Q2 2021 Bank of New York Mellon Corp Earnings Call
Good morning, and welcome to the 'twenty 'twenty, 1 second quarter earnings conference call hosted by being why 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 of these materials without being why mellons consent I will now turn the call over to Marius Mers being why Mellon Investor Relations. Please go ahead.
Thank you operator, good morning, everyone.
Welcome to be on why Mellon second quarter of 2021 on this conference call.
Today, we will restaurants of our financial highlights presentation available on the Investor Relations page of our website that being why Mellon Dot com.
Todd Gibbons environmental of CEO will lead the call.
Emily Portney our CFO.
We're taking some of your earnings presentation.
Following prepared remarks, there will be a Q&A session.
Before we begin please note that all of our remarks include forward looking statements and non-GAAP measures.
Information about these statements of non-GAAP measures are available on the earnings press release financial supplement and so.
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.
<unk> 2021 and will not be updated.
With that I will hand, it over to Todd.
Thank you Mary.
Everyone.
I'm going to touch on a few of the highlights before I hand, it over to Emily and she will review, our second quarter financial results and the outlook for the second half of the year in more detail.
So if we refer to slide 2 of the financial highlights presentation, we reported EPS of $1.13, that's on $4 billion of revenue and we generated a return on tangible common equity of 19%.
<unk> revenue was up 4% year over year, and it was up 10%, excluding the impact of money market fee waivers.
Average deposits were down 1% quarter over quarter.
This together with strong capital generation drove an approximately 20 basis point increase in our tier 1 leverage ratio.
And we're pleased with the results of this year's of supervisory stress tests, which once again demonstrated the resilience of our business model and the strength of our balance sheet, even under severe stress and we also welcomed the fed's decision to lift of recent restrictions on common stock dividends and share repurchases at the end of June now.
Now taking a step back for a look at the broader operating environment, we continue to be impacted by the significant amount of excess cash of the system. We welcomed the fed's decision to raise the I O var and the overnight reverse repo rates by 5 basis points last month that.
Of that provided a bit of support to short term rates, although they continue to be exceptionally low by historical standards.
Money market funds take up take.
Take up of the fed of the fed reverse repo facility increased from approximately $500 billion prior to the fed's actions to north of $750 billion and they actually spiked to almost 1 trillion at quarter end.
This means that somewhere between 15, and 20% of total U S money market fund assets are being part of deferred earning 5 basis points.
Now given the significant amount of excess cash on the system and the expectation for further fed balance sheet expansion bank balance sheets will continue to be under pressure from money market funds may provide some relief.
Now, let's turn to a few highlights across the franchise and I'll start with asset services.
In asset servicing we continue to see good momentum as clients increasingly transform their operating models and theyre looking to us for open modular front to back solutions, including our leaders of leading data and analytics solutions that they can build their own businesses on as an example, we were awarded new business from Lockheed Martin.
And it was led by asset servicing, but it really leveraged our capabilities across the enterprise.
We were awarded custody and a full suite of related services is Lockheed was looking to consolidate providers across custody and hedge fund administration.
This large corporate asset owner win demonstrates the power of our omni offering to bring a wide breadth of services, which includes data and analytics, leading fintech partnerships and other capabilities from across the enterprise together, which happened to differentiate us from our competitors in this process.
We also continued to drive innovation and digital assets.
We are excited to have recently been mandated by gray scale as the world's largest digital currency asset manager to provide fund accounting and administrative services for the Big coin Trust.
Once conversion 20, ETF as SEC approved we will be able to serve as the product is an ETF as well while also providing our unique transfer agency and Etfs basket creation services.
On Etfs more broadly we continue to see good momentum and into ETF servicing with EPS ETF AUC, a reaching 1.1 trillion dollars of at the end of June and we have now helped to launch over 100 Etfs year to date.
We've also continued to strengthen our capabilities through additional partnerships with leading Fintech and last week, we announced the acquisition of milestone.
This acquisition will help us advance digitization and automation of core accounting and asset servicing capabilities.
If you recall roughly about a year ago, we formed an alliance with milestone to addressing industry need for greater fund oversight and resilience.
Following on the success of this alliance, we saw an opportunity to build on the strategic relationship and further our capabilities in OCI Ho services cash allocation and fair value controls it.
I'd also like to highlight our recently announced partnerships with Sapphire and episodic because both of our terrific. Examples of how we are using open architecture to automate and digitize operations improve the client experience and driving efficiencies.
Moving on to our markets infrastructure and infrastructure businesses Pershing had another strong quarter benefiting from equity market strength and continued strong underlying fundamentals. The number of clearing accounts continues to grow at a healthy clip and we saw strong net new asset flows and the sales pipeline there remains robust.
