Q4 2020 Bank of New York Mellon Corp Earnings Call
[music].
Please standby.
Good morning and wealth.
For the 'twenty and 'twenty fourth quarter earnings conference call hosted by the N y Mellon.
At this time all participants are in a listen only mode.
Later, well 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 of these materials without b and why mellons consent.
I will now turn the call over to you marked up what Shinskie, Scott B and why Mellon Investor Relations. Please go ahead.
Good morning, welcome and should be and why Mellon fourth quarter, 'twenty and 'twenty earnings Conference call. Today, We will reference our financial highlights presentation available on the Investor Relations page of our website and being one Mellon dot com.
Gibbons, Ian why Mellon CEO will lead the call then and most importantly, our CFO will take you through our earnings presentation.
The wing and believes prepared remarks, there will be and Q&A session. Before we begin. Please note. The our remarks include forward looking statements and non-GAAP measures information about E statements and non-GAAP measures are available in the earnings press release financial supplement and financial highlights presentation.
All of available on the Investor Relations page of our website for.
And we're looking statements made on this call speak only as of today January 20th of 'twenty 'twenty, one and will not the updated with that I will hand over to Todd.
Thank you Magda good morning, everyone let.
Let me start with a brief summary of the fourth quarter financial results, which Emily will then review in more detail and then I'll come back with some thoughts on our franchise and our outlook for 'twenty and 'twenty one.
Starting on slide two in terms of the fourth quarter, and we reported revenue of $3 8 billion and earnings per share of 79 cents or.
For 96 cents after excluding notable items, which I believe and cover and a few minutes.
Turning to the full year of 2020 financial results on slide three and I.
Barring to them on an adjusted basis earnings per share of $4.01.
What's in the prior year on revenues of 15.9 billion fees.
Revenue increased over 5%, excluding notable items and almost $370 million impact of fee waivers.
Expenses were flat for the cost discipline and productivity gains and essentially offset the incremental investment and the operating margin and solid and 30 per cent.
And we have a lower risk fee based business model that positions us well for this environment.
The net charge offs were.
And delivered strong results for the two rounds of the Federal reserve stress tests about the June and December of.
Model is highly capital generative and our common equity tier one ratio increased to $13 one per cent of 11, 5%.
Now what I shared by 2020 priorities with you a year ago of course, no unexpected that the world would change the rapidly and dramatically well.
While the pandemic, we have supported employees clients and our communities and more.
To provide the infrastructure for several critical government programs for Covid.
Including the term asset backed securities loan facility and municipal liquidity facility. The primary dealer credit facility and the payment protection program.
And while navigating the extraordinary environment, we continued to advance our long term growth and that's.
Across all of our businesses.
<unk> includes the accelerating our digital and data transformation and Beth.
And several growth opportunities and leveraging the power of the open architecture platforms and solutions, we provide to help our clients grow their businesses.
And asset servicing we have seen no let up and client on boarding. This year. This is a testament of our focus on client experience data and Digitization and of.
Of our AUC, a growth and asset servicing year over year, that's from organic growth with new and existing clients.
And we built positive momentum we closed out of the year was significantly higher win ratios and retention rates and had our best sales quarter and the last blast.
For the fourth quarter of 'twenty one.
Once on board at these wastes and start to benefit revenue and late 'twenty and 'twenty one.
We've been pursuing a strategy of moving up and across client value chains on just supporting operations to revolutionize data and digital enabled solutions across the front middle and back offices.
For example, we were recently mandated one of the largest asset managers in Europe.
Ride from Tabak services, adding custody accounting and transfer agency and.
This includes the collaboration to integrate and order management system and deliver portfolio and risk management proved sales and distribution and operational efficiencies. This is another example of our open Architected security servicing platform, which we call.
We are currently integrated with the leading all the best providers of cover 98 per cent of the addressable market and our.
The partnerships are starting to help us win business.
Part of example of illustrates.
We also have a leading data and analytics business and are now building on our 20 year track record and software and services to create robust cloud based data and analytics capabilities.
With the help of several new clients, who were early adopters and have introduced the new platform called the day, the ball, which allows clients to quickly onboard and manage both structured and unstructured data from many sources. The share. One example, we were selected by Janus Henderson and transform their global data platform, including implementing the date of ball, which will help them for.
And the quality and ease of access the investment information across the enterprise and you also have any suite of new business applications for the front office, such as our ESG investment analytics application, which was recently won a significant award as well as our distribution analytics offerings help clients of the basket growth. These applications together with the ball.
And as well the broad growth.
<unk> is one of the unique businesses that differentiates us from our custody of careers and helps us build deep relationships and as the powerful source of additional connectivity fast growing well the states.
Fourth quarter results and purging benefited from elevated transaction volumes, which are expected to moderate a bit in 'twenty and 'twenty one as well.
The continued strong underlying fundamentals net new.
New assets for the year were $82 billion.
<unk> business, which includes over 600 broker dealers and 500 registered investment advisor firms.
The very attractive and efficient pad on for our asset servicing clients to access their points of distribution and.
In fact, a day through Pershing asset managers and placed one trillion dollars of their products and continue the value of this new unique opportunity that only we talk.
Clearance and collateral management fees were up 'twenty, and 'twenty and 'twenty, excluding the disposal of an equity investment last year.
And our and we continue to innovate in the space for.
