Q1 2024 Bank of New York Mellon Corp Earnings Call
Operator: Good morning, and welcome to the 2024 First Quarter Earnings Conference Call hosted by BNY Mellon. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY Mellon's consent. I will now turn the call over to Marius Merz, BNY Mellon's Head of Investor Relations. Please go ahead.
Good morning, and welcome to the 'twenty 'twenty four first quarter earnings conference call hosted by B M. Why Mellon at this time all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference call and webcast will be.
We recorded and will consist of copyrighted material you may not record or rebar broadcasts these materials without b M Y mellons consent I will now turn the call over to Mary Murphy M Y Melon head of Investor Relations. Please go ahead.
Marius Merz: Good morning, everyone, and thanks for joining us. I'm here with Robin Vince, President and Chief Executive Officer, and Dermot McDonogh, our Chief Financial Officer. As always, we will reference our financial highlights presentation, which can be found on the Investor Relations page of our website at bnymellon.com. And I'll note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures is available in the Earnings Press Release, Financial Supplement, and Financial Highlights presentation.
Thank you operator.
Mary Murphy: Everyone and thanks for joining us from.
Mary Murphy: I'm here with Robin, Vince President and Chief Executive Officer, and Dominic Mcdonald, our Chief Financial Officer.
Mary Murphy: As always we will reference a financial highlights presentation, which can be found on the Investor Relations page Oh upset at being why Mellon Dot com.
Mary Murphy: And I'll note that our remarks will contain forward looking statements and non-GAAP measures.
Mary Murphy: Actual results may differ materially from those projected in the forward looking statements.
Mary Murphy: Information about these statements and non-GAAP measures are available in the earnings press release financial supplement and financial highlights presentation, all available on the Investor Relations page of our website.
Marius Merz: All of these are available on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, April 16, 2024, and will not be updated. With that, I will turn it over to Robin.
Mary Murphy: We're looking statements made on this call speak only as of today April 16, 2024, and will not be updated as well that I will turn it over to Robyn.
Robin Antony Vince: Thanks, Marius, and thank you, everyone, for joining us this morning. Dermot will talk you through the financials in a moment, but, in summary, BNY Mellon is off to an encouraging start for the year. The firm delivered solid financial performance while we continued to take important steps in the deliberate transformation of our business, and we're seeing early signs of progress that give us confidence as we work toward the opportunity ahead. Looking beyond BNY Mellon, the first three months of the year provided a mostly constructive operating environment with global markets signaling expectations for continued growth. Equity and credit markets rallied even as rate cut expectations partially unwound and bond yields rose.
Robyn: Thanks, Meredith and thank you everyone for joining us this morning.
Robyn: <unk> will talk you through the financials in a moment, but in summary, then why Mellon is off to an encouraging start for the year.
Robyn: <unk> delivered solid financial performance, while we continued to take important steps in the deliberate transformation of our company and we're seeing early signs of progress that gives us confidence as we work toward the opportunity ahead.
Robyn: Looking beyond being why Mellon the first three months of the year provided a mostly constructive operating environment with global markets signaling expectations for continued growth.
Robyn: Equity and credit markets rallied even as rate cut expectations, partially unwound and bond yields rose.
Robin Antony Vince: Foreign exchange markets, on the other hand, saw a continuation of the relatively low volumes and muted volatility that we've seen for the past several quarters. And, of course, there are many tail risks, including a variety of different market scenarios, the possibility of escalation in one of the ongoing geopolitical conflicts or an unexpected result in the many elections taking place worldwide this year. As I've said many times before, being resilient matters, and this represents a commercial strength for our business.
Robyn: Foreign exchange markets on the other hand saw a continuation of the relatively low volumes and muted volatility that we've now seen for the past several quarters.
Robyn: And of course, there are many tail risks, including a variety of different market scenario is the possibility of escalation and one of the ongoing geopolitical conflicts or an unexpected result in the many elections taking place worldwide. This year.
Robyn: As I've said, many times before being resilient matters and this represents a commercial strength for our business. We are constantly preparing and positioning for a wide range of potential scenarios to support our clients and deliver compelling outcomes for our shareholders.
Robin Antony Vince: We are constantly preparing and positioning for a wide range of potential scenarios to support our clients and deliver compelling outcomes for our shareholders. Now, refer to page two of the financial highlights presentation. BNY Mellon delivered double-digit EPS growth, as well as pre-tax margin and ROTCE expansion on the back of positive operating leverage in the first quarter. We reported earnings per share of $1.25, up 11% year-over-year, and excluding notable items, earnings per share of $1.29 were up 14%.
Robyn: Now referring to page two of the financial highlights presentation.
Robyn: Then why Mellon delivered double digit EPS growth as well as pre tax margin and R. O T. C E expansion on the back of positive operating leverage in the first quarter, we reported earnings per share of the dollar and 25 cents up 11% year over year and excluding notable items.
Earnings per share of $1.29 well up 14%.
Robin Antony Vince: Total revenue of $4.5 billion was up 3% year-over-year. That included 8% growth in investment services fees led by strength in asset servicing, issuer services, and clearance and collateral management, which more than offset revenue headwinds from muted volatility in FX markets and lower net interest income. Expenses of $3.2 billion were up 2% year over year and up 1% excluding notable items.
Robyn: Total revenue of $4 $5 billion was up 3% year over year that included 8% growth in investment services fees led by strength in <unk>.
Robyn: Asset servicing issuer services, and clearance and collateral management, which more than offset revenue headwinds for muted volatility in FX markets and lower net interest income.
Robyn: Expenses of $3 $2 billion were up 2% year over year and up 1% excluding notable items.
Robin Antony Vince: Consistent with our goal to generate at least some operating leverage this year, in the first quarter, we did deliver positive operating leverage, both on a reported basis and excluding notable items. Our reported pre-tax margin was 29%, or 30% excluding notable items, and we generated a 21% return on tangible common equity. Our balance sheet remained strong, with capital and liquidity ratios in line with our management targets, and deposit balances were up both year over year and sequentially.
Consistent with our goal to generate at least some operating leverage this year in the first quarter, we did deliver positive operating leverage both on a reported basis and excluding notable items.
Robyn: Our reported pre tax margin was 29% or 30%, excluding notable items and we generated a 21% return on tangible common equity.
Robyn: Our balance sheet remains strong with capital and liquidity ratios in line with our management targets and deposit balances were up both year over year and sequentially.
Robin Antony Vince: Year-to-date, we returned close to 140% of earnings to common shareholders through dividends and buybacks, and our Board of Directors has authorized a new $6 billion share repurchase program. On our last earnings call in January, we communicated medium-term financial targets and presented our plan to improve BNY Mellon's financial performance. We frame this work for our people through three strategic pillars. The more for our client, run our company better, and power our culture.
Robyn: Year to date, we returned close to 140% of earnings to common shareholders through dividends and buybacks and our board of directors has authorized a new $6 billion share repurchase program.
Robyn: On our last earnings call in January we communicated medium term financial targets and presented our plan to improve being why melons financial performance.
Robyn: We frame this work for our people through three strategic pillars.
Robyn: The more for our clients.
Robyn: Run our company better and power our culture.
Robin Antony Vince: Throughout the first quarter, we've made progress to be more for our clients, including both product innovation and greater intensity around better delivering our platforms to the market so we can truly help clients achieve their ambitions. As a global financial services company, our unique portfolio of market-leading and complementary businesses presents tremendous additional value for our clients and shareholders. As you know, we are maturing our One BNY Mellon initiative by implementing this mentality into the nuts and bolts processes across the company. For example, we recently announced that Ashton Thomas Securities, an independent broker-dealer and registered investment advisor, will use clearing and custody services from Pershing and BNY Mellon precision direct indexing capabilities from Investment Management.
Robyn: Throughout the first quarter, we've made progress to be more for our clients, including both product innovation and greater intensity around better delivering our platforms to the market. So we can truly help clients achieve their ambitions.
Robyn: As a global financial services company, how a unique portfolio of market, leading and complementary businesses presents a tremendous additional value for our clients and shareholders.
Robyn: As you know we are maturing our one being why Mellon initiative by implementing this mentality into the nuts and bolts processes across the company.
Robyn: For example, we recently announced that Ashton Thomas Securities and independent broker dealer and registered investment advisor.
Robyn: We'll use clearing and custody services from purging and being why Mellon precision direct indexing capabilities from investment management.
Robin Antony Vince: This is a great example of multiple lines of business working together to provide holistic solutions for clients. As we continue to grow our client roster, we also know that delivering more to our existing clients represents a significant opportunity. As another example, last month, we expanded on a long-standing relationship with CIFC, an alternative credit specialist and an existing client of ours in asset servicing and corporate trust, to bring their U.S. direct lending strategy to our global distribution.
Robyn: This is a great example of multiple lines of business working together to provide holistic solutions for clients.
Robyn: As we continue to grow our client roster. We also know that delivering more to our existing clients represents a significant opportunity.
Robyn: As another example last month, we expanded on our long standing relationship with C. IFC and alternative credit specialists and existing client of ours in asset servicing and corporate trust to bring their U S direct lending strategy.
Robyn: Two our global distribution platform.
