Q3 2021 Bank of New York Mellon Corp Earnings Call

Please standby were about to begin.

Good morning, and welcome to the 2020 one in the third quarter earnings conference call hosted by being why Mellon at.

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.

May not record or rebroadcast these materials without being why mellons consent.

Now I'll turn the call over to Marius Mars B in my Melon head of Investor Relations. Please go ahead.

Thank you operator.

Everyone and welcome to our first quarter earnings Conference call.

Today, we will reference a financial highlights presentation, which can be found on the investor Relations page of our website at <unk> Mellon Dot com.

Todd Gibbons, our Chief Executive Officer will open with his remarks.

Then I believe pardon me, our Chief Financial Officer will take you through the presentation.

Following their remarks, there will be a Q&A session.

Before we begin please note that our remarks include forward looking statements and non-GAAP measures.

Information about these statements and non-GAAP measure.

Available in the earnings press release.

So a couple of months.

Financial highlights presentation, all available on the Investor Relations page of our website.

Forward looking statements made on this call speak only as of today October 19, 2021, and will not be up basis.

With that I'll turn it over to Todd.

Thank you Morris and good morning, everyone.

Touch on a few highlights before I hand, it over to Emily to review, our third quarter financial results and she'll give you the outlook for the remainder of the year in more detail as well.

Our financial performance this quarter reflects healthy and broad based organic growth across our businesses as well as the support of global markets backdrop.

Now if you refer to slide two of our financial highlights presentation.

We reported EPS of $1 four.

We generated a return on tangible common equity of 17%.

Revenue was $4 billion up 5% year over year and fee revenue was up 6% year over year.

That would've been 11% if you excluded the impact of money market fee waivers.

This fee growth included almost 3% organic growth across our franchise.

During the quarter, we returned roughly $2 $3 billion of capital to our shareholders, including almost $300 million of common dividends and 2 billion of buybacks.

Our continued focus on innovation has led us to announce several groundbreaking new solutions. This quarter that will meaningfully improve the client experience and represent exciting growth opportunities for us.

Let me start with asset servicing.

In the third quarter, we continued to see strong sales momentum.

Year to date wins are up almost 40% versus a year ago.

We are winning larger more complex deals that expand our product offering as clients increasingly see the value we can provide across the value chain.

We had a number of exciting business wins this quarter, but one example, I'd like to highlight is the work we're doing for Oak Hill advisors, a leading alternative investment firm.

Okay always receiving fund admin services from one of our competitors and performing middle office functions in house.

Due to our deep expertise and our ability to offer them a seamless solution across multiple services, we were able to win both mandates.

This mandate is a real testament to our differentiated capabilities and the strength of our alternative servicing platform, which is seeing very nice fee growth this year of 10% plus.

And we remain excited about our ability to scale this business and the growth opportunity for US ahead of us.

We're also.

To see good momentum and ETF servicing where our year to date, we have already helped clients launch more funds than during all of 2020.

And then in our data and analytics business, our capabilities continue to resonate with our clients.

This quarter, we signed two additional large asset manager clients to our next generation data management platform or what we call the data evolved.

And another large global asset manager went live bringing the total number of clients signed up or mandated to the ball to six.

And we're also thrilled about an extension of our partnership with the Florida State Board of administration as they look to leverage our ESG data analytics app into their full investment cycle for 30, plus funds spanning about $250 billion in assets under management.

Now moving on to markets and our wealth infrastructure businesses.

<unk> had another good quarter and it was on the back of continued organic growth in accounts and new client assets.

Over the last 12 months Pershing generated over $100 billion of new assets. Despite the headwind of a few clients lost the consolidation that we previously mentioned.

To give you just one example of our differentiated capabilities and the power of our broader interconnected franchise multi.

Multibillion dollar wealth management client recently approached Pershing.

For strategic partner that can provide a broad.

Set of integrated solutions.

And a collaboration between our investment management, our wealth management and Pershing businesses. We designed a series of risk based models and turnkey investment solutions that are more cost effective tax efficient and portable for the end investors.

This innovation solution innovative solution.

Bind with our leading custodial services and technology.

<unk> the provider of choice.

But we're not resting there this past week, we announced the launch of a new business unit within Pershing, which we're calling Pershing ex this unit will deliver the industry's leading end to end platform in the wealth advisory space offering a comprehensive set of advisory capabilities.

<unk> financial services firms solve the challenge of managing multiple and disconnected technology tools and data sets for their advisors fueling our clients and therefore our growth.

Today, we're already the leading provider of custody and clearing services by adding front end capabilities Pershing will become uniquely well positioned with our eyes and the broader wealth Tech segment to capture share in one of the fastest growing segments in financial services.

I'm also thrilled to welcome easily Simmons two BLA Mellon, who will lead this effort for us.

Aynsley has been a transformative leader in the advisory space for 20 years.

She has extensive experience across wealth management and digital and she has helped launched several successful fintech.

Our Pershing acts as one of our most ambitious multiyear projects to date the combination of our planned investments in the talent that we've recruited.

Bind with a leading platform that we already have will meaningfully enhance pershing future growth profile.

In Treasury services, we continue to see healthy growth in payment volumes on the back of an improving global economy and net new business.

September we announced that Verizon has become the first corporate client to rollout being why Mellon innovative real time E bills and payments functionality to its customers.

