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spk14: Good morning and welcome to the 2023 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 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 Mertz, BNY Mellon Head of Investor Relations. Please go ahead.
spk01: Marius Mertz Thank you, operator, and good morning, everyone. Welcome to our first quarter 2023 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 Dermot McDonough, our Chief Financial Officer. Robin will start with introductory remarks, and Dermot will then take you through the earnings presentation. Following their 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 presentation, all available on the investor relations page of our website. Forward-looking statements made on this call speak only as of today, April 18, 2023, and will not be updated. With that, I will turn it over to Robin.
spk11: Thank you, Marius, and good morning, everyone. Before I turn the call over to Dermot to review our financial results, I want to provide some broader perspective and an update on how we're serving our clients and stepping up as a firm in this complex environment. Following a relatively benign start to the year, markets were quite unsettled in March when we saw two prominent bank failures in the United States and a government-brokered distressed bank takeover in Europe. While things have calmed down somewhat over the past couple of weeks, after over a decade of zero interest rate monetary policy, the risks and uncertainty associated with the fights against inflation, higher interest rates, and quantitative tightening, together with geopolitical tensions, remain elevated. And domestically, we continue to march closer to another debt ceiling standoff. Against this backdrop, it's a healthy reminder that the strength of BNY Mellon's highly liquid, lower credit risk, and well-capitalized balance sheet in combination with the resilience of our platforms, is the bedrock that supports our client franchise. For nearly 240 years, we've built up a legacy of client and industry trust rooted in our resiliency through good times and bad. We've been a port in the storm for our clients in periods of stress over that time, and recent weeks have been no different as we've helped our clients to navigate the volatility in markets, with our strong balance sheet and broader liquidity solutions. After seeing deposit balances increase following recent market events, we ended the quarter slightly higher than where we started it. And our broader liquidity platform, which manages over $1.3 trillion worth of cash and other short-term investment options on behalf of our clients, has seen growth across most channels. But more broadly, the recent events have led to concern around the health and stability of some banks as they've highlighted the critical importance of robust asset and liability management for all financial services participants. As one of the largest banks in the United States and as a G-SIB, we are held and we hold ourselves to a high standard, including stringent capital, liquidity, and stress testing requirements. On capital, Unrealized losses related to our available for sale investment securities portfolio are already reflected in our capital ratios. We have consistently maintained the majority of our investment securities portfolio as available for sale. And as you will recall, we've had a view for a while now that rates would be a little higher in their terminal rate than the market has been pricing in. And so over the last year and a half, we've meaningfully reduced the duration and enhance the risk and liquidity profile of the portfolio. Together, these actions provide us with ample flexibility to adjust to changing market conditions as we move through the year. And on liquidity, our robust liquidity management framework includes risk metrics, such as concentration limits and daily liquidity stress testing protocols that go beyond regulatory requirements. It is these periods of stress that also showcase our characteristic resilience and the power of our diversified and lower-risk business model. We primarily serve large institutional clients who collectively maintain substantial deposit balances with us as part of the services we provide to support their business activities, whether that's custody, cash management, clearing, and corporate trust services. As a result, roughly two-thirds of our deposit base is operational and sticky in nature and derives from a diverse set of business lines. And as I mentioned earlier, we manage over a trillion dollars of cash on behalf of our clients across deposits, money market funds, repos, and securities lending, which allows us to retain a connection to the money when it moves around various short-term investment alternatives. We're also the largest provider of collateral services globally. Our average tripartite balances increased to $5.6 trillion this quarter, which is another example of just how comprehensive our role is in the broader liquidity ecosystem. Now, turning to our financial performance in the quarter. As you can see on page two of our financial highlights presentation, we delivered solid results. We reported earnings per share of $1.12, up 30% year over year, or up 20%, excluding notable items, primarily in the first quarter of last year. Revenue was up 11% year over year. We closely managed expenses, up 3% year over year. And we generated a healthy return on tangible common equity of 20%. And given how in focus capital and liquidity are at the moment, I'll note that our Tier 1 leverage ratio, as well as our liquidity coverage ratio, remain strong and unchanged compared to the prior quarter, well above regulatory requirements and our own management buffers. Stepping back for a moment, I'm encouraged by the early progress that we are seeing around the company to deliver on the commitments that we made to you back in January. First, we are bending the cost curve. Our first quarter expense growth came in marginally better than our initial internal plan, and we remain firmly committed to cutting our core expense growth by roughly half this year compared to 2022 on a constant currency basis. Second, in line with our outlook for the year, we continued to derive healthy growth in net interest revenue. Third, we delivered positive operating leverage on a year-over-year basis, And fourth, we returned a meaningful amount of capital to our shareholders, including $1.3 billion of common share repurchases. We've made good initial progress on our plan to return more than 100% of earnings to shareholders in 2023. And we currently expect to continue buying back stock, albeit at a slower pace, given the uncertain environment. At the same time, I've made a promise to you to call it as it is. when we fall short of our expectations. And so, to be candid, our fees being flat year over year was somewhat lackluster. Having said that, there were a number of business highlights this quarter that are designed to help us change this trajectory and drive underlying fee growth over time, and so I'll call out a few. In asset servicing, the pipeline remains strong and the margin on new deals is improving as we're increasingly holding the line on price to drive more profitable growth in the business. ETF activity is up across all measures, with healthy increases in AUCA, orders, and flows. And wins with alts and in our data platform service business were pleasing to see this quarter. In January, we announced the launch of our outsource training business, powered by a platform that already executes more than $1 trillion in volumes annually for our investment management business. This global multi-asset trading service can help clients to reduce their costs and focus on alpha generation. While still early days, we think there is significant opportunity here to offer front office trading capabilities in a trusted, unconflicted way to the market. Pershing, brought in a healthy $37 billion of net new assets during the quarter, representing mid-single-digit organic growth on an annualized basis. And total revenue was a quarterly record. As part of BNY Mellon, clients recognize Pershing as a source of strength and stability in the marketplace. In the current environment, clients also appreciate the flexibility and choice of our product offerings. Meanwhile, our Pershing X team continues to make great progress as we aim for a broader rollout this summer. Just last week, we announced a collaboration with Snowflake to provide our prospective Pershing X clients with more powerful analytics and faster data management, improving their digital experience so they can operate more efficiently. Clearance and collateral management activity remained elevated given the volatility in the market and as dealers increasingly finance larger inventories via TriParty. We continue to see growth from the investments that we've made to increase market connectivity by expanding our TriParty platform into new markets across Asia and EMEA, and into new trade types and collateral pools, reinforcing our role as the only truly global provider of collateral management. Treasury services delivered broad-based client wins across U.S. dollar, digital, and FX payments, liquidity, and trade finance products, and also saw a nice pickup in account and operational deposit growth towards the end of the quarter. In investment and wealth management, although our investment performance remained solid, AUM flows were mixed with strength in fixed income and LDI strategies, partly offset by outflows in other long-term strategies. During the quarter, our UK investment manager, Newton, launched five future legacy funds, its first range of risk-rated sustainable multi-asset funds to support growth in the UK retirement market. And back in the US, the Dreyfus Bold share class, which we introduced last year, has now raised over $4 billion in AUM. In summary, over the past few months, I've spoken about our combination of client trust, at-scale platforms, client-focused culture and resilience as a powerful foundation on which we can build. I'm also proud that our culture has been front and center in recent weeks as our people have risen to the occasion, responding commercially and working tirelessly to enable successful outcomes for our clients in these uncertain times. I view this client-first culture as the key to make more out of our diversified portfolio of adjacent businesses. While we are the world's largest custodian and a trust bank, the contributions from clearance and collateral management, purging, treasury services, and issuer services are differentiating in our client value proposition. With that, let me officially welcome Dermot to his first earnings call.
