Q1 2022 Bank of New York Mellon Corp Earnings Call

[music].

Good morning, and welcome to the 2022 first quarter earnings conference call hosted by being why Mellon at this time all participants are in a listen only mode nature. We will conduct a question and answer session. Please note that this conference call webcast will be.

A recorded and will consist of copyrighted material you may not recourse or rebroadcast these materials without being why mellons consent.

I'll now hand, the call over to Maurice Merch B M Y Melon head of Investor Relations. Please go ahead Sir.

Thank you operator.

Good morning, everyone and welcome to our first quarter 2022 earnings call.

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

I'm joined by Todd Gibbons.

Chief Executive Officer Robin Vince.

President and CEO elect and Emily taught me, our Chief Financial Officer.

<unk> will provide introductory remarks, and then Emily will take you through the earnings presentation.

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

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

Information about these statements and non-GAAP measures are available in the earnings press release.

Supplements and financial highlights presentation.

All available on the Investor Relations page of our website.

Forward looking statements made on this call speak only as of today April 18 2022.

Will not be updated with that I will turn it over to Todd.

Thank you Marius and thank you everyone for joining us this morning.

Referring to slide two of our financial highlights presentation, we continued to see healthy underlying momentum across most of our businesses and reported revenue of $3 $9 billion, which was roughly flat year over year and it was up 2%. If you exclude the impact of government sanctions and the additional actions that were taken related to Russia.

Now we're in an increasingly uncertain environment, including the war in Ukraine volatile markets and persistently higher inflation, which will require more meaningful monetary policy adjustments.

It is in times like these that our strong lower risk balance sheet and the resiliency of our business model differentiates us in.

In the face of the tragic events occurring in Ukraine, we ceased new banking business in Russia, and suspended investment management purchases of Russian Securities since.

Since the beginning of the war, we stepped up our humanitarian efforts as well as the support for our employees and the members of our community who have been impacted.

We continue working for our multinational clients that depend on our custody and recordkeeping services to manage their exposures.

Expenses of $3 billion were up five 5% as we continued to invest in further growth and efficiency initiatives.

And we reported EPS of <unk> 86.

And that included an 8% impact related to Russia.

We continued to generate a significant amount of capital and returned close to 60% of earnings to our shareholders primarily through common dividends.

Throughout the quarter, we took actions in the investment securities portfolio to temper, the immediate impact to capital from higher interest rates and.

And we expect higher rates to be about the positive for fees and net interest revenue going forward.

Emily will discuss the details for the quarter shortly but let me briefly touch on a few business highlights.

In asset servicing we manage to keep the strong sales momentum with which we entered the year wins and win rates improved off of what had been a healthy quarter a year ago.

<unk> mandated a UCA is up meaningfully both year over year and quarter over quarter, producing a strong pipeline of AUC to be installed in 2022 and beyond.

And our retention rate was an exceptional 97%.

Our ETF business continues to stand out having increased the number of funds serviced by 4% beginning of the year and we were recognized as best ETF custodian at the ETF Express European Awards last month.

We also continued building momentum as the leader in digital assets haven't been selected by Circle is primary custodian for the USD quite reserves.

And late last week, we announced an exciting data and digital collaboration where they are.

Together, we will focus on supporting the ESG needs of clients globally, leveraging our collective data analytics capability as unique datasets to help clients make better more informed investment strategy.

Providing enhanced data advanced.

Advanced analytics, and actionable insights into ESG portfolio level.

In Pershing year over year comparisons continue to be impacted by the previously disclosed lost business in the second half of last year and remember the first quarter of last year was exceptionally strong on the back of elevated transaction activity.

Now while there are puts and takes here that can impact the amount of organic growth in any given quarter. We remain extremely excited about <unk> prospects, our clients are doing well and as they capture new assets, we're growing with them.

And we are well positioned to benefit from a number of secular growth trends such as the rapid growth number of breakaway advisors and digitally oriented wealth firms.

Of course consolidation in that sector can leave us on either side of any particular transaction.

Over time, we find that our clients would typically the largest and most complex players in the industry are more often than not on the acquiring side.

And then Pershing X, we continue to make solid progress since announcing the initiative back in October .

Following last quarter's acquisition of optimal asset management. This quarter, we made several key hires which completed the filling out of our leadership team and we folded all bridge as well reporting and data aggregation tool under the purging excess umbrella.

This alignment strengthens Pershing exits data offering allows us to draw all bridges engineers to accelerate development of the platform and provides clients with access to a broader suite of technologies.

Shifting to clearance and collateral management, there, we delivered a strong quarter of organic growth on the back of higher securities clearance volumes and as collateral management balances remained elevated at a record five trillion dollars in the quarter.

Market volatility is driving dealer demand for U S. Treasuries and we're also seeing a promising picked up a new collateral balances related to our future of collateral initiative.

With asset balances already being mobilized to the EMEA region, and growing providing our clients the optimization and funding benefits.

Treasury services also delivered another solid quarter of growth driven by higher payment volumes and an improved product mix.

Our business continued to build on its recent track record of industry first.

This quarter being the first bank to successfully connect to and send a message on the fed now real time payment system.

And we're excited to welcome Jennifer Barker to the company as the new CEO of the business starting in that <unk>.