Now we've spoken about about this a few times about the capability in the past and we're just incredibly excited about its future, we see enormous opportunity across our client roster as more retail banks enable their customers to receive and Peggy bills via the real time payments network.

Some of you have seen Ceos from 23 of the largest banks in the country, including myself signed a letter committing to bring these capabilities to the market and we expect that 40% of digitally enabled U S. Consumer accounts will eventually happen dysfunctionality by year end.

With over 15 billion paid bills paid annually within the U S. Many of which are still pay per base. This ecosystem is ripe for disruption, which our innovated innovative capability is built to address at scale and.

And we are uniquely positioned in the market as we don't compete with other banks and consumer banking where card issuing.

As a result of our leadership in this space. We were recently recognized by the banker is the best transaction bank and payments.

It's a real honor and we think is just to be getting so a lot more to come in this space.

Turning to clearing and collateral management the business continues to benefit from the higher collateral management balances in fact, they reached a record five trillion dollars at one point this quarter.

Outside the U S. We are seeing growth as clients continue to migrate from bilateral to Tri Party and domestically recent growth has been driven by the elevated utilization of the fed's reverse repo facility, where we are the sole clearer.

Globally, we continue to implement new capabilities that allows clients to more efficiently mobilized collateral interoperability between our U S and international platforms and vice versa.

Part of our future of collateral program.

Additionally, this quarter, we were the first bank to add agency MBS as collateral on overnight cleared repo transactions and these are done via the fixed income clearing Corporation, new general collateral sponsored repo program.

This new capability expands the universe of clients that now can indirectly transact with central Counterparties as well as the scope of eligible collateral and by sponsoring these transactions, we help our clients reduce costs and free up capital that could not otherwise be available on a bilateral basis.

Last but not least the recent deadlines for the phase five of non cleared margin rules really differentiated us in the market and has validated the multiyear investments we've been making in automation and client experience, while many across the industry really struggled and were ultimately unable to repay for all of their <unk>.

Third party relationships and time to go to meet these go lives deadlines at the end of September the NY Melon was lauded for having a more streamlined process for client on boarding experience and we're having digitized and automated the collateral scheduled negotiation and amendment process. Once again, our automation that has enabled our clients to do things better.

Faster and cheaper.

And markets client volumes remained very strong on the back of continued organic growth offsetting the headwind of lower volatility.

This quarter, we also rolled out several enhancements to our liquidity direct platform that gives clients additional short term investment options clients can now seamlessly invest their cash and commercial paper and ultra short duration fixed income Etfs and also now have the ability to select money market funds based on their ESG.

<unk> criterion preferences, leveraging our ESG data analytics app.

While it's still early days client feedback so far has been extremely positive.

Pivoting to our investment and wealth management business.

In investment management, we saw our sixth consecutive quarter of net inflows into long term products.

And our initial suite of eight index Etfs, including the industry's first true zero fee Etfs in the largest equity and fixed income ETF categories now exceeds $1 billion of AUM and it's growing quickly.

And we recently launched our first active Etfs, the BMI Melon Ultra short income ETF sub advised by drivers.

On the first of September we successfully completed the transition of almost $200 billion of melons.

And over 2000 client mandates into insight and as well as the integration of balanced cash capabilities with Dreyfus to drive further investment specialization at scale.

This realignment positions us to better meet clients' needs it creates greater scale and it enhances the differentiation and the value proposition of our diverse investment firms.

Only are we pleased with the timely completion of this project, but the feedback from clients and consultants has been very encouraging and we have experienced virtually no client attrition during this transition.

And finally in wealth management the business continues to execute on its clear three pronged strategy to focus on client acquisition expand the investment in banking offering and invest in technology to drive efficiency.

Year to date, we've acquired about 40% more clients than over the same time period last year.

And the average size of our new clients is up by over 20%.

The business saw another strong quarter of net inflows and continued growth across lending and deposit products.

Investment performance remains strong.

And so in summary, we're intensely focused on driving innovation across the franchise. In fact, we were recently named among fast company's 100 best workplaces for innovators.

Testament to our forward thinking culture, and our continued investments in our people technology efficiency and growth.

<unk> pleased with the continued pickup in organic growth and we're continuing to make the investments necessary to drive further growth and efficiency.

So with that I'll hand, it over to Emily.

Thank you Tom and good morning, everyone.

Thanks for the details of our results for the quarter all comparison.

Sure.

Great.

Great.

Thanks, very much 5%, reflecting higher fee revenue, partially offset by lower net interest revenue.

Thanks.

So your revenues there.

We're at 11% excluding the impact.

Is there a positive impact of higher market value strong organic growth.

Okay.

Money market fee waivers.

Distribution and service.

<unk> hundred 33 million.

And then improvement of 19.

And then.

Higher average short term.

Other revenue was 129.

And created roughly $65 million.

All right.

Great.

Revenue was down 9%.

Expenses increased 9% or six.

Meanwhile, higher litigation reserves.

Any notable items this quarter the impact of election.

Okay got it.

Provision for credit losses was a benefit of 45.

Primarily driven by an improved macroeconomic.

Once the patient that continued recovery from commercial.

EPS was $1.

Higher litigation reserves negatively impacted.

Our vision.

Hi.

Okay.

Pre tax margin 29%.

On page four you can see the trend across.

Okay.