For example, as a result of intense collaboration between our markets business asset servicing clearance and collateral management and group Treasury, where and deposits of launching and innovative solution that offers clients the ability of the pledge money market fund chairs the need Tri party collateral of obligations across a wide range of transaction types and such.
And as repo and securities lending and loans.
Cured the programs collateralized deposits and also allows segregation of the initial margin progression of the Opex.
All illustrate the straight through processing models to.
Some clients can now buy money market funds of our liquidity the direct platform and Jim of sleep budge them as collateral and these types of transactions.
And Treasury services, where we delivered good performance. We have continued investing in automation and are advancing our real time payments capabilities.
We are actively working on and exciting large scale commercial payments and pilot with one of the world's largest fillers and.
This capability is expected to reach tens of millions of consumers and their retail bank throughout 2021, leveraging continued adoption of the clock RTP network. That's called that's not the real time payment system.
Within investment management flows have been largely in step with industry trends and we've offset equity outflows of the strong fixed income cash and there'll be other inputs.
Had three straight quarters now of long term inflows and of improve.
The investment performance.
Across the top 30 ranked strategies by revenue, 75% of on the top two quartile on a three year basis compared to just over 70% of year ago.
And 2020, we launched Etfs with more to come this year.
We've also been building out sustainability on such as the future of humans fun with UBS and the series of Mellon funds focused on pressing global themes for example aging populations.
Finally, we continue to build out our leadership team John Hogan was recently named as Chief investment Officer of driver breakfast cash investment strategies, bringing.
Bringing to this role of deep and broad money market and industry expertise.
We will continue to build on our leadership across the entire cash ecosystem the position of our business for long term growth.
And just a couple of weeks ago, we announced that you want the ROE would be joining us as CEO of new.
Jim you and has the proven and highly.
Relative track record of investment industry spanning three decades, and it'll be a great addition.
So we're excited to have both of the enjoyable part of his team.
Before I hand over to Emily I'd be remiss, if I did not comment on our push it would be and why mellon.
For ever greater diversity and inclusion we have one of the most diverse fortune 500 boards and our executive committee has become increasingly the bars to accelerate progress on our most underrepresented ethnic populations and help position of our firm is the competitive choice of black and latinx graduates and experienced professionals.
Said, some concrete short term patient both U S.
The important on many levels and we know the diversity highly correlated or related to long term financial performance.
And finally during the year I've made a number of appointments and my leadership team. We have of highly motivated group of talented employees and implementing our strategy, which is centered on driving growth, creating differentiated value for our clients digitizing and optimizing our operating model and fostering a high performance culture that is focused on delivering.
Excellent client service and moving and the big waves.
With that Emily we will now review of our fourth quarter results in more detail after which I will make some concluding remarks.
Thank you Todd and good morning, everyone.
I will walk you for the details of the borrower adults for the corner and briefly review the for years Wow.
All comparisons will be on a year over year, but best of luck.
I think that's the bi otherwise.
Beginning on page four of them.
The document.
On the fourth quarter of 'twenty 'twenty, four reported revenue of $3 8 billion and UBS.
And 79.
For the current and prior year quarters, and kind of a number of notable items.
Fourth quarter, 'twenty and 'twenty results inclusive of an unfavorable 18 cents per share impact from charges related to the litigation.
<unk> expenses were off of our two non core business out of them.
And the other states.
And for real estate.
The charge as a result, the plans around 8% of our overall footprint all of it.
That's it for the breakeven on an annualized basis.
A year.
Remember our results for the fourth quarter of 'twenty, Michael Bennett.
And then from a gain on the sale of an equity investment, partially offset by severance and litigation expenses and that's the trying to block.
The next coding and notable items of fourth quarter of 'twenty, and 'twenty revenue was down 2% and well.
Cash was down 5% with all the things that could definitely impacted by continued low interest rates and instead of a bit of money market fee waivers.
Net interest revenue was down 17% excluding.
Excluding notable items and the labor day for 5% driven by the impact of higher market levels.
The positive momentum across the.
Yeah.
And that's in other trading was roughly flat is the $33 million of seed capital and hedge losses, and the fourth quarter of 2020 or about 18 per cent negative impact of that line item year over year, which is all of that and investment and other income.
Expenses are down 1% on both the reported and adjusted basis.
Adjusted result, due to savings and so on and distribution and servicing expenses off.
But I can tell you and investment in technology and the unfavorable impact of I think we've got U S. Dollar.
Our provision for credit losses of 15 million with Western Reserve addition.
The real estate portfolio.
Pretax margin was 24% or 29% excluding notable items that's true.
First of all of the impact of interest rates and waivers, which have the minimal expenses associated with them both of them.
In the theme of our model.
Non.
Per cent and all of a key piece of it that's 1% an increase of approximately 150 basis points and 300 basis point impact respectively on the notable items.
We also continued to generate cash excess.
The excess capital and others.
And Sir one capital increased by about 700 million this quarter.
And that's fine that's out of <unk>.
Trend analysis of the main drivers of the quarterly results and is adjusted for notable items where indicated.
And that's been the services revenue of $2 9 billion down 4%.
The decline was primarily a result of lower net interest revenue and fee waivers.
And as headwinds.
And the higher market level volume and quite of the balances as well as strong underlying momentum across many of our businesses, which I'll get into later.
And that's been of wealth management revenue increased 2% and higher market values and the impact of the weaker U S. Dollar along with improved investment performance offset the impact of the waivers.
