pulchinska, BNY Mellon's Global Head of Investor Relations.

Please go ahead. Good morning. Good morning. Today, BNY Mellon released its results for the first quarter of 2020. The earnings press release and the financial highlights presentation to accompany this call are both available on our website at BNYMellon.com. Todd Gibbons, BNY Mellon's CEO, will lead the 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. 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, April 16, 2020, and will not be updated. With that, I will hand over to Todd.

Thank you, Magda, and good morning, everyone. Before getting into our results, I want to call out the heroic efforts of medical professionals and first responders in the U.S. and abroad. I have doctors in my immediate family, so I'm acutely aware of the risks and what they're dealing with. We're also grateful for the extraordinary actions taken by central banks, regulators, and governments to minimize to the extent possible the financial fallout as we all face this unprecedented crisis. Now let's shift to our financial results. I'll briefly highlight our first quarter performance and then focus on how we're navigating the current realities, discuss what the immediate impact has been on our business, and then look at how we think about the potential impact going forward. Mike will then go through the financials in more details. For the first quarter, we reported earnings of $944 million and earnings per share of $1.05. That's up 12% over the first quarter of 2019, with revenue up 5% and expenses flat, as we benefited from heightened levels of market activity and volatility, partially offset by the impact of lower interest rates. All of our investment services business showed solid growth. Clearly, we have entered an unprecedented environment where things are changing quickly and it's going to be a very challenging time for everyone. As the situation has evolved quickly, but from the start, our focus was on the health and well-being of our people and the continuity of service to our clients. We quickly transitioned the vast majority of our people to working from home, which opened up space for us to create social distancing for the small number of essential in-office staff. Fewer than 5% of our global employees remain in the office. These essential in-office staff are primarily performing roles that cannot be done remotely. The investments we've made in our infrastructure, operating platforms, and cyber information security have clearly benefited us, enabling us to support this broad-scale remote working arrangement. All of the controls and security oversight that govern us when working inside the office are in full effect when we're working remotely. The response from our people has been exceptional. You couldn't ask for greater professionalism or dedication to our clients at a time when we're also dealing with unprecedented levels of market activity and personal challenges. Please note that while our people are caring for our clients, we're caring for them. We've made available to them a host of health and well-being resources, including access to telehealth services, free testing for COVID-19 in the U.S., along with us covering all costs related to outpatient and urgent care, or emergency room visits for the evaluation and treatment related to COVID-19. Recognizing the mental health challenges during these uncertain times, we made available a stress management program and emotional support services and resources to help our people cope and deal with the social isolation. And we're supporting our colleagues who are unwell or may have been exposed by guaranteeing full pay for absences for those who have tested positive or are self-quarantined. We're also providing paid time off to care for immediate family members with COVID-19 or COVID-19-like symptoms. Finally, to support our people, we made the decision that we will not do any additional layoffs during 2020. It's absolutely the right thing to do at a time when the pandemic is creating so many personal uncertainties for our people. Since the crisis began, we've remained fully operational and open for business, and we've been there for our clients during this unprecedented period of market disruption. We engage early with thousands of clients globally to discuss their own continuity plans and work with them to ensure minimal disruption to their operational processes and transaction settlements. We stood up client command centers for our operations and client-facing staff to centralize, escalate, and quickly resolve client inquiries. We accelerated training on our digital tools to help clients reduce their physical and manual process footprint, minimizing their operational risk profile. We've also taken a series of humanitarian actions in an effort to and help those negatively affected by the virus. That has included making philanthropic commitments to important support organizations in regions where employees live and work, including organizations working in the front lines in the U.S., EMEA, and mainland China, and other affected areas in Asia and India. Announcing a two-for-one matching program for employee donations. We've also donated hundreds of video-capable tablets to public hospitals in New York to help patients and medical staff communicate with their loved ones. And partnering with nonprofit organizations to provide aid to first responders, healthcare, transit, and other first frontline workers, as well as serve some of the most vulnerable populations through the provision of critical items such as meals, shelter, medical equipment, educational