On the capital and liquidity.

Our capital and liquidity ratios remain well above regulatory minimums.

Carol.

Our tier one leverage ratio, which is our binding constraint and five 7% and approximately 30 basis points sequentially.

Really driven by the return.

$3 billion of capital to our shareholders, Harsha learning and 1% quarter over quarter reduction on average.

We ended the quarter.

<unk> ratio of 11, 7%.

Our lives.

<unk>.

Our LCR was 111%.

Compared to the prior plan.

Right.

Okay. Thank you.

Got it.

For the third quarter.

One nine.

And 1% sequentially.

Well have to lower interest, earning assets and continued pressure on reimbursement.

Partially offset by lower premiums.

The benefit of a full quarter of higher <unk> and lower deposit spreads.

Turning to page seven for some color on our balance sheet.

Average deposit back.

Growing by 2% or approximately.

Good question.

This is our thinking here.

Our balance sheet.

Yes.

Yes.

Deposits, Kevin approximately reduction of our average helps.

Average cash count.

Thanks.

The size of our securities portfolio or no.

Acquire.

Average loans increased by about 1% sequentially and 14% year over year.

Primarily driven by margin that <unk>, chief financial institution collateralized lending wealth management.

Capital Company.

Turning to page eight.

As I mentioned earlier.

A $2 9 billion were up 9% year on year.

Excluding the impact of the notable items the operating calendar.

6%.

This increase was attributable to revenue related expense.

The remainder was even right.

Incremental investment.

Everybody.

Got it.

Thanks, Eric.

Investment services recorded total revenue of $3 up three.

3% year on year on higher.

Partially offset by lower net interest revenue and higher fee waivers.

Excluding the impact of fee waivers.

Other revenue was up.

Assets under custody and administration increased.

17% to $45 three trillion.

Kevin Thanks Robyn.

Brian.

And then a higher.

I think that the individual investment services.

I guess my comment on that.

Revenue breakage.

In asset servicing with us John Craig Ivey impact of fee waivers.

On the back of higher market values and client activity as well as higher fee.

<unk> impacted growth by roughly 400.

In Pershing feed her also up nicely, reflecting higher market values.

Underlying organic growth offsetting the impact of lost business.

Waivers impacted fee growth by approximately.

Hershey in clearing accounts were up 1% and mutual fund assets of about 23%.

New assets in the quarter were up seven nine.

Excluding the impact of the deconversion of Franklin.

And that was done.

Net new assets in the quarter was in roughly in line.

And issuer services fees were down, including a roughly 600 visa impact on fee waivers.

Ocean of issuance activity and seasonally higher dividend payments.

Were offset by a decline.

<unk>.

In Treasury services.

On the back of improved economic activity and net new business.

Higher unit volume.

Approximately 700 basis points.

Okay.

Lastly, clearance and collateral management fee for.

Primarily driven by growth in non U S collateral management balances and higher volume, partially offset by lower today.

FX, having all investment services increased by 17% driven by higher client volumes as we're winning new business.

This is partially offset by lower volatility.

Hey, Brian.

Underneath.

Revenue story for each.

Yes.

Now turning to investment and wealth management on page 11.

And that's been a wealth management requires a total revenue of one goal of 12% year over year, primarily driven by higher market values higher market value.

<unk> strategic equity investment and benefit of the weaker U S dollar increase.

Increased performance.

Partially offset by higher fee revenue.

Excluding the impact of <unk> fees and other revenue.

Perfect.

Assets under management grew to $2 three trillion up 13% year over year, reflecting higher market values.

Hi, Angela and the favorable impact of the weaker U S dollar price of investments in British pounds.

In the third quarter net inflows totaled 14 million and then my LTI and cash strategy.

Todd highlighted when business is now.

Consecutive quarter net impact.

Management revenue grew 13.

Primarily driven by higher market values, I'm pretty incoming game strategic equity investment and benefit of the weaker U S dollar and higher performance.

CLA negatively impacted revenue growth by 650 days.

Well now shrank by 10%, primarily driven by higher market values.

Client assets reached $307 million.

10% year on year.

Thanks, Charles shows the results of the other segment.

I'll conclude with a few remarks about the outlet.

During the year.

Our guidance on NII based on the current forward curve for me down 14% compared to 2020.

Also using a forward curve, we expect fee waivers in the fourth quarter to be roughly in line.

Corner.

With regard to see excluding waivers given growth in the third quarter exceeded our expectations.

Given the continued momentum across the franchise and announced XP gamers, yes perfect.

Percent.

On expenses.

You expect the full year to be up about 5% excluding notable items.

Let me also extend our effective tax rate for the year to be approximately.

Yes.

And then lastly, with regards to China.

Given we ended the quarter 20 basis points of other management target for tier one leverage.

We continue to have excess deposits that will receive over time.

Based on our expectation for continued strong capital generation, we intend to once again return capital well in excess of 100% of earnings to our shareholders.

With that operator can you. Please open the line.

Yes, if you'd 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.

Our first question comes from the line of Steven <unk> with Wolfe Research.

Hey, good morning, Todd Good morning, Emily.

Good morning so.

Wanted to start things off with just a question on the NII guidance Assembly that you just gave I was hoping just to Untack. The guide for <unk>, specifically, what you're assuming in terms of deposits and balance sheet growth liquidity redeployment and I guess last and certainly not least premium amortization.