The impact of money market fee waivers on our consolidated fee revenue net of distribution and servicing expense was 134 million and the corner at the lower end of the 135 to 150 million, we previously guided to and in it.
The 33 million quarter on quarter.
Whereas in prior quarters and most of it and have the felt largely true Pershing for clearing service line of her.
The lesser extent investment management.
And what are we began to see them on the meaningful impact without the sort of thing and ensure sir.
We have provided you with the detail of the impact by business and the appendix of the highlights.
Turning to page six and seven and putting out full year result, and Triton.
Our full year, 'twenty and 'twenty results demonstrated the resiliency and balance sheet strength during this unprecedented time.
Excluding notable items.
And 3% despite a rapid 250 basis point negative impact of the waivers.
For your expenses were essentially flat on an operating basis in line with the guidance we provided throughout the year.
Operating EPS of flat, despite the impact of low interest rates and as well for a higher credit provision.
And we delivered a solid pretax margin and the strong arch is the three challenging year.
Turning to page eight on.
The capital and liquidity ratios remained strong and well above internal targets and the regulatory minimum.
Common equity tier one capital totaled $21 9 billion as of December 31st and our CET one ratio of $13 one per cent under the advanced approach and $13 four per cent under the standardized approach.
Tier one leverage was six 3% down 20 basis points from the third quarter due to higher deposits.
As we've noted and the path we are comfortable operating with the ratio of around five and a half the 6% versus the 4% regulatory minimum on.
The current chairman and leverage ratio is well above our target.
Finally, our LCR and the fourth corner of the Hudson and 10%.
In terms of shareholder capital return, we continued the pair of 31 quarterly dividend, which totaled 278 million the past quarter and.
And I was looking for resuming open market share repurchases and the first quarter.
And for being compliant with the federal reserve modified limitations that apply to all the core bank and allows the throughput of approximately 625 million of common stock and the first quarter.
And we look forward to operating under the stress capital buffer framework, which will give us more flexibility in terms of capital return.
Turning to page nine.
And my comments on net interest revenue will highlight the sequential changes.
Share for net interest revenue was down 3%, primarily driven by the impact of lower short term rates and.
And although our deposits increased significantly and the fourth quarter and had minimal and I are value.
Turning to page 10, which summarizes deposits and securities.
Deposit balance of continued to grow over the course of the quarter and on average were up 28 billion or 10% from the third quarter, and 75 billion or 32 per cent from a year ago on.
On a sequential basis, a larger driver of the growth with excess liquidity and the system driven by monetary and fiscal stimulus.
On a year over year based the strategic deposit initiatives, the cross Treasury services asset servicing and wealth management business tied to the underlying transaction activity with support for our client relationships and the generation of objective.
And net against driver of growth.
The average rate paid on interest bearing deposits was negative six basis points minimally changed from the third quarter.
As a reminder, about one quarter of our deposits on foreign currencies, including the euro and yen, which have negative rates and the U S. Our average interest bearing interest bearing deposit cost was about one.
Turning to the securities portfolio on average the portfolio was flat to the third quarter and approximately 35 billion over the prior year or 27% and we did quite a significant portion of the growing deposit base throughout the year.
And the Bar chart shows for the right. We continue and we continue to gradually increase our non it surely securities to increase the yield while maintaining a conservative risk profile.
As a result.
The non equalized.
And the charities, including trading assets with 36 billion and the fourth quarter of 24 billion from a year ago.
Turning to page 11, we'll provide you with some color on our asset next and specifically the loan portfolio.
Exposures on statistics that year, and we're largely similar to the third quarter as a reminder.
All of it was predominantly investment grade and for the year, we experienced net recovery for.
The recorded a 15 million provision this quarter as the internally downgrade of a modest number of NAND, primarily and our commercial real estate portfolio.
And our assumptions around the knock on outlook as well as the relative weightings of the scenarios for largely unchanged from the last quarter.
And we continue to closely monitor the portfolio, particularly the commercial real estate exposure and other sectors more acutely impacted by the current environment.
Page 12 provides an overview on expenses, which we covered earlier.
Turning to page 13.
As mentioned earlier total investment services revenue year on year decline by 1%, mostly because of the impact of low interest rates.
And I R was down 14%.
And for flat or up 5%, excluding 113 million of the waivers.
FX and other trading revenue.
<unk> quarter, and FX revenue grew by over 30% and investment services, driven by higher volume and volatility.
Assets under custody and administration increased 11% year over year for Q1, <unk>, one trillion and we continue to see organic growth with new and existing clients as well of the benefit from it.
And from higher market values and the impact of of weaker U S. Dollar.
And then you have two of the business line discussion I'll focus my comments on fees.
We've announced the servicing fees for up modestly of higher market levels, and FX and higher liquidity services fees, partially offset the impact of the labor lumpy repricing associated with the few client renewals and lower SEC lending.
And Pershing continued strong underlying fundamentals of that the impact of fee waivers and clearing accounts were up 5% mutual fund assets of 10 per cent and without continued strong net new asset inflows of 28 billion in the quarter.
And that shock activity also remains high as it did for most of the 'twenty and 'twenty and we would expect that to normalize a bit as we head into 'twenty and 'twenty one.
Issue of servicing fees decreased 3%, primarily due for the impact of wafers X waivers and mid single digit growth in New York is about that by a small decline and corporate travel.
Treasury services fees were up on.
