The Bank of New York Mellon Corporation

Good morning and welcome to the 2022 Third Quarter Earnings Conference Call hosted by BNY Mellon. At this time all participants are in a listen only mode. Later we'll conduct a question and answer session. Please note that this conference call and webcast will be recorded and will consist of copyright 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.

Thank you, operator. Good morning, everyone, and welcome to our third 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 Robin Vins, President and Chief Executive Officer and Emily Portney, our Chief Financial Officer. Robin will make introductory remarks, and Emily 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 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, October 17, 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. Having formally taken over as CEO a little over a month ago, it is a tremendous honor to usher in a new chapter for this great institution. After spending a significant portion of the past few months engaging with clients, regulators, employees, and other business leaders, I'm excited about our exceptional client franchise, our central role in global financial markets, and the opportunity that lies ahead. Now, as a new CEO and considering the current environment and it being the time of year when budgets and strategic plans are healthfully debated and brought together, Naturally, I'm using this opportunity to take a particularly close look at our priorities. While I'm still reviewing everything, it's apparent to me that while we've made good progress in a number of areas over the last couple of years, there are also clearly opportunities to further enhance BNY Mellon's performance for our clients and shareholders alike. First, I see exciting growth opportunities and numerous examples of innovation, like Pershing X, the reimagining of our collateral and custody platforms, digital assets, and real-time payments that we need to continue to invest in and execute on with great discipline and urgency. Second, we're not just reviewing the top line. We are also closely examining our cost base and margins. I'm questioning how we do things, and I'm of the view that our margins should be better in some areas. For example, We talked to you about improving our pre-tax margin in security services to 30% over the medium term. More broadly, we are also going to be looking for efficiency opportunities as we drive our operating model transformation and will be very determined to see them through. And third, while we have been providing more holistic solutions to clients that we believe our unique collection of businesses is better placed to deliver, we have the potential to do a lot more. I touched on this on the last earnings call, but I continue to believe that the opportunity to deliver the whole firm through a more unified one BNY Mellon is meaningful. As we continue to work through and bottom out all of these opportunities in the coming months, we will be regularly providing you with progress updates along the way. 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 financial results in more detail. As you're aware, during the quarter, we continue to see high levels of volatility across both global equity and fixed income markets, persistently high inflation driving increased expectations for significant rapid rate increases by central banks in developed countries, a strengthening US dollar, and a complex geopolitical landscape. We also began to see some government intervention, for example, Japan stepping into the FX market to manage their currency. And this was particularly on display in the UK, where in the last few weeks there has been extraordinary volatility in the gilt market as a result of the UK government's spending and taxation plans. This led to a series of actions by the Bank of England, including delaying their QT plans, announcing a gilt purchase program, and a liquidity facility aimed to stabilize the market. Our business model as a core provider touching so much of the financial system gives us a terrific vantage point on what's going on in markets. For example, our data shows that building up throughout the quarter and heading into quarter end, the market was extremely short euros to levels not seen in quite a few years. And we've seen international holders selling U.S. Treasuries. And more broadly, it's clear that market liquidity continues to be challenged in some markets more so than in others. As we sit here today, most markets have continued to function in a relatively orderly fashion. Trades are settling and fails and overdrafts are at fairly normal levels. But clearly risks are elevated and the system feels more fragile than it was a few months ago. While the environment is quite uncertain, Our platform of trust and innovation is very much in demand by our clients. As their cost pressures rise, we are seeing a lot of interest in engaging with us to review operating models. The scale of our platforms should allow us to lower operating costs for our clients, enabling them to focus on their core strengths. Turning to our performance in the quarter and referring to page two of our financial highlights presentation, we reported EPS of 39 cents on $4.3 billion of revenue and a return on tangible common equity of 7%. These results were impacted by a goodwill impairment charge that Emily will discuss in more detail shortly. Excluding the impact of notable items, EPS was $1.21, up 11% year over year, and our return on tangible common equity was 22%. Revenue grew 6% year over year, a testament to the diversity and resiliency of our business model. This performance reflected the benefit of higher interest rates as well as continued strength in client volumes and balances across our security services and market and wealth services segments. While investment and wealth management was naturally more affected by the continued decline in global marketplace, Particularly in investment management, the business delivered positive net inflows in the quarter and continued to deliver solid investment performance for our clients. Touching on a few business highlights, asset servicing continued to deliver solid top line results and our sales momentum remains strong with wins and mandates up from a strong 2021. and yet to be installed AUCA meaningfully higher than last quarter. In ETFs, we continue to see strong net inflows, and the total number of funds serviced is up almost 10% from the beginning of the year. We're also seeing strong momentum and traction in the alts space and have an active pipeline across credit, private equity, and real estate. And we were pleased to announce that Aviva Investors, a large European-based global asset manager, recently appointed us to provide a fully integrated operating model for certain front office support services, as well as middle and back office activities, allowing them to focus on delivering an exceptional client experience powered in no small part by the scale and capabilities of our platform. And finally, following the formation of our digital assets unit in 2021, we are now live with our digital asset custody platform in the U.S. To this point, we continue to see significant institutional demand for resilient, scalable financial infrastructure built to accommodate both traditional and digital assets. And we see digital asset custody as an important foundational capability for the future of financial markets, as blockchain technology allows for tokenization of all kinds of assets and currencies. But just to be clear, We did not invest in this space just for the purpose of custodying crypto. We see this as the beginning of a much broader journey. Pershing had a solid and resilient quarter, benefiting from its diverse revenue mix that includes not only market-based fees, but also transaction fees, balance-based fees, subscription fees, and net interest revenue, with many of these income streams playing well in the current environment. We also gathered a strong $45 billion of net new assets in the quarter, and the pipeline remains healthy, boding well for flows in the months ahead. PushingX reached another milestone through an equity investment and partnership with Conquest Planning, a fintech which uses AI and powerful analytics tools to help advisors improve their efficiency and create highly customizable financial plans for their clients. X's minimum viable product remains on track to launch in the fourth quarter. Our client engagement, together with the product design input which that brings, is helping us to accelerate and enhance the delivery of an exciting end-to-end digital experience for advisors. Clearance and collateral management delivered strong growth on the back of higher US clearance volumes as market volatility continues to drive secondary trading activity in U.S. Treasuries. In fact, in September, settlement volumes were the highest they've been since March of 2020. We also saw growth in margin-related services, reflecting the industry-leading work that the team is doing to help our clients comply with uncleared margin rules in derivatives trading. Treasury services achieved a number of wins this quarter as we continue to bring innovative new solutions to the markets. we were awarded a contract for white-labeled trade processing for a major U.S. bank. We sponsored our first supply chain financing program for a major investment-grade corporate client, and we were awarded and will be managing payroll and digital asset transfers for a major digital asset client. Recognizing our momentum in this business, the banker named us 2022 Global Transaction Bank of the Year, We're also proud to have been recognized by them with additional awards for our work to transform the real-time and digital payment space and optimize trade finance payments by leveraging emerging technologies. Let me conclude with a note of humility about the uncertainty that we're all witnessing in markets these days. None of us can predict the exact path of markets and economic conditions from here, and the level of uncertainty greater than many have become used to. As a firm, we are positioning ourselves conservatively in this environment and recognize that the strength and stability of our platform is important for the uninterrupted functioning of a significant part of global capital markets. We're proud of this role and the service that we deliver to our clients around the world. With that, I'll hand it over to Emily for the more detailed review of our financial performance in the quarter.