Jennifer brings almost two decades of global client experience in Treasury services industry and she is the perfect leader build upon the business as recent success and innovative track record.

In investment management, given the environment its not surprising to see some challenges as clients and higher earnings on rebalancing and de risk.

That said investment performance remained strong with over 80% of our top 30 strategy by revenue and the top two quartile on a three year basis. We're also seeing good traction with our expanding suite of passive and active Etfs, we launched the <unk> Mellon responsible horizons corporate bond ETF managed by insight and total ETF AUM.

Grew by 8% quarter over quarter.

I also wanted to highlight an exciting new share class for the Dreyfus government cash management fund called bold.

This share class, which provides investors the opportunity to make a direct social impact supporting Howard University, historically, black colleges and universities already grew to over $1 billion AUM.

The only weeks of launch at the end of February .

We also continue to be pleased with the healthy growth that we're seeing in wealth management client acquisition rates continue trending in the right direction and our improved digital tools and expanded banking offering are driving deeper client relationships as evidenced by the solid loan and deposit growth.

As an example during the quarter, we successfully completed the initial rollout of loan path, our new digital platform for investment credit lines, which allows us to streamline our processes and significantly improve the client experience at the same time.

Cross the franchise, we're honored to have once again been recognized by fortune for making both its worlds most admired companies in 2022 as well as blockchain 50 list, which recognizes 50 companies around the world for deploying blockchain technology to speed up business processes increased transparency and potentially save substantial.

Cost for the industry.

We're also proud to have been named to Barron's 100, most sustainable companies list, which recognizes companies that score highest across 230 environment, social and governance indicators.

Now before I turn it over to Emilie I don't like to touch on my decision to retire as CEO on August 30, <unk> and the appointment of Robin as my successor.

When I joined being why Mellon 36 years ago I was drawn by the company's rich history, its special culture and the important place it occupies in the global financial system.

Over the last four decades, we have undergone an incredible transformation from a traditional commercial bank that we want to work to the globally significant lower risk financial services company that we are today.

And I'm, particularly proud of what we've accomplished over the last couple of years.

A new leadership team in place, we launched a compelling agenda for growth and innovation under which we have already seen a meaningful pickup in organic growth.

We've also really evolved our culture today, we're much more performance oriented and client centric or more nimble in our decision, making and we're doing a lot better at connecting the dots across our differentiated businesses.

When our strategic ambitions and the strength of our franchise, we tested by the global pandemic. Our people once again rose to the occasion and not only delivered on our commitments to our clients communities and shareholders, but we also continue to make significant progress on our journey to position the company for the future.

And Robyn we have found an outstanding leader to build on this agenda and to lead being why mellon into exciting next chapter.

Having known Robin as a client for almost a decade I was thrilled to recruit him to the company in 2020 and to work directly with them the last two years.

Since then he has not only had a profound impact on the company through leadership of Berthing Treasury services clearance and collateral management and our markets businesses.

He has been a trusted strategic advisor to me and the rest of the executive management team, Rob and I are working closely together and with our executive committee to ensure a seamless transition in the next couple of months.

That I will turn it over time or.

Also Pat.

Congratulations on your retirement.

Apparently leadership I'm not I'm turning over the years.

Hi, good morning, everyone.

The positive result.

All comparison on a year over year.

Otherwise.

Starting on colds krill.

Total Avenue it back I mean Christmas and approximately 90 million reduction available to Russia, a notable item this quarter.

Fee revenue was down 3%.

Excluding the impact of all the treasurer.

The benefit of higher market value of our cohort momentum across many of our present day.

The impact of lost Pershing and corporate trust in the prior year.

Revenue elevated level in the first quarter of last year unfavorable.

Unfavorable.

The stronger U S dollar.

Well not on the Poles.

A little below $45 five trillion, okay, I know Christy.

What's old person umbrella.

And one Kristen.

A higher market values net of currency headwinds.

Only one of 2.3 trillion.

Sure Chris that year over year, reflecting humira kept a lot of info on higher market value harshly.

The impact of the stronger U S dollar.

Money market fee waivers.

Sure.

Well 199 million in the quarter, and then president appointed four nine compared to the prior quarter.

This reflects the benefit of higher average short term interest rate, partially offset by higher money.

Hello, Mike and Alan.

Once again, our credit and money market fund balances moving freight Outpolled industrial.

Together, the impact of lower waivers and higher balances drove an awful.

Hum.

69.

On a year over year base fee waivers had a minimal impact to our revenue.

Investment and other revenue was $79.

Our net interest revenue increased 7%, reflecting higher interest rates on investor has.

And now we're funding them.

Okay.

About 5.5% or 6% excluding notable items.

Provision for credit losses with Chennai.

The benefit kind of hold them present in the credit portfolio led by commercial real estate was more than offset by 14 million reserve build on interest bearing deposits.

In Russia.

And our effective tax rate was approximately 17% as expected.

Annual vesting of stock based awards in the first quarter, which provided.

Okay, what's the oldest accident I mean, Craig.

I've been notable items related to Russia.

Pre tax margin and our <unk> were 23%.

Respectable I don't know.

And 25%, 7% excluding notable items.

On to capital and liquidity and hold score.