Payment volume growth, particularly in the second half of the quarter.
And the increased fees also reflecting improved product mix and client when and how.
The money market fund and deposit balances on the back of targeted and the Shinhan.
Yeah.
Clearance and collateral management fees were down slightly.
And what organic growth and our non U S business for Tri Party balances are clearing fees. Both grew double digits was offset by declines and U S volume lower inter day financing fees and the absence of income associated with debt and equity investment and that's been divested last year.
Page 14 summarizes the key drivers that affect that affected the year over year revenue from Harrison for each of our investment services and that's it.
Turning to investment and wealth management on page 15.
As noted earlier total on and that's been and wealth management revenue and the quarter increased 2%.
Overall assets under management of bridge for a record 2.2 trillion and we're up.
The 10% year over year, primarily due to higher market values of 73 billion of inflows and the positive impact of the U S dollar weakening.
And the fourth quarter, we had net inflows of 20 billion, including long term strategies inflows of $15 billion driven by the second straight quarter of inflows the LTI as well of fixed income.
Wealth management had its strongest quarter of true years, resulting in positive organic growth and the corner.
And that doesn't and management revenue grew 3% as the benefit of higher market levels and a weaker dollar were offset by the impact of fee waivers.
The waivers and impacted growth by about 300 at the point.
Wealth management fees were down 1% due to the sale of our Canadian wealth management business.
And assets grew to a record 286 billion and were up 8% year over year.
Now turning to our other segments on page 16.
The year over year revenue comparison was primarily impacted by the gain of an equity investment from the fourth quarter of 19, and the business fell off and the current period.
Spence of increased reflecting severance and real estate and impairment charges noted earlier.
And now a few comments about the outlook before I turn the before I turn it back over to Todd.
First the more recent usual caveat that the macroeconomic and the economic environment remains fluid.
So as we think about for your 2021.
For ni on our guidance remains unchanged and that of run rate slightly lower than the fourth quarter call. It about 3% remains a good proxy for the quarterly run rate expected this year.
Although recent yield for her deepening and provide the modest tailwind short term rates have continued to decline.
So we expect the MBS prepayments fees to remain at current levels. Despite the steepening yield curve as mortgage rates of only rhythm and slightly.
Finally, we are currently planning for average deposits for the year to be slightly lower than our fourth quarter of average as we help our clients redeployment and redeploy the liquidity and share more efficient investments on our platform.
For transaction related fees, we expect volume to normalize a bit for the healthy levels of EBITDA and the fourth quarter.
On the money market fee waivers and we still expect to be on a full run rate and the first quarter.
We now expect the impact of first quarter of waivers net of distribution expense benefit to the approximately $175 million, assuming short term rates stay at current level.
So as we think about full year of fees for the entire company, we expect them to be relatively flat as the.
Impact of equity appreciation organic growth and the weaker dollar will be offset by fee waivers and lower volume.
Excluding waiver fees would be up 3%.
By the way, we assuming equity markets of rise approximately 5% from the beginning of 2021.
Regarding expenses, we continue to affect the flat for the full year on and operating and constant currency basis, but do the recent weakening of the dollar the pool, but in absolute terms for your expenses are now projected to increase by approximately 150 million of one five per cent.
The currency impact is offset by a light increase and fee revenues as previously discussed.
Finally in terms of our of our effective tax rate, we expect it to be approximately 19% for 'twenty and 'twenty one.
The second to the first quarter the items I just mentioned, we'll have the proportionate impact, but as a reminder.
First quarter staff expenses are typically higher relating to long term incentive compensation expense for retirement eligible employees and also in the first quarter 'twenty and 'twenty, we need and accrual adjustment that has that reduced the expenses that will not be repeated this year.
As a result, we expect first quarter total expenses to be up 3% to 4% year over year, including the impact of currency.
With that let me turn it back over to Todd.
Thank you Emily before opening it up for question and let me share of some final observations of speaking the slide 17 and <unk>.
Our franchise is powered by Orion wide breadth of services and capabilities.
This differentiates us and certainly makes us unique amongst our closest peers.
We are of top III provider across asset servicing issuer service clearance and collateral management as well as purging and we rank among the leading players and more pragmatic and fragmented businesses, such as wealth management investment management and Treasury services.
And this gives us a strong platform and scale both of which are crucial for success.
We are responding to the evolving needs of our clients and.
And actively conducting different parts of the company to drive growth.
The significant pandemic related challenges remain we are entering 2021 with confidence and momentum and our core franchise.
At the same time overall revenues year over year will be impacted by the full effect of low interest rates money market fee waivers and the absence of the COVID-19 related transaction and active.
For the full year, we expect to deliver modest organic growth similar to 2020, which we expect to accelerate beyond 2021, as our growth initiatives gain traction.
As we look out of 2021 of three overarching priorities of Thompson.
One execute our growth initiatives.
The scaling and digitizing, our operating model and free fostering a high performance culture and is focused on delivering excellent client service and new and innovative ways.
While focusing on these priorities, we will continue to vigilantly manage operating expenses, which we expect to be flat for 2021 on the constant currency basis.
Between 2000, and Atg 2021, we funded approximately $1 1 billion of new investment by generating a turnover of efficiencies with no increase and expense, we will continue to invest and technology all of the profiles and we're focused on initiatives to grow and make the business more efficient.
Turning to capital returns. We are pleased that we can resume share repurchases and the first quarter. We remain committed to returning at least 100% of earnings for shareholders over time.