spk05: Dermot, over to you. Thank you, Robin, for the introduction, and good morning, everyone. It's a privilege to be here, and I look forward to working with you all. I'll start on page three of the presentation with some additional details on our consolidated financial results in the first quarter. Total revenue is $4.4 billion, up 11% year over year. This reflects fee revenue being flat, as headwinds from lower market values, a stronger dollar, and the sale of Alcentra which closed in November last year, were offset by a significant improvement in fee waivers and the absence of a notable item last year related to Russia. Firm-wide assets under custody and our administration of 46.6 trillion increased by 2% year-over-year. Growth from new and existing clients more than offset the stiff headwinds from lower market values and currency translation, a real testament to the strength and diversification of our franchise. Quarter over quarter, assets under custody and or administration increased by 5%. Assets under management of 1.9 trillion decreased by 16% year over year. Here, the impact of lower market values and the stronger dollar was tempered by cumulative net inflows over the 12th month. Quarter over quarter, assets under management increased by 4%. Investment and other revenue was 79 million and included another strong quarter of fixed income trading on the back of elevated volatility and greater demand for US Treasuries, and net interest revenue increased by 62% year over year, primarily reflecting higher interest rates. Expenses were up 3%, driven by higher investment and revenue-related expenses, partially offset by efficiency savings and the impact of the sale of Alcentra. The impact of inflation and merit increases were largely offset by the favourable impact of the stronger dollar. And provision for credit losses was $27 million in the quarter, reflecting changes in the macroeconomic forecast. As Robin mentioned earlier, earnings per share were $1.12 of 30% year-over-year, or up 20% excluding notable items, largely in the first quarter of last year. Our reported pre-tax margin was 28%, and our return on tangible common equity was 20%, the highest in three years. Turning to capital and liquidity on page four. Our tier one leverage ratio, which continues to be our binding capital constraint, was 5.8%, essentially flat quarter over quarter. And our CET1 ratio was 11%. The strength of our balance sheet and our healthy earnings generation in the quarter allowed us to return 1.6 billion of capital to our common shareholders, including 1.3 billion of common share repurchases. while maintaining our capital ratios well above regulatory minimums and above our more stringent management targets. Similarly, on liquidity, our liquidity coverage ratio was 118%, also unchanged compared with the prior quarter. The strength of our highly liquid, lower credit risk and well-capitalized balance sheet is one of the cornerstones of our franchise. Starting in late 21 and throughout 22, we proactively reduced the duration and enhanced the risk and liquidity profile of our investment securities portfolio, while consistently keeping over 60% of the book available for sale to position ourselves with ample flexibility for changing market and interest rate conditions. Between the beginning of this year and early March, we saw a deposit bounce decline in line with typical seasonal patterns and in line with our expectations, considering continued central bank tightening by both rate hikes and quantitative tightening. This was followed by a swift increase in deposit balances as clients saw the strength of our balance sheet during the recent turmoil in the banking sector. We entered the quarter with deposit balances up 1% sequentially on a period-end basis, but we expect continued moderation of deposit levels in the months ahead. Now, moving on to net interest revenue and further details on the underlying balance sheet trends on page 5. which I will describe in sequential terms. Net interest revenue of 1.1 billion was up 7% quarter over quarter. This sequential increase reflects higher yields on interest earning assets, partially offset by higher funding costs and the impact of balance sheet size and mix. While it was clearly a very volatile quarter in rates markets, it is worth noting that, on average, realized rates were in line with our projections for the quarter. Our outperformance compared to our prior expectations was primarily driven by slightly lower than expected deposit basis. On a quarterly average basis, deposit balances decreased by 3% sequentially. Non-interest-bearing deposits represented 26% of total deposit balances, which continues to be above our long-term range of 20% to 25% based on historical averages in normal interest rate environments. Average interest rating assets decreased by 1% quarter over quarter. Underneath that, cash and reverse repo was flat, loan balances were down 6%, and our investment securities portfolio was flat. Moving on to expenses on page six. Expenses for the quarter were $3.1 billion, up 3% year over year. As mentioned earlier, this reflects investments in higher revenue-related expenses, partially offset by efficiency savings and the impact of the sale of Alcentra. The impact of inflation and merit increases was largely offset by the favourable impact of the stronger dollar. Robin has been clear about our determination to bend the cost curve. We're executing with discipline and urgency, and you can see signs of our delivery in our professional, legal and other purchase services, net occupancy and business development plans. We feel good about our progress in the first quarter and how it positions us for efficiency savings in the coming quarters to help us meet our goal for the year. Turning to our business segments, let's start with security services on page seven. As I discuss the performance of our security services and market and wealth services segments, I will comment on the investment services fees for each line of business described in our earnings press release and the financial supplements. Security services reported total revenue of $2.1 billion, up 19% year over year. Fee revenue is up 4%. Within this, FX revenue was down 6% as the benefit of higher volatility was more than offset by a decline in emerging markets volume. And net interest revenue was up 77%. In asset servicing, investment services fees decreased by 5%. The benefit of lower money market fee waivers and net new business was more than offset by the impact of lower market values, lower client activity, and the stronger dollar. In issuer services, Investment services fees increased by 67%. This increase largely reflects the absence of the notable item last year related to Russia, as well as lower money market fee waivers in corporate trusts. Next, market and wealth services on page 8. Market and wealth services reported total revenue of 1.5 billion, up 22% year-over-year. Fee revenue was up 10% and net interest revenue increased by 53%. In purging, investment services fees were up 15%, primarily driven by the abatement of money market fee waivers, partially offset by lower client activity. Net new assets were a healthy 37 billion in the quarter, and average active clearing accounts were up 6% year on year. In treasury services, investment services fees decreased slightly by 1%, driven by higher earnings credits on non-interest-bearing deposit balances on the back of higher interest rates partially offset by lower money market fee waivers and net new business. And in clearance and collateral management, investment services fees were up 7%, largely reflecting higher U.S. government clearance volumes and made continued demand for U.S. Treasuries. Moving on to investment and wealth management on page 9. Investment and wealth management reported total revenue of $827 million, down 14% year over year. Fee revenue was down 15%. Investment and other revenue was $6 million in the quarter, primarily reflecting seed capital gains as opposed to losses in the first quarter of last year, and net interest revenue was down 21% year-over-year. Assets under management of $1.9 trillion decreased by 16% year-over-year. As I mentioned earlier, this decrease largely reflects lower market values and the unfavourable impact of the stronger dollar, partially offset by cumulative net inflows. In the quarter, we saw $5 billion of net inflows into long-term products. We continued to see healthy net inflows into our LDI strategies of $10 billion, and we also saw $4 billion of net inflows into our fixed income strategies. In cash, where we