Our consolidated tier one leverage ratio, which continues to be our binding constraint was five 3% down four point.

The commentary.

The sharp rise in interest rates resulted in a one and a half billion impact to unrealized losses in our available for sale securities portfolio.

I mean, just sort of at a roughly 60% of our earnings threshold or is predominantly goes live.

Yes.

The impact of the reduction of capital on our tier one leverage ratio was partially offset by the benefit of a smaller balance sheet quarter over quarter.

Our tier one ratio was 10, 1% down approximately 100.

Hello.

Quaker primarily reflecting the negative mark to market.

The portfolio as well as an approximately 30.

And the adoption of Becker.

I know, our LCR was 109% for the.

Prior quarter.

Turning Tri net interest revenue and balance sheet trends on whole tribe, which I won't talk about.

Ill turn.

Net interest revenue was 698 million up 3% sequentially.

This increase reflects higher rate as well as continued growth in loan balances, partially offset by lower cash and securities balances average deposit balances declined by 3%, while average interest earning assets were down 2% sequentially.

Loan balances were up nicely about 3% sequentially.

Moving on to expenses on pulp stocks.

It's been a quarter, where 3 billion up about five 5% year over year and up 6%. Excluding notable items from last year.

This increase primarily reflects the investment net of additional cost savings and it also reflects higher revenue run rate of expenses.

Her partially offset by the favorable impact of a stronger U S dollar.

Okay.

Details regarding noteworthy quarter over quarter expense.

Yeah.

<unk> expense was up 4%, reflecting the annual vesting of long term stock awards for retirement eligible employees.

Distribution and servicing expenses up 5%, reflecting higher distribution cost associated with money market funds.

Occupancy expense was down 4% as well.

Optimize our real estate portfolio.

Turning to page seven for a closer look at our business segment.

Charity services reported total revenue of $1 8 billion flat compared to the prior year.

The impact of the reduction related to Russia revenue was up 4%.

Fee revenue was down 5% and up 1%, excluding the impact of Russia.

Net interest revenue was up 6%, reflecting higher interest rates, partially offset by lower deposit balances.

As I discuss the lines of business with our security services and market services segment.

With my comments on the investment services.

You can find in our financial supplement.

In asset servicing investment services group.

Or by 5%, primarily reflecting higher market values and net new business, partially offset by slightly lower transaction activity.

Bias.

As Todd mentioned earlier, our sales momentum continues to be strong compared to the first quarter of last year.

Our issuer services business was significantly impacted by the reduction related to Russia.

That's what services were down 23%.

Specifically, we accelerated amortization of deferred costs pretty depository receipt services, a Russian company, which is a contra revenue item.

This impact investment services fees were down approximately 9% and this primarily reflects lower depositary receipt fees and the impact of lost business in the prior year incorporate shocked.

Less market and wealth services on holds.

I don't want services reported total revenue of $1 2 billion flat compared to the prior year.

<unk> revenue was also flat and net interest revenue was up 2%, reflecting higher interest rates and higher loan balances, partially offset by lower deposit balances.

Hurting.

Services fees were down 6%.

This reflects the impact of lost business in the prior year as well as lower transaction activity versus a very active first quarter of last year, partially offset by the impact of higher market value.

Our team continued to deliver solid underlying growth.

Clearing accounts continue to grow at a 4% annualized growth rate and we gathered net new assets of $18 billion in the quarter.

In Treasury services investment services fees were up 4% as it does that sound growth from both new and existing clients and continued to gain traction in higher margin products such as digital painting.

And in clearance and collateral management and investment services fees were up 8%.

Collecting but higher Tri party collateral management balances as well as higher clearance volumes.

Now turning to our investment and wealth management on page nine.

Investment in wealth management reported total revenue of 964 million down 3%.

Fee revenue was also down 3%.

Investment and other revenue was a negative 8 million and included losses on seed capital.

And net interest revenue was up 19%, reflecting higher interest rates.

Deposit and loan balances.

As mentioned earlier, we ended the quarter with assets under management of $2 three trillion up 2% year over year.

This increase primarily reflects the benefit of cumulative net inflows.

Cash and long term product as well as higher market values, partially offset by the unfavorable impact of the stronger U S. Dollar.

As it relates to flows in the quarter with a 1 billion of net outflows from long term product and 11 billion of net outflows from cash having said that Olivia I continue to be a bright spot with $17 billion of net inflows.

In investment management revenue was down 6%.

Market values were more than offset by lower seed capital result, and lower equity income as well as the unfavorable impact of the stronger U S dollar, which was more impactful in investment management given that approximately 50% of our revenue is earned in foreign currencies.

Wealth management revenue grew by 4%, primarily reflecting higher net interest revenue and higher market value.

Client assets of 305 billion were up 4% year over year, reflecting higher markets and Cumulus had net inflows.

Okay.

The growth in both deposits alone as we gather our banking offering and deepen our client relationships.

Page 10 shows the results of the other side of that.

I will close with an update on our outlook for the full year of 2022.

Obviously, given the backdrop of geopolitical uncertainty and rapidly evolving global monetary policy and the continued overhang of the pandemic the macroeconomic environment is very uncertain.

Our outlook, we assume a scenario where interest rates follow the forward curve and market values stay relatively flat to where they were at the end of the first quarter.