And the excess capital we have built since the second quarter of 2020, and we have the capacity and drive meaningful EPS growth and buybacks.
Conclusion, we have navigated and extremely challenging your well our capital generative and low risk models and over what it is.
And as opposed to do and in terms of stability and capital generation and proud of the leadership team and the dedication and hard work of our employees for an unprecedented and challenging loans.
Operator, please open the line for questions.
Thank you and if you would like to ask a question.
Please press star one on your telephone keypad.
As a reminder, we ask that you. Please limit yourself to one question and one related follow up question and we'll take our first question from Brennan Hawken of from UBS. Please go ahead.
Hi, good morning, Thanks for thanks for taking my questions.
And maybe there was a.
A lot of of a walk through there on the revenue guide. So I just wanted to make sure I heard that correctly and.
Understand where I should index and you guys provided a lot of disclosure and on.
On slide 22.
Is the right starting point that we use the fee revenue ex fee waivers and notable items for 2020, which is the $13 one.
And then.
Later in the different various impacts that you laid out and then take the new run rate for fee waiver is expected in <unk> and <unk>.
And then kind of annualize that.
That the right way to think about it and how does the strengthening of the dollar.
Play into that sorry.
Sure So I just and I.
I guess just to I won't break down each and every piece, but ultimately if you look at our full year 'twenty and 'twenty.
If you actually and.
If you actually take into account, we tried to spell out of asbestos possible the impact of of waivers and.
Likewise, we are expecting and an increase in on market appreciation.
And as well as we're gonna have some favorability in terms of the weakening dollar if you put all of that together year on year revenues will be essentially flat and up 3% ex fee waivers.
Got it okay.
And that's fee revenue credit.
Alright, thats the around the area and that is assuming weighted.
And I was where the dollar has got a day, but we just we just.
As the spot dollar.
The year end.
Fair enough so that the $12 seven and seven is the.
So the number we should focus on to be flat basically ex all of those puts and takes.
Yes.
Alright, great.
Excellent and then.
Fences flat, which is in line with what you gave and December on a constant currency, but we've seen the weakening dollar and so when we think about the expense line for the dollar remains unchanged from where we are now and of course, we can calibrate that through the year, depending on the different factors, we'll see.
Of roughly one 5% uplift on the operating expense line.
For.
From the 2020 level is that correct.
Correct. Okay. Okay. Okay excellent. Thanks, I just wanted to try to clarify some of that and when we think about the deposits dropping from the <unk> average level.
Are we is it is it fair to assume that we will probably shake out at a level that's above the third quarter or are you guys thinking that we might actually even revert to down to that level of below as there is there any help you can provide and trying to think about how to how to gauge the magnitude of that normalization of the depart.
Assets.
Sure So yeah Ulta.
Ultimately, we're projected to buy the deposits to be relatively flat from here or potentially the decline of bets now in fairness, we could see excess liquidity in the system, but of course, you know we are monitoring our capital ratios and we have to optimize the returns to shareholders. So we will be actively very proactively managing the size of the balance.
She is so that's the leaf and that's the that's ultimately the deal roughly flat from here of site were slightly lower.
Okay, great great. Thanks, very much for clarifying.
And we'll go ahead and take our next question from Ken Houston from Jefferies. Please go ahead.
Hi, Thanks, good morning.
And we used to follow up on the or for your organic growth.
Outlook I'm, just wondering if you could help us put in context of like just what that measures.
And so your stock measure of just revenue growth. So I guess, taking the core building blocks of the segments and just kind of sex and measuring the unit growth and how do you put that one and a half into context with the with the overall fee guide right.
Ken.
And I don't know if you can maybe just walk us through that and thanks.
Sure. So when we think of that organic growth, we define it as pretty much a no growth excluding market appreciation or depreciation excluding currency impact and excluding excluding labors.
So I mean, that's that's generally how we how we think about it.
I think Todd had mentioned that we are in and over the course of 2020. It was around between one and 2% we're expecting it to remain pretty much stable at that at those levels and that's embedded in the share the forecast that I adjusted to get it.
Right, Okay and that's.
That's helpful. And then just a specific question on asset servicing fees that on the income statement side seeing that there was.
Little bit of it.
And there was an increase in fee waivers and that $11 38 number, but even if you exclude that.
And the servicing was down the press release mentioned something about some pricing some repricing and I'm. Just wondering if you could walk through just the what happened the pushes and pulls there of why the core was down sequentially, whether it be organic grocery pricing.
Activity et cetera. Thank you.
Sure. So we had and asset servicing and the fourth quarter, we had and a higher you know we were helped by higher market levels, higher FX and and and other other trading and higher liquidity balances, but that was offset by the waivers SEC lending was down a bit and yes. You are correct. There was a bit of some of them.
Lumpy repricing in the quarter.
Not ultimately we don't control actually the timing, obviously of repricing and we happened to have had two or three large relationships reprice on the back of renewables. So we all we ultimately retained the business, but that was a modest headwind as well.
Okay, and then I guess, just sort of a quick follow up for that is that.
Have we Rebased does it kind of build off of here are the how do you think about those repricing versus renewals as you think forward. Thanks sure sure so and as you all know repricing of its very lumpy.
And you will see the full impact of those repricing throughout the year, but it's not like we've seen anything structural or and underlying and underlying change and the trend of replacing its always been a modest headwind that we've offset with greater efficiency and and net new business.