In May we reshape hershey's operating model into 2 segments institutional solutions and wealth solutions and we did that Oregon of are organized around our clients and all of the align our expertise to best serve their needs.
Aligning around these 2 segments enables us to focus our people tech investments and process improvements to fuel growth.
Institutional solutions serves capital markets firms investment banks hedge funds and alternative investment managers.
<unk> institutional platform provides clients with a single seamless experience backed by the strength and scale of the and why Mellon offering financing collateral management global trade execution securities lending and syndicate capabilities now.
Now well solutions addresses the evolving and converging needs of our wealth minded broker dealer and RIAA clients by delivering improved lending digitized account opening and streamlined asset surpass of transfers.
Given the rapid growth in the wealth Advisory segment, we are making significant new investments to further build out our advisory capabilities.
In markets, we were able to offset some of the headwinds from meaningfully lower volatility and narrowing spreads by growing our client volume significantly reflecting the success of the initiatives, we put in place to strengthen our capabilities and improve client targeting across our investment services business.
In fact last week Euromoney ranked as number 1 in 18 categories of its 2021 of FX survey and for the first time, we claimed the number 1 spot as real money overall market leader globally.
In Treasury services, we saw strong growth in quarterly payment volumes compared to the prior year and the business experienced healthy client wins and payments liquidity and trade across all geographic regions.
In June we introduced cross currency suites, the latest edition to our rapidly expanding liquidity management product suite and earlier in May we launched the first of its kind of real time E. Bill payment solution that we talked about in the past. We're the first bank leveraging the New York Clearinghouses real time payments network to provide.
<unk> corporations with an instant digital consumer Bill pay service and today, we're actively collaborating with multiple villers and retail banks to drive the adoption of this new functionality or production pilots will continue this year and where we were planning to scale them more broadly into 2022 and.
In investment management, we had our fifth consecutive quarter of net inflows into long term products. We continue to see strong net inflows into cash products and we ended the quarter with record of U S. We've.
We've been making good progress on our realignments of transfer of Mellon capabilities in fixed income.
Equity and multi asset and liquidity management insight Newton and Dreyfus cash respectively.
And that was the purpose is to bring specialist investment capabilities at scale and we remain on track for completion of this in the third quarter.
We're pleased to see that we're already starting to drive efficiencies and feedback from clients and industry consultants has been quite positive and.
And last month, you on Monroe joined Us as the new head of new human.
Ewen brings 3 decades of experience with a proven track record in the investment industry, including extensive experiencing experience, leading 1 of the uk's largest asset managers with a presence in institutional intermediary and retail markets.
And finally in wealth management, we saw another quarter of strong client assets loans and client assets exceeded 300 billion for the first time.
The financial times named me on why meld of pest.
Private bank for digital wealth planning and North America.
And they're recognizing there are wealth online client portal portal and our proprietary goals based planning tool we call advice path.
Taken together, we're pleased with the increased momentum that we're seeing across the franchise, which is resulting in organic fee growth in excess of our 1.5 per cent outlook for the year.
Our strong performance in the first half of the year on significant capital generation and put us in a position to further accelerate investments in a number of meaningful growth and modernization opportunities.
In the second half.
Now before I turn it over to Emily to review, our second quarter results and the outlook for the second half of the year of more detail I'd like to provide a quick update on our plans for the return of the office and the future of of the workplace.
Starting in September we're planning to begin safely opening our offices around the world. Although dates and details may vary by location as we kind of continue to monitor and as conditions evolve. We believe that in the process. We have an opportunity to create a new and better way of working that makes us feel more connected balanced and productive while maintaining.
Flexibility the majority of our almost 50000 colleagues around the world without for follow a hybrid model that allows for flexible mix of remote and an in person experience is going forward.
With that I'll hand, it over to Emily.
Thank you Todd and good morning, everyone.
Walk you through the details of our results and acquire all comparisons will be on a year over year basis.
Otherwise beginning.
Beginning on page 3.
Revenue was lower by 1% in a lower net interest revenue on higher money market fee waivers, partially offset by strong fee growth fee.
Revenue grew 4% on 10% excluding the impact of the waivers. This reflects the positive impact of higher market value of favorable impact of a weaker U S dollar and higher client activity.
Other revenue was 91 million and included a.
Approximately $30 million of investment disposal and other income.
Net interest revenue was down 17% expenses increased 3% and about <unk> driven by the weaker U S dollar.
Provision for credit losses was a benefit from <unk>.
Driven by improvement in of macroeconomic forecast.
EPS was $1 on pre tax margin was 32%.
Moving to page 4 with Sharon trend analysis of the main drivers of our quarterly results.