expected outflows from a small number of clients, this was offset by healthy inflows on the back of our continued strong investment performance. In investment management, revenue was down 15% year over year. This decrease reflects the impact of the sale of Ancentra, the mix of cumulative net inflows, lower market values, and the stronger dollar, and was partially offset by lower money market fee waivers. In wealth management, revenue was down 12%, driven by lower market values and changes in product mix. Client assets of $279 billion were down 9% year over year, primarily driven by lower market values. Page 10 shows the results of the other segments. I'll close with a few comments on how we're currently thinking about our financial outlook for the year, which in short, remains basically unchanged. From our earnings call in January, you will recall that based on marked implied forward interest rates at the end of last year, we projected an approximately 20% year-over-year increase in net interest revenue for the full year 23. As you all know, we continue to see significant volatility in rates Markets and market implied forward interest rates currently suggest some meaningful Fed easing relative to the dot plots. We have positioned ourselves for continued interest rate volatility and retain ample flexibility and liquidity to respond to a wide range of outcomes as the ultimate impact of continued tightening remains uncertain. We're off to a good start in the first quarter and based on market implied forward interest rates at the end of March, we still believe our outlook for 20% year-over-year growth in net interest revenue is realistic, with some skew to the upside. We also still expect expenses excluding notable items to be up 4% year-over-year, assuming foreign exchange rates at the end of last year, or by approximately 4.5% on a constant currency basis. As we said on our earnings call in January, we are determined to deliver some positive operating leverage this year, We still expect an effective tax rate in the 21% to 22% range. And finally, as we calibrate the amount and pace of our continuing share repurchases in the weeks and months ahead, we will be mindful of the continued uncertainty in the operating environment, especially as it relates to the uncertain path of interest rates. And so we're planning to maintain our current, more conservative capital buffers for the time being. So to wrap up, We're pleased with the company's solid financial performance in the first quarter, which amid a challenging operating environment once again showcased the strength and resilience of our business model. As we look forward, we're continuing to manage our balance sheet conservatively, and we are confident that we are well positioned to help our clients navigate the elevated uncertainty in global markets. With that, operator, can you please open the line for Q&A?
spk14: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. As a reminder, we ask that you please limit yourself to one question and one related follow-up question. And our first question will come from the line of Ken Uston with Jefferies.
spk03: Hey, thanks, guys. Welcome, Dermot. To follow up on your NII, you reiterated 20%, perhaps a little upside. Obviously, with a good start to the year, that implies a sequential slide as the year goes through. Can you just kind of help us understand how that works through in terms of what you're expecting for deposit trends and liability costs as you look through to that?
spk05: Okay, good morning, Ken, and thanks for the question. Before I answer, I'd just like to acknowledge Emily, who was the former CFO and has been a tremendous partner with the transition, and to the finance team and investor relations team who really helped me settle in well. And it's a real privilege to be here, and I look forward to working with you all. So on to your specific question around the mix between NII and deposit. Look, back in January, the environment was a little bit different to where it is today. We feel we've had a very good start to NII. We did a lot of scenario analysis in January to come up with that number. And look, there was a big kind of divergence between the marked implied forward curve, which we use to kind of budget and project where we think NII is versus where the Fed is and the dot plots are. If you look at it today, there's a little bit more of a coming together of that. And, you know, there's more of a market color around higher for longer. We're positioned for that. We feel good about it. And as a consequence of that, we've locked in a good quarter and we feel good about subsequent quarters. And look, the important thing in my remarks was skew to the upside. The range of outcomes is probably more uncertain today than it was in January. we have the debt ceiling to come, geopolitical uncertainty, all the factors that you would know about. And as a consequence, I don't really want to update the guidance, but feel we're solid on 20% with that skewed to the upside.
spk03: Got it. Great. And just as a follow-up then, can you maybe just flush out a little bit how you're thinking about how the deposit trends go from here, both in an absolute sense and then perhaps, you know, what that mix of DDAs to total looks like from, I think, the 26 that you posted this quarter. Thanks.
spk05: Sure. So if you kind of take a step back on deposits and think about, you know, coming out of the pandemic and as people started to focus on inflation and, you know, having better yield opportunities and you look at the system in total, you see over the course of the last 15 months across the industry, deposits leaving the system, we're kind of tracking that and we're the same really as everybody else. We're down 3% in terms of average deposits and maybe if I kind of double click on what happened in the quarter a little bit, up to March we were in line with our forecast which kind of gave us the 20% year over year growth. We kind of had a blip to the upside for deposits in the latter part of March as a result of a little bit of the turmoil that happened there. We saw a flight to our balance sheet. People wanted to use our platform. And so we saw deposits elevate. Now that's largely moderated, albeit we're a little bit above our forecast. We expect that to moderate further like the rest of the industry in the coming quarters as our clients are sophisticated. and they will look for yields. But look, I'll refer you to Robin's comments in his remarks where he talks about the cash ecosystem, and we kind of touch $1.3 trillion of a cash ecosystem. We want to point them to our products and services. So while they may not use our deposit platform, we want them to use other products within our ecosystem. So we feel very good about where our deposit balances are and the trajectory for the rest of the year.
spk03: Okay, great, thanks again, Derman, and best of luck. Thank you.
spk14: And our next question will come from Steven Schuback with Wolf Research.
spk00: Hi, good morning.
spk11: Good morning, Steven.
spk00: So, I wanted to start off with just a question on some of the buyback commentary. We saw a strong capital return in the quarter. You noted plans to temper the pace of buyback. I was hoping to get some more context as to what's informing that decision. If I think about some of the key inputs, the leverage denominator should be shrinking, albeit modestly, given some of the deposit commentary you decided. You've sounded more sanguine on Basel IV. You're less exposed to credit shocks. It just feels like you're better placed than most to continue a healthy pace of buyback. Just want to understand the decision to retrench a bit in terms of the pace of deployment.
spk05: Thanks for the question, Steve. Stephen, I wouldn't use the word retrench. I would just go back to January and kind of just reaffirm what we said we'd do, which is return north of 100% of earnings to our shareholders this year. In Q1, it was a total of $1.6 billion, of which $300 million was dividends, $1.3 billion in share repurchases. So a good start. March came along and maybe some of it is, you know, me being a freshman CFO and wanting to just slow down the pace a bit to see how the macro environment plays out. There's a lot of uncertainty out there. I would reiterate, we are going to continue to buy back, but we're just going to take it easy now and watch the situation day by day, week by week. If the situation clarifies itself, if we get debt ceiling resolution, There are a lot of things that play into the next couple of months, and we'll watch and see and adjust accordingly.