Sure.

So just.

Why don't we first just start with the third quarter in the third quarter NII was.

Down very very modestly.

That was off the back of lower reinvestment yields also.

Sure.

Interest, earning assets as we've worked with our clients to actually manage manage especially excess.

<unk>.

We were able to offset that with some tweaks.

The securities portfolio and also we did see a benefit from premium amortization coming down that was a both a mixture of us reducing the size of our MBS portfolio as well as.

The effect of prepayment speeds.

It slowed down quarter to quarter.

Our full year guide as you rightfully pointed out remain debt down 14% for the full year.

In terms of kind of what's baked into the fourth quarter, but I think we have more or less hit that trough.

What's baked in there certainly will still have the impact of lower reinvestment yields.

Headwind.

Expecting a further reduction in interest earning assets can be will continue to work with our clients in terms of managing excess deposits. So perhaps we expect it to go down by about $5 billion to $10 billion.

Respect to premium amortization is likely our expectation or our forecast based on rates at that it will be pretty much flat.

Fourth quarter to third quarter and look there's probably some upside you mean certainly based on based on what we're seeing in terms of volatility in rates and EBIT movements by for example, the bank of England et cetera, So there could be some upside.

No that's great color Emily and just for a follow up on expenses I was hoping you could speak to the expense growth outlook. We've.

We've seen a number of upward revision to the expense guidance over the course of the year and just wanted to gauge whether the current level of expense. It's about 2.85 billion extra litigation costs is the right jumping off point for <unk> and maybe just longer term what level of expense inflation, we should be underwriting on a more normal base.

It's just given the continued investments you cited in the business.

Sure so.

Within the.

Within the quarter. So yes expenses overall up 6%, we're still guiding for the full year expenses to be up five.

<unk> versus that last year, obviously ex notables.

When you like tax the third quarter at about.

Two thirds of that is attributable to what we call revenue related expenses inclusive of an uptick in <unk> and <unk>.

Higher incentives, we obviously want to pay our people competitively for the strong organic growth that we are seeing.

About a third of that is split evenly between the impact of the weaker U S dollar as well as the incremental investments that we have.

Pulled forward. So those are the investments in both <unk> and growth in infrastructure as well as our efficiency.

We're also it is worth mentioning that in the third quarter, we are starting to see an impact of a tighter labor market does in terms of competition.

Terms of costs and also in the third quarter. There was an impact of our merit increase which took effect in it.

In June.

As we kind of look out.

Certainly too early to really comment on 2022.

Middle of the planning process, what I would say is that yes, the uptick youre seeing in the second half of the year is really the jumping off point for next year.

And ultimately.

Yes, you are.

Other headwinds as well and you know inflation as I as I just.

Scott mentioned look we're seeing it's a good thing, but returned to more normalized travel travel right. So genie is likely to go up.

We are.

We opened the offices.

And returning to return to the office will be some additional expenses associated with that of course, we will continue to.

Also.

Achieve and identify efficiencies, we're working through the investment spend as we speak going through the proverbial food fight is that as always there's lots that we want to do but what I would say is we are intensely focused on expense management. We will continue to be focused on expense management, but we're also going to invest through the cycle and if.

Just give some color I would just say that expenses in 2022, if I'm standing here today will be modestly up from 2021.

Very helpful color on Lee Thanks, so much for taking my questions.

Our next question comes from the line of Mike Mayo with Wells Fargo Securities.

Hi.

Good timing because I wanted to follow up on the food fight.

<unk> spend discussion.

Yes.

So software costs were up 8% year over year.

And Todd you started off talking about some fintech like initiatives.

So I'm just wondering if maybe next year you want to spend more money.

I mean, it's tough tradeoff that you have in delivering results and investing for what you think could be a good effort I didn't fully understand.

When youre talking about Pershing and the transaction banking payments, maybe if you could just describe the total addressable market for that how much you have and where you think youre getting or some color around that and then what type of spending that's going to involve.

Okay. So so pershing axes.

I think an exciting opportunity for us and so if you think about the registered investment advisor business. So if you think about Pershing, where really the largest correspondent clearer. So we're third party clearer for broker dealers and the retail space.

Now registered investment adviser in that business is actually growing but it's not growing nearly as fast as the advisory space is growing and so we are the custodian. We are the clearer we are providing a lot of the backend services for that business, but we think theres the opportunity for us to be an integrator in that business. So.

It's been growing haven't looked at the numbers recently, but it's been growing in the ballpark of 15%. So we think we've got a relatively small market share for <unk>. So we think theres an opportunity for us to pick up market share in a fast growing segment. So thats why is it.

So exciting to us in terms of the challenge that Pershing X will solve if you think about it advisors have these multiple technology tools, a bunch of different datasets that they're trying to.

Tried to integrate or trying to look at oftentimes are logging into multiple systems and they are really.

Reducing the advisory productivity that would be across things like financial planning investment modeling.

Even some banking activities, we have the ability to integrate our own private URL.

Private bank, so theres really no solution out there today that can tie that altogether.

So that's what we mean it will be an open architected, but it end to end.

Solution. So it will be integrating best in class services amongst some of our own.

And it will it will provide a digital key.

<unk> ability and real good retail experience spoke to the advisor as well as to the investor itself. So that's our target target for Pershing.