With this in mind please.

Jack all year, and I are to be up roughly 13% compared to 2021.

Embedded in this assumption, we expect the correlation between rates and deposit run off to be consistent with what we have seen in the past.

We now expect fee revenue to be at 4% to 5%.

This includes a tailwind of about 5% from the reduction of fee waivers.

Organic growth of 1%.

And then wanted to 2% of headwind from the impact of Russia market value currency and other factors.

Core expenses ex notable items, we now expect an increase of approximately 5% slightly lower than our previous guidance.

With regards to capital management, we have taken a number of actions to reposition our portfolio to reduce the impact of higher rates and credit spreads.

For example.

With lower duration in the portfolio reduced credit exposure and moved assets.

Tan.

These actions have reduced our Aoc I rate sensitivity by about 25% going forward.

Having said that we remain cautious on buybacks in the near term.

And based on the environment. We described earlier, we ultimately expect to return at least 75% of earnings to shareholders. This year.

We do continue to expect to return close to 100% of earnings for our shareholders over time.

Last but not least we continue to expect our effective tax rate for the year to be approximately 19%.

With that operator can you. Please open the line for questions.

Thank you if you wish to ask a question at this time. Please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off July youre sticking onto a richer.

We will now take our first question from Brennan Hawken from UBS. Please go ahead.

Good morning, Thank you for taking my questions.

First.

Todd Congrats on your pending retirement and Robin.

Congrats on the on the new role and look forward to working closer with you.

Before.

No for Robyn I'd love to drill down a little bit Emily on what you talked about.

More tactically around the <unk>.

Actions, you've taken with the balance sheet to reduce the OCI sensitivity could you maybe expand on that a bit and touch on.

Some of the specific actions in greater detail and what impact we could expect on the outlook for NII, our and how that might inform your updated expectation.

So brennan good morning.

I I, just taking a quick step back I do want to do a shout out to our our CIO because I think Ah that team really did do a great job in terms of both optimizing an hour, but also protecting against Aoc Aoc I volatility during the quarter.

As I mentioned in my prepared remarks, I'll give a bit more color, we shorten the duration of the a F. S. A portion of the portfolio. It's now a little over one and a half years down from more than two years at the end of last quarter.

We've transferred longer dated securities to HTM, you'll notice that H T. M. Now as a proportion of the securities portfolio was about 40% that's up from about 36% at the end of last year, We've also reduced convexity and credit risk in the portfolio and so all of these things I mean, we did.

Obviously, there was a reduction in <unk> of one and a half are $1 5 billion during the quarter, but it would've been larger had we not taken these actions and as you rightfully point out that these actions have also.

A lot less sensitive to rising rates going forward and as I as I also I think mentioned, we've reduced just to put a finer point on it.

We've reduced <unk> in the <unk>.

Portfolio in excess of 25% just through the actions that we are we carried out this this quarter.

As you can tell we've been managing the portfolio very actively will continue to moderate and be very nimble.

Great Thanks for that Emily.

Robin maybe maybe one for you.

Looking back and widening out here you know understand that you've just been named to the job.

But you are not new to bank of New York for sure. So.

At this point can you provide any details or plans about your goals or targets or or maybe at least like a roadmap for when we could expect to hear more from you about your about your goals in your plants.

Sure.

Morning, Brian .

I appreciate the comment on the question.

So so you're right I'm not completely new to the firm, which is certainly an advantage for me in coming in and taking on the role and what I will say that I am being very diligent as Todd referred to earlier on in his comments about the transition and so we're working very closely together and I don't want to.

It'd be complacent about the fact that there's a great opportunity right.

To have the opportunity to come in and to really benefit from that transition.

<unk> said all of that when I joined.

I was really struck by the breadth of the franchise I mean, 93%.

Well its top investment managers, who are clients of ours.

87% of the world's top 100 banks in that graph, coupled with the depths of the franchise that real client trust that we've talked about before is a super powerful foundation and so so job number one for me is to rebuild on that and that's been an investment that has been very focused on.

During his time.

Now what I also would.

It would reflect John .

Some of the things that I've been focused on in the market and well services businesses in the first of those is innovation you've seen that we've launched <unk>. We've been very focused on real time payments and the treasury services space and that concept of really driving innovation across the enterprise is is another important pillar of how we think about this.

And the opportunity that's ahead of us.

The other thing that we've been doing in that segment.

Men, which I'm very excited about across the company is really deepening the wallet.

<unk> the dots across the <unk>.

Helping clients existing clients of the fund to do more with us in that hole.

It also <unk> Mellon I think is a real.

Horton and deep vein for us to continue to mine.

And then the last point did I mention is operating leverage and focus on margins.

In that segment, we had a 41% margin in the first quarter and having run operational businesses in the past I'm very focused on operating leverage.

And that will continue to be a focus of mine along with these other pillars. So that's how I'm thinking about the world, but I'd just remind you that I'm still in the transition and enjoying working with Todd and we're really focused on making this a smooth and effective.

Alright, thanks for that Colorado.

Thanks, Brian Thanks Brendan.

Next question operator.

We will now take our next question from Mike Mayo from Wells Fargo. Please go ahead.

Hi, well I was going to ask you Robin I'd ask that the shareholder meeting.