spk00: So just to understand, you're making adjustments, but are you still committed to the 100% payout or north of 100% payout, at least for the time being?
spk05: That's correct, Stephen.
spk00: Okay, great. And just for my follow-up on the topic of efficiency, Really encouraging to hear that you're doubling the efficiency savings this year. I know you had highlighted that previously. We saw some really nice progress in improving the security services operating margin. You talked about staying disciplined on managing costs there. With the margin there above 25%, how quickly do you think you can get to that 30% margin? I wanted to understand what your plans are for the investment management segment in particular. The pro forma, the Alcentra sale, the margin there is fairly subdued. Just wanted to get some expectation around where you think that margin could potentially traject to over time, what your plans are in terms of efficiency, if there are any for the investment management segment as well.
spk05: Okay, so there were a few questions there, so I'll try and deal with them as best I can. So if we kind of zoom out for a second and look at the firm, yeah, a 28% margin with a 20% ROTCE, the highest in three years. Okay, so margin good, always want to improve. And then you double-click into that and you go security services 26%, going to 30%. The positive in there is Emily was the CFO for a number of years, and now I get to partner with her figuring out how to drive that margin higher. And so we have a plan. You know, you will have noted that we committed to half the expense growth year over year. We're off to a good start, and that segment will be a beneficiary of that. Then you double-click into the next segment, which is market and wealth services, which is a 48% margin, which I have no problems as CFO with that, long may it continue. And then we go into investment and wealth management, which 11% margin is a bit, to be honest, it's probably a bit disappointing. But 18 months ago, that was a 30% margin business. And we don't see any reason why we can't get back there with a lot of hard work. There were quite a number of headwinds going into that last year, lower market values, a significant strengthening of the dollar. And some of our clients wanted to do a bit of a mix shift from equities to fixed income, and that was going from higher fee to lower fee. But the important point that I would draw to you there is the clients stayed in our ecosystem. And that's the key message. Clients are in our ecosystem and just mix shifting, and we're working with our clients to deliver good outcomes for them.
spk00: That's great, Dermot. Thank you so much for accommodating the multi-parters, and welcome.
spk05: Thank you, sir.
spk14: And our next question will come from Alex Voste with Goldman Sachs.
spk12: Hey, good morning, everybody. Thanks for the question. I was hoping we could zone in on fees in investment services, particularly within asset servicing and purging. At a macro level, it feels like a lot of things have gone your way. Markets were up. Activity rates were very strong, particularly in treasuries, money market funds, retail, etc. So also the things in your wheelhouse, you had the revenues in both businesses were down sequentially. So can you just unpack a little bit what were some of the offsets that drove to disappointment on fees? And as you look at, I guess, for the rest of the year, I think on the Q4 call, you guys made comments around just the overall front-wide fee growth for 2023. Just wondering to get your latest thoughts on that. Thanks.
spk05: Hi Alex, hope you're well. As a former colleague, I think you were supposed to ask me an easy question, not a hard question. So look, asset servicing, the way I kind of think about asset servicing is, and look, you know, the headline number is 2% down, yeah? That equates to, you know, a little over $50 million, yeah? In the context of our quarter, that's a small number. So the way I kind of think big picture, again, I've said it in the answer to other questions, did we attract clients to our ecosystem?
spk03: Yes.
spk05: And then within that, it's like how do we derive fee revenue from those clients? Some of it is to do with market levels, some of it is to do with volume, and some of it is other stuff like account opening. So within that context, You know, we did see a risk-off sentiment from our clients wanting to pause, push stuff out to subsequent quarters. So the client volumes were down, and so that really kind of drove the asset servicing side of it. And if you kind of look at issuer services, you know, it's a smaller number for us, but that's a seasonal business. And, you know, depository receipts is within that, and Q1 is typically a quite quarter there, and we'll expect that to pick up in Q2. for dividend season. And on the plus side for asset servicing, we had higher market levels, and we got some fees from that. So overall, I feel good about asset servicing. We have to work hard on the fee outlook, but I would say it's not as negative as as some commentators would portray the fee outlook to be as I see the situation today. As it goes to Pershing, look, we're very excited about the Pershing business. You'll see from our commentary and our prepared remarks that we had $37 billion onto our system. Robin talked about it in his prepared remarks. We're very excited about Pershing X, the partnership with Snowflake, We're going to do a lot of great stuff in that area, and we will tell you about it as the courses unfold, but purging and purging X is very, very exciting for us.
spk12: Got you. Thanks. Maybe as a pharmacologist, an easier question on the follow-up. I guess as you sort of think about the dynamics in the banking space over the last month, month and a half, and sort of the disruption that that's created and some of the opportunities that you guys might see on the back of that, whether it's retaining some of the deposits that came over or some new areas within the fee side of the equation, where do you think you could lean into most to gain extra share?
spk11: Look, Alex, I'll start there. Look, I think the events of March have really shown the importance of asset liability management as a key discipline. And so whether you start on the asset side and think about tailoring your liabilities accordingly, or you start on the liability side and make sure that you've got the right duration of assets and the right composition of assets, that to me is lesson number one. I'm sure we'll see a bunch of outcomes from that from policymakers over time as that all gets digested. You know, we're in the preparedness business, not the predicting business, and that goes to everything across the franchise. And we, you know, we positioned ourselves well for this, and we positioned ourselves so that we would be able to deal with lots of different eventualities, and critically, to your question, that we could help clients through those various different eventualities. And so, you know, we've We're proud of the fact that we've served as a little bit of a port in the storm for some of our clients. We've had a lot of net new accounts opened in various angles on the business. And I think it's reaffirmed for us, and we've said this before, that resiliency is a commercial attribute. We spend a lot of money on resiliency. We spend money in terms of making sure that our technology systems are state-of-the-art, All of the investment that we've made over the course of the past few years are investment in cyber, but it's also investment in the resiliency of our balance sheet. And the combination of that allows us to then be able to use times like this to be able to attract clients to the platform. Dermot talked a bit more about that ecosystem, which is another example, which is we've built the businesses over time and we've lent into investments in those businesses that allow clients to be able to get what they need within our ecosystem, even when they may be a little risk on, they may be a little risk off, they may favor deposits, they may favor a money market fund. They may favor equities. They may favor fixed income. But we have all of those cylinders, if you will, to the engine to be able to help our clients. And we think that breadth and that diversification of the business, which is built up over a period of time and which we have been leaning into, is very, very important. I know we get described as a trust bank. And by the way, we're proud of the trust that that moniker implies. But remember that our most profitable, highest growth, highest margin segment of market and wealth services contains a set of businesses which you would not find in a trust bank.
spk12: Totally agree. All right. Thank you both.
spk14: And our next question will come from Brennan Hawken with UBS.
spk02: Good morning. Thanks for taking my question. Dermot, welcome to the role. Looking forward to working with you. A question on the NII reiteration, Dermot. So previously, there was an expectation that non-interest-bearing deposits would get back to the historic 20% to 25% range. Is that still the case? And can you maybe add a little color on why you think the non-interest-bearing deposits have stayed above that range that we've seen in prior histories? Is there a business mix shift change that has happened or Any other structural reason which could cause it?