I think your other question was around the.

E payments so in an E payments. This is this is using the clearinghouses real time payment system.

And we were the we were the first actually connect and now this is a request for payment from from a client excuse me our clients drove a verizon to their customer.

They.

Come across your they'll come across your phone with you Bill was ready here is your bill pressed this and make the payment in real time or you could even.

So at a time when you want to make that payment.

To make sure that you've got funds in your account that will connect.

As more and more banks connect to the real time payment system that broadens the capability.

Covering a very large percentage of the market. Currently there are about $15 billion in payments made in the U S. So it's an enormous market and we've got.

We've got about 100 prospects showing significant interest in the capability we desire.

Okay. So so E payments Big initiative Big opportunity Pershing X, if I heard you correctly.

Market big opportunity so in terms of.

Funding these initiatives.

As far as investing in these areas, specifically or more generally I know you've done a lot of overhaul in the back office water overhaul with your tech talent.

Spending will this take in.

And should you be going faster or slower or how do you decide that.

Yeah, I mean, we.

So as you know we've been increasing our tech spend over the past few years a lot of that as you pointed out was in infrastructure and resiliency and building a sounder.

Infrastructure to support the growth.

Looking to drive today.

And so all of this is kind of a peace dividend from that we are reinvesting in a number of <unk> and <unk>.

Software and the apps that we've talked about so I kind of categorize it into three areas. One is we've talked about our initiatives.

We just talked on to Pershing in Treasury, but we've got some great things going on in our data and analytics capability.

Digitizing things across the bank.

The wealth platform, we continue to invest in for our wealth management activity Corporate Trust.

We're using smart contracts and developing a digital network for.

For our clients to operate on it investment management were so just about across our businesses, we continue to invest.

Invest in technology. There is there's also ongoing infrastructure and risk management, our cyber defenses are not cheap, but need to continue to invest in them we.

We're doing a significant number of cloud conversions.

Thanks for the cost across the company regulatory reporting requirements continue to continue to go up.

Quiddity requirements as well as <unk>.

Complying with the LIBOR requirements.

We will always be focused on data and resiliency.

And then on the efficiency side, there as well.

We've actually inventory the number of things that we do annually.

We're looking to knock them out for automated automating when it's when it's.

Got it.

Okay creation significant efficiencies and risk reduction.

We're also looking to modernize some of our core app. So even on our Treasury services, we're putting we're putting very modern payments.

And underneath all of this so.

So there are a lot of the good news is there are a lot of opportunities but.

Will come with some cost and our intent is to increase our our technology spend next year.

Alright, thank you.

Our next.

Comes from the line of Gerard Cassidy with RBC.

Good morning, Todd Good morning, Emily.

Morning Gerard.

Todd can you or in Italy, when I can.

Go back to the year in 2019 pre pandemic size of your balance sheet.

Just had asked is about 382 billion in deposits of 259 months call. It and then you had.

Is that the fed of 95 billion, obviously today, it's considerably higher when the phase finishes quantitative easing assuming it's finished by next summer.

Can you kind of frame out for us what you think your balance sheet might look like as we go forward our customer is gonna be pulling deposits out do you think it will shrink down not that you'll ever get to the ear and 19 level, but should we start to think about continued falling and the size of the balance sheet.

So I'm happy to take that and it has certainly can chime in so.

The way, we think about that.

Levels now, we probably still have around 10% to 15% over deposits are.

And they will eventually receive in a more normalized rate environment, but actually core deposits. Overall are also up just given the growth in <unk>.

CA et cetera, So I mean, the core deposits are also up.

The excess is about 10% to 15%.

The way.

Looking at it and certainly we've been kind of managing the growth and those deposits are very successfully so it's kind of very target in a targeted way looking at what we what we deem to be excess and working with our clients to.

Chris you off balance sheet alternatives for those particular balances.

And.

As the fed begins to taper when we all think they will experience paper soon I think that does help in terms of.

Putting all led to a degree on the growth of deposits from here.

In terms of kind of what we expect kind of in I guess kind of 2023 and beyond yes, I think you're at at this stage, where the fed actually hike.

Multiple occasions, it was kind of only at that point that we would probably see a.

Decline in deposits, but the core itself is higher than it was in the fourth quarter of 2019.

And Gerard I think if my memory serves me right sure that date was you were taking it and it was actually the averages were a little bit lower than that so.

There is a significant amount of excess it will start to.

And Thats why were sitting on so much cash at central banks.

We will probably see a little less pressure certainly for deposit growth when the fed starts to it starts to taper, but to Anthonys point.

Excess coming off is probably sometime thereafter.

Correct, Todd, Dave where period than numbers.

Good memory.

Just a follow up question you guys had a very robust share repurchase amount. This quarter Assembly pointed out of $2 billion in guidance for the fourth quarter. The question is if I recall correctly you have a 6 billion dollar program that I think expires at the end of next year.

You reached the $6 billion prior to the termination date would you consider re upping assuming of course your capital ratios permitted would you consider re upping the buyback if you use it all up before that termination date.

The answer George if you think about the stress capital buffer regime has actually made things a little more flexible for us and so certainly the board recognizes that as if we continue to produce the capital that we're likely to.

We buyback the excess capital that we've accumulated will be in a position to come back to them and ask for more so the answer is yes.

Great. Thank you.