Investment services revenue of 3 billion down 4% year on year, mainly driven by lower net interest revenue and highest new miners.
On fee waivers investment services fee and other revenue was up 9%, reflecting increased client activity and organic growth of assets from existing clients.
Liquidity balances on market level and the benefit of some degree of U S.
Dollar.
That's it from wealth management revenue of $1 million increased 13% and higher market value and the benefit of the weaker U S dollar more than offset the impact of fee waivers excluding fee waivers.
Other revenue was up 21%.
Many of our gifting waivers net of distribution and services, Inc, and 252 million in the corner of 64 million from the prior quarter, which impacted pretax income by approximately $40 million sequentially.
Hi, Lee of Michigan, where Kevin I've already Quinella of me Barry as loans higher average balances.
Turning to page 5.
Our capital and liquidity ratios remained strong and well abandon channel hernan and regulatory minimum.
Our CET 1 ratio of 12, 6% flat Q on under the standardized approach.
And our tier 1 leverage ratio, which is on binding which is our binding capital constraint was 6% up approximately 20 basis points sequentially.
Net capital generation, and a 2% quarter over quarter Greens Creek on average asset.
Average deposit balances declined by 1% as we've been successful on curtailing deposit growth by working with our clients with excess deposits to us.
She'd vehicle, mainly money market funds, we track we're on.
Approximately 9% sequentially outpacing the industry.
Finally, our LCR was 110% lots of higher fire.
Turning to page 6.
On net interest revenue of highlight the sequential changes.
Switching to non interest revenue was 645 million down 1.5 per cent decrease was largely driven by the impact of allowing of lower short term rates.
New to elevated prepayment speeds and lower net.
Turning to page 7 which could provide some color on deposits.
And our securities portfolio trends and bank.
As mentioned average deposit balances declined by a little over 3 million sequentially. Despite.
Adding 360 billion of of any instrument systems on purchase.
This program on the Treasury gallon of how having declined by about 100 million fire.
Our deposits remain elevated versus a year ago of 42 billion of our 15%. We estimate that a portion of this growth is accessing nature and of the trend off when rates rise.
Turning to the securities portfolio on average the portfolio was flat to the first quarter and up approximately $7 million of 5% over the prior year.
Average loans increased about 7% both sequentially and year over year with growth, primarily driven by person margin loans wealth management collateralized lending capital call financing as well in terms of secured loans chip level of financial institution.
Turning to page 8.
As I mentioned earlier expenses of approximately 2.8 billion of this quarter were higher by 3% versus the prior year and about 2 thirds of the increase driven by the unfavorable impact of the weaker U S. Dollar.
The remainder was primarily driven by volume and revenue related expenses and investments and efficiency of growth initiatives.
Turning to page 9.
Total revenue in investment services segment declined 1% versus the prior year.
<unk> revenue in investment services declined 7% year over year, driven by lower volatility in spreads partially offset by strong growth from claims volume on a sequential basis FX revenue declined 21% on lower volume, especially in emerging markets lower spread commentary.
Assets under custody, Andrew administration increased by 21% year over year to 45 trillion driven by higher market levels, and net new business and a favorable impact of a weaker U S. Dollar.
And then discuss the investment services business businesses I will focus my comments on total fees.
And then the asset servicing line of business, we saw growth on the bank of higher client activity and market level, which more than offset lower FX revenue from products and offset by a roughly 400 basis point impact from fee waivers.
These encouraging more of reflecting higher market levels and solid organic growth, partially offset by higher fee waivers and lower transaction volume compared to an exceptional quarter of year ago.
Clearing accounts were up 6% mutual fund assets were up 33% and we have continued strong net athletic of 40 billion of in the player.
Neighbors impacted fee growth by approximately 800 basis points.
Steve and issuer services had underlying growth bogey ours, we saw a resumption of client issuance and dividend activity to pre COVID-19 levels as well as new corporate shops on the back of higher CLO MTN in mortgage refi activity.
This growth was offset by the impact of fee waivers new corporate costs.
Treasury services fees were up 11% driven by higher unit volumes and a continued shift to higher margin products.
On June 30th day business processed a record $3.2 trillion in U S dollar per unit.
Finally, clearing and collateral management fees were down slightly and continued strength in auto management was offset by lower clearance volume and lower inter day financing.
Elevated levels of you asked many times on an international demand for easterly collateral on both providing long term challenge of our collateral management.
Uh huh.
Page 10 summarizes the key drivers that affect from year over year revenue comparisons for each of our investment services.
Turning to investment and wealth management on page 11.
Total investment in wealth management revenue increased 13% versus the prior year.