Robin Antony Vince: This also speaks to the incremental value that asset servicing can bring to our asset manager clients by allowing them to tap into BNY Mellon's global distribution platform to extend the reach of their capabilities. Consistent with our previously communicated intention to grow the revenue contribution of our market and wealth services segment, we're starting to see our investments to accelerate revenue growth in this high-margin segment begin to bear fruit. For example, we continue to be encouraged by the level of interest from both new and existing clients in our WoW Wealth Advisory Platform. We have several clients live on the platform today. We closed a number of deals in the first quarter, and the sales pipeline continues to be strong.
Robyn: This also speaks to the incremental value that asset servicing can bring to our asset manager clients by allowing them to tap into being why mellon's global distribution platform to extend the reach of their capabilities.
Robyn: Consistent with our previously communicated intention to grow the revenue contribution of our market and wealth services segment were starting to see our investments to accelerate revenue growth in this high margin segment begin to bear fruit.
Robyn: For example, we continue to be encouraged by the level of interest from both new and existing clients in our woes wealth advisory platform.
Robyn: We have several clients live on the platform today, we closed a number of deals in the first quarter and the sales pipeline continues to be strong.
Robin Antony Vince: Across market and wealth services, we also continue to bring new solutions to the market. For example, Treasury Services successfully launched virtual account-based solutions, a set of cash management solutions to meet our clients' demands for more flexibility and transparency into their payments. Next, we are taking important steps to run our company better by simplifying processes, powering our platforms, and embracing new technologies. Over the past several months, we've been working to realign several similar products and services across our lines of business. The largest of these changes was moving institutional solutions from purging to our clearance and collateral management.
Robyn: Our cross market and wealth services. We also continue to bring new solutions to the market.
Robyn: For example, Treasury services successfully launched virtual account based solutions, a set of cash management solutions to meet our clients' demands for more flexibility and transparency into that payment flows.
Next we are taking important steps to run our company better by simplifying processes powering our platforms and embracing new technologies.
Robyn: Over the past several months, we've been working to realign several similar products and services across our lines of business.
Robyn: The largest of these changes was moving institutional solutions from purging to our clearance and collateral management business.
Robin Antony Vince: This is also part of making progress toward adopting a platform operating model. By uniting related capabilities, we can do things in one place, do them well, and elevate overall execution to better serve our clients and drive growth. Last month, we went live with the first step on the transition into our new model.
Robyn: This is also part of making progress toward adopting our platforms operating model.
Robyn: By uniting related capabilities, we can do things in one place do them, well and elevate overall execution to better serve our clients and drive growth.
Robyn: Last month, we went live with the first step on the transition into our new model.
Robin Antony Vince: While it has taken, and will continue to take, a lot of hard work as we transform our operating model over time, we are confident this new way of working will create better outcomes for our clients, and it will also create more efficiency and enhanced risk management. Around 15% of our people around the world are now working in our new operating model, allowing them to feel more connected to what we're doing and empowered to make change.
Robyn: While it has taken and will continue to take a lot of hard work as we transform our operating model overtime. We are confident this new way of working will create better outcomes for our clients.
Robyn: And it will also create more efficiency and enhanced risk management.
Robyn: Around 15% of our people around the world are now working in our new operating model, allowing them to feel more connected to what we're doing and empowered to make change.
Robin Antony Vince: I'd like to thank our teams who are part of this exciting change for pushing us forward as we mark this important milestone. We also see meaningful opportunities over the coming years from continued digitization and reengineering initiatives, as well as from Embracing New Technology. To support this effort, we are making deliberate investments, enabling us to scale AI technologies across the organization through our enterprise AI hub. Last month, NVIDIA announced that BNY Mellon became the first major bank to deploy a DGX SuperPOD, which will accelerate our processing capacity to innovate, reduce risk, and launch AI-enabled capabilities.
Speaker Change: Like to thank our teams who are part of this exciting change for pushing us forward as we mark this important milestone.
Speaker Change: We also see meaningful opportunity over the coming years from continued digitization and reengineering initiatives as well as from embracing new technologies.
Speaker Change: To support this effort, we are making deliberate investments, enabling us to scale AI technologies across the organization through our enterprise AI hub.
Speaker Change: Last month, Nvidia announced that being why Mellon became the first major bank to deploy a D. G X superport, which will accelerate our processing capacity to innovate reduce risk and launch AI enabled capabilities.
Robin Antony Vince: Our people have identified hundreds of use cases across BNY Mellon, and we already have several in production today across the country. It's our people who continue to power our culture. If you were to walk the halls of BNY Mellon, you'd feel the energy and sense of purpose our leadership team feels when we visit our teams around the world. To that end, we're investing in our people. Over the past several months, we launched new learning and feedback platforms powered by AI, expanded employee benefits, launched a new well-being support program, improved and accelerated our year-end feedback and compensation processes, and more. And we're delighted to welcome Shannon Hobbs, who will join us as our new Chief People Officer in June.
Speaker Change: Our people have identified hundreds of use cases across being why mellon and we already have several in production today.
Speaker Change: Across the company, it's our people who continue to power our culture if.
Speaker Change: If you were to walk the halls of being why Mellon you'd feel the energy and sense of purpose our leadership team feels when we visit our teams around the world.
Speaker Change: And we're investing in our people over the past several months, we launched new learning and feedback platforms powered by AI expanded employee benefits launched a new well being support program improved and accelerated our yearend feedback and compensation processes and more.
Shannon Hubs: And we're delighted to welcome Shannon hubs, who will join us as our new Chief people Officer in June.
Robin Antony Vince: As we continue to power our culture forward, we adopted the following five core principles to guide how our teams work and collaborate as we drive our success as a company: be client-obsessed. Spark Progress. Own It! Stay curious and thrive together.
Shannon Hubs: As we continue to power our culture forward, we adopted the following five core principles to guide how our teams work and collaborate as we drive our success as a company.
Shannon Hubs: The client obsessed spark progress or niche stay curious and thrive together.
Robin Antony Vince: To wrap up, our performance in the first quarter provides a glimpse of BNY Mellon's potential. Running our company better, including our focus on platforms, is enabling us to improve profitability and invest in our future. While we are pleased to see early signs of progress, we remain focused on the significant work ahead of us as we become more for our clients and deliver higher performance for our shareholders. As I have said before, the transformation of our company is a multi-year endeavor, but we've started 2024, the year of our 240th anniversary, with a sense of excitement and determination around what's possible. Now, it's over to you, Dermot.
Shannon Hubs: To wrap up our performance in the first quarter provides a glimpse of being why melons potential.
Shannon Hubs: Running our company better inclusive of all focus on platforms is enabling us to improve profitability and invest in our future.
Shannon Hubs: While we are pleased to see early signs of progress we remain focused on the significant work ahead of us as we become more for our clients and deliver higher performance for our shareholders.
Shannon Hubs: As I have said before the transformation of our company is a multi year endeavor, but we've started 2020 for the year about 240th anniversary with a sense of excitement and determination around what's possible.
Speaker Change: Now over to you done it.
Dermot William McDonogh: Thank you, Robin, and good morning, everyone. Referring to page three of the presentation, I'll start with our consolidated financial results for the quarter. Total revenue of $4.5 billion was up 3% year over year; fee revenue was up 5%. This reflects 8% growth in investment services fees on the back of higher market values, increased client activity, and net new business, partially offset by a 14% decline in foreign exchange revenue as a result of lower market volatility.
Donna: Thank you Robin and good morning, everyone.
Donna: Referring to page three of the presentation I'll start with our consolidated financial results for the quarter.
Donna: Total revenue of $4 $5 billion was up 3% year over year.
Donna: Fee revenue was up 5%.
Done It: This reflects 8% growth in investment services fees on the back of higher market values increased client activity and net new business.
Partially offset by a 14% decline in foreign exchange revenue as a result of lower market volatility.
Dermot William McDonogh: Bermwhite's assets under custody and our administration of $48.8 trillion were up 5% year-over-year, and assets under management of $2 trillion were up 6% year over year, both largely reflecting higher market values. Investment and other revenue was $182 million in the quarter. Effective January 1, we adopted new accounting guidance for our investments in renewable energy projects, resulting in an approximately $50 million increase in investment and other revenue. We have restated prior periods in our earnings materials to provide you with like-for-like, year-over-year, and sequential comparisons.
Done It: Firm wide assets under custody and administration of 48.8 trillion dollars were up 5% year over year.
Done It: Assets under management of two trillion were up 6% year over year, both largely reflecting higher market values.
Done It: Investment and other revenue was $182 million in the quarter.
Done It: Effective January one we adopted new accounting guidance for investments in renewable energy projects.
Done It: Resulting in an approximately $15 million increase two investments in the other revenue.
Done It: We have restated prior periods in our earnings materials to provide you with like for like year over year and sequential comparisons.
Dermot William McDonogh: The adoption of this new accounting guidance is largely neutral to net income and earnings per share, as the increase in provision for income taxes roughly equals the increase in investment and other revenues. However, net interest income decreased by 8% year-over-year, primarily reflecting changes in the composition of deposits partially offset by the impact of higher inflation. Expenses were up 2% year-over-year on a reported basis and up 1% excluding notable items, primarily severance expenses. Realtors from incremental investments and employee merit increases offset by efficiency savings. Provision for credit losses was $27 million in the quarter, primarily driven by reserve increases related to commercial real estate exposure.
Done It: The adoption of this new accounting guidance is largely neutral to net income and earnings per share as the increase in provision for income taxes, roughly equals the increase in investments into other revenue.