Our next question comes from the line of Jim Mitchell with Seaport Research.

Hey, good morning, maybe.

Maybe just one on issuer service fees they were flat sequentially.

And typically you would have some seasonality I think you mentioned.

Some weakness.

On the corporate side corporate trust side.

Is that just pushed out should we should we expect some rebound in <unk> just how do we think about the trajectory in that business.

Any more detail on the quarter would be great.

Sure.

So in issuer services, you really do you have two businesses depositary receipts and corporate trust as you point out within Dr.

Definitely saw a resumption in both issuing and dividend activity and that was really even on top of the normal uptick that we see in the third quarter.

Excuse me and in corporate trust the underlying business actually is performing really well.

Volumes in structured products are up actually meaningfully slightly offsetting a small decline in activity and unique.

But the third quarter for corporate Trust there were really two things that also impacted revenue. So one was.

A decline in Reimbursable expenses, we've got Reimbursable expenses or just the pass through.

And ultimately through it impacts revenue does not have any impact whatsoever on on pgi.

And also there was a discontinuation of our public sector mandate that started in this quarter and you will see the full effect of that in the next.

In the fourth quarter, probably be another $10 million or so.

All right.

Okay.

But no nothing got pushed into <unk>.

It's just with those issues.

Okay.

And just maybe on the payments business I think that's kind of an interesting push you've already had some growth in treasury services. So maybe you could just talk a little bit of what's been driving the accelerating growth of late I think it's a little too early to be expecting anything from these new initiatives and then I guess as we think about the newest initiatives like this Verizon deal.

Others potentially is that.

A first mover advantage type thing I guess, how do you defend being the intermediary between the merchants and the banks.

Is it just simply being the first mover advantage and what you think the possibility from a revenue standpoint could be from that business. Thanks.

Yes, I mean this is ed.

So a couple of things a couple of things there so effectively what we're doing is we're digitizing their collection experience. So we've been in the lock box business and now we're converting that to electronics to these requests for payments and it is faster and cheaper for the for the providers. So the cost actually.

For the utility in this case, so the cost to them on a per unit basis is down dramatically and you also reduced.

Just float and other items. So we think it's usually to their advantage. So we happen to have the collection relationship and we can continue their papers not going away that's going to be a component of it. So we can we can provide the complete solution. So we just thought we happen to be in a very nice position to do this and we're not we're not in.

The card at our retail payments business to speak of in between it. So we happened to be very well positioned and we got a little bit of a first mover advantage by being into.

Warehouses real time payments system right way.

In terms of how big can this.

Can this grow.

It could possibly move the needle a little bit.

Add a little something to our organic growth I think it's a little too early to tell we are excited about the relationship that we've got with Verizon.

We're excited.

Certainly stood up a lot of interest.

And we've got a pretty reasonable pipeline.

I'd just prefer at this point not to buy.

And what that could be.

Okay, yes. Thanks.

Our next question comes from the line of Brennan Hawken with UBS.

Good morning, Thanks for taking my questions.

We'd like to explore the really robust core fee revenue growth that you guys have you seen here.

Todd you made reference to a nearly 3% organic growth rate in the quarter, which is really quite good. So is it possible to break down the year to date.

Your expectations for 2021.

In the different components, you know how much of it came you think from organic how much activity and volume related I seem to recall that in the past you've said that half of your servicing business is market sensitive so.

Is that still the right way to calibrate when we think about the market impact.

We're pricing dynamics.

Is it possible to give some color around the composition.

Sure.

Sure, Brian So I think.

First of all we should probably help you understand what we're describing as organic so we do try to take the market impact out for interest rates.

The equity markets. We also try to adjust for example for some of the unusual activity that came up for example, right now money market funds are very large because of all this excess cash deposits are very large because of this excess cash so.

We try to knock that growth out of.

Of the calculation.

And when we get when we knock all of that out because if you look at us growing our revenue growth.

Minus fee waivers.

Is significantly higher than what we're talking about in terms of our organic growth because that's getting the benefit of some of the market the market consideration. So.

Or what's your stock all of that out the numbers get to something like two 5% or so for this.

This year.

Which is much stronger than what we've seen in years past and Frank frankly, three years ago was probably zero, maybe even slightly negative and when you want to kind of March through some of the.

Areas, where we're actually we're actually seeing it inorganic sure.

And just to really break it down very clearly to the 11% in fee growth X waivers we saw.

This quarter year on year, 3% was organic growth is as Todd alluded to about 6% of that was just market with market impact and the remainder was just.

Fact of a weaker U S dollar.

In terms of the organic growth in that 3% it was really broad based so.

When you when you look at Pershing I think we talked a bit about continued growth in clearing accounts mutual fund balances and net new assets.

In terms of.

Treasury services.

Good growth in terms of payment activity.

And on the back of a stronger economic.

A stomach sugar macroeconomic backdrop.

But also net new business and also within Treasury services, we've really shifted the product mix to be higher margin in that business.

In asset servicing.

<unk> are up 40% year to date versus what they were last year. So that too is just speaking to the organic growth in that business.

And FX.

Volumes were up significantly in some of that market, but a lot of that to just based on investments in the FX platform that we've made so it's really broad based and strong.

Excellent. Thank you for all that color and Emily I'd like to explore some of your I know, it's very early to talk about 2022, but the.