supplies, and financial support, as well as 50,000 face masks we donated to New York City hospitals dealing with shortages. We'll also continue to look for opportunities to do more. Lastly, we are focused on maintaining the strength, liquidity, and lower risk profile of our balance sheet while using it to support our clients and markets. We have been in regular dialogue with the regulators and key market participants to ensure we're coordinated and see how we can help bring stability to markets. When the markets first came under pressure last month, the Federal Reserve activated a primary dealer credit facility to provide funding to primary dealers. They achieved that through our tri-party repo services. That's something we're uniquely positioned to do, and it's been a privilege to help. Given our strong capital and liquidity position, we have used our balance sheet to support our clients. That means accommodating their elevated deposits and funding about $3 billion in incremental draws on committed facilities. In March, we also purchased more than $3 billion in assets from money market funds, including our own, to help create liquidity for fund holders, and we have continued to do so in April. Looking ahead, we and our clients face extreme market and economic uncertainty. While it is too early to predict the impact, we have a well-diversified and financial resilient franchise that is relatively well-positioned to withstand what's to come. In terms of the immediate impact on our business, March had extremely high levels of volatility and market stresses. We experienced much higher client volumes than normal, and activity is up across all of our business lines. Let me just share a few data points that bear this out. In foreign exchange, we saw higher volumes across all parts of our business, up approximately 50% in March, and large spikes in volatility. In U.S. dollar payments, Treasury service on average processed 2.5 trillion payments per day in March, peaking one day at over $3 trillion in mid-March, compared to $1.7 trillion in recent quarters. At times, Pershing saw elevated trading volumes at 2.5 to 3 times normal levels. In clearance and collateral management, U.S. government securities clearance volumes in March were up more than 20% from February levels, driven by the heavy U.S. Treasury issuance coupled with increased market volatility. In asset servicing, during March we experienced an increase in U.S. accounting trade volumes, of more than 50% versus the first two months of 2020, and global security settlement volumes were up approximately 40% over the same period. We've also experienced substantial deposit inflows. In asset management, we experienced net inflows driven by cash inflows of $43 billion, and our performance fees were up due to solid performance across our largest strategies. As you think about our company's performance over the rest of the year, I would caution against extrapolating these results for the full year. The full ramifications of the lower rates and the moves in the capital markets are not yet being fully felt. The decline in our capital ratios this quarter reflects large deposit inflows, mostly due to the flight to safety from current market conditions and Fed balance sheet expansion. Share repurchases of $985 million were completed prior to deciding, along with the other big banks, to temporarily suspend further buybacks so that we can use our significant capital liquidity to provide maximum support to our clients. We believe that we will have the ability in a wide range of scenarios to continue to pay our dividend and to support our clients. Looking ahead to the remainder of 2020, it is difficult to forecast the impact of the coronavirus on our results with certainty because so much depends on how the health crisis evolves, its impact to the economy, and actions taken by central banks and governments to support the economy. We have a lower-risk, fee-based business model that positions us relatively well in an environment like this. We perform stress tests regularly, as do our regulators. In CCAR, we consistently perform well. We have a highly diversified business model with a conservative risk profile, and fees in general are skewed towards recurring revenue streams. We should benefit from increased activity in clearance and payroll management, from increased issuance of U.S. Treasuries and U.S. tri-party cloud management, although the latter somewhat depends on Federal Reserve Bank of New York operations. Monetary policy turns times of uncertainty, tends to have a positive effect for us through higher deposit volumes, and we will continue to manage our expenses tightly. All that having been said, the lower interest rate environment, which impacts us both through net interest revenue and through money market fee waivers in Pershing, asset management, and corporate trust, as well as the market decline and certain industries being under pressure, will have an impact. And Mike will cover those items in more detail later. Still, we believe we have the capital and liquidity to withstand multiple scenarios, pair dividends, and continue to support our clients. Finally, I wanted to take a moment to convey how deeply honored I am to be CEO of this great company. While my near-term focus is on safeguarding the well-being of our employees, supporting our clients through this period, and maintaining our balance sheet, we are looking ahead to ways to build on our solid foundation with a strong business model and balance sheet to drive improved performance and capabilities across our company. With that, I'll turn it over to Mike.