But maybe just a little bit more about your.

Your background I'd, just say that when northern changed their CEO . They said, you'll see it was more about marketing and I'm more about numbers when states III changed their CEO . They said well then.

New CEO it was more about understanding asset management and their clients.

Anything else, if we don't know you as well as Todd he's been there for us for a decade.

Anything else about your background that you could share.

That could give investors.

Confidence as you are about to enter the CEO role in several months.

Sure sure, Mike well I'm, all about being a grateful round CEO .

But to answer the.

A question and that will directly in terms of my background.

I feel like I've seen prepared for this role over the course of my career I started off in the markets business in Iran. As the money market business at my prior organization, which was a great opportunity to really get into the market capital market interest rates.

And really the client franchise and of course, a lot of those same clients are clients of ours and so that was a great performance has stopped for me.

Ran operations my price.

Treasurer I was the chief risk officer.

I was the CEO of the International Bank I operated internationally and so when I put all of that together I think it really gives me the opportunity having touched a lot of different aspects of our franchise and our activities. She already bring all of that to bear.

In the role going forward and I'm very excited about that and as I joined the firm as I comment.

Commented before I've been struck by a few things, including the depth and breadth of the franchise, but also the culture of the firm and I think that there's a lot of opportunity for us and I am excited to have Ed.

And so to summarize you kind of want to have like one <unk> mellon and improve the wallet share and hopefully I'm not sure. If you guys can give us now I don't think so Todd theres not too many firms that do it but what's your market share by large client where it was a few years ago, and where you hope it to be do you have any metrics.

Around that or do you think we can get that in the future.

Yes, we haven't disclosed that publicly.

I'd say as we have grown with our clients and we have we've continued to increase market share with our largest clients over the past couple of years, especially in our servicing business.

Asset servicing business.

And I think some of the stats that we even did disclosed this morning.

And we mentioned we retained 90% actually I mentioned that we retained 97% of all of the business that we've read that on which is which is an enormously high number and we've got some capabilities and the investments that we've made in service quality.

Some of that is in some of the technology that we've got around that keeping as much closer to our clients much better informed much more responsive to the investments that we've made in our data data management and data analytics, which where I think we are we are the leader.

Not only in the servicing capabilities, but also the fact that we can.

Got the ability to bundle.

All of the back office services, not just custody and.

Putting in administration, but ta ta as well as a differentiator. So I think we are.

We are seeing increased market share haven't disclosed specifically against the against the major clients, but I think the fact that we are with just about every one of the major clients reflects that.

Alright, thank you.

Thanks, Mike.

We will now take our next question from Kit <unk> from Jefferies. Please go ahead.

Thanks, Good morning, everyone.

And we wanted to ask you a little bit on net interest income and some of the changes that you are referencing so I guess to start can you can you help us understand your point about historical.

Reference of deposits versus Q tier rates environment, we saw deposits come down this quarter can you tell us what you are expecting to see out of the balance sheet going forward.

Sure so.

When it comes to deposits in and run and run off what I'd first say is that we're just using the forward curve. So assume that it's just as baked into the forward curve fed funds was about two 5% by the end of the year.

Also we're just assuming that data is largely retrace what we've seen in the last cycle. It means that we will get to the end state faster, but theyre going to largely retraced its correlated trade for largely retrace, what we've already seen so with all that said, we would expect deposits to probably run.

Run off maybe about 10% over the course of this year.

And that's from where we are in the average of the first quarter, we've already seen them come down a bit from the fourth quarter and.

And just as a reminder, you know our deposit base is largely institutional and Ibs are part of the growth you've seen has been in a in an ibs and so we expect that to kind of normalize to over over time.

And the other thing I would mention is is that as we see deposit runoff. We also could see a migration to money market funds and if that does indeed happen then obviously that could be a nice tailwind for us as well.

Okay got it and then in terms of the shortening of the duration can you tell us how I don't know if you can size the magnitude of how much that might have changed your current views of full year NII up 13 versus what it might have been otherwise and how you are now redirecting incremental cash flows into the portfolio versus.

What you might have done otherwise if rates Havent gone up this quickly.

Yes, we are.

We've we've obviously.

Shortened duration across the portfolio, we've swapped fixed to floating and.

Considering just the uncertain environment, we're also continuing to be cautious and nimble.

Okay, and then you mentioned the.

The more cautious on buybacks in the near term and maybe returning 75%. This year how will you evaluate that obviously, we can do math on what it means for this year.

But in terms of how much could the swings in OCI continue to impact even being able to do 75%. Thanks Emily.

Sure so.

As I mentioned in our in my prepared remarks, we still intend.

Intend to return, 100% of our earnings to our shareholders over time, and that's of course across dividends and buybacks.

We've been we've been cautious and I think it's been appropriate to be somewhat defensive in this environment with the uncertainty and of course, the reduction and N a OCI.

But given the assumptions in our forecast.

Feel pretty confident that we would expect to return at least 75% of our earnings to our shareholders over this year and the nice thing about FCB and they have to be framework is that we can be nimble, we can be flexible and ultimately depending upon the write off we see we might be able to do more.

We will now take our next question from Stephen Ju back from Wolfe Research. Please go ahead.

Okay.