Thank you.
And we'll take our next question from Betsy <unk> from Morgan Stanley. Please go ahead.
Hi can you hear me.
Yes, good morning.
Oh, hi, Okay. So first question just on the deposit commentary wanted to get a better understanding as to why.
Why do you think deposits aren't going to be continuing to increase as much as they have been I mean, I think the fed still increasing the size of the balance sheet I expected you would get some benefit from that.
Yes, I think the I'll start and then I'm sure Emily.
<unk> will join US join in on this I would expect that the fed is going to continue to.
And to buy our securities we should kind of adds to the deposit base and there's still some question exactly how the very large balance sheets, so that the U S treasury at the fed.
Whether they're going to wind those down so the two of them could increase the overall reserves on deposits and the system that day.
And you said, we can we can manage some of that now that we're back and we did that a number of years ago. So we targeted some of the less valuable balances and once we're able to use our capital that's not how we're going to ease of use.
It won't be particularly efficient so we've demonstrated that we can do that and.
And of course, any valuable deposits will take on.
And just short term and with very little benefit to them will discourage that.
Okay, that's for your pricing or what have you.
I guess the the other question and Todd as you mentioned kind of you know one of the strategies here that you're going to be executing on the Sierra as two of <unk>.
Chris the efficiency and the delivery of the products and services and and I wanted to understand.
And how youre thinking about that with regard to.
And if some of the OCC rules that have been out there recently regarding stable coin I'm. Just wondering is how much does.
The blockchain initiatives that you've got underway a drive that efficiency improvement or is that more of a hobby and does it matter that the OCC has approved bank for for stable coin does that factor into your strategy. Thanks.
Yes, I think it's I think it clarifies things and there is a fair amount of activity and by the way we have appointed somebody and.
Front of.
Of what I'll call the token inflation effort and it really theyre really across three fronts and we are seeing some acceleration around took and highest assets took on Fiat currencies and all.
Also of crypto currency, so we're seeing a lot more interest and.
Crypto currency and customizing and other services associated with it we've done a little bit there.
And we haven't done the custodian for.
A futures contract and its kind of on getting it started and <unk>.
Terms of in terms of token of ice.
The currency, although we've got a member of the utility settlement cash Nelson and alloy from ethane industrial any participants from the rigs.
And we do see the economy Meeting's web applications and we're also involved and token of rising assets and we're looking at what we might do.
Cocainize and to Tri party repo to make it to make it more and more efficient. So I think it's going to the important element here of where it.
Vesting not hugely on it right now and it's not it's not a.
And don't see a lot of eminent revenues and it's something the way we will definitely be on the forefront on.
And so you still there.
Oh, Thank you, yes, I appreciate that.
And we'll move to our next question from Brian Bedell from Deutsche Bank. Please go ahead.
Alright, great. Thanks, good morning folks and thank you.
Just a quick one on the net interest revenue outlook for the and I think.
You were pouring effort of a 3% drop and once you versus the <unk> would be.
On the guidance would be stable for two Q3 Q4, Q just wondering what the the.
The headwinds are if we are moving.
And yes, we do have a steeper yield curve I guess.
And if the forward curve your assumption with that and.
And then what would be the headwinds that would keep that stable. If we were to see the steeping yield curve and lower little of prepaid speeds as we go throughout the year.
Sure Hi, Brian.
And so <unk> got that spot on our guidance as you know take the fourth quarter run rate discount that call. It about 3% and that's a good proxy not only for the first quarter, but when you think true the average run rate for the rest of the yeah for the year of at least based on what we know now we don't try to get cute. We just you know we just use the forward curve.
And despite a steepening of the curve, we're still very sensitive to short end rates, which have actually come down and also when you think about where we play the duration of of our investment.
That part of the curve is actually not up as much as the longer and.
And and I guess, the the last thing I would I would just point out about the prepayment speeds, which you've mentioned is that despite.
Despite the steepening of the curve, we really haven't seen mortgage rates increased that much. The we're not expecting the notes at the moment anyway to to really decline much. So that's really all of us of course, the subject to change based on based on the rate environment, but that's that's how how we're protecting.
And congrats at the clearance.
Hey, Brian I would just add just to make sure. It's perfectly clear on when you think about the steepness of the yield curve, we've seen that but we've also seen short term rates come on and a little bit and that's that's meaningful and so if we do and we do continue to see it and we can and we continue to and then.
And it starts to slow down of the prepayments fees.
Or maybe the mortgage spreads have widened a little bit of everything.
And would expect prepayments fees for that but all we did was we used the current markets.
The expected future rates really the forward curve, so thats whats the sort of hitting that estimate.
But given the debt that definitely makes sense, and then and maybe Todd just.
Going back to some of the initiatives you mentioned.
And the early part of the coal and trying to triangulate that with the organic growth rates of the the one.
And in the half percent of organic growth rate.
That implies and rough numbers around $250 million of organic revenue expectations for for 'twenty one.
And then you mentioned.
I wrote down five different initiatives for the front to back.
Mandate, the datable ESG investment analytics.
The collateral management.
The money market funds of the Ekati repo solution and the commercial payments and a real time payments the system as well.
Are those new.
More of just to get a flavor or just contributing more to you.
I guess.
If we could sort of frame what portion of the organic revenue growth from 'twenty, one the attributable to the whereas the is it really more for the will be met and 22 and you can see the Po.