Done It: Net interest income decreased by 8% year over year.
Done It: Primarily reflecting changes in the composition of deposits, partially offset by the impact of higher interest rates.
Done It: Expenses were up 2% year over year on a reported basis and up 1%. Excluding notable items primarily severance expense.
Done It: Relative was from incremental investments and employee merit increases offset by efficiency savings.
Done It: Provision for credit losses was $27 million in the quarter, primarily driven by reserve increases related to commercial real estate exposure.
Dermot William McDonogh: As Robin mentioned earlier, we reported earnings per share of $1.25, up 11% year over year; a pre-tax Margin of 29%, and a Return on Tangible Common Equity of 20.7%. Excluding notable items, earnings per share were $1.29, up 14% year-over-year. Pre-tax margin was 30%, and our return on tangible common equity was 21.3%. Turning to Capsule Liquidity on page 4.
Done It: As Robin mentioned earlier, we reported earnings per share of $1 25 up 11% year over year.
Pre tax margin of 29%.
Done It: And our return on tangible common equity of 27%.
Done It: Excluding notable items earnings per share were $1 29 up 14% year over year pre tax margin was 30% and our return on tangible common equity was 21, 3%.
Done It: Turning to capital and liquidity on page four.
Dermot William McDonogh: Our Tier 1 leverage ratio for the quarter was 5.9%. Average assets increased by 1% sequentially as deposit balances grew, and Tier 1 capital decreased by 1% sequentially, primarily reflecting capital return to common shareholders partially offset by capital generated through earnings. Our CET1 ratio at the end of the quarter was 10.8%. The quarter-over-quarter decline reflects a temporary increase in risk-weighted assets at the end of the quarter, which was driven by discreet overdrafts in our custody and securities clearing businesses as well as strong demand for our agency securities lending program. Consistent with Tier 1 capsules, CET1 capsules decreased by 1% sequentially.
Done It: Our tier one leverage ratio for the quarter was five 9%.
Done It: Average assets increased by 1% sequentially as deposit balances grew.
Done It: And as tier one capital decreased by 1% sequentially, primarily reflecting capture return to common shareholders, partially offset by capital generated through earnings.
Done It: Our CET one ratio at the end of the quarter was 10, 8%.
The quarter over quarter decline reflects a temporary increase in risk weighted assets at the end of the quarter, which was driven by discrete overdrafts in our custody and securities clearing businesses as well as strong demand for our agency Securities lending program.
Done It: Consistent with tier one capital CET, one capital decreased by 1% sequentially.
Dermot William McDonogh: Over the course of the quarter, we returned $1.3 billion of capital to our shareholders, representing a total payout ratio of 138%. Turning to liquidity, our regulatory ratios remained strong. The Consolidated Liquidity Coverage Ratio was 117%.
Done It: Over the course of the quarter, we returned $1 $3 billion of capital to our shareholders, representing a total payout ratio of 138%.
Done It: Turning to liquidity, our regulatory ratios remained strong.
Done It: The consolidated liquidity coverage ratio was 117% flat sequentially.
Dermot William McDonogh: Flat sequentially, and our consolidated net stable funding ratio is 136%, up one percentage point sequentially. Moving on to net interest income and the underlying balance sheet trends on page 5. Net interest income of over $1 billion was down 8% year-over-year and down 6% quarter-over-quarter. The sequential decrease was primarily driven by changes in the composition of deposits, partially offset by the benefit of reinvesting maturing fixed-rate securities in higher yielding alternatives. Against typical seasonal patterns, average deposit balances increased by 2% sequentially.
Done It: And our consolidated net stable funding ratio was 136% up one percentage point sequentially.
Done It: Moving on to net interest income and the underlying balance sheet trends on page five.
Done It: Net interest income of over $1 billion was down 8% year over year and down 6% quarter over quarter.
Done It: The sequential decrease was primarily driven by changes in the composition of deposits, partially offset by the benefit of reinvesting maturing fixed rate securities and higher yielding alternatives.
Against typical seasonal patterns average deposit balances increased by 2% sequentially.
Dermot William McDonogh: Solid 4% growth in interest-bearing deposits was partially offset by a 5% decline in non-interest-bearing deposits, which was in line with our expectations. Average interest-earning assets were up 1% quarter over quarter. We reduced our cash and reverse repo balances by 2% and increased our investment securities portfolio by 5%. Average loan balances remained flat.
Done It: Solid 4% growth in interest bearing deposits was partially offset by a 5% decline in noninterest bearing deposits, which was in line with our expectations.
Average interest, earning assets were up 1% quarter over quarter.
Done It: We reduced our cash and reverse repo balances by 2% and increased our investment securities portfolio by 5%.
Done It: Average loan balances remained flat.
Dermot William McDonogh: Turning to our business segments, starting on page 6, please remember that in the first quarter, we made certain realignments of similar products and services across our lines of business, consistent with our work to operate as a more unified company. As Robin mentioned earlier, the largest change was the movement of institutional solutions from purging to clearance and collateral management, both in the market and wealth services segments, and we made other smaller changes across our business sectors. We have restated prior periods for consistency. Please refer to the revised financial supplement that we filed on March 26th for detailed reconciliations to previous disclosures. Now, starting with security services on page 6.
Done It: Turning to our business segments, starting on page six please remember that during the first quarter, we made certain realignments of similar products and services across our lines of business consistent with our work to operate as a more unified company.
Done It: As Robin mentioned earlier, the largest change was the movement of institutional solutions from Pershing to clearance and collateral management, both in the market and well services segment.
Done It: And we've made other smaller changes across our business segments.
Done It: We have restated prior periods for consistency.
Done It: Please refer to the revised financial supplement that we filed on March 26 for detailed reconciliations to previous disclosures.
Done It: Now starting with security services on page six.
Dermot William McDonogh: Security Services reported total revenue of $2.1 billion, up 1% year over year. Investment services fees were up 8% year over year. In asset servicing, investment services fees were up 8%, driven by higher market values, net new business, and higher client activity. We've remained focused on deal margins, and as a result, the year-over-year impact of repricing on fee growth was minimal. Consistent with past quarters, we continue to see particular success with our ETF offering.
Done It: Security services reported total revenue of $2 1 billion up 1% year over year.
Done It: Investment services fees were up 8% year over year.
Done It: In asset servicing investment services fees were up 8% driven by higher market values, net new business and higher client activity.
Done It: We've remained focused on dealer margins and as a result, the year over year impact of repricing on fee growth was de Minimis.
Done It: Consistent with past quarters, we continue to see particular success with our ETF offering.
Dermot William McDonogh: ETF Assets Under Custody and Administration surpassed $2 trillion this quarter, up over 40% year-over-year on the back of higher market values, net new business and client flows, and the number of funds serviced was up 16% year-over-year.
Done It: ETF assets under custody and administration surpassed two trillion dollars this quarter up over 40% year over year on the back of higher market values net new business and client flows and the number of funds surface was up 16% year over year.
Dermot William McDonogh: While the pace of alternative fund launches was slower than in the prior year quarter, investment services fees for alternative investments were up over 10% on a year-over-year basis. Throughout the quarter, we saw broad-based strength across client segments, products, and services. In issuer services, investment services fees were up 11%, reflecting net new business across both depository receipts and corporate trust, as well as higher cancellation fees in depository receipts. However, foreign exchange revenue was down 11% year over year.
Done It: While the pace of alternative fund launches was slower than in the prior year quarter investment services fees for alternatives, we're up over 10% on a year over year basis.
Done It: Throughout the quarter, we saw broad based strength across client segments products and regions.
Done It: In issuer services investment services fees were up 11%, reflecting net new business across both depositary receipts and corporate trust as well as higher cancellation fees in depositary receipts.
Done It: Foreign exchange revenue was down 11% year over year.
Dermot William McDonogh: Net Interest Income was down 12%. Expenses of one and a half billion dollars were flat year over year, reflecting incremental investments, as well as the impact of employee merit increases offset by efficiency savings. Pre-taxed income was $591 million.
Done It: Net interest income was down 12%.
Done It: Expenses of one and a half billion dollars were flat year over year, reflecting incremental investments as well as the impact of employee merit increases offset by efficiency savings.
Done It: Pre tax income was $591 million.
Dermot William McDonogh: 4% increase year-over-year, and pre-tax margin expanded to 28%. Next, Marks and Wealth Services on page 7. Marks and Wealth Services reported total revenue of $1.5 billion, up 3% year-over-year.
Done It: A 4% increase year over year and pre tax margin expanded to 28%.
Done It: Next March and wealth services on page seven.
Done It: <unk> services reported total revenue of one 5 billion up.
Done It: Up 3% year over year.
Dermot William McDonogh: Total investment services fees were up 7% year over year. In Pershing, investment services fees were up 3%, reflecting higher market values and client activity, partially offset by the impact of business lost in the prior year. Net new assets were negative $2 billion for the quarter, reflecting the ongoing deconversion of the above-mentioned lost business.
Done It: Total investment services fees were up 7% year over year.
Done It: Encouraging investment services fees were up 3%, reflecting higher market values and client activity, partially offset by the impact of business lost in the prior year.
Done It: Net new assets were negative $2 billion for the quarter, reflecting the ongoing de conversion of the before mentioned lost business.