Assets under management grew to a record $2.3 trillion of 18% year over year, primarily due to higher market value the favorable impact of of weaker U S dollar principally versus the British pound and net client fundings.
Net net inflows of 25 billion in the second quarter, driven by LTI fixed income and cash strategies as Todd said this was our fifth consecutive quarter of long term inside of it.
Investment management revenue grew 13% due to higher market value the benefit of of weaker U S. Dollar higher performance ease of net inflows despite of 9% negative impact from steelmakers.
Wealth management revenue also grew 13% in of higher market value investment performance and growth and collateralized lending.
Hyatt assets in wealth management were a record 305 billion of 20% year over year.
Pages page travel as a result of the other segment.
I'll conclude with a few comments about the outlook.
As we think about the second half of 'twenty 'twenty 1 based on the current forward curve, we now expect NII or on a full year basis of 3 down approximately 14% compared to 2020.
Also moving forward curve and assuming flat Allison, we estimate fee waivers net of distributions or everything to be approximately 225 million in the third quarter slightly better net 252 million of this quarter driven by the slightly higher short term rate outlook.
This is estimated to have a modest pre tax benefit of $15 million next quarter.
With regard to see X waivers recall that we guided at year end for growth to be about 3% given the strong first half of this year. We now expect full year of feed X waivers to be up between 7 and 8%.
On expenses, we now expect of full year to be up closer to 4% excluding notable items.
Approximately half of the year over year growth is expected to be related to currency and the other half is pretty evenly split over higher volume and revenue related expenses and incremental investment in a number of attractive growth and efficiency opportunities.
We still expect our full year effective tax rate to be approximately 19%.
And with respect to capital return our board has declared a cash dividend of 34 cents per share from the third quarter, representing an approximately 10% increase in authorized up to $6 billion of common stock repurchases over the next 6 quarters to the end of 2022.
Considering the 2 billion of excess capital that we've accumulated and the significant amount of capital that we're generating we expect to buy back well in excess of 100 per cent of our earnings in the near term and remember on the Seb framework allows for additional capital actions over time, if and when appropriate subject to additional authorization of airborne.
With that operator can you. Please open the lines of questions.
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 1 question and 1 related follow up question.
Our first question comes from the line of Glenn Schorr with Evercore ISI.
Hi, Thanks very much.
For.
Taken away like 17 of my questions of that outlook kind of helpful.
Yes.
I guess a follow up on.
On the expense question.
So if you look at it year on year was up 3 I heard your guide.
Expenses were down 3% quarter on quarter can we talk about.
Growth opportunity piece you mentioned.
Global opportunities argue investing in and what kind of payback.
Kevin can we expect how do you think about that given year of huge excess capital.
My real question is why not invest more so that's 1 zone.
So great question Glenn Thank you.
So as you have rightfully pointed out.
We have been extraordinarily disciplined on expenses and we've actually held from flat over the course of the last 4 years.
Everything that we're talking about here of our investment in growth and efficiency of just to name a few so certainly digital assets and all of the things we've talked about around digital assets.
And analytics advisory services.
In Pershing as well as the managed accounts space.
I'd highlight also electronic payment and collection services and Treasury services and then the remainder would be on modernizing and automating our both our risk management in our operations infrastructure and really.
You alluded to we had a very strong half we are of very strong cash flow generative model. There are interesting opportunities. All of these have been properly vetted and truly will drive incremental growth and efficiencies. We feel now of 2 important times from that.
Glen you still there I think we lost share.
Oh, yes, sorry about that I appreciate all of that Emily maybe just a quick follow up on Thursday.
Thursday.
So.
You spoke about some maybe some headwinds in the second half.
Yes.
Are you able to quantify that.
Give us the heads up on what to expect in the second half of it maybe at a high level talk about the competitive backdrop there.
It seems like.
From yet another competitor's pulp on their nose in trying to get involved.
On a clearer.
Sure I can start and Im sure Todd can add just in terms of.
The impact of of the loss of business that we had talked about in the past, it's going to be about $20 million per quarter going forward.
And that is by the way Glen baked into the forecast. So that is embedded in there and yes. It is a competitive space and actually that that particular piece of business that we're talking about would really be reached on the wrong side of some M&A activity. So we do although we see a lot of growth in a lot of opportunities. There is certainly fair.
The consolidation as well.
Yes.
I would add.
The consolidation that we've seen is actually a positive for us. So we've got a very robust pipeline.
Continue to add a significant number of accounts over the over the course of the quarter.
And as well as seeing significant EBITDA growth in funds and we think there's opportunity to actually invest more so what we did this quarter is we actually separated businesses into 2.1 is the institutional side, where we have some unique capabilities with some very large clients and we've got some pretty good seats. There that we're excited about but.