Essentially the organic growth rate, improving and 'twenty two as a result of these initiatives.
Yes.
A little bit of both so part of the very strong sales quarter and the fourth quarter, but most of those won't be implemented until the end of the towards the end of the year of Sig.
Yes de Minimis impact on the revenues for this year, but they don't go into into the next year.
Some of those are because of the of.
And what we've done around the data and analytics for the date of vault.
Janus Henderson.
Early adopters of.
And that will take some time to.
And to implement and then we think we're gaining some additional traction when we look at some of the.
On the applications.
We've had many many many demonstrations and many.
Users on the trial basis for example, our ESG so that's starting to build some momentum.
Of the funnel management.
Program that we're investing and we don't expect.
We'd expect to start seeing some of the benefits of that towards the towards the end of the year. So there's a little benefit and the New York.
On the growth rate this year.
And.
And we would expect that to accelerate a bit next year.
Okay, Okay fair enough. Thank you.
And as a reminder, if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
And it is star one on your telephone keypad, if you would like to ask a question and well.
We'll take our next question from Mike Mayo from Wells Fargo. Please go ahead.
Hi, Hi, Good morning, My follow up question on one positive positive positive trend of one maybe negative trends, but on the the negative trend and you said you had the elevated transaction volumes of encouraging the basic moderate and they moderated already and.
And what kind of.
Or do you have two of the how the market situation. If those transaction volumes are moderating and on the positive side instead of asset servicing and had the best sales and 10 quarters and the fourth quarter net.
And help them and about a year.
How are you able to close these deals.
Jim Denike environment, and closing new deals of resume and all of these existing relationships because I keep hearing like getting new relationships at the top so just wanted some color behind both of those trends.
Yes.
One of the big.
The transactions that are that.
And we're closing with entirely new virtual bank.
For a large.
And a lot of these have been entirely.
Nearly virtual and we.
Built a very good relationship with that particular organizations large and European.
The asset manager and in fact right before the pandemic.
Right right at the time.
And I was kind of the travel to see them and unfortunately was unable to do it so theyre, having the from soup to nuts.
And yes, things slowed down and for a while but it's getting it's getting a little more normalized on the institutional front I'd say on the.
On the wealth front within the visuals at a little bit more challenging.
But on the institutional and it's certainly not ideal but.
But we've had the excuses of.
Of where we've been able to up that to handle that in terms of your question around Pershing and the world.
A couple of weeks into the into the new.
The year on volumes.
Generally of state of stayed pretty strong and relative to the.
And for the fourth quarter, I, just think thats a little bit.
Too early to call our estimate is that they would normalize and maybe they won't be there.
The up here.
That's our best guess at this point you have the third question and there and I don't recall, what it was but I'll try and take it.
Well, just sort of read through to capital return.
Read through the capital markets when you think.
Things settled down, but it sounds like they haven't settled down yet based on what you're seeing with Pershing.
Yes, I think thats right I think youre seeing more retail activity than you've historically seen.
Great Alright, thank you.
Thanks, Michael.
We'll take our next question from Alex <unk> from Goldman Sachs. Please go ahead.
Great Hey, good morning type of money on much.
Just a follow up around the organic growth target and you guys put out there of one 5% can you talk a little bit about what you're assuming for pricing dynamics within that the cros sort of your various businesses. Obviously it sounds like Q4, maybe was a little bit of an anomaly of several large accounts just kind of happened to reprice of the same time, but maybe give us a sense of kind of what's like the unit growth.
Pricing looks like is it 1%, 2% and kind of what that is and how and how do you incorporate that into your guidance. Thanks.
Yes.
And then the Washington, you want to take.
Yes.
Sure I'll start and please pretty bad so I mean.
Rising pressure is is just the norm and and and our businesses. So it's always a headwind, but it was very modest headwind.
And we are you know.
We routinely and you know always actually offset that more than offset that with greater efficiency and and and net new business. So we.
We don't you know look there has been some lumpy repricing, but we don't see any underlying structural change or trend. So you know from that perspective, it's not it's not hugely material.
And part of our.
Of our pricing schedules to our graduate and so as the value of the assets increase the.
The pricing does and does reflect that volume so.
This is this is specific to repricing.
On the existing clients as they benefit from some of the operating efficiencies and the growth of their own business.
Typically it's fairly it's been fairly stable.
For a number of years the downdraft on that.
And it was just a little lumpy. This year, we don't see it going back to normal, but that lumpiness will have a little bit of and impact on 2021.
Got it understood.
And then just a clarification around NAR sounds like you guys are assuming MBS prepayments will remain at current levels for 'twenty one.
Can you just remind us what premium amortization was and the fourth quarter and any sort of sensitivity you guys can provide around that with respect to prepayment speeds.
Yeah.
Sure.
Yes.
I'm afraid I've got a net quote, but I think that I think.
The follow up with each of them with IR sorry.
Okay. It sounds great. Thanks.
Thanks, Alex.
Yeah.
We'll take our next question from Rajeev <unk> from.
From Morningstar. Please go ahead.
Hey, Good morning, just a quick question on the Pershing.
Well the in person how did your revenue growth from here on the independent broker dealer clearing channel versus the alright, how city and how big of a headwind and you can follow the 18 within the independent broker dealer and say like self clearing firms like LPL.
Yes.
And so and so where we're growing faster and the.
The registered advisory firms.
And then the.