Dermot William McDonogh: Client demand for our wealth advisor platform, WOVE, continues to be strong. In the first quarter, we signed nine additional client agreements, including our first direct indexing clients, and we onboarded four clients onto the platform. In Treasury services, investment services fees increased by 5% driven by net new business.
Done It: Client demand for our wealth advisor platform wove continues to be strong.
Done It: In the first quarter, we signed nine additional client agreements, including our first direct indexing clients and we on boarded for clients onto the platform.
Done It: In Treasury services investment services fees increased by 5% driven by net new business.
Dermot William McDonogh: We continue to invest in our sales and service teams, new products, and technology. And so we are pleased with this solid growth, and momentum continues to build. Last but not least, strength and clearance and collateral management continued with investment services fees up 13% on the back of broad-based growth both in the US and internationally. However, net interest income for the segment overall was down 7% year-over-year.
Done It: We continue to invest in our sales and service teams new products and technology.
Done It: So we are pleased with the solid growth and momentum continues to build.
Done It: Last but not least strength in clearance and collateral management continued with investment services fees up 13% on the back of broad based growth both in the U S and internationally.
Done It: Net interest income for the segment overall was down 7% year over year.
Dermot William McDonogh: Expenses of $834 million were up 7% year-over-year, reflecting incremental investments, revenue-related expenses, and employee merit increases, although partially offset by efficiency savings. Pre-tax income was down 2% year-over-year at $678 million, representing a 45% pre-tax, Moving on to Investment and Wealth Management on page 8.
Done It: Expenses of $834 million were up 7% year over year, reflecting incremental investments revenue related expenses and employee merit increases partially offset by efficiency savings.
Done It: Pre tax income was down 2% year over year at $678 million.
Done It: Representing a 45% pretax margin.
Done It: Moving on to investment and wealth management on page eight.
Dermot William McDonogh: Investment and Wealth Management reported a total revenue of $846 million, up 2% year over. In investment management, revenue is up 2% driven by higher market values, partially offset by the mix of AUM flows and lower performance. In our wealth management business, revenue also increased by two percent, driven by higher market values, partially offset by changes in product mix and lower net interest income. Expenses of $740 million were flat year over year, primarily reflecting the impact of incremental investments and employee merit increases, which were offset by efficiency savings. Pre-tax income was $107 million, up 15% year-over-year, representing a pre-tax margin of 13%.
Done It: Investments in wealth management, we reported total revenue of $846 million up 2% year over year.
Done It: In investment management revenue was up 2% driven by higher market values, partially offset by the mix of AUM flows and lower performance fees.
Done It: And our wealth management business revenue also increased by 2% driven by higher market values, partially offset by changes in product mix and lower net interest income.
Done It: Expenses of $714 million were flat year over year.
Done It: Primarily reflecting the impact of incremental investments and employee merit increases, which was offset by efficiency savings.
Done It: Pre tax income was $107 million up 15% year over year, representing a pre tax margin of 13%.
Dermot William McDonogh: As I mentioned earlier, assets under management of $2 trillion increased by 6% year over year. In the quarter, we saw $16 billion of net inflows into our long-term active strategies, with strength in LDI and fixed income. And we saw $15 billion of net outflows from the index strategy. Strength in our short-term cash strategies continued with $16 billion of net inflows on the back of differentiated investment performance in our Dreyfus Money Market Fund Company. Wealth management client assets of $309 billion increased by 11% year over year, reflecting higher equity market values and cumulative net inflows. Page 9 shows the results of the other segment.
Done It: As I mentioned earlier assets under management of two trillion dollars increased by 6% year over year.
Done It: In the quarter, we saw $16 billion of net inflows into our long term active strategies with strength and LTI in fixed income.
Done It: And we saw a $15 billion of net outflows from index strategies.
Done It: Strength in our short term cash strategies continues with $16 billion of net inflows on the back of differentiated investment performance in our Dreyfus money market Fund complex.
Done It: Wealth management client assets of 309 billion increased by 11% year over year, reflecting higher equity market values and cumulative net inflows.
Done It: Page nine shows the results of the other segments.
Dermot William McDonogh: I will close by reiterating our existing outlook for the full year 2024. As I've said before, we have positioned our balance sheet for a range of interest rate scenarios, and we're managing both sides of it proactively. And so, despite the repricing of the curve since the beginning of the year, we continue to expect net interest income for the full year to be down 10% year over year, while assuming current market implied interest rates for the remainder of 2024.
Done It: I will close by reiterating our existing outlook for the full year 2024.
Done It: As I've said before we have positioned our balance sheet for a range of interest rate scenarios and we're managing both sides of it proactively.
Done It: And so despite the repricing of the curve since the beginning of the year. We continue to expect net interest income for the full year to be down 10% year over year.
Done It: Assuming current market implied interest rates for the remainder of 2024.
Dermot William McDonogh: Similarly, on expenses, our goal continues to be for full-year 2024 expenses, excluding notable items, to be flat year over year. We are off to a good start, but we have more work ahead of us to realize further efficiency savings and drive year-over-year expense growth rates lower over the coming quarter, while we continue to make room for additional investments across our business. Overall, we remain determined to deliver some positive operating leverage this year.
Done It: Similarly on expenses our goal continues to be for full year 2024 expenses, excluding notable items to be flat year over year.
Done It: We are off to a good start but we have more work ahead of us to realize further efficiency savings and drive year over year expense growth rates lower over the coming quarters, while we continue to make room for additional investments across our businesses.
Done It: Overall, we remain determined to deliver some positive operating leverage this year.
Dermot William McDonogh: Why we don't manage the firm to operating leverage on a quarterly basis. Our performance in the first quarter, with positive operating leverage on both a reported and an operating base, gives us confidence that we're on track. In light of the adoption of new accounting guidance for our investments in renewable energy projects, which, as I discussed earlier, increases both our investment and other revenue and the provision for income tax, I'll note that we expect our effective tax rate for the full year 2024 to be between 23 and 24 percent.
Done It: While we don't manage the firm to operating leverage on a quarterly basis.
Done It: Our performance in the first quarter with positive operating leverage on both a reported and an operating basis gives us confidence that we're on track.
Done It: In light of the adoption of the new accounting guidance for our investments in renewable energy projects, which as I discussed earlier increases both our investment and other revenue and the provision for income taxes I'll note that we expect our effective tax rate for the full year 2024 to be between 23 and 24.
Done It: Sent.
Dermot William McDonogh: And finally, we continue to expect returning 100% or more of 2024 earnings to our shareholders through dividends and buybacks over the course of the year. As always, we will manage share repurchases cognizant of the macroeconomic environment, balance sheet size, and many other factors. And so for the foreseeable future, we will calibrate the pace of buybacks to maintain our Tier 1 leverage ratio close to the top end of our 5.5% to 6% median term target range.
Done It: And finally, we continue to expect returning 100% or more of 2024 earnings to our shareholders through dividends and buybacks over the course of the year.
Done It: As always we will manage share repurchases cognizant of the macroeconomic environment.
Done It: She'd size and many other factors and so for the foreseeable future, we will calibrate the pace of buybacks to maintain our tier one leverage ratio close to the top and over five 5% to 6% medium term target range.
Dermot William McDonogh: To wrap up, over the past three months, we've made good progress towards achieving our target for 2024. And we're encouraged by the drive we're seeing in all corners of the firm as our people embrace being more for our clients, running our company better, and driving our culture. With that, Operator, can you please open the line for Q&A?
Speaker Change: To wrap up.
Speaker Change: Over the past three months, we have made good progress towards achieving our targets for 2024.
Speaker Change: We are encouraged by the drive we're seeing in all corners of the firm.
Speaker Change: As our people embrace being more for our clients running our company better and powering our culture.
Speaker Change: With that operator can you. Please open the line for Q&A.
Speaker Change: Yes.
Operator: If you would like to ask a question, please press star 1 on your telephone keypad. As a reminder, we ask that you limit yourself to one question and one related follow-up question. Our first question comes from the line of Alec Bolstein. For Goldman Sachs, please go ahead.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad. As a reminder, we ask that you limit yourself to one question and one related follow up question. Our first question comes from the line of Alex <unk>.
Alex: With Goldman Sachs. Please go ahead.
Robin Antony Vince: Hi, good morning. Thanks for the question. So Robin, really nice progress, I guess, on organic growth initiatives across a handful of businesses underneath BNY Mellon as some of the things you talked about are starting to kind of take hold. Can you maybe frame what the firm's organic growth rate aspirations are for the next couple of years? How are you thinking about that for 24 hours as well? And then, as a side question, I guess, to that, we've seen quite a significant amount of activity in sort of clearance and collateral management. Can you maybe help size what is sort of a transitory versus more of a recurring baseline to think about from here? Thanks.
Alex: Hi, good morning, Thanks for the question.
Alex: So Robyn really nice progress I guess on the organic growth initiatives across a handful of businesses underneath being why mellon as some of the things you talked about are starting to kind of take hold can you maybe frame what the firm's organic growth rate aspirations are for the next couple of years. How are you thinking about that for 'twenty four as well and then as a side.
Robyn: Question, I guess to that we've seen quite significant amount of activity and sort of clearance and collateral management can you maybe help size what is sort of transitory versus more of a recurring baseline to think about for here from here. Thanks.
Robin Antony Vince: Sure, Alex. Morning.