Your expectation around expenses next year.

A few questions on that.

Would that modest growth be on a constant currency basis.

And when we calibrate I think you also had said that the back half of 'twenty. One is it a decent base in which to build off of is that excluding the litigation.

That you guys had.

And if so could you size that for us and when we think about modest is there any way to calibrate that like would you consider the 2021 expense growth to be modest or is it a bit more significant than that.

Thanks.

So and.

In terms of is it.

Early to really comment on 2022, we're obviously going through the entire planning process as we speak.

As I did mentioned earlier.

Please turn expenses that youre seeing in the second half of this year on the backup.

The investments that we are we are making is.

Is structural so that those are permanent and that really will be baked into next year.

As I also mentioned there are some headwinds that we're starting to see a bit of inflationary pressure like I said.

And a return to more normalized we think travel entertaining will likely go up a bit of extra expense associated with return to the office. So.

There are headwinds that of course, we're going to be let's take me looking to offset offset with with efficiencies. So.

I wouldn't want to put an actual number on it but.

At this moment I would say you know expenses for the full year next year will be modestly up.

And that's just on the.

Topline topline made that they will be modestly up versus versus this year and Brendan we would adjust for the litigation reserve.

We would consider that part of the base on a nonoperating basis I should have I should've said that sorry.

Got it.

I know FX FX be a tailwind for you guys next year just to follow up on that because I know it was a headwind this year.

It depends on where.

Where we go out right now the dollar is showing a little bit of strength.

Each would create an expense tailwind, but it would be it would be neutral to our pre tax.

Right fair enough. Thank you.

Our next question comes from the line of Ken Houston with Jefferies.

Hi, good morning.

Wanted to start by just asking you to talk a little bit more about asset servicing it really good underlying growth. If we just keep SEC lending aside and fee waivers aside in the deck mentions transaction activity and higher market levels. I'm. Just wondering if you can help us understand like how did the collateral business Act versus how did the core asset servicing act on what type of.

Net new wins this quarter did you see on both sides.

So why don't I take the.

The clearing and collateral management business and you can take the rest of the asset servicing space. So we.

We saw good growth in the clearing and collateral management business as we have for a while now in fact.

One of the points I made in my in my remarks for the first time, we saw the collateral management numbers, our Tri party numbers exceed five trillion.

In the quarter. So we continue to see good growth there.

The stability on the global collateral management continues to be strong and we've got innovation that is.

Paying off there so that attributed.

A bit to the growth the other thing that we're that we're doing and we do this out of our markets business, but it's really the collateral management business is the requirement.

Margining and over the counter for over the counter derivatives transactions to meet margin requirements and we are in phase five six of that at all.

Teams did an excellent job of seamlessly onboarding.

Different number of players and Thats, starting to add a little bit of a little bit of revenue to the to the line. There. So overall that business continues to look pretty healthy. It continues to show underlying organic growth coming in the rest of asset servicing as you think about asset servicing and just thinking about just the growth in our in <unk>.

Our fees or I'm, sorry, our AUC assets under custody there up about 17%.

Year on year on a spot basis.

That was driven by market and the other half are truly driven by our growth profile from growth from existing clients as well as new clients at least split about 50 50.

And when just.

Just thinking through kind of where we're seeing a lot of that growth.

About.

30% of it is from investment managers, another 30% or so is from.

Broker dealers and banks.

And then the remainder is really split between both the alternative space and the asset owner space. So that's that.

And that's where we're seeing a nice uptick in the pipeline is stronger than it was at this period last year.

Great. Thank you and my follow up is just coming back on the clearing business last quarter. You had said that you would have expected about a $20 million impact from the deconsolidation that you've discussed can you just help us understand how much of that was already out in the third quarter and how much more do you still expect if any.

Sure and Pershing.

We had originally expected about a $20 million impact of the lost business due to just being on the wrong side of of of M&A.

That is due to timing that was a lot less so I would think about it as the uptake will be about $15 million between the third quarter and the fourth quarter, we will see the full impact.

Okay got it understood alright, thank you.

Our next question comes from the line of Brian Bedell with Deutsche Bank.

Great. Thanks, very much good morning folks most of my questions have been asked but maybe just to.

Follow on a couple so just went back on to the organic growth. Obviously this is really really tracking well.

Going from zero to now close to 3%. So maybe just to start 2020 is too early but given these initiatives that you have and how you think about the revenue following through.

Do you are you optimistic that you can continue to improve upon that.

That 3% number and then just one one on Pershing X.

Technical <unk>.

Into the into and that Aggregators system does that require you to dis intermediate that current custodians, who are you becoming the custodian in that process or rather would you sit on top of the current custodians and make it.

How 'bout seamless aggregation of their technology services.

Okay. So why don't I take the.

The Pershing question and then Emily I think you can probably handle the other one but.

<unk>.

Project Ax will be multi custodial so it will be actually be custodian.

Gnostic of course, we'd love to have the custodial business, but we'll be able to provide these capabilities regardless.

Custodian.

And we've we're working on that capability right now and I must.

I have to say this is glenn.

Pershing particular in particular is probably the longest term of our of our investments. So this we're really investing for the future and I think before we really start to see the revenues that.

That we expect in that business, that's probably two or three years out most of the other ones that we've been talking about are a little more near term.

Do you want to sure.