On the broker dealer side of the business for the broker dealer side of the business is still meaningful and it's a large component of it and.
And so as we look into next year some of the consolidations or the seltzer and decisions have offset the very strong growth and we've seen so so.
That's going to be a little bit of of a drag for Pershing for for this year is basically offsetting for the pipeline continues to be very strong, especially on the advisory space.
Yeah.
Got it thanks.
Todd just going back of Alex it's still on the on the call just the just I didn't have it at my fingertips the MBS.
MBS prepayments fees and as prepayments for about the headwind of 173.
And and the quota and yes, you are correct. We just are expecting despite the steepening yield curve at the moment for that sort of remains stable.
Rajeev and do you have a follow up question.
No. Thank you.
Okay. Thank you.
We'll take our next question from Brian Mcgill from Deutsche Bank. Please go ahead.
Oh, great. Thanks for taking the follow up I, just want to circle back on the front to back mandate.
And it sounds like the largest of the <unk>.
Once that use it.
And servicing but just wanted to get a flavor of the.
How many others that youre gearing given that youre already integrated with virtually all of the on this providers or the debt.
The.
Sizable.
Type of mandate for you is if we consider other other on.
And there are other contract wins and.
And maybe if you and just yes, just the outlook on instruments.
Okay sure so I mean.
We've integrated now with six of them as platforms of partnerships with Bloomberg Aladdin and so for us.
And through that we're offering custody and sites.
Information around liquidity, and it's kind of a unique capability of that we're able to do transactions holdings and so for us and.
I think what it does is it very much of which is the experience of.
Of the joint business with Us. So I think it's helped us to retaining relationships I think it has helped us to grow a couple of relationships that I've. Just just indicated so we are starting to get some get some traction with it moving on to the.
And the data business, which we've been in for some time, but now we have cloud enabled and made a much richer.
Capability.
We've had we've had a number of large base of the clients that have been operating on it and that we're now starting to convert.
Convert some of them.
So I think.
It's not just what the what they can do with us but for the first time now we're starting to see some meaningful wins that I would attribute maybe not entirely to it but certainly that was a that was out and that's helpful driver.
Okay.
Helpful and and just real quick on Pershing and consolidation and that's in the area of states the.
And can you actually benefit from that or is that mostly a did you see listed as providers going to the self clearing option.
Yes, as we look back historically.
More often we are.
Winners to it.
But there are kind of just bad luck and so.
No.
Neither of the acquirer ahead of us.
The self clearing or at some other.
The other approach and.
For some other provider so typically.
And found that way of one more recently, we had a couple of the losses.
Okay. Thank you. Thank you for your thoughts.
Thanks, Brian.
Well take our next question from Brian Coyne Huntsville from the Cave BW. Please go ahead.
Great. Thanks, and I Wonder if you could just kind of walk through again the.
Tier one leverage comment that you made.
For the quarter, where it was at for through whether you gave that your target was five five to six for things that you thought you were well above where you needed to be it seems like you're just above kind of where your targets are the how does the <unk>.
That you're.
Aspiration for capital return.
Sure and.
So tier one leverage of six 3% I think we've been a.
Pretty pretty clear that we are comfortable running more of the rate between five and a half a two 6%. So that does imply that we have a significant excess excess capital.
And you know you can assume that we're going to look to return that to shareholders over the course of the New York, we're permitted to do so.
Okay Brian.
I would.
And to that Brian is that we have excess deposits right now.
And so it was just we're just we're not able to do anything with our capital.
We're not really pushing them away or managing of the most carefully as we could once we get back into a normal capital management cycle deposits that aren't worth anything we're not going to keep them here.
And so and then when you.
Talk about the deposits how does that play into the money market fee waivers are you anticipating pushing those off into the money market funds, which is done and the driver of the people who were sort of that work of happened that could be an incremental negative to the fee waiver guidance.
Sure I can take that and so I mean, the the fee waiver guidance and the the increase and that is really tied to what we're seeing and the short and and and a T. The rates of repo rates have actually come down since we originally projected and that's really what the the the 100 and and 75 now that I that I mentioned you are correct with a lot of excess reserves. If if you know of.
And if that all ends up and money markets that could ultimately put more pressure. So that is a potential of potential risk. The one thing also just while we're on waivers that I. Just would highlight is that Pershing did hit its full run rate and terms of waivers on the fourth quarter. So you will start to see those waivers.
The increase in and other lines of business the asset servicing our issuer services I am Treasury services for example.
But Brian.
If the money market mutual funds increase of balance has increased.
And the way more fees, but net net we'd have more fees and so it's just that we wouldn't miss of 100 per cent of the component that we get so they basically have been relatively stable. So when we do these comparisons of <unk>.
Items of the relatively flat so that hasn't created any noise. So if money is moving into money market funds, there probably will be much less fees and that typically would of that but there are probably still some piece of fees.
Got it thank you.
Thanks, Brian.
And with that and that does cause.
And because that was our last question operator.
And that does conclude our question and answer session I would now like to turn the call back over to Todd for any additional or closing remarks.
No. Thanks. Thanks, Thanks for your interest and obviously if you can you can call IR of two follow up on the any clarifications.
Have a good day.
Thank you. This concludes today's conference call and webcast a replay of this conference call and webcast will be available on the beer and wine Mellon Investor Relations website at two o'clock P. M. Eastern time today have a great day.
Yeah, we're down for you.
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