Also on the advisory and the broker dealer side, we think we can invest there and garner some more of what's a very fast growing industry. There is some competition numbers of consolidations also provided some opportunity for us. So we do get every now and then you get a lumpy lumpy Washington to an M&A, we've looked at overhead over history of that really it hasnt.
Changed from probably 1 more than we've done we've lost but we have pointed out that we will have an impact of the third quarter.
Okay. That's awesome. Thanks for all of that both of you. Thanks.
Thanks Glenn.
Our next question comes from Jim Mitchell with Seaport Research. Please go ahead.
Hey, good morning.
Can you speak to your efforts on on deposits. It seems like you had some success keeping deposits flat to down is that deliberate.
Efforts on your part with less demand for your balance sheet, maybe you could just speak to.
The deposit.
In the quarter on how you think about it going forward.
Sure I'll take that.
So youre right, we have been proactively managing deposits and very successfully we've been working with our clients and you can see that in our trend so despite.
The fed in and continuing to pump excess liquidity into the system.
Ultimately, we have managed our deposits and theyre down 1% sequentially.
This has been very much of a co.
Ordinaries effort with our salespeople and our clients and in terms of looking at what excess on our balance sheet. We probably think we have about 25% to 50 billion net still excess but of what we have been doing is looking at what is excess and actually working with our clients to move it to off balance sheet.
<unk> such as money market funds, that's partially why you see a 9% growth in our money market fund balances that we're driving waivers.
And we're fortunate to have and that we have a very robust liquidity solutions business, we offer both in house as well as third party solutions.
It has been certainly very attractive to our clients as we endeavor to to manage the balance sheet and look going forward, we will continue to do that.
We're comfortable where we are but certainly we will continue to be that considering there.
We will likely be more of liquidity coming into the system.
Hey, Jim its a very disciplined process that Emily leads off of months, along with the salespeople treasury function.
We look at the client by client and the good news is we've been able to capture most of that in our money market funds for our liquidity direct offerings.
So we are we are gaining market share there.
And we've got a little bit of benefit when the fed does increase the interest rate on excess reserves and new reverse repo that it made that alternative they provided a bit of an outlet. So we think even even though the fed will probably continue to provide.
Liquidity and built on their balance sheets that we should be able to manage it.
Great. That's helpful. And then just as a follow up to that if you think you've had success on the leverage ratio.
When we think about the buyback that you're targeting over the next 18 months can you frontload that how do we think about the cadence of buybacks.
Sure sure. So certainly the cadence of of buybacks is it going to be determined by lots of different factors our capital position.
Our outlook for earnings et cetera.
But you can definitely assume that considering we have about.
2 billion of excess capital now and that's just against your binding constraint of tier 1 leverage frankly, we have more excess capital when you're actually thinking about what the normalized balance sheet size probably is on when some of those excess deposits received so assuming picking.
Taking that into account taking into account. The fact that we've also committed to our shareholders that we will return on 100% of earnings over time, it's safe to assume that we'll probably be frontload that $6 billion of authorization that we receive from Macquarie.
Okay, that's great. Thanks.
Next question comes from Alex Blaustein with Goldman Sachs.
Hey, Thanks, good morning, everybody.
So maybe just starting with a on a our guide for the back half.
Looks like the amount of continues to kind of grind lower a little bit and maybe given what the forward curve is down relative to last quarter, not particularly surprising but curious if you guys feel like most of the pain is now in the run rate is this the right sort of.
Jumping off point to think about as we sort of start to pencil on into 2022.
Sure.
So I hesitate to call of traffic is every time, we do it.
Is that accurate.
In terms of just our forward on.
Our our outlook, we just use the forward Carnival, we project on IRR, we don't try to get cute.
Short term rates are a bit lower than the forward curve than they were a couple of months ago. Likewise as you all have seen.
The long end has come down on the curve is flattening and.
And likewise in terms of prepayment speeds Oh, they have been elevated and although we do expect them to slow down.
By the end of the year, they'll probably going to still be more elevated than we had originally anticipated. So all of those things are just baked into the 14% down year on year, a couple of things I mean, 1 of the.
The key drivers as short term rates when you look at LIBOR is.
And obviously when you look at just the fed funds rate or the other we are so the fact that that has stabilized and stabilized a bit and the forward curve at least out the next 6 months or so so the down the downside drag to that from where we are it's probably not likely to be to be much less or something else.
The change and then we're going to have to look at the <unk>.
Impact of term rates as we do re price assets as they as they come out of.
Of the investment portfolio.
Our best guess right now is we're pretty we're pretty close to the trough of this week as we think some of the money market fee waivers. It does feel like the support and the reverse repo program.