Robyn: Sure Alex.
Robin Antony Vince: So let me start with the growth question. You know, as you point out, we are feeling quite good about the early momentum that we have in growth. As you know, we set it out last year to really get our house in order, generate positive operating leverage, and really think about the various different investments to drive sort of shorter, medium, and longer term growth. And that's really what we've been focused on.
Robyn: Good morning, So let me start with the with the growth question. You know as you point out we are quite feeling quite good about the early momentum that we have in growth as you know we set it out last year to really get our house in order to generate positive operating.
Robyn: Rage, and really think about the various different investments to draw to drive sort of short medium and longer term.
Robyn: And that's really what we've been focused on and we're pleased that we've got a good start to the year on it clearly we're trying to control the things that we can control.
Robin Antony Vince: And we're pleased that we've got a good start to the year on it. Clearly, we're trying to control the things that we can control. As I mentioned in my prepared remarks and as Dermot touched on as well, our focus here is really being wrapped around being more for our clients, our commercial model, we hired our first chief commercial officer, we're operationalizing 1BNY Mellon, as I called it the nuts and bolts kind of getting into building that into our client coverage organization, our coverage practice, and starting to deliver integrated solutions.
Robyn: As I mentioned in my prepared remarks, and as Dermot touched on as well how our focus here has really been wrapped around being more for our clients. Our commercial model. We hired our first chief commercial officer were operationalized, one being why Mellon as I called it the nuts and bolts kind of getting into building that into our client.
Robyn: Coverage organization, all coverage practice, starting to deliver integrated solutions I gave a couple of examples of those in my prepared remarks, and we've got a whole bunch more things that really cut across all of the different segments.
Robin Antony Vince: I gave a couple of examples of those in my prepared remarks. And we've got a whole bunch more things that really cut across all of the different segments that are related to that. So look, it's early in the journey. I would have said maybe last year that we were working the problem. I think now I would say we're working the opportunity. Could you just remind me the second part of your question?
Robyn: That are related to that so look it's it's early in the journey I would've said, maybe last year. We were working the problem I think now I would say we're working the opportunity.
Speaker Change: Could you just remind me the second part of your question.
Robin Antony Vince: Yeah, sure. Really nice results out of clearance and collateral management for the firm. And it's been a pretty active market in Q1 related to Treasury issuance and activity there broadly. I'm just trying to get a sense for a better baseline to think about from here. Was there anything kind of transitory in the first quarter that helped the numbers? Or is this a good baseline to think about going forward?
Speaker Change: Yes, sure it really nice results out of clearance and collateral management for the firm and it's been a pretty active market in.
Speaker Change: In Q1 related to treasury issuance activity there broadly im just trying to get a sense for a better baseline to think about from here or was there anything kind of transitory in the first quarter that helped the numbers or this is a good baseline to think about going forward.
Robin Antony Vince: Look, I would say in terms of transitory, not really, but let me just go through a few of the drivers. So, remember that it's a business that, like several of the businesses we have, responds to volumes, and it was an active quarter when it comes to trading volumes in the US Treasury market. Now, for better or for worse, US Treasuries is kind of a growth business, and so that's probably a bit more of a secular tailwind as opposed to something cyclical.
Look I would say in terms of transit tree not really but let me just go through a few of the drivers. So remember that it's a business that like several of the businesses. We have respond to volumes and it was an active quarter. When it comes to trading volumes in the U S. Treasury market now so that all for Wes.
Speaker Change: <unk> U S. Treasuries is kind of a growth business and so that's probably a bit more of a secular tailwind as opposed to something cyclical and then remember under the hood in clearance and collateral management. We've also been investing in the operating model of that business as we talked about in our prepared remarks.
Robin Antony Vince: And then remember, under the hood in clearance and collateral management, we've also been investing in the operating model of that business, as we talked about in our prepared remarks, and took something that was very, very adjacent to our clearing business from purging institutional clearing and aligned it with the rest of our clearing, bigger clearing business in clearance and collateral management. And what we're finding now in those conversations with customers, it's a much cleaner conversation because we've got the ability to deliver all the solutions in our clearing business, whether it's US Treasuries, whether it's international, whether it's the different models of clearing that we offer, we're able to deliver that in one conversation with a client, and clients are responding to that.
Speaker Change: And took something that was very very adjacent to our clearing business from Pershing institutional clearing and aligned it with the rest of our clearing beggar clearing business in clearance and collateral management and what we're finding now in those conversations with customers. It's a much cleaner conversation.
Speaker Change: Because we've got the ability to deliver all the solutions in our clearing business, whether it's U S treasuries, whether it's international whether it's the different models of clearing that we offer we're able to deliver that in one conversation with the client and clients are responding to that so I would call that secular as well.
Robin Antony Vince: So I would call that secular as well.
Robin Antony Vince: Great. Thanks so much. I'll hop back into queue.
Speaker Change: Great. Thanks, so much I'll hop back into queue.
Operator: Thanks, Alex.
Speaker Change: Thanks, Alex.
Steven Joseph Chubak: Our next question comes from the line of Steven Chubak from Wolf Research. Please go ahead.
Speaker Change: And our next question comes from the line of Steven <unk> from Wolfe Research. Please go ahead.
Steven Joseph Chubak: Good morning, Robin. Good morning, Dermot. Good morning, Steven.
Steven: Hi, good morning, Robin and good morning Dermot.
Dermot William McDonogh: So I want to start with a question on capital, a bit of a two-parter, if you will. I was hoping you could just speak to the drivers of RWA growth in 1Q, which was fairly robust, where you're seeing attractive opportunities to deploy that excess capital, and just how we should be thinking about the cadence of the buyback. You alluded to this somewhat, Dermot, but I was hoping we could drill down into. You noted the 6% target, or that upper bound on Tier 1 leverage, what should we be thinking about the cadence of buyback in light of planned balance sheet actions and growth potential?
Steven: Good morning, Susan.
Steven: So wanted to start with a question on capital I'm a bit of a two parter. If you will I was hoping you could just speak to the drivers of <unk> growth in <unk>, which was fairly robust where youre seeing attractive opportunities to deploy that excess capital and just how we should be thinking about the cadence of the buyback.
<unk>.
Steven: You alluded to this somewhat Jeremy but I was hoping we could drill down into you noted the 6% target or that upper bound on tier one leverage is.
Steven: How should we be thinking about the cadence of buyback in light of planned balance sheet actions and growth potential.
Dermot William McDonogh: Okay, I'll take that one. Steven, good morning.
Steven: Okay.
Speaker Change: Take that one.
Steven.
Speaker Change: Morning.
Dermot William McDonogh: So, some of the capital increased. There are two parts to the RWA increase. One was a kind of temporary increase around quarter end as it relates to discrete overdrafts in custody and securities clearing businesses. So that's kind of, www.bankofnewyork.co.uk, I guess there's a little bit of a groundhog day here in terms of how we thought about Q1 of last year versus how we think about Q1 of this year. We both, both quarters, got off to a strong start.
Speaker Change: No.
Speaker Change: Some of the capital increase.
Speaker Change: There are two parts to the <unk> increase one was a kind of temporary increase around.
Speaker Change: Quarter end as it relates to discrete overdrafts and custody and securities clearing businesses.
Speaker Change: So that kind of come and gone and then there's also there was strong demand for our agency securities lending program throughout the quarter, and particularly leading up to quarter end and that's continued into this quarter. So that's countries. So I would say half of it was that and half of it was was temporary.
Speaker Change: As it relates to the buyback I.
Speaker Change: I guess, there is a little bit of a groundhog day here in terms of how we thought about Q1 of last year versus how we're thinking about Q1 of this year, we bought both quarters, we got off to a strong start.
Dermot William McDonogh: But look at the, there's a lot of rate volatility out there in the market. You know, you saw the backup in rates last week with the hot inflation report. Last year it was the war in Ukraine; this year it's geopolitics in the Middle East.
Speaker Change: Look at the there is a lot of rate volatility out there in the markets you know you've seen the backup in rates last week with the highest inflation report.
Speaker Change: Last year. It was the war in Ukraine. This year, it's the geopolitics and the middle East and so we kind of gave a guidance in January where we said we were going to be 100% more of our earnings throughout the year we.
Dermot William McDonogh: And so we kind of gave guidance in January where we said we were going to be 100% more of earnings throughout the year. We don't give quarter-by-quarter guidance. I'd reiterate the guidance of 100% or more, notwithstanding the fact Q1 was very good at 138%. I wouldn't expect that pace to continue, but we'll take it quarter by quarter.
We don't give quarter by quarter guidance, I'd reiterate the guidance of 100% or more notwithstanding the fact that Q1 was very good as a 138% I wouldn't expect that pace to continue but it will take a quarter by quarter.
Dermot William McDonogh: understood. And for my follow-up, maybe just drilling down into the investment and wealth margins in particular, since across the other segments, we're seeing continued progress towards the longer-term targets. That's admittedly the segment with the biggest shortfall. I know in your prepared remarks, Dermot, you noted that you're making investments in the business, and I just wanted to better understand, one, where are those dollars getting deployed. And maybe if you could just speak to the primary drivers underpinning that glide path to 25%: how much is contingent on revenue growth versus expense optimization?
Speaker Change: Understood and for my follow up maybe just drilling down into the investment and wealth margins in particular since across the other segments. We're seeing continued progress towards our longer term targets that 10 million. This segment with the biggest shortfall.