Hey, good morning, So wanted to ask a follow up on the NII guidance I appreciate the color Emily on the deposit balance trajectory based on what we experienced last cycle, but was hoping you could just speak to the deposit beta assumptions underpinning the guidance for the full year and also how much.

Have a helper was premium than this quarter and how much of a benefit.

Do you expect to realize over the course of the remainder of this year.

So from a beta perspective, and as I said before we just expect betas to largely retrace, what we seen historically it does mean, you'll get to the end state faster.

And the first you know in the first rate rise, it's generally than what we've experienced is very much as as we've been expecting in line with expectations kind of betas of 35% to 40%.

By the time, we kind of get towards year end and we have many more rate hikes that will be probably closer to betas would be closer to 70 plus percent, which is kind of where we where we ended in in the last rate cycle.

In terms of.

What was your last sorry, I missed that.

Premium am.

Yes.

Yeah. It was it was helpful. This quarter I don't have it right off hand, but it was obviously a it's definitely helpful. This quarter, but and and we just expect it with rates in a rate rising as we go forward. It will continue to be a bit helpful, but frankly at a more modest level.

Understood and maybe just switching over to the fee side, you spoke to fee revenue up 4% to 5% I believe Emily and I'm, sorry, if I missed that you alluded to organic growth of 1% plus being the underlying assumption I know you had been running at.

2% plus of late and wanted to get a sense is that organic growth guide more or flushing of conservatism challenging macro or just what youre actually seeing in the backlog of new mandates.

It's definitely not not so much at all on the mandate side, we still fundamentally our businesses are in really good health. The the growth is really just considering the more challenging environment that we're in and you know specifically when you look at market levels or client activity across some bits.

Mrs have slowed down.

You're seeing or expecting a bit more risk off behavior, and so that particular businesses, which are probably low.

You are going to be most impacted we think are.

Asset management corporate Trust depository receipts.

So a lot lesser extent asset servicing and that's so that's what it's all baked into the 1% guide, but the fundamentals are very good and we feel pretty good about that considering the challenging environment.

I couldn't agree more I just one follow up tick tack modeling question just on the asset servicing line.

I believe in the slides you flagged a gain on strategic equity investment I was hoping that you could size that for us.

We don't disclose that.

No we don't.

Disclose that concrete item.

Yes, I would just add to that Emily. So if you look at our investment and other income it was about in line with the guidance that we had given on the asset servicing we do have some investments that we've said in some fin techs that we work very closely with strategically and they performed pretty well, but as you might imagine in this down cycle in the first quarter.

Got hit pretty hard in our seed capital in some of our other other things so net net they basically offset each other.

Got it okay. Thanks for taking my questions.

Yeah.

We will now take our next question from Alex Bolstering from Goldman Sachs. Please go ahead.

Hey, good morning, everybody. Thanks for taking the questions and congrats again to both Todd and Robin here.

So my first question is around the kind of connectivity between organic growth and operating leverage in the business. So organic growth sounds like one ish percent. This year fees were flattish year over year expenses up 5% right. So I understand that there is obviously investments that you guys are making in the business but.

When you think about this one.

18% to 24 months out should we expect <unk> to get to a point where fee growth is more aligned with expense growth I think this kind of dovetails, maybe somewhat robin's comments earlier around his focus on operating leverage.

So what I would say is look we are very focused on driving positive operating leverage and I just would remind you that overall four if you look at all total revenues, we will be no. Our plan is to deliver positive operating leverage this year.

Frankly, that's when the impact of the Russian notable items. So I think that's a that's a pretty good.

In terms of fee.

See you know when we think about just fee revenue versus expenses are what I would say is that when you. When you look at them are they.

The guide that we gave for the rest of the year.

It does our expense guide does include a slightly more inflationary pressures as well as the investments of course that we've talked about extensively that we think are very compelling and some will pay off sooner and some will pay off a bit over the course of the next couple of years and as we talked about it's way too early to kind of talk about like what it's gonna look.

I can say 24 36 months out, but we have said that ultimately over time, we would expect expense growth the rate of growth to moderate.

Alright, we'll stay tuned for that.

My second question around maybe the the issuer services business and really Dr. Specifically.

I think in the earlier release, when you guys announced the rush of loss this quarter.

There is a common there around just the more subdued level of revenue growth I think there is an ongoing effect.

The Russia exit business as well can you just level set us what the Dr business doesn't revenues now per year kind of net of these changes on a run rate basis, and then ultimately how should we think about any other sort of geopolitical risk with it in that business.

I don't know to what extent, China as part of that revenue stream.

Emil you want me to take care.

Sure go ahead.

So I think there's a couple of questions. There so Russia was a.

As a material component of the total Dr revenue.

The indication that we gave is there was a contra.

On.

Kind of prepaid expenses, there so that got reversed in the first quarter and that was the most of the.

The $88 million that we were talking about on a go forward basis, we would expect probably something like $20 million.

Probably $15 million in the quarter, specifically from from D. Ours, there arent, maybe China is an important market to us too. So we start with what we have seen Alex is a little bit.

Fewer transactions fewer new issuance in China, a little bit a little bit down and thats reflected in those numbers, we don't break out the entire D. R.

Revenue line.

Hey.

It's Ed.