Probably probably bottomed out.
Great. That's helpful. Thank you.
I was hoping to get through a couple of business line items as well, maybe just focusing on asset servicing per second on.
It seems like the business is seeing pretty decent momentum here when I sort of back out of money market fee waivers from the asset servicing line. It looks like it was up 2% quarter quarter, 7% year over year. So despite obviously moderating industry volume backdrop can you help US bridge, maybe what's sort of the sources of growth here are sequentially and as we.
Sort of thinking ahead with an exit of 12 to 18 months, what do you expect to be the bigger contributors to growth here I know I know, there's a bunch of things that sort of go in there right. There is a custody and admin business, but then there's also a tri party repo and a couple of other things.
Yeah. So let me start with the more traditional custody business I think we are having quite a bit of success there.
When we we've got we wanted a couple of very nice.
Mandates.
This year, our sales or sales growth is ahead of of where it's been.
The ETF business is growing very nicely, we captured it's up significantly on a year over year basis, our capabilities there are quite good.
And our and our venture with CIBC Mellon, we've actually 1 of 11 of the 16 Etfs that have been listed on the TFC.
And so we're seeing healthy growth there we've got about 100 opportunities on our digital asset space. So that is getting some some subtraction and we've got really good flows across a number of our.
Of our existing where GAAP your organic flows with our existing clients. So it is a combination of of all of that.
Alex.
Great. Thanks very much.
Our next question comes from Brennan Hawken with UBS.
Good morning, Thanks for taking my questions.
I'd like to start with the balance sheet.
You touched on the estimate of excess deposits that was really helpful. Thanks for that Emily.
Curious about what drove though on the funding cost side the improvement quarter over quarter was there any noise in that or do you think thats sustainable and then when we think about squaring. The guide for balances what are you assuming for deposit growth from here for the rest of the year.
Thanks.
Sure. So just on the funding side and really there was a benefit of off of lower rates. There. So that was that was what was driving it nothing else really notable.
Yeah, a lot of a lot of our debt.
Swapped to floating so as we saw lower LIBOR as we saw net execute.
To that as well.
Okay.
And then I think the other question was with a day.
Well this is Pat congrats on balance sheet growth.
Our balance sheet growth.
We use.
And similar to what I had alluded to before we will continue to monitor and proactively manage the balance sheet.
We do have.
Room should deposits go up further but of course, you know like I said based on the excess that we have we'd like to kind of stay where we are on frankly manage it manage it down further.
Okay got it.
And then when we think about servicing the servicing revenue.
And Alex touched on this a little.
What was the contribution of activity this quarter.
What was the benefit of new business was there some did that come in late in the quarter from a.
I know.
It's an imperfect way to model, but the way we all model this.
It looks like the fee rate got it.
This quarter. So what were some of the dynamics, there and how should we be thinking about that going forward.
If youre talking about like asset servicing versus AUC.
Which I think is kind of what you're alluding to.
AUC of was up 8% sequentially.
About 1.1 third of that was market and currency driven and the remainder was really organic growth with some really good good signs of organic growth.
When you look at that though against asset servicing fees and revenues that you know when we when we think about it is generally helpful. Rather than look at the 8% to probably look at the spot sorry, rather than look at the spot to look at the average growth in ACI, which was about 5%.
And then when you look at the asset services fee line.
Flat, but X waivers was up 2%.
And actually as we've kind of remind you focused in the past when we lived asset servicing fees only 50% or so are truly driven by asset levels. The remainder of our driven by account base fees and transaction fees. So hopefully that helps.
Yes.
On your at all if you look at really what is the organic growth rate underneath underneath.
Across the businesses.
Actually on the investment services business when we look at fees only if you exclude of market appreciation or depreciation in the currency impact waivers from some of the extraordinary volumes that we had in the second quarter of last year.
Covid.
That's if you net that out of net fee waivers out, we're seeing probably something like 2% or slightly kind of 2%.
Our organic growth.
Great Thanks for that color.
Our next question comes from Ken <unk> with Jefferies.
Hey, Thanks, good morning Emily.
On the fee side X waivers you talked about the improvement on your outlook of plus 7% plus 3 and I'm. Just wondering how much of that was just a pull through of the first half as you mentioned and or if you are actually more confident in what youre seeing in some of the core businesses. Following on the last few questions about.
On the underlying growth that you are seeing in.
Other fee areas.
Sure so.
Ultimately.
The 17% is SP X wave of growth of over the course of the year on year. So if you.
You have some of the number of Skus you do the math on the first half.
We had about 8% growth in the second half of it will still be very very healthy, but probably closer to 7%.
