The Bank of New York Mellon Corporation

Good morning and welcome to the 2020 Fourth 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 and 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 Magda Polczynski, BNY Mellon Investor Relations. Please go ahead.

Good morning. Welcome to BNY Mellon's fourth quarter 2020 earnings conference call. Today, we will reference our financial highlights presentation available on the Investor Relations page of our website at bnymellon.com. Todd Gibbons, BNY Mellon CEO, will lead the call. Then Emily Portney, our CFO, will take you through our earnings presentation. Following Emily's prepared remarks, there will be a Q&A session. Before we begin, please note that our remarks include forward-looking statements and non-GAAP measures. Information about these statements and non-GAAP measures are available in the earnings press release, financial supplement, and financial highlights presentation all available on the investor relations page of our website. Forward-looking statements made on this call speak only as of today, January 20th, 2021, and will not be updated. With that, I will hand over to Todd.

Thank you, Magda. Good morning, everyone. Let me start with a brief summary of the fourth quarter financial results, which Emily will then review in more detail. And then I'll come back with some thoughts on our franchise and our outlook for 2021. Starting on slide two, in terms of the fourth quarter, we reported revenue of $3.8 billion and earnings per share of 79 cents or 96 cents after excluding notable items, which Emily will cover in a few minutes. Turning to the full year 2020 financial results on slide three, and I'm referring to them on an adjusted basis, earnings per share of $4.01 was flat to the prior year on revenues of $15.9 billion. Fee revenue increased over 5%, excluding notable items, and almost $370 million impact of fee waivers in 2020. Expenses were flat as our cost discipline and productivity gains essentially offset incremental investment, and the operating margin was solid at 30%. Now, we have a lower-risk, fee-based business model that positioned us well to this environment. We had no net charge-offs. We also delivered strong results in the two rounds of Federal Reserve stress tests announced in June and December. Our model is highly capital generated, and our common equity tier one ratio increased to 13.1% from 11.5%. Now, when I shared my 2020 priorities with you a year ago, of course, no one expected that the world would change so rapidly and dramatically. Throughout the pandemic, we have supported employees, clients, and our communities and we're proud to provide the infrastructure for several critical government programs for COVID relief, including the term asset-backed security loan facility, the municipal liquidity facility, the primary dealer credit facility, and the payment protection program. Now, while navigating the extraordinary environment, we continue to advance our long-term growth agenda across all of our businesses. That agenda includes accelerating our digital and data transformation, investing in several growth opportunities, and leveraging the power of the open architecture platforms and solutions we provide to help our clients grow their businesses. In asset servicing, we have seen no let-up in client onboarding this year. This is a testament to our focus on client experience, data, and digitization. Half of our AUCA growth in asset servicing year-over-year is from organic growth with new and existing clients. And we built positive momentum. We closed out the year with significantly higher win ratios and retention rates. and had our best sales quarter in the last 10 in the fourth quarter of 2020. Once onboarded, these wins will start to benefit revenue in late 2021. We've been pursuing a strategy of moving up and across client value chains beyond just supporting operations to revolutionize data and digital-enabled solutions across front, middle, and back offices. For example, we were recently mandated one of the largest asset managers in Europe to provide front-to-back services, adding custody, accounting, and transfer agencies. This includes a collaboration to integrate an order management system to deliver portfolio and risk management, improve sales and distribution, and operational efficiencies. This is another example of our open architected security servicing platform, which we call Omni. We are currently integrated with the leading OMS providers that cover 98% of the addressable market. and our partnerships are starting to help us win business, as the above example illustrates. We also have a leading data and analytics business and are now building on our 20-year track record in software and service to create robust cloud-based data and analytics capabilities. With the help of several new clients who were early adopters, we have introduced a new platform called the Data Vault, which allows clients to quickly onboard and manage both structured and unstructured data from many sources. To share one example, we were selected by Janice Henderson to transform their global data platform, including implementing the data vault, which will help improve the quality and ease of access to investment information across the enterprise. We also have a suite of new business applications for the front office, such as our ESG investment analytics application, which was recently won a significant award, as well as our distribution analytics offering to help clients with asset growth. These applications together with the vault position as well to drive growth. Purging is one of the unique businesses that differentiates us from our custody peers. It helps us build deep relationships and is a powerful source of additional connectivity to the fast-growing wealth space. Fourth quarter results in purging benefited from elevated transaction volumes, which are expected to moderate a bit in 2021, as well as continued strong underlying fundamentals. Net new assets for the year were $82 billion. Pershing's business, which includes over 600 broker dealers and 500 registered investment advisor firms, is a very attractive and efficient platform for our asset servicing clients to access their points of distribution. In fact, today, through Pershing, asset managers have placed $1 trillion of their product and continue to value this unique opportunity that only we can offer. Clarence and collateral management fees were up in 2020, excluding the disposal of an equity investment last year, and we continue to innovate in this space. For example, as a result of intense collaboration between our market business, asset servicing, clearance and collateral management, and group treasury, we are in the process of launching an innovative solution. It offers clients the ability to pledge money market fund shares to meet tri-party collateral obligations across a wide range of transaction types, such as repo and securities lending agreements, secured note programs, collateralized deposits, and also allows segregation of initial margin for derivative contracts, all in a straight-through processing models. So clients can now buy money market funds on our liquidity direct platform and seamlessly pledge them as collateral in these types of transactions. In treasury services where we delivered good performance, we have continued investing in automation and are advancing our real-time payments capabilities. We are actively working on an exciting large-scale commercial payments pilot with one of the world's largest fillers. This capability is expected to reach tens of millions of consumers via their retail banks throughout 2021, leveraging continued adoption across the RTP network. That's known as the real-time payment system. Within investment management, flows have been largely in step with industry trends, and we've offset equity outflows with strong fixed income cash and LDI inflows. We've had three straight quarters now of long-term inflows and have improved investment performance. Across the top 30 ranked strategies by revenues, 75% are in the top two quartiles on a three-year basis, compared to just over 70% a year ago. In 2020, we launched eight ETFs, with more to come this year. We've also been building out sustainability funds, such as the Future of Humans Fund with UBS, and a series of Mellon funds focused on pressing global themes, for example, aging populations. Finally, we continue to build out our leadership team, John Tobin was recently named as Chief Investment Officer of Dreyfus Cash Investment Strategies, bringing to this role deep and broad money market industry expertise. We will continue to build on our leadership across the entire cash ecosystem to position our business for long-term growth. And just a couple of weeks ago, we announced that Ewan Monroe would be joining us as CEO of Newton in June. Ewan has a proven and highly relevant track record in the investment industry, spanning three decades and will be a great addition to Newton. So we're excited to have both of them join Hanukkah's team. Before I hand over to Emily, I'd be remiss if I did not comment on our push of meal wine melon towards ever greater diversity and inclusion. We have one of the most diverse Fortune 500 boards, and our executive committee has become increasingly diverse. To accelerate progress in our most underrepresented ethnic talent populations, and help position our firm as a competitive choice with Black and Latinx graduates and experienced professionals. We set some concrete short-term representation goals in the US. It's important on many levels, and we know diversity is highly correlated to long-term financial performance. And finally, during the year, I made a number of appointments to my leadership team. We have a highly motivated group of talented employees implementing our strategy, which is centered on driving growth creating differentiated value for our clients, digitizing and optimizing our operating model, and fostering a high-performance culture that is focused on delivering excellent client service in new and innovative ways. With that, Emily will now review our fourth quarter results in more detail, after which I will make some concluding remarks.