Smaller modest percentage of.

Total issuer services, but it is impacted as you can see it here.

Bottom line in the first quarter.

Got it great. Thanks very much.

We will now take our next question from Glenn Shor from Evercore. Please go ahead.

Glenn Please ensure the mute function is switched off to lay your signal to reach our equipment.

Okay Glen you're on mute, if you're still there. So operator, maybe we should go to another.

Questioner.

Perfect well now take our next question from Betsy <unk> from Morgan Stanley . Please go ahead.

Hi, This is Brian Kenney on behalf of Betsy and good morning.

Good morning, Brian .

Just a question on the Pershing X initiative that was announced a few months ago I'm wondering if you could dig in more on what specific areas, you're looking to grow in and help us size the investment dollars timing and the ROI of the investments here and any expected impact on margins.

Sure Ryan So look it's an investment that we're excited about as we step back from a publishing business, where as you know.

Whereas we're a real market leader in that business, we touch about 15%.

<unk>.

Alright accounts in the U S. We touch a little over 30%.

Alright, with $1 billion or more in.

One of the things that we've heard from our clients is that the.

World is getting increasingly complex for them as they think about how to really pull all of the capabilities that they need to run their businesses together and as we have really listened to our customers on that point, we decided that that was a great opportunity for us to help solve some of those programs and so.

Collecting the various different capabilities focusing on the data and the smooth movement of data across those various capabilities, we saw that as an opportunity to really deliver something new and incremental to our customer base and we've tried to speed our way along that we hired as you know.

Aynsley Simmons to run that for US just recently completed the rounding out of her top leadership team.

We tried to speed all way to market with the acquisition of a direct indexing capability in the fourth quarter optimal asset management that was an example of a bolt on capability that we think can just help us to accelerate but as we've disclosed before we're not expecting this to drop much to the bottom line.

Over the course of the next couple of years. So this is an investment in positioning <unk> and the aggregate wealth management platform services platform.

For the future and so this is a this is an investment in the medium to long term, we think it's important to our customers very much wants it and we're excited for it.

Thanks.

We will now take our next question from Brian Bedell from Deutsche Bank. Please go ahead.

Hello.

Hi can you hear me Brian Haney.

Okay great.

Great.

Great well first of all congrats again, Todd and Robin and rapid looking forward to working with you.

The first question is just on the short term.

Second quarter outlook I know Emily you gave the outlook for the full year, maybe just to focus a little bit on the piece coming into the second quarter on the recruitment of fee waivers and any commentary on this sort of near term trajectory of an IRR for the second quarter.

Yeah.

We really decided to feel more of a full year guide for the second quarter, but I mean for Si.

What your what Youre thinking about anything specifically on waivers if we do see the fed raise rates by 50 basis points in May as I think we're all kind of expecting obviously that will be a nice uptick in terms of recouping waivers and it's to the tune of call. It like 100 million or so with what I had is how I didn't seem to me that.

Yes.

Okay, Okay and then.

Our focus a little bit longer term on the organic revenue growth outlook, the 1% plus.

Just I.

I guess, if we do get a better let's say, if we get a risk on backdrop in the second half as opposed to the current sort of view of a challenging market backdrop.

How might that influence that organic revenue growth outlook is that enough to.

Put you back in that 2% area or do you really theres a lot of things you're working on to really build that.

Organically, if you could just remind us the sensitivity fee revenue to equity markets Global equity markets improvement and then just lastly, whether you would be considering any type of major acquisitions too to accelerate revenue growth. We're really it's it's just going to be a focus on organic.

So I'll take a couple of parts of that and Todd or Robin might want to chime in about the about the inorganic opportunities.

In terms of organic growth I mean, just remember when we define organic growth we are normalizing for market appreciation or depreciation, but it is fair that risk on or risk off behavior associated with that could also impact organic growth and so what I would say is you know it's hard we don't really say like what's the sensitivity, but yeah.

There there certainly could be more upside if you see more risk on behavior and ultimately you know that that that means more trading more transaction volume et cetera. So that that that is is upside. So it's certainly not out of the realm of possibility that it could be higher.

In terms of what was your second.

The equity.

<unk> revenue sensitivity to appreciably, so like every 10% increase in equity Mercure.

Yeah.

We have disclosed this I think you can find it in that in the K. So basically any like a 5% move in equity markets is.

Kind of happening gradually throughout the year is about an additional $75 million in revenue.

Yep.

Great and then just said.

Yep.

Okay.

Hi, John .

Do you want us to.

Yes, why don't you take yeah, why don't you go ahead and take it.

So danielle.

Before doing so.

So Brian just that 5% was that wasn't on an average at $75 million that means if it goes up on average over the course of the year final question.

Yeah, I want to make sure that.

It makes sense yeah.

Okay do you want to follow up on organic Emily.

Sure I mean on on it.

Inorganic what I would say and Scott and I have had been very consistent on this is that we are of course, we always are evaluating.

Organic opportunities, but at the same time the bar is really really high and it is not high just from a return perspective, it's also very high from an execution risk perspective.

So we have been doing.

Several deals, but they've been mostly kind of digestible bolt on things that are adding capabilities our markets our clients and we will continue to look out for those.

Okay, great. Thank you very much.