Okay, Alright, so it was more of just how good it's been and then stays as.
The way to think about it.
Exactly.
Okay got it and just coming back from it that you laid out a lot of new product intros, you've been talking about this for a while.
I guess the challenge for US is to understand how these product intros turn into revenues in the timeframe by which they do convert and you've talked about the organic growth improving directionally over time, but.
How quickly can we start to see some of these improvements.
On new intros really starting to roll into the income statement and are there are there other ones that you can give examples of which you know where they are alive and now.
Moving to be meaningful contributors. Thanks sure Ken So as we described on past if you looked at our organic growth over the past few years before last year. It was basically flat.
So now we are starting to see we're starting to get some traction as we've as.
As we've improved a number of our services and invested in our data and analytics capabilities.
And we've talked about our digital asset capabilities. So we're already starting to see some benefit in these numbers now that we're seeing replacement of underlying growth rate of more like 2%.
Are you starting to see some benefit to things like our.
Our custody.
In ETF servicing business around some of the digital assets our investment in the ETF business is starting to is starting to come through and show up in the numbers a bit some of the longer term investments that we're looking to make like Pershing.
We're really investing in the platform, we don't expect that to really turn into revenues for.
As long as 2 years.
So it's some of these are very are longer term on some of them are coming through as we as we talked about them on the Treasury services side, where you see us gaining some market share and we've had pretty healthy organic growth there.
On the multi currency sweeps is call. It a lot of attention when we announced that we have clients and of today and we think that we'll gain some traction over the next next year or so and I would say the same thing with what we're doing with real time payments and collections. So.
We've mapped it out it's kind of all over the or some of them are as far as 2 or 3 years out some of the investments that we're making of custody. We would expect to have a return maybe a year out and some of them are starting to bump.
Bump into and help us generate a positive organic growth rate of the 2% that we're seeing today.
And we'll take our next question from Brian Bedell with Deutsche Bank.
Hi, great. Thanks, good morning folks sort of thing.
Back to the AUC, a up to 45 trillion from the $41..7 you mentioned about 2 thirds of that was organic and you <unk>.
First it out of there between organic from the client base in terms of net net inflows at your clients.
It seems like to trillions of alerts number so I just wanted to sort of understand.
New business won by.
But my Mellon versus.
Versus the underlying client growth and then if you can also comment on the demand for crypto currency servicing.
Obviously, thats a great deal of mandate, which is great.
Are you seeing an increase in that demand on the second quarter versus what and I know that began to spike up in the first quarter.
Okay.
Brian when you look at our flows and.
The growth on that on a year over year base.
Basis.
About half of it is flows that would include new.
Net new new business.
And it would also include any lost business and any any organic flows from existing clients. So hooking on some winter as they new Jose generate new funds.
That would be new new business day.
And then the combination of.
A little more than half of its market and currency.
And the rest of it is is coming from from client flows.
Hi, John.
On a sequential basis from the 41, 7% of the 45 on a sequential.
<unk> basis.
That number is it's pretty similar it's probably actually a bit more index.
On a sequential basis.
More of it is based on net new business and courtesy of end markets and while it's on a year on year.
Yes.
About 50.50.
Okay.
And then you asked a question around demand for <unk> services.
As we.
We had mentioned earlier, we have initiated quite of few Etfs in Canada, where they can be traded on the on.
On the Ts C. So we've got 11 of the 16 Etfs that exist there and there is activity there.
And <unk>.
Grayscale, which is the largest asset manager of.
Digital currencies.
We've teamed up with partnered with them both to help them with the existing trust and.
When and if they get approval from the SEC to list of the Etfs They will take on our cash.
And the other capabilities there as well. So we are we are seeing some interest and then we're also seeing some interest in.
On the what I'll say the high net worth side. So there is some retail interest that we're hearing through some of the pershing clients as well.
Other wealth management.
Players, it's worth just adding to that day.
We have been mandated on <unk>.
Finally.
For the U S. Yes.
Thank you Christina.
Okay. Okay. That's great and then just a quick follow up on the assumptions for NAR and the money market fund fee waivers. Just you mentioned trying to move from 1 of those excess deposits into money market funds.
Just in the assumptions of the guidance that you gave.
Or are you assuming some of that transfer from those excess deposits in terms of both.
Both the fee waivers.
Yeah of moving moving down, which which is which would be good if you are.
Correcting an increase in.
Money market fund balances and then Tim with the balance sheet size as you kind of into year end given that guidance is there an assumption of.
Conversion of deposits to moneymaker sockets on balance.
Check on that guidance share on that I'll take that book.
And I'm sure Tom will chime in on on the waiver side really we're just using the.