spk05: Thanks for the question, Brennan. So the way I kind of think about it, again, is like I know I've said this a couple of times, it really is NIBs and BNY Mellon, it really is an ecosystem point that I will start with. You know, clients leave, and we don't lead with the deposit product. Clients come to our ecosystem first. for a range of products, and they leave their cash with us to prosecute that business. So, you know, I'll pick out three examples, like corporate trust, you know, NIB stay with us because they have to make coupon payments. Treasury services, clients leave balances with us to offset fees. Asset servicing, balances stay with us because of underlying client activity. And then our clearance and collateral management business, to mention another one, you know, we have decent NIBs there. So our businesses are bigger than a few years ago, balances are bigger, and clients are doing more with us. So NIBs are just attracted to the ecosystem. So then you kind of take a look at history and you do the bottoms-up analysis. And through the last cycle, NIBs did bottom out at the 20% range. Currently, we're at, you know, we're still at around the 26% range. It stayed sticky. And I think our reason that you could describe to that is clients left cash with us in March because they just wanted to leave and use the safety and resilience of our balance sheet and just it stays there. And so in our forward outlook in terms of why we reiterate the 20% guidance with the skew to the upside is we expect that to moderate, not meaningfully, but in line with our projection and the work that we did at the beginning of the year. So we feel good about where it is at the moment. We feel good about the forecast, and it's been stickier in the past than we projected it to be, is how I would answer it.
spk11: But we're not relying on that stickiness, and I think that is an important point that Dermot mentions. And so, you know, to the extent that we are, we will harvest the benefits as we have them, but we definitely recognize that they could go down to the prior cycle lows in percentage composition terms, and we're managing ourselves accordingly.
spk02: Yep. That's very, very clear. Thanks for all that color. Robin, you spoke to, you actually said it very eloquently, resiliency is a commercial attribute. In the past, you've spoken to the embedded position that Bank of New York has as a counterparty. How are you thinking about utilizing that position and that commercial attribute of resiliency in order to drive revenue? Do you have any additional color or commentary that you can provide on how you've been thinking about that?
spk11: Sure. So, look, we've been quite careful over the course of the events of March to help our clients and to welcome clients into the ecosystem. But we have not wanted to profit from the fact that there's been stress in the system. That's obviously an important line, and we participated, as you know. We were one of the 11 banks that participated in helping another key participant in the financial system with a large deposit. And so we are very cognizant of our role in the system and the responsibility that we have to the system given the role that we play. But at the same time, over time, we do view this resiliency to be a strong commercial asset. So if you step back from the whole of BNY Mellon, I think of ourselves as sort of offering a couple of things that are really differentiating. One is this 239-year history where we touched 20% of the world's investable assets. We are the world's largest custodian. We are the world's largest collateral manager. We have that $1.3 trillion worth of cash in the ecosystem. We have another $5.5 trillion worth of tripartite. That's $7 trillion in total in that space. Largest depository receipts firm, number one in the broker-dealer, purging wealth management infrastructure space, et cetera. We have these terrific individual components And for us, bringing them together and actually being able to demonstrate to our clients the breadth of the platform with the resiliency that we offer, we think that's a winning combination and one that over time, as I've talked about before, we don't think we've taken full advantage of. So it is telling this story of who we are our place in the world, the roles that we play, and helping our clients to realize just the breadth of activity that they can actually do with us and the fact that they can trust and rely on us.
spk02: Thanks for that, Colin.
spk14: And our next question will come from Mike Mayle with Wells Fargo Securities.
spk13: Hey, Dermot. Hey, Mike. Hey, well, as you said to me at the annual meeting, it's a new country, new firm, and new job. And so just pulling the lens out a little bit, now that I can ask you a question specifically, how do you approach the CFO job? I mean, what skill set do you bring to the position? I know Emily is still there, bigger and better. But how might you look at things a little bit differently What kind of lens do you use and what are your kind of objectives, say, over the next several years?
spk05: Okay, so it's kind of interesting you ask the question, Mike. When Robin and I talked about the opportunity and when I decided to join, I listened to the first earnings call after I'd made the decision to join And Robin, in his first as kind of CEO apparent, he talked about connecting the dots across the enterprise. And he's just answered in the question he just answered there, he talked about that too. And so in my prior life, connecting the dots across the enterprise was a thing that I majored on. I also grew up in the financial world and I intend, hope and plan to bring financial discipline across the firm. You know, we have a great finance team here at BNY Mellon. I couldn't be prouder of what they do. And, you know, so I kind of think about the role in three ways. One is working with all of you, clients, regulators, external stakeholders, really kind of delivering the message of what we're about at BNY Mellon over the next several years. So I feel that is very important. And then internally, working with the executive committee and the rest of the leadership of the firm and the finance team to develop really good financial analysis in which we can make good strategic decisions about the way we want to take the firm. And that's a lot of work, but the team has already done a good job. And look, you're beginning to see the fruits of this come out in the expense area and other parts. You know, in terms of my top three priority for this year, it really is about, you know, slowing the expense growth of the firm. We've made a commitment. One quarter in, we're delivering on it. And this is not about, I don't think about it in some ways as expense cutting. It's like it's attacking structural expense bases in the firm where we can think, we really fundamentally believe we can do the same thing in just a better way and more efficiently. And we want to invest and grow the firm. So it's kind of, I think about my expense priority as like, how do I think about run the bank? And how do I think about grow the bank? Because we really want to take those dollars that we get from efficiency and invest in things like purging eggs and other really key growth initiatives. So it's all about financial discipline. and giving the team the financial resources they need to grow the firm. All right. Thank you. And just managing the balance sheets, which is kind of a thing that we've had to do in the last couple of months quite aggressively.
spk13: You know, just one follow-up. Connecting the dots, it makes sense. And you and Robin both came from Goldman Sachs, where there's the culture of, connecting the dots. It's just the incentives to get people to connect the dots, right? You know, breaking down the barriers, breaking down the silos, and don't people just ultimately do what they get paid for? And isn't that like a big, tough task to change the incentive scheme to get people to connect the dots with each other?