Speaker Change: In the prepared remarks, Jeremy you noted that youre, making investments in the business and just wanted to better understand one where are those dollars getting deployed and maybe if you could just speak to the primary drivers underpinning that glide path to 25% and how much is contingent on revenue growth versus expense optimization.
Dermot William McDonogh: Okay, so the first point would be pre-tax margin for Q1. It was around 13%. If you normalize that for typical seasonal volatility in terms of retirement eligible stock and such like, if you back that out and adjust it, the margin would have been somewhere in the 16% zip code. So we feel pretty good about that. There is still a ton of work to do, and I would say, you know, it's not one thing over the other.
Speaker Change: Okay. So.
Speaker Change: The first point would be.
Speaker Change: Pretax margin for the Q1, there was around 13% if you normalize that for typical seasonal volatility in terms of rich.
Speaker Change: Retirement eligible stock and such like if you back that out and adjusted the margin would have been somewhere in the 16% Zip code.
Speaker Change: So we feel pretty good about that.
Speaker Change: Still a ton of work to do.
Speaker Change: And I would say.
Speaker Change: It's not one to hang over the other.
Dermot William McDonogh: It depends on which part of the business you're talking about. In some of our asset managers, we're investing; we're launching new products. Clients, you know, in some places continue to de-risk and move from more risk on equity to passive fixed income. But in other cases, we see clients coming in and AUM growing. We were very pleased with the performance of our Dreyfus cash management business in Q1, where we saw strong inflows and the performance of the business, in terms of returns, was, you know, first quartile. So we feel very good about that.
Speaker Change: It depends on which part of the business you're talking about.
Speaker Change: And some and some of our asset managers, we're investing we're launching new products.
Speaker Change: Clients in some places continue to Derisk and move from more risk on an equity to passive fixed income.
Speaker Change: But in other cases, we see clients coming in and AUM growing we saw we're very pleased with the performance of our Dreyfus cash management business in Q1, where we saw strong influence inflows and the performance of the business in terms of returns as you know first quartile. So we feel very good about that so we are investing to bid.
Dermot William McDonogh: So we are investing in the business to give our clients good products to invest in. The flip side is we still believe, as it relates to running the company better and desiloing the firm and connecting asset management to the broader enterprise, there's a lot of opportunity there. And at the same time as the opportunity, it allows us to take costs out and become a lot more efficient. So I would say we're working on both sides of it. We see more opportunity on the revenue side, and we're working on the problem on the efficiency side.
Speaker Change: It is to give our clients good products to invest in.
Speaker Change: The flip side is we still believe.
Speaker Change: As it relates to running the company better and <unk>, the firm and connecting asset management to the broader enterprise, there's a lot of opportunity there and at the same time as the opportunity is allows us to take costs out and become a lot more efficient. So I would say, we're working both sides of it.
Speaker Change: As we see more opportunity on the revenue side and we're working the problem on the efficiency side.
Steven Joseph Chubak: Very helpful caller. Thanks so much for taking my questions.
Speaker Change: Very helpful color. Thanks, so much for taking my questions.
Speaker Change: Okay.
Operator: Our next question comes from the line of Betsy Graseck with Morgan Stanley. Please go ahead.
Speaker Change: Our next question comes from the line of Betsy <unk> with Morgan Stanley. Please go ahead.
Betsy Lynn Graseck: Hi, I had two questions. One was just on the AI commentary that you were, you know, leading with in the prepared remarks, and I wanted to understand how you're thinking about the benefits to the expense ratio and the timeframe with which this is going to flow through, because there are clearly revenue-enhancing opportunities and expense, reducing or flattening. And how much of this AI investment is, how important is it to your 2024 expense outlook? And, yeah, if you could give us the medium-term outlook, that'd be helpful. Thanks.
Speaker Change: Hi.
Betsy: I had two questions. One was just on the AI commentary that you are leading within the prepared remarks, and I wanted to understand how you're thinking about the benefits to the expense ratio in the timeframe with which this is going to flow through.
Betsy: Because there's clearly revenue enhancing opportunities than expense.
Betsy: Two saying are flattening and how much of this AI investment is.
Betsy: How important is it to your 2024 expense outlook.
Speaker Change: And yes, if you could give us the medium term outlook that would be helpful. Thanks.
Robin Antony Vince: Sure. Hi Betsy. First of all, it's great to have you on the call. Really glad to have you back and to know that you're doing well.
Sure Hi, Betsy first of all it's great to have you on the call really glad to have you back and to know that youre doing well.
Betsy Lynn Graseck: Thanks so much.
Betsy: Thanks, Amit.
Robin Antony Vince: So on AI, I'll start with the sort of the latter part of your question, which is, I really don't think this is a 2024 story. Of course, we're doing things in 2024. But if you ask me to try to put a pin in where the real benefits and sort of tailwinds kick in, I'm actually going to say it's not even necessarily a 25 story, although maybe we'll see a little bit in 25. I think this is a 26 and on out benefit on the expense line.
Betsy: So on the AI.
Betsy: I'll start with the sort of the latter part of your question, which is I really don't think this is a 2024 story of course, we're doing things in 2024, but if you ask me to try to put a pin in where the real benefits and sort of tail wins kicking I'm actually going to say, it's not even necessarily a 25 story, although may be we'll see.
Betsy: A little bit in 25, I think this is a 26 and on out benefit on the expense line, but.
Robin Antony Vince: But let me go back to the sort of the premise of your question and just sort of briefly mention how we're embracing it. So I'll actually put it through the three pillars that we've laid out in terms that are guiding so much of what we're doing in the company. So first, being more for our clients, we think there are solutions out there for clients that are going to help them make better decisions, see risks, and be able to be more efficient themselves. We've got software in the market today doing that with predictive trade analytics around fails and settlements, allowing clients to be able to look out and to see and take evasive action, essentially on potential fails.
Betsy: Let me go back to the sort of the premise of your question and just sort of briefly mentioned, how we're embracing it so I'll put it actually through the three pillars that we've laid out in terms that are guiding so much of what we're doing in the company. So first being more for our clients. We think there are solutions out there for clients that are going to help them.
Better decisions see risks be able to be more efficient themselves. We've got software in market today doing that with predictive trade analytics around fails and settlements, allowing clients to be able to look out and to see and take evasive action essentially on potential fails and by the way some of those actions involved.
Robin Antony Vince: And by the way, some of those actions involve using other parts of the BNY Mellon platforms in order to be able to improve their businesses. And so that's an interesting example. And there are going to be a lot more of those.
Betsy: Using other parts of the Bay and why Mellon platforms in order to be able to improve that business is and so that's an interesting example, and theyre going to be a lot more of those under the heading of running our company better. This is going to be about streamlining business processes productivity.
Robin Antony Vince: Under the heading of running our company better, this is going to be about streamlining business processes, productivity, figuring out and seeing anomalies that we can see, and code assistant. As so many people talk about for our developers, I was walking around one of our buildings the other day talking to one of our developers. They've been out of school for a year and a change, and already they think they're 25 percent more productive as developers. And that's in the very early days of using GitHub Copilot.
Betsy: Great figuring out and seeing anomalies that we can see a code assistant as so many people talk about for our developers.
Betsy: I was walking around one of our buildings. The other day talking to one of our developers they've been out of school for a year and change and already they think that 25% more productive as a developer and that's in the very early days of using get hub co pilot. So that's going to be there's going to be more of that and that ultimately is going to create efficiencies for us.
Robin Antony Vince: So there's going to be more of them, and that ultimately is going to create efficiencies for us. And then, under the culture heading, which is very important, we want AI to empower our people to be able to go out and be able to be more efficient in terms of what they're doing. And there are any number of different examples of things that we think AI is going to be able to help us with.
Betsy: And then under the culture heading which is very important we want AI to empower our people to be able to go out and be able to be more efficient in terms of what they're doing and they were there are any number of different examples of things over time that we think AI is going to be able to help with US now importantly, and this is the way.
Robin Antony Vince: Now, importantly, in this is the way in which we're doing it. Both Dermot and I talked about platforms, and another concept in our platform strategy is to create these hubs, these centers of excellence. And in AI, that's particularly important. We do not want to repeat the problems that we've had in the past of having everyone go off in their own direction. And actually, in AI, it's particularly important because problem statements that sound different can, in fact, have very common root causes.
Betsy: In which we're doing it.
Betsy: <unk> done that Mike talked about platforms and another concept in our platform strategy is to create these hubs. These centers of excellence and NII, that's particularly important we do not want to repeat the problems that we've had in the past of having everyone go off on their own direction and actually NII, it's particularly important because problem statements that some.
<unk> different can in fact have very common root causes so you might want to be able to respond to an RFP you might want to generate summaries of documents you might want to be able to get a head start on a research report, but actually when you look under the heading those three things sound different but the AI, that's actually powering them some of the sort of many platforms that are Rick.
Robin Antony Vince: So you might want to be able to respond to an RFP, you might want to generate summaries of documents, you might want to be able to get a head start on a research report. But actually, when you look under the heading, those three things sound different, but the AI that's actually powering them, some of the sort of mini platforms that are required are very, very similar. So we're using our AI hub to collect these different use cases and then be able to sort of deliver solutions and mini AI platforms that can then be used in multiple places around the company. So we're excited about this; we think it's going to be very significant over time.
