The Bank of New York Mellon Corporation

Good morning and welcome to the 2022 Second 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 Marius Merz, BNY Mellon Head of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to our second quarter 2022 earnings call. As always, we will reference our financial highlights presentation, which can be found on the investor relations page of our website at bnymellon.com. I'm joined by Todd Gibbons, our chief executive officer, Robin Vins, president and CEO elect, and Emily Portney, our chief financial officer. Today, Robin will lead the call and make introductory remarks, followed by Emily, who will then take you through the earnings presentation. Following their 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 supplements, and financial highlights presentations. all available on the investor relations page of our website. Forward-looking statements made on this call speak only as of today, July 15, 2022, and will not be updated. With that, I will turn it over to Robin.

Thank you, Marius, and thank you, everyone, for joining us this morning. Before we talk about our results for the quarter, I'd like to take a moment and recognize that today is Todd's last earnings call. Todd, on behalf of all of us here at BNY Mellon, I'd like to thank you for your leadership and for your many years of service to the firm and our clients. For nearly four decades, you've made a tremendous impact on BNY Mellon and its evolution from the rather traditional commercial bank that we once were to the globally significant financial services firm sitting at the heart of the financial ecosystem that we are today. When the board asked you to take the helm at a very challenging time, amid a worldwide pandemic, you not only navigated the firm through this unprecedented environment with a steady hand, but you also continued to drive our client and growth agenda forward. On a more personal note, I want to thank you for working so closely with me during this transition. I know it was always important to you to ensure a seamless transition before you retire, and I couldn't have had a better partner on this journey. Having spent a meaningful part of the last four months meeting and listening to our employees, clients, and many other stakeholders, I'm even more optimistic about the next chapter for BNY Mellon. At the very heart of our firm lies an exceptional client franchise. Our clients truly view us as a trusted partner, and a resounding message that I have heard is that our clients want to do more with us. We have a growth opportunity by making that easier for them. We have to do a better job connecting the dots both internally and externally, and we will. And while our investments over the last couple of years have paid off in the form of the remarkably resilient platform that we have today, I'm also of the view that the efficiency opportunity available in driving our operating model transformation has more runway. I look forward to formally taking on my new role at the end of August and will continue to share my views on our strategy and plans over the coming months. Moving on to the quarter, I'll start with some broader perspectives before I run through a few financial highlights, and then I'll turn it over to Emily to review our results for the quarter in more detail. During the quarter, we continue to see high levels of volatility across both global equity and fixed income markets, persistently high inflation, rapidly evolving monetary policy around the world, and all this against an increasingly complicated geopolitical landscape. You've all seen those charts. The S&P 500 had its worst first half performance in over 50 years. Ten-year treasuries had the worst start to the year since the beginning of the index in the early 70s. And with 150 basis points in rate hikes, this is the fastest tightening cycle over six months since the Volcker era at the end of the 70s. Underneath these headlines, what we're seeing across our platforms is that investors are clearly rebalancing and de-risking. We're seeing asset reallocation from growth to value, higher than expected cash balances, and relatively shallow market liquidity, making it harder for investors to move risk. That said, in our role as a critical infrastructure provider touching so much of the core financial system, we do see today that markets continue to function in an orderly fashion. Trades are settling and fails and overdrafts are at fairly normal levels. Turning to our performance in the quarter and referring to page two of our financial highlights presentation, we reported EPS of $1.03 on $4.3 billion of revenue and a return on tangible common equity of 19%. Excluding the impact of notable items, EPS was $1.15 and return on tangible common equity was 21%. Our second quarter results reflect the benefit of higher interest rates, the strength of our diversified platform, and our unwavering commitment to our clients. Those clients clearly value our resilience, the quality of our services and insights, and the trusted relationship that they have with BNY Mellon. While lower market values adversely impacted asset-based fees, elevated volatility, wider spreads, and higher transaction activity across new and existing clients tempered the impact. Asset servicing continued to see healthy client volumes, and our sales momentum and pipelines continue to be strong. Wins and mandates are up year on year, and that's broad-based across products and geographies, producing a strong pipeline of AUCA to be installed over time. And our retention rates continue to be exceptionally high, north of 90%. In our ETF servicing business, total funds serviced are up 5% year to date, enabling ETF AUCA to hold steady, despite the impact from lower market values. And in alts, wins year-to-date have already exceeded all of 2021. It's also worth noting that more than 20% of our multi-product deals have a data and analytics component, as our DNA capabilities become more meaningful to