spk11: So if your question is, Does it take a lot of work, and is it a big task to run a company differently than it's been run before? The answer is absolutely yes. And we have got a leadership team who are very focused on approaching the next decade differently than the last decade. And this point of connecting the dots is a very important one. Let me give you one example. Dermot was talking about in our investment management business, and he also mentioned Pershing. And so, Mike, when you look at those two businesses, just interestingly, they couldn't have been run more separately within the ecosystem of BNY Mellon. Investment management was run as essentially almost a separate company off to the side. Pershing was run essentially as a different separate company off to a different side. And we never really explored the opportunities to be able to think about the manufacturing of investment management with the fact that we have, across Pershing and wealth management, a $2.5 trillion distribution base. Now, we're an open architecture firm, and so we aren't distributing all of our manufactured product into our distribution arms. But we have opportunity to explore that, which frankly hasn't been fully explored up until now. Take the adjacency between margin, where we've seen a significant growth for our collateral management business associated with new margin rules of unclear margin. Exchanges need more efficient margin delivery. Those products are very adjacent to the rest of our collateral management business in triparty. They're also quite adjacent to our foreign exchange business. They're quite adjacent to our cash management ecosystem. So we have both diversification in the firm, but we also have a lot of natural adjacencies that people haven't explored before. So that's the way I think strategically about it. And then your question is one of the several pillars of execution, which is what are the things that we have to do to actually get after that? Some of those things are structural. Some of them are incentive-based. Some of them are people-based. Some of them are organizational-based. And so we're going to approach all of those different pillars so that we ultimately attack that strategy effectively, and we're very committed to doing it.
spk13: Thank you.
spk14: Thanks, Mike. And moving on to Gerard Cassidy with RBC.
spk07: Good morning, gentlemen. Can you share with us, Robin... Around the debt ceiling that's coming up for this country, what type of risks there are for your business if a debt ceiling isn't negotiated effectively by Congress and the president? What kind of risks do you see in just that situation developing as we go forward?
spk11: So first of all, we obviously do play an important and somewhat special role as a market infrastructure provider in the space. And we have a good vantage point on the operating of the treasury market. We don't have a crystal ball, though, obviously, in terms of how debt ceiling is going to get resolved. And we do think of the Fed and the treasury as clients of ours as well. And we want a seamless experience. as much as possible for them, and also, of course, for our broader client franchise. And so we're really doing a couple of things. Number one, we think it's our responsibility to the system to lean in to the dialogue that's going on in DC in a way that can be helpful. And so doing our bit for raising awareness, sort of educating on on various things, debt ceiling, breach is not the same thing as a government shutdown, and making sure that the folks really understand what would happen and some of those consequences. And so we're spending time there. We obviously spend time with the Fed and the Treasury on the topic, as you would imagine. And then internally, really for the benefit of our clients, we're using all of the lessons learned from the past to update our playbooks. We're putting in automation on various different things, and we are organized around being very ready to be able to execute come what may. Now, of course, we're going to take a lot of guidance from the Fed and the Treasury on that as well as we go through it. So there are a whole bunch of different things that we are doing. I will also note that in the background, our own iFlow data, which as you know, we have quite good insights into market liquidity. It shows that once again, treasury market liquidity isn't great. You know, the market's a little bit less supported from foreign buyers. We can see that from our iFlow data and we all have access to the information on sort of off the run versus on the run bid offers, et cetera. And so, you know, it's not great from a starting point, which I think is a cautionary tale to the official sector that, you know, we really do want to try to get a good outcome on this thing.
spk07: Very good, Robin. Thank you. And then, Dermot, more of a technical question. In your average balance sheet, I think in the supplement, it's page seven. Can you share with us why is the Fed funds sold yield so high? And the same thing with the Fed funds – Purchased the yields, you know one sixteen point three percent in the first quarter and then the Fed funds Sold looks like it's nineteen point seven five any particular reason why these seem to be out of line with the rest of the yields and the balance sheet Hey Jared, I think that's kind of largely a kind of a growth up netting issue But I will get Marius to follow up with you after the call and kind of give you a more detailed explanation
spk06: Okay, yeah, it just seems very odd to be so high. Okay, I appreciate it. Thank you.
spk14: And we'll take a question from Brian Bedell with Deutsche Bank.
spk15: Great, thanks. Good morning, folks. And welcome, Dermot. Looking forward to working with you. To the growth outlook for... Can you guys hear me okay?
spk11: You were breaking up for a second, Brian, but I think you've come back.
spk15: Come back. Yeah, I'm on my handset. It's much better than my headset. Okay. I just wanted to come back to the growth in purging and asset servicing, the revenue growth. I heard you loud and clear on the drivers for 1Q. As we think about the trajectory over the course of this year, I guess two questions on this. First of all, did you benefit, do you think, from a revenue perspective in those areas on the C-side? in March versus January, February, so just to get a sense of how volatility can help the revenue picture. And then secondarily, if you can talk about what you mentioned before in terms of connecting the dots, if you will, and how sort of quickly that can work its way into the revenue picture, or is that much more of a longer-term goal? And then I'll do a follow-up question separately.
spk05: Okay, so Brian, let me start with Pershing. So I would say in both businesses that you asked the question on, Q1 was predominantly a risk-off environment. But notwithstanding the risk-off environment for Pershing, we attracted $37 billion of new assets onto our system. And so... you know, we're growing organically at a nice clip, which we're very pleased about. So I would say Pershing feels good. The outlook feels good. And we're going to do the launch, official launch of Pershing X in June. And so the clients that are beta testing that feel good about what they're seeing. We've got the partnership with Snowflake. So I would say the outlook for that business overall in terms of our continued growth in assets, And as a consequence of that, notwithstanding the risk-off sentiment in Q1, we believe being the number one in the market with broker-dealers and the several million active clearing accounts that we have on the system, we feel pretty good about the future for that one. Asset servicing, I think the way I would kind of think about asset servicing, it's more steady as she goes, yeah? It's a big business. We kind of have a mixture. It's like, In the past, people have talked about it as being a fixed income house. And so I would characterize it, we're both a fixed income house and an equity house. And so two thirds of what comes in is kind of largely fixed income related, one third equities. And we continue to grow our AUC and our AUM. And so over time, that mixed shift between fixed income and equities will either play to our strengths or kind of slow us down a bit. So overall, we feel like it's a steady as she goes environment for asset servicing.
spk15: That's a great color. And then if I could just follow up with the comments you made on the global multi-asset trading capabilities. Similar question there. Is that something more near-term or a little bit of a longer-term build-out, and is that coming in asset servicing or the FX and other trading line? And then if I can sneak in on PershingX, if you're rolling that out in June, should we expect a revenue ramp contribution in the second half to that, or, again, is that more of a longer-term build-out?