Betsy: Quiet a very very similar so we're using our AI hub to collect these different use cases, and then be able to sort of deliver solutions and many AI platforms that can then be used in multiple places around the company. So we're excited about this we think it's going to be very significant over time, but it's not a 24 story.
Robin Antony Vince: Okay, got it. That's super helpful with the color. Appreciate that.
Speaker Change: Okay got it that's super helpful color I appreciate that and then just a follow up on the tax rate guidance.
Betsy Lynn Graseck: And then just a follow-up on the tax rate guidance. You know, this is part of the accounting change, I believe. Is that right? And can you tell us where in the PPOP the offsets are? Thanks.
Speaker Change: And this is part of the accounting change I believe at that right and can you tell us.
Speaker Change: We're in the peak pop the offsets are thanks.
Dermot William McDonogh: Sorry, I missed the last part of it. Betsy, where are the...
Speaker Change: Sorry, I missed the last part of her Betsy where the op.
Betsy Lynn Graseck: Oh, oh, there's offsets, right, to the tax, you know, the taxes impacted by the accounting change, is that right?
There is the offset to the tax.
Speaker Change: The taxes impacted by the accounting change is that right.
Dermot William McDonogh: Yeah, so it's economically neutral for the firm. It's just a gross increase in revenue, which will show up in the interest and other revenue line, and then the offset to that is in the tax line. And we filed an AK a couple of weeks ago where we restated all the prior periods for comparison so that people will see it on a consistent basis going forward.
Speaker Change: Yeah. So so it's economically it's net neutral for the firm. It's just a gross up in revenue, which will show up in the interest and other revenue line and then the offset to that is.
Speaker Change: As it is in the tax line and we filed an 8-K a couple of weeks ago, where we really stays as all the prior periods for comparison, so that people will see it on a consistent basis going forward.
Operator: Sure, I just wanted to highlight that your tax rate guide has the offsets in the revenue, so I appreciate that. Thank you. Our next question comes from the line of Ebrahim Poonawala with Bank of America. Please go ahead. Thank you. Good morning.
Speaker Change: Sure I just wanted to highlight that your tax rate guide is has the offsets in the revenues I appreciate yeah. Thank you yeah.
Speaker Change: Our next question comes from the line of Abraham Pune Waller with Bank of America. Please go ahead.
Speaker Change: Thank you good morning.
Speaker Change: I guess for Tony you pretty much for <unk>.
Ebrahim Huseini Poonawala: I guess, not sure, Dermot, if this was addressed here, Robin, but give us, in terms of your outlook on deposits, I think the period ends, so a pretty big uptick to $309 billion. Just give us a sense of, within your NII guidance, one, what are you assuming in terms of deposit balances? And secondly, if we, if the forward curve holds, is the next inflection on NII and margin higher or lower? Yeah, thank you.
Speaker Change: If this was addressed here oven.
Speaker Change: But just in terms of your outlook on deposits I think the <unk> saw a pretty big uptick to.
Speaker Change: <unk> 109 billion, just give us a sense of the didn't your NII guidance. One what are you assuming in terms of deposit balances.
Speaker Change: And secondly, if we if the forward curve holds is the next inflection on the on NII and margin higher or lower.
Speaker Change: Yeah. Thank you.
Speaker Change: Okay.
Dermot William McDonogh: So, as at the quarter end, Ebrahim, I think the spot number was around $310 billion in deposits. And that was largely because, you may recall that quarter end this year fell on a good Friday, when markets were closed. So we got a lot of clients putting cash in so that they could make certain payments. And so we saw a kind of surge in deposits over the last few days of the quarter, and they've largely left the system now that we've returned to more normal levels, which is in the kind of high 270 range.
Speaker Change: So.
Speaker Change: As at the quarter end Abraham I think the spot number was around $310 billion of deposits and that was largely you may recall that quarter and this year a fab on a on a good Friday.
Speaker Change: There are markets where chose.
Speaker Change: So we've got a lot of clients, putting cash in so that they could make certain payments and so we saw a kind of a surge in deposits over the last few days of the quarter and they've largely left the system now and we've returned to more normal levels, which is in the kind of high $2 70 range. So that's kind of really the X.
Dermot William McDonogh: So that's kind of the explanation for the spot deposit balance versus the average trend. So sequentially, we're down 6% in deposits or NII, and 8% year over year. And, generally speaking, we saw a 2% growth in the deposit balance. Our guide at the beginning of the year was down 10%. And given the rate volatility and what's going on with the inflation report last week and the backup in rates, etc., etc., we don't see, you know, there's nothing that's causing us to think that we should change our guidance between now and the balance of the year.
Speaker Change: Operations for the spot deposit balance versus the average trend.
Speaker Change: So sequentially, we're down 6% in the deposits.
Speaker Change: And 8% year over year.
Speaker Change: And 2%, we saw a 2% growth and the deposit balance generally speaking our guide at the beginning of the year was down 10% and given the rate volatility and what's going on with the inflation report last week and the backup in rates et cetera, et cetera, we don't see Ah Theres nothing.
Speaker Change: That's causing us to think that we should change our guidance between now and the balance of the year, we're very neutrally positioned as to whether rates go up a little bit from here are down a little bit from here and we feel very good about the overall guidance that we gave in January which was approximately you know.
Dermot William McDonogh: We're very neutrally positioned as to whether rates go up a little bit from here or down a little bit from here, and we feel very good about the overall guidance that we gave in January, which was approximately, you know, down 10 percent.
Robin Antony Vince: Got it. And I guess one just follow up on some of the actions you took in moving businesses to Pershing, as we think about the strategic review. I guess, Robin, maybe it began a year ago or longer than that. Give us a sense of in terms of the franchise positioning, how the businesses are talking to each other, and if they're in the right place within the enterprise. Is all of that done? How close are you to getting the franchise synced up in terms of where it's coming along with regard to what you want to achieve in terms of client synergies? Thank you.
Speaker Change: 10%.
Speaker Change: Got it and I guess, one just follow up in terms of some of the actions you took and moving businesses.
Speaker Change: In pushing.
Speaker Change: As we think about the strategic review I guess, Robin maybe began a year ago or longer than that give us a sense of in terms of the franchise positioning.
Speaker Change: How the businesses are talking to each other and.
Speaker Change: Is that in the right place within the enterprise is all of that done how close are you to getting.
Speaker Change: The franchise synced up in terms of rates coming along.
Speaker Change: With regards to what you want to achieve in terms of client synergies. Thank you.
Robin Antony Vince: So the punchline is we're making good progress, but you're essentially asking a cultural question, and we're not done with that. So when we did, to go back to your point, when we did our original strategy reviews, which were 18 months or so ago now and took us a few months to go through, we were really focused on answering the questions of what we were doing, are we doing the right things, how are we doing them, are we doing them in the right way, do we have the right people doing them?
Speaker Change: So the punch line is we're making good progress, but you're essentially asking a cultural question and we're not done on that so when we did go back to your point when we did our original strategy reviews, which is 18 months or so ago now took a took us a few months to go through we were really focused on ounces.
Speaker Change: During the questions of what are we doing are we doing the right things how we doing them are we doing them in the right way do we have the right people doing them and so we looked at that and we certainly found bits of the company that we're just in the wrong place and so we've lifted those bits up and we've put them in what we now think of the right place. So that's what both John and I talked about.
Robin Antony Vince: And so we looked at that, and we certainly found bits of the company that were just in the wrong place. And so we've lifted those bits up, and we've put them in what we now think are the right place. So that's what both Dermot and I talked about in our prepared remarks, and that was why some of the restatement of prior periods so that you could make the easier comparisons there. That was just basic blocking and tackling.
Speaker Change: In our prepared remarks, and that was what some of the restatement of prior periods. So that you could make the easier comparisons there was about that was basic blocking and tackling but the bigger opportunity for sure is how the businesses work together not only to be more for <unk>.
Robin Antony Vince: But the bigger opportunity for sure is how the businesses work together, not only to be more for clients by saying, hey, that client over there is a client, but they're not my client in my business. Can we work together to basically make them a client of both businesses? That's very significant.
Speaker Change: Lyons by saying, Hey that client over there as a client, but theyre not my client in my business can we work together to basically make them a client of both businesses. That's very significant that's why we talk about maturing one being why mellon into the real heart of our new commercial coverage model and that's being driven by.
Robin Antony Vince: That's where we talk about maturing 1BNY Mellon into the real heart of a new commercial coverage model, and that's being driven by our chief commercial officer. Another part of this is saying, huh? There are things that we used to think of as stand-alone capabilities. Some might call them products. We think about them as client platforms. And in fact, what the client is asking for, and we really heard this when we did our voice of client survey, they don't want these individual products.
Speaker Change: Our chief commercial officer. Another part of this is saying huh. There are things that we used to think of as standalone capabilities. Some might call them products, we think about them as client platforms and in fact, what the client is asking for and we really heard this when we did our voice of client survey.
Speaker Change: They don't want these individual products, they want us to take them and weave them together to create solutions for them that are on point to their needs and so we've also started to do that and I mentioned some examples of that and that's a very powerful thing because that takes the breath of our company.
Robin Antony Vince: They want us to take them and weave them together to create solutions for them that are on point with their needs. And so we've also started to do that. And I mentioned some examples of that.