Again, we're in the middle of our planning process. So it's probably too soon to really comment on the expectations specifically for organic growth next year, but yes, certainly we're really pleased with the momentum that we've seen this year and we would hope to certainly achieve roughly the same amount of organic growth next year.

Okay. Okay, Great and then just quickly on net interest revenue in that 14% downgrade not sure. If I had the right base here, but it is does that imply.

Slight downtick in NAR in <unk> versus <unk> I know you said.

You talked about the trough and I wasn't sure if you're referring to <unk> is the likely trough and then I R.

Yes.

If you do the math it would imply a very slight.

I am down take about 1% to 2% in the fourth quarter, but of course, you know rates are moving all the time like I said, we're seeing potential upside from some central banks, even moving earlier than originally thought so.

That's based on the last forecast is slightly down, but we think theres potentially some upside and hopefully it will be flat.

Okay. Okay, great. Thank you.

Yes.

Our next question comes from Robert <unk> with Autonomous research.

Good morning, guys, one more on organic growth if I can how much of that is coming from competitive wins versus say more greenfield type of opportunities.

You want to take that.

The competitive wins versus Greenfield.

So when I mean, certainly when.

When we look at the entirety of our wins were both both.

The what we call new business it can be new business from completely new clients as well as new business from existing clients, who is as clients, obviously launch new funds et cetera that still new business, but it's new business with existing clients and of course, we're always very very.

<unk> focused on retention so.

Being a having the business already and still it's competitive it's competitive out there. So we're making sure that we're retaining is we're retaining those those deals that we already.

We are the incumbent when you look at it about it's about 50 50 in terms of the breakdown from like new versus just retention of existing business.

And where.

To your point, we are definitely winning against the competition.

Couple of the ones that I, even called out today.

And in the alternative space that was a different service provider, we've got a broader set of capabilities. In addition to the ability to do the administration. So.

One that business.

One.

Okay.

A couple of large businesses over the last two takeaways over the last couple of quarters. So occasionally we lose them, but right now our win loss ratio versus the competition is leading toward our side and we think that's because of the capabilities that we've got as well as the quality of the service that we've been delivering.

Okay. Thanks.

Just two.

They on retention how is the retention rates are trending and what kind of opportunities or where things can you do to continue to improve the retention rate.

Our retention rates have been trending upwards.

We don't really disclose but certainly.

They're trending upward in there.

They are very high so.

Well in excess of 70, 75% so.

In terms of.

How I mean, the first thing I would say that first and foremost is just the client service and basically performing performing well.

And day out and that's what kind of gives you the.

The even the right to actually bid in telecom it leave retains and we're intensely intensely focused on that and then of course, it's about.

Talking to our clients understanding their strategy more and more we're really working in a consultative manner with our clients looking at their you know their issues their challenges and how we can bring the solutions of our the entirety of the firm to bear to help them with their with their operating model and to get more efficient and to create alpha.

So it's both just being good at the day to day and also ensuring that our our capabilities in our <unk>.

Both our capabilities and our products are.

Not only competitive, but leading edge and then working with the client working with our clients in a very controlled and a consultative and strategic manner.

Okay. Thank you.

Okay.

Thanks Robert.

And just as a reminder, if you'd like to ask a question that is star one on your telephone keypad.

Our next question comes from Michael Brown with K B W.

Great. Thank you operator.

I'm not sure. If you guys. If you guys gave this but Emily I was just.

Given most of your comments around a year over year basis.

Just curious given the move in the dollar and the strengthening that we recently saw.

What was the sequential impact to revenues and expenses.

In the third quarter versus the second quarter from the move in the dollar.

Oh gosh off the top of my head I can't really I don't have that off the top of my head, but I mean, the good news is that actually were pretty equally matched so any.

Any benefit you have and revenues.

Any sorry.

Any.

Headwinds you have in expenses is pretty much equally offset in revenues from it so from a PPI perspective, we're incredibly well hedged.

Yeah.

Right, Okay, it's going to be it's going to be in the ballpark of 1% to 2% of the against the expenses yes.

Okay.

And then just on the loan book.

It's up 14% year over year average loans, but just 1% sequentially and thats the lowest growth rate we've seen in the last three quarters. Any particular reason there was a bit of a slowdown this quarter end and what's the expectation there going forward.

So I mean, just yet.

Point out our loan book has grown by 14% year on year. So there's been very healthy growth in the loan portfolio over over time of course broken any.

It can be lumpy.

We did see some some healthy growth loans on a spot basis are actually up.

More than their you know their apis to $64 million.

Some of the growth we're seeing is a frozen in margin loans growth in Clos collateralized lending in our in wealth.

We.

One core growth in our term loans in terms of securities financing and also more demand in terms of capital call facility. So.

And look we do think we have.

Certainly.

We're proactively looking to grow our loan portfolio and we're very we feel.

We feel that it's a it's it's certainly an error.

Area that's.

In focus and we've got capacity certainly to do so.

Okay, great. Thanks for that clarification.

Thanks for taking my questions.

Thanks, Michael.

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.

No. Thank you everyone for your interest and obviously you can reach out to Meredith and the IR team for any follow ups.

Thank you.

Yes.

Thank you. This does concludes today's conference and webcast.

A replay of this conference call and webcast will be available on that being why Mellon Investor Relations website at two P. M. Eastern standard time today have a great day.

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