spk11: So I'll start with Posing Edge. That is a longer-term build. We've talked about the fact that it wasn't going to meaningfully contribute over the course of the first couple of years since we first talked about that. And so that's really a 22, 23 thing. You should expect essentially nothing from it in that period of time. But we'll update as we go past launch. We'll give you some updated view on that. But I view that as being a 24, 25, 26 thing. story overall in terms of its ramp. And again, we're still in beta testing. We feel quite enthusiastic about the client response to the product, but I'm going to reserve judgment until we start signing contracts and we're launched live in the market on that. In terms of outsourced trading, so this is something that we've launched and we made the public launch during the quarter, hence we've made the comment, but this is a very medium long-term opportunity. You know, we talked before about the fact that as a firm, we are very interested in crawling up the value chain of the various different businesses that we do in asset servicing. You know, once upon a time it was custody and then middle office got added and now data solutions get added and integration and these various different components that create a broader solution set for investment management and asset owner clients. And now we're adding to that and saying, hey, there's not actually a ton of alpha for an asset owner or investment manager, particularly one that is managing in the tens or hundreds of billions of dollars of AUM. There's not a lot of alpha associated with execution. The alpha is in portfolio construction, asset selection, but the actual buy-sell action isn't. And in fact, it's not great scale because clients often need desks in multiple locations. If they're a multi-asset asset manager, they need lots of different specializations when it comes to the execution. And so we have all of that. We've executed a trillion dollars or so a year of exactly that type of broad-based asset management execution for our own investment management firm. And so now we've turned that into a platform that can operate not only for ourselves, but also operate for clients. So we're externalizing an existing at-scale platform, which is fully capable across products, And we're externalizing that now for clients and saying, hey, there's no real alpha for you associated with your own trade execution. Let us take it off your hands. And I view this also in a way as an extension of what we already do in foreign exchange where we do exactly that on a range of different execution bases for our clients in foreign exchange. And so this is something that we know how to do. and something that we already do, now we're externalizing it, and I view it as quite an exciting evolution, but it's a very medium, long-term thing as part of our overall journey on feed growth over time.
spk15: That's very interesting. Looking forward to hearing a lot more about that in the future. Thanks.
spk14: And our next question will come from Rob Wildhack with Autonomous Research.
spk16: Good morning, guys. You called out the strong pipeline in asset servicing while holding the line on price, and I wanted to unpack that a little more. First, how does the current backlog and velocity of new business compare to past periods? And then second, given that you're being disciplined on price, what are the common elements that you think are driving your success here? Thanks.
spk11: So, you know, this is part of our overall March to 30% margin in the security services business, Rob. And so when we look at that, Dermot's talked a little bit about the focus on the expense line. That's important. And it goes a little bit hand in hand here. If you look at our margin last year of 20%, now 26%, depending on last year or this year's stat. But if you just take this year's stat, we should be putting four times as much energy into the expense line as the revenue line in order to be able to get the same net effect at the bottom line. And so we're doing that. But on the revenue line, as well as driving new activities, this discipline point, you know, pricing pressure is a normal part of this business. But as we look back and we review certain deals that have been struck over the course of the past few years, going back in some cases, going back several years, I think we did win in some cases on price. And we look at and we now have new capabilities about reviewing the margin on a deal-by-deal level. And when we look at some of those deals, we're pretty disappointed. So that's causing us to engage with those clients. and talk to them about the other things that we would like to do for them that help us to be able to broadly improve the margin at a client level. And then in some cases, there have been deals, and I'm thinking of one example in my mind of a client who came and they had a real expectation about pricing at a certain level, and we were like, we're just not going to do the business at that level. and we negotiated, and we substantially increased the price to a level which we thought was appropriate for the actual business involved. And look, I don't know about the past how that would have happened, but if I look at the history of deals that we've actually got on the platform, my guess is that that behavior is not something that would have occurred before, and therefore it's yielded a different outcome. So this focus on the true cost to serve and then the standardization that needs to be done across the platform's that will improve and, in fact, reduce over time the cost to serve. So even the same piece of business can be more profitable, not only because we're pressuring on price, but also because we're making it cheaper to actually execute that business. And the trick will be doing both.
spk05: Yeah, look, and the point I would add in there, having the growth rate and becoming more efficient as a company, so all the work that we do on expenses and efficiency management feeds into that discussion as well. So you kind of have to join the expense narrative, again, with the price and good business narrative to get the complete picture.
spk16: Thanks a lot, guys, and Dermot, welcome to the role. Thank you, sir.
spk14: And we'll take a question from Vivac Junja with JP Morgan.
spk04: Hi, thanks for taking my questions. A couple of clarifications. Hi. A couple of clarifications. The deposit inflows in March that you were talking about, which businesses did you see that in?
spk05: So I would say, broadly speaking, we saw it across the ecosystem. The point-to-point was up 1%. We finished the quarter on a period-end basis at $281 billion. Our average for the quarter was, I think, roughly $277 billion. But there was no one business, it really was broadly spread. And I guess the important point that I would call out here is we made a strategic decision about 15 months ago to kind of centralize how we think about deposits into one platform. So we kind of think of deposits as a platform as well as a product. And we have very, very good client connectivity and engagement. So when we talk about deposits, we talk about it across the system. And that will echo Robin's point about connecting the firm, desiloing different businesses. So we think of deposits as an enterprise effort, and that's how it came together first in the quarter.
spk04: Thanks. And the flip side, during this turmoil in March, there was a lot of inflows into money market funds. But when I look at your cash AUM, you had no influence. for the quarter it shows no inflows. Any color on why you didn't benefit in that business also? Because you've historically been a big player in there.
spk05: So, yeah, like I think, and historically I would say, and continue to be a very big player in that, you know, our performance in our Dreyfus cash business has been excellent and continues to be excellent this year. The simple answer to that question is, We knew in January we were going to have some known outflows, so we were projecting to be slightly down in Q1, and with the inflows as a result of what happened in March, that got us back to flat. So overall, I think the average balances were higher, but on a period-to-period basis were flat, but we continue to feel very good about the business, and more importantly, performance. And in this business, performance matters, so we expect that you'll see better balances going forward.
spk04: And the outflows that you were talking about in January, what was driving that? Is that pricing? Is that something else? What drives that?
spk05: It was clients wanting to do something else with their cash. They told us that they were doing it. It was in our forecast at the time. We knew it was going to happen. There was no specific reason.
spk11: And I just add on to that. I think this quarter was a little idiosyncratic in a couple of different ways. And, you know, last year we outgrew the market. in the Dreyfus money market platform. And sort of two other observations, there's a little bit of composition that you have to look at under the hood on these institutional money market funds in terms of where the money's coming from. Was it really coming from sort of mega individual ultra high net worth or was it coming from actual institutional flows? And so I think you have to look a little bit at that on a money market fund by money market fund basis as well. And then as Dermot pointed out, our broader connectivity to money market funds goes beyond our own money market fund. And so we have this market-leading liquidity direct product. And so even when money goes to other money market funds, we are benefiting from that because we have this connectivity. And so we are a very large source of inflows to some of those other money market funds that you've seen growing. And again, this is the benefit of the ecosystem. It might be on our balance sheet. It might be on our money market fund. It might be in someone else's money market fund. It might be that we're selling treasury bills to clients. But all of those things are in the mix, as is the repo and Fed's reverse repo facility.
spk04: Thank you.
spk14: And we'll take a question from Rajiv Bhatia with Morningstar.
spk09: Good morning. You know, thinking about operational interest-bearing deposits versus non-operational interest-bearing deposits, how much does the rate you pay differ between those two buckets?