We will now take our next question from Michael Brown from K B W. Please go ahead.

Hi, good morning.

Good morning, Mike.

Yes.

Morning, I just wanted to ask about start with average average loans were up 3% sequentially and 18% year over year. So I just wanted to ask a little bit about where you're seeing the strongest demand and what are your expectations moving forward and the ability to meet that demand just given the expected trajectory of feet.

It balances from here.

So.

We've been.

Very proactively growing the loan portfolio. So yes, as you mentioned, it's up 3% on average an 18% year on year. We will continue its our expectation to continue to grow that over the course of this year.

And where we're seeing it is really on a couple of different areas. So capital call facilities, certainly a trade finance likewise margin loans.

CCL and mortgages and well select pretty much across the board and.

That's where we want to be there and leverage our balance sheet, where clients when it makes sense.

Okay. Thank you and then just thinking about the capital ratios today and your comment on returning 75% of net income.

On the trajectory in terms of the quarterly pace, just given that the tier one leverage is at five 3% or ended the quarter at five 3%.

It seems like the buybacks, maybe it could be a bit more back half weighted as the capital ratios kind of accrete higher from here or is that a fair expectation.

Uh huh.

I'm going to really comment on kind of how it's gonna be paced throughout the year. I think you can kind of look at all of our ratios and make your own assumptions, but and you know the thing I would just remind everyone again that the STB framework is.

You know really allows us to be very nimble and very flexible.

Okay, great. Thank you for taking my questions.

Thanks Marty.

We will now take our final question from Gerard Cassidy from RBC. Please go ahead.

Thank you good morning, everyone.

Emily.

Can you share with us.

And if it's not available maybe you could answer it in a different way, but in your quarterly and 10 cases of you and your peers are we just give as you know a 100 basis point parallel shift in the curve leads to an X percent increase or decrease in net interest revenue how does that how do you stand today at the end of the first quarter versus the end of the fourth quarter.

Do you have that number if you don't or will it be lower by 30 or 40% compared to the fourth quarter.

And if we don't we will obviously be updating that when we release that released the Q I'm you know what I would say is you know were much more sensitive of course to short term rates and long term rates that continues of course to our to be you know to be the case.

And you know well, you'll you'll see more of that when we actually released the Q.

Okay very good and then following up on the tier one leverage ratio I think last quarter. You mentioned that you guys trying to manage to five 5%, obviously, you're slightly below that today.

Where do you think how low can it go.

From where we are today or just your views on how are you managing that number.

So.

Our tier one leverage we've always said that given the extraordinary circumstances, we're in and all of the excess liquidity in the system that we would be you know it makes perfect sense to dip into our buffer to a degree which is what we've what we've done.

We would expect of course as we start to see some probably deposit runoff that that will take a lot of pressure off you know tier one leverage or what I'd also just flag is that you know by the end of the year it's not.

It's likely let's say nine out of the realm of possibility, but frankly, probably likely that our binding constraint will become CET one versus the tier one leverage and frankly I think if you're toggling between you know tier one and tier one leverage and CET one that actually is very good it means you're managing your balance sheet absolutely.

Great and then just quickly on the H T. M. I think you said you lifted your HCM portfolio of 40% of total securities is there a limit on how high you would take that too.

There isn't a limit per se, but we obviously.

You know do that very you know with with.

With our partners and risk and we're always making sure that whenever whatever we moved there as high quality liquid assets that generally speaking can repo at a repo those assets et cetera. So.

I wouldn't expect it to increase a lot more from here.

Okay. Thank you, Hey, Josh Hey, Gerard Gerard it's Todd I'll follow up just wanted to add to Emily made I think all of the right points around the.

The capital ratios in the tier one leverage but remember we were probably too precise in the way we'd give you a number of something like $5 50, If you remember that's 150 basis point.

For two what the what the requirement is and the reason. It's there is because we recognize that you could have a spike in the balance sheet and for us it's not at risk Spike, it's because deposits have increased and we've certainly seen that through the quantitative easing over the past couple of years or you could have a sell off and some impact in the in the OCI that's exactly why.

Why the buffers there so eating into the buffer in this type of situations is exactly what we would expect and it's not.

Not really particularly constraining to us as.

As we still have that 130 basis points to Emily's point.

And in our in our modeling if things run the way, we would expect them off of a forward curve those deposits are going to come down 10% or so and that's going to free up quite a bit of tier one leverage and are basically and we're estimating that we're going to get pretty close to common equity and tier one which is a great place to be and it also means common equity is a little easier to me.

Because that's a risk based asset ratio.

Where we can manage it is not just what comes onto the balance sheet. So I want to make that clear would probably in the future. We should we should give you guidelines that are more ranges, we can kind of calculate where we are in the range.

Very good thank you and great run time with Bank of New York and good luck with your next endeavor. Thank you.

Gerard Thank you.

So it is.

The hour operator, we have any other questions. There are no further questions in the queue Sir.

Okay. Thank.

Thank you everybody. Thank you for joining us today look forward to following up I guess you can call. Various if you have any follow up questions and be well.

Yeah.

Thank you. This does conclude today's conference and webcast a replay of this conference call and webcast will be available on the beam why Mellon Investor Relations website at two P. M. Eastern standard time today have a great day. Thank you.