Forward curve and we're just assuming balances stay flat.
As we just as we talked about all of it before the fed actually taking some action with technical worries.
And raising the repo rate by either reverse repo rate by 5 basis points have been extraordinarily helpful. On that that has put a bit of a floor in terms of gross fund yields and so that is largely what's driving the improvement that we expect in the second quarter.
From a right run rate of about 200 of was.
250, this quarter to about 225, so on in terms of going forward of course.
As we start to.
Recoup some of that is very dependent upon obviously will be very dependent upon balance level, but.
That's gonna be from Taiwan and in the future from.
Uh huh.
Posit perspective.
As I mentioned before we have you know a immaterial amount of excess steel on the balance sheet. We're fine in terms of where we are but yes, we'd like to manage that down a bit.
Brian what I would add to that so yes, we're projecting that those balances are going to come down a little bit in the number for an IR and you've got to remember when we had all of this excess capital and there was nothing we can do about it it wasn't particularly in our interest to 2.
To push those balances away.
They did make up even though it's modest it did make a little bit of incremental income with the return on capital was very poor. So now that we have the flexibility to manage our capital base through the through the new regime, we would very much want to be much more efficient with the use of it.
The usage of the balance sheet now we didn't try to marry that with how much shifts the balance sheet comes down how much of that is going to kind of.
Come into fee waivers and remember if we are growing.
Money market funds.
We are waiving of pile of the fees as well so few waivers go up a little bit of even though there is some net benefit to us to us from that we didn't try to solve that.
So we gave you we just made it simple, but it's not going to be it's not going to be material.
A material number.
Got it got it that's great color. Thank you.
Our next question comes from Rob <unk> with Autonomous research.
Good morning, everyone. Just wanted to follow up on a couple of of the business lines, you called out, particularly notice of issuer services and Treasury services performed well you mentioned some of the drivers, particularly of the new product and Treasury services, but wondering how sustainable you think the growth rates in this quarter or.
Going forward.
Yes.
I think we continue to see as we continue to invest in our payments platform and volumes are moving nicely and we're capturing a little bit of market share.
As we look out we think it's sustainable that we can see some decent growth and we're introducing some from some new products that are getting some take up so.
The real time payments for collections is going to be a very interesting product and we've got we've got a pretty robust pipeline for that and we look we look forward to announcing something of that not too distant future around.
Opportunities there and so I think the team has done a good job of capturing that high margin business I think the sales effort globally has been has been strong.
And I think we're well positioned.
To be a provider of services around the globe, we've got great.
<unk> and I think where we're benefiting from that so I think theres I think theres a little a.
A little bit of room for.
Continued growth there when it looks at issuer when we look at issuer services that includes corporate trust as well as the Dr business Corporate Trust. We've made good inroads in the CLO business frankly, a few years ago, we'd lost a little market share, we're capturing that we've rebuilt our platform there.
And then very very good growth in kind of the conventional debt.
Servicing.
Dr is they were very much impacted by Covid and so now that we're seeing.
Some of these global companies paying dividends again, we're seeing a little more activity there and so I think there is.
There is room to sustain where we are in growth off of it.
Just 2 quick things I would add on of Treasury services space, It's a very fragmented market. So.
Ultimately.
Even a little bit of share gain actually moves the needle considerably.
Dr. Just as that as Todd alluded to you on just the third quarter tends to be.
Recently, our best quarter, we had a very strong second quarter.
Again, as Ed alluded to with the resumption of of dividends and certainly issuance activity. So the step up will probably be a bit of a little bit less.
Third quarter.
Got it thank you.
And our final question comes from the line of Rajiv Bhatia with Morningstar.
Hi, Good morning, just a quick question on your margins. So your investment servicing margin was 34% curious if you can provide any color on the pretax margins of your of the V.
Various <unk> within there. So for example, I think several years ago, you spoke about issuer services and Treasury Treasury services being higher margin.
Okay, Rajiv, we don't disclose the operating margins across the various businesses.
And.
We did benefit in that margin, obviously from the reserve release because of lot of that is related to it but we did see a little bit of.
Margin improvement.
But the operating margins of the of the price businesses.
Yeah.
Most of them are similar to what we see across the total book for example currency collateral is is a bit higher.
Great. 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 Todd with any additional or closing remarks.
Thank you operator, and thanks, everybody for joining us today I know, it's a very busy busy day. So we appreciate the engagement.
And look forward to talking to you soon thank you very much.
Thank you this does.
Conclude today's conference and webcast a replay of this conference call and webcast will be available on the <unk> Mellon Investor Relations website at 2 P. M. Eastern standard time today.
Have a great day.
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Okay.
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Okay.
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