Robin Antony Vince: And that's a very powerful thing because, rather than it being siloed, which is getting in the way of solutions, it's now actually ending up being an opportunity for us to deliver from the breadth of our platforms to our clients with solutions that, frankly, some other people aren't going to be able to do. So that's, we think, very exciting. And on those journeys, we're still relatively early, and that is cultural. And we've been doing a lot of things internally in the firm to make sure that our people are lined up behind that. It's early days, but we're quite excited about the direction of travel.
And rather than it being siloed, which is getting in the way of solutions, it's now actually ending up being the opportunity for us to deliver from the breadth of our platforms to our clients with solutions that frankly, some other people aren't going to be able to do so that's we think very exciting and in those <unk>.
Speaker Change: <unk>, we're still relatively early and that is cultural and we've been doing a lot of things internally in the firm to make sure that our people are lined up behind that it's early days, but were quite excited about the direction of travel.
Ebrahim Huseini Poonawala: Good. Thank you both. And our next question comes from the line of Brennan Hawken with UPS. Please go ahead.
Speaker Change: Thank you Bob.
And our next question comes from the line of Brennan Hawken with UBS. Please go ahead.
Brennan Hawken: Morning, thanks for taking my questions. I'd like to start, Dermot, when you were walking through Pershing, I believe you talked about offboarding and the impact of how that was weighing on net new assets. Could you give us an update on how far we are along in that offboarding process and how much we should continue to expect for the rest of the year? And then also, LPL recently announced the acquisition of Atria, which I understand was a Pershing client, and they're planning to consolidate those operations in 2025. So is that going to extend maybe some of the headwinds that we're seeing from some of these idiosyncratic offboarding practices?
Brennan Hawken: Good morning, Thanks for taking my questions.
Brennan Hawken: I'd like to start.
Brennan Hawken: When you were walking through Pershing I believe you talked about the off boarding and the impact and how that was weighing on the net new assets.
Brennan Hawken: Could you give us a update on how far we are along in that off boarding process and how much. We should continue to expect for the rest of the year and then also LPL recently announced the acquisition of Atria, which I understand was a Persian client and they're planning to consolidate those operations in 2002.
Brennan Hawken: 25, so is that going to extend maybe some of the headwinds that we're seeing from some of these idiosyncratic offerings.
Brennan Hawken: Okay.
Dermot William McDonogh: Okay, thanks for the question. So the first thing I would say about purging in the context of the overall kind of the segment is, with respect to Pershing, we continue to invest in Pershing. Pershing continues to grow, and we're, as we've said, since the deconversion was announced, we're going to earn our way out of this situation. And that's what's happening. And so we still feel, as a business, very, very good about Pershing.
Speaker Change: Okay. Thanks for the question. So the first thing I would say about Pershing in the context of the overall kind of the segment.
Speaker Change: Hmm.
Speaker Change: With respect to Pershing, we continue to invest in Pershing Pershing continues to grow and we've as we've said.
Speaker Change: Since the Deconversion was announced we're going to earn our way out of this situation and that's what's happening.
Speaker Change: So we still as a as a business feel very very good about pershing and our ability. It's a market that's growing in mid single digits on an annual basis and we're a big player in that market. So we're going to win our share. So while the deconversion was unfortunate as you know we continue to March on.
Dermot William McDonogh: And our ability, it's a market that's growing in the mid single digits on an annual basis, and we're a big player in that market. So we're going to win our shares. So while the deconversion was unfortunate, you know, we continue to march on, and we learn our way out. Specifically, I would say we'll be largely done with the deconversion by Q3 of this year. And as relates to the second part, I would say, look, we're in a competitive market. People are going to do things, you know, the LPL Atria thing. It's not a particular headwind.
Speaker Change: And we will earn our way out specifically I would say it will be largely done with the de conversion by Q by Q3 of this year.
Speaker Change: And as it relates to the second part I would say look.
Speaker Change: We're in a competitive market people are going to do things and you know they are.
Speaker Change: Yeah, the atria Tang.
Speaker Change: It's not a particular headwind it's not being highlighted to me it's not hit my radar in terms of Oh, My gosh, we need to worry about that and so I think we're winning more than we're losing and we're investing in and that's really going well and when you take it in the context of what's going on with Wolfe.
Dermot William McDonogh: It's not been highlighted to me. It hasn't hit my radar in terms of, oh, my gosh, we need to worry about that. And so I think we're winning more than we're losing, and we're investing. And that's really going well. And when you take it in the context of what's going on with Wove, you know, we're building a strong pipeline there, and the backlog is looking good. We've added nine clients to the platform in Q1 of this year.
Speaker Change: We're building a strong pipeline there the backlog is looking good.
Speaker Change: We've added nine clients to the platform in Q1 of this year and we made a commitment to the market that we would kind of adds $30 million to $40 million of revenue. This year and we still feel very good about that guidance and that commitment that we made to you back in January.
Dermot William McDonogh: And we made a commitment to the market that we would kind of add 30 to $40 million in revenue this year. And we still feel very good about that guidance and that commitment that we made to you back in January.
Dermot William McDonogh: And Brennan, I just want to add on the business front to that, which is that when we look at a deconversion, for sure, those happen, and the one that you're referring to, the original one was a larger one, but we're also growing with our clients. Our clients are growing with us, and we are also on the receiving end of roll-ups as well. Our clients are quite acquisitive, and we have a couple of clients who've been doing acquisitions, and we have some of our largest clients who are growing very significantly and very healthily.
Speaker Change: And Brennan I'd, just add on the business front to that which is remember that when we look at a deconversion fee.
Speaker Change: For sure those happen and the one that you're referring to the original one was a larger one but we're also growing with our clients. Our clients are growing with US and we also are on the receiving end of Rollouts as well our clients are quite acquisitive and we have a couple of clients who have been doing acquisitions and we have some of our largest clients who are growing very significantly and very <unk>.
So it's it's it's always unfortunate when theres a rollout that goes against us, but when they were roll ups that go with our clients that you know there's things balanced out to some extent, which is why does it makes the point about overall, we still feel quite enthusiastic about the about the net new assets growth over time.
Dermot William McDonogh: So it's always unfortunate when there's a roll-up that goes against us, but when there are roll-ups that go with our clients, those things balance out to some extent, which is why Dermot makes the point that, overall, we still feel quite enthusiastic about the net new assets growth over time.
Brennan Hawken: Great, thanks for that color. Um, and then, when we think about the deposits, I'm trying to think about really, Dermot, the fact that, you know, here we are one quarter in. I get it, you might maybe not want to update expectations. But it seems, based on what we've seen so far, deposit trends seem to be doing better than expected. We saw a pickup in deposit balances at year end, and they sustained, which is a little unusual.
Speaker Change: Great Thanks for that color.
Speaker Change: And then one when we think about.
Speaker Change: The deposits I'm trying I'm trying to think about really Dermot.
The fact that the.
Speaker Change: Here, we are one quarter and I get it.
Speaker Change: You don't want to update expectations, but it seems like based on what we've seen so far deposit trends seem to be doing better than expected.
Speaker Change: We saw a pickup in the deposit.
Speaker Change: <unk> balances at year end at a sustained which is a little unusual.
Brennan Hawken: And even though they've come down from EOP at 331, they're still in a similar ballpark to where you were on the average. Are you guys, is there something specific that's driving the expectation for deposit decline? Or is it just a component of conservatism?
Speaker Change: And even though they've come down from <unk> at $3 31, they're still in a similar ballpark to where you were on the average.
Speaker Change: Are you guys is there something specific that's driving the expectation for deposit decline or is it just a component of conservatism.
Brennan Hawken: If I'm honest with you, I would say it's a little bit of both. But I would expect, like everybody else expected deposits to decline this year, and it hasn't necessarily happened yet. And I kind of think I make that statement in the context of QT. And so if you look at the RRP and Q1, the drain largely came from there. And if QT continues, and rates stay higher for longer, on balance, I would expect deposits to decline from here.
Speaker Change: If I'm honest with you I would say, it's a little bit of both.
Speaker Change: Yes.
Speaker Change: I would expect like everybody expected.
Speaker Change: Deposits to decline this year.
Speaker Change: And it hasn't necessarily happened Jasmine I kind of think I make that statement in the context of Qt.
Speaker Change: And so if you look at the RFP in Q1 that the drain largely came from there and if Q T continues.
Speaker Change: And rates stay higher for longer on balance I would expect deposits to decline from here.
Brennan Hawken: And so I don't see anything that tells me that I should update the guidance from down 10% NII year-over-year. And then under the hood, in terms of the composition of the deposits themselves, you have the mix between interest-bearing and non-interest-bearing. And as rates stay higher for longer, I would expect NIBs to grind a little bit lower. So the overall balance may be higher, but you have the mix underneath, which will kind of feed into that overall NII guidance. So it's not just the absolute level; it's also the composition of it.
Speaker Change: And so.
Speaker Change: I don't see anything that tells me that I should update the guidance from down 10% NII year over year, and then then underneath the hood in terms of the composition of the deposits themselves you'll have the mix between interest bearing and noninterest bearing.
Speaker Change: Rates stay higher for longer I would expect <unk> to grind a little bit lower so the overall balance may be higher but you have the mix underneath which kind of feeds into that overall NII guidance. So it's not just the absolute level