spk11: So, we don't disclose the exact rates on the different components, but let me just sort of broadly talk to you about the deposits, Rajiv, because I think this is quite important. So first of all, to me, the decision tree is not insured versus uninsured. That's a convenience. It's sort of a retail expression. It's a shorthand that gets used in the market. The ultimate decision tree is whether deposits are stable and sticky or whether they're not. And insured is just one lens of that. And that lens is a bit more relevant to retail than institutional. And by the way, even within insured, not all deposits are equally sticky, right? Because you've got checking, you've got high-yield savings, you're going to have different outcomes for these, whether they're true operational accounts even on the retail side. But there are other types of sticky and stable. And so for us, two-thirds of our deposits in the first quarter are operational across our portfolio of businesses and And those are, as Dermot said earlier on, those are required in order to be able to provide clients with those operational services. And it's diversified across our portfolio. You have custody, cash management, clearing, corporate trust. There are a bunch of different sort of business cylinders that give rise in that operational cash engine. And, you know, we obviously spend a lot of time and effort modeling all of these types of things and sort of – and we've seen – that that has really proven to be stable over multiple cycles. And so that's sort of why we focus so much on operational. And then for non-operational deposits, look, there's a little bit there associated with we don't expect them to leave, but we plan for them to be able to leave, obviously at a much, much higher rate than we would think about that on the operational side, because we just think that's good asset liability management.
spk09: Okay. And just one follow-up. In your prepared remarks, you mentioned that wealth management revenues were down in part due to changes in product mix. Can you expand on what that is and whether you expect that to continue?
spk05: So I think that just goes back to the point of the risk-off sentiment that we saw in Q1 and people just wanting to, A, not do activity and move from fixed income product to equity product. Normal behavior, nothing out of the ordinary that I would call out. Totally expected just us working with the clients to deliver the risk appetite that they wanted to have for that quarter. The turmoil of March is kind of, you would say for now, may have abated. and we may see a change in client behavior, but back when they took these actions in March, you know, we didn't know how long we were going to be in this situation for, so it's behavior that we expected to see, and it's kind of, I would view it as normal BAU.
spk09: All right, thank you. Thanks, Rajiv.
spk14: Thank you. And our last question will come from Betsy Graychin with Morgan Stanley. Please go ahead.
spk10: Oh, hi. Good morning.
spk14: Hey, Betsy.
spk04: Good morning.
spk10: Yeah, okay. Just a couple of things. One, on the MMF discussion that you just had with Vic, you also benefit from MMF through your custody platform as well, right? Because you custody a lot of MMF. Is that fair?
spk11: Yeah, that's right. It's another touchpoint with money market funds on the asset servicing side.
spk10: Right, okay. And that helps the deposits, I'm guessing. So... My question really has to do with your role as a global payment provider, one of the top, obviously, and I think you're involved in the FedNow pilot. I just wanted to get a sense as to how you're thinking about how FedNow is integrated within your global payments platform, get an update on the BNY Mellon digital asset platform, And is there anything that's going on within crypto that would have you lean in or out? So, you know, kind of three legs of that question. Thanks.
spk11: Okay, so let me start with real time. We are part of the FedNow test. I think actually you might have been the first bank to start testing on it. We were the first bank to do a test on the clearinghouse real time payment rails. And look, you know, overall, When I step back from real-time payments, if I use that as the generic term that would cover both FedNow and the clearinghouse, you know, it is a couple of things. It is a new payment rail, and I think that represents an interesting disruption, and we would like to participate in that disruption, which is one of the reasons why we've been leaning in. I think there's a bunch of opportunities for clients there, quicker, cheaper, more control over the payments. And so that's a good thing, saves them dollars, and ultimately is quite helpful for the industry's carbon footprint as well, because it's really a check, should be over time a check eradicator. And there's a lot of sort of carbon footprint and ESG more broadly in the handling of checks. So that would be a good thing you know, we've got the opportunity to be part of that disruption because of our existing treasury services business. And we see that also as part of a broader solution set because wrapped up in real-time payments, there's payment validation, there's fraud protection, and there are other data services. And we find ourselves selling that bundle more often than not when we sell RTP. And I think we have a position, you sort of framed it, you know, in terms of FedNow, but we have a position in terms of real-time payments and payments more broadly as a pretty unconflicted provider. As you said, we're a very large provider, but that unconflicted nature means that whether you're a fintech, whether you're a smaller or medium-sized regional bank, whether you're a foreign bank, we're not threatening as a set of rails to plug into, and that makes us pretty appealing as a partner. But look, this is a multi-year endeavor. We're pleased with the traction. We've done a bunch of stuff, and we're playing it forward. But obviously, the story is going to be inextricably linked to seeing all of this take hold in the U.S. Now, the other key question that you asked, Betsy, was on digital assets. And look, I haven't changed my point of view here at all. I view it as a completely different thing than real-time payments. And in fact, in digital assets, some people do conflate the two and view things like coins and central bank digital currencies as solutions to problems, which I would actually argue that real-time payments might be a better solution for. So there is a little bit of overlap, but I do favor real-time payments more broadly on the question of how to speed up payment rails and payment processes in the United States to make them more efficient. But then on digital assets, we think this is about the tech. We've believed in the fact that distributed ledger technology, smart contracts that you can build on top of it have good opportunity over time. That's a many years, maybe several decades evolution. It's still early, hasn't really been proven. I think we'll see opportunities to have more efficiency, easier handling of certain asset types. Think about things that aren't as standardized today, so they're messy in the financial services system, like real estate and loans today. probably speed up settlement there on tokenization as a new form of handling assets. So we like all of those concepts. But in terms of the actual cryptos, we've said all along we're going to be incredibly slow. We'll crawl before we run on digital assets broadly. And cryptos are something that we've gone slowly on.
spk10: I'm sorry, you broke up at the end. On crypto, you mentioned...
spk11: We've gone exceptionally slowly.
spk10: Just because of all of the opportunity, of all the infrastructure that you have, I would think you would be an attractive place for crypto deposits. I'm wondering if that's something that you would agree with or not.
spk11: I don't particularly agree with that. No, I understand that there are other firms who've over time made it part of their business model to really attract a ton of cash in that space. We do not view ourselves as a crypto bank. We have a variety of clients. We have some clients who touch the digital assets ecosystem, but that's not been a business strategy of ours to grow that aggressively.
spk10: Okay, and then just lastly on FedNow, it launches in the next quarter or so. Is that accurate and is there a meaningful impact? Or is this, as you mentioned, a really long runway to have an impact on your revenues?
spk11: Thanks. It's a longer runway. You have to get confirmation from the Fed about their exact launch plans because it has evolved a little bit. But it's a longer runway. And it isn't so much FedNow as real-time payments of which FedNow is one provider.
spk10: Okay, super. Thank you so much. Appreciate it.
spk11: No problem.
spk14: Thank you. And with that, that does conclude our question and answer session for today. I would now like to hand the call back over to Robin with any additional or closing remarks.
spk11: Thank you very much, Operator. And thank you, everyone, for your interest in BNY Mellon. If you have any follow-up questions, please reach out to Marius and the IR team, and we wish you well.
spk14: Well, thank you. And this does conclude today's conference and webcast. A replay of this conference call and webcast will be available on the BNY Mellon Investor Relations website at 2 p.m. Eastern Standard Time today. Have a great day.
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