our overall asset servicing deal pipeline. In our markets franchise, FX revenue was up nicely year-over-year, and the business continued its steady climb in the Euromoney FX survey. landing at number eight overall this year, our highest ranking ever, up from number 13 a year ago and number 32 in 2018, while also maintaining its top three real money ranking. Issuer services, and in particular depository receipts, had a solid quarter on the back of growth in dividend annuity fees and cancellation activity. In Pershing, year-over-year revenue was also up and we're seeing encouraging signs in terms of sales momentum. We continue to gather net new assets this quarter, albeit at a slightly slower pace, given the market backdrop. But the pipeline for the second half and beyond remains strong, as we continue to grow the core business and see renewed client interest in digital wealth solutions, as well as the advisory tools we will offer through our Pershing X initiative. In a great 1BNY Mellon example, This quarter, Pershing and Asset Servicing combined their capabilities to roll out what is essentially a self-directed vehicle for a large government agency offering choice of roughly 5,000 funds to a total addressable population of about 6 million eligible participants for the benefit of their retirement plans. Last month, Pershing hosted its Insight Conference with 1,600 business leaders, industry advocates, and next-generation talent. This conference is a flagship event for Pershing, and we were pleased to announce the next generation tech solutions for advisors and wealth management professionals with the introduction of the latest generation of our Pershing platform and enhancements to our API suite. Turning to clearance and collateral management, the business delivered another strong quarter of growth on the back of higher securities clearance volumes where market volatility continues to drive activity levels in U.S. Treasuries. And we also saw average collateral management balances reach another record of $5.2 trillion in the quarter driven by money market fund demand for the RRP facility. Treasury services also delivered solid growth driven by higher rates and higher payment volumes, as well as broad-based growth across multiple products, core US dollar wire, debit card processing, and immediate payments from both new and existing clients. Our investment management business was significantly impacted by lower market values, the unfavorable impact of the stronger US dollar, and clients de-risking amid an increasingly uncertain environment. Having said that, Our investment performance remains strong, with over 70% of our top 30 strategies by revenue in the top two quartiles on a three-year basis. Insight was ranked first by Greenwich Associates for overall quality in LDI for the 12th year in a row and was ranked first for fixed income overall quality with UK Consultants. And Bold, which is the new cash management fund share class launched to help investors make a positive, direct social impact, raised another $2 billion in the quarter, bringing total AUM to over $3 billion in just four months. As most of you saw, we also announced the sale of Alcentra to Franklin Templeton at the end of May. This transaction, which is expected to close in the first quarter of 2023, builds upon our strategic relationship with Franklin Templeton as we will continue to offer Alcentra's capabilities in BNY Mellon's sub-advised funds and in select regions via our global distribution platform. We will also provide Alcentra with ongoing asset servicing support At closing, we expect that this sale will increase the firm's CET1 capital by about half a billion dollars, and it will free up seed capital to help accelerate our strategy of developing new, differentiated solutions from our specialist investment firms that meet the evolving needs of our clients. And finally, wealth management continued to execute against its three-pronged strategy, acquiring more client relationships in the ultra high net worth and family office segments, deepening banking relationships, and investing in technology and driving efficiency. As we engage with our clients in this space, we continue to lead with some of the most innovative digital capabilities in the industry. For a second consecutive year, the Financial Times named BNY Mellon the best private bank for digital wealth planning in North America, recognizing our wealth online client portal, and our proprietary goals-based planning tool, Advice Path. And the Family Wealth Report recognized our active wealth accelerator as the best customer-facing digital platform. Turning to capital, despite a significant headwind from rapidly rising interest rates, we remain well capitalized with healthy capital buffers to support our clients with a strong balance sheet in this volatile market environment. The recently announced results of the Fed's 2022 stress test demonstrated once again that BNY Mellon has one of the most resilient business models and balance sheets in the industry. And our preliminary stress capital buffer, as calculated in the test, remains at the Fed's 2.5% floor. And so, as expected, earlier this morning, we announced that our board approved an increase in our quarterly cash dividend by 9% to 37 cents per share in the third quarter. Now, before I turn it over to Emily, I'd be remiss not to also touch on our announcement last week that Dermot McDonough will join us in November and become our next CFO, effective February 1, 2023. I've known Dermot for over 20 years, and I'm really looking forward to his addition to our team. And I'm also pleased for Emily, who after helping Dermot transition into the CFO role, will take on leadership of several of our key growth areas, mainly treasury services, credit services, and clearance and collateral management, reporting directly to me. But in the meantime, I certainly like reminding Emily that she still has a few more earnings calls to go. And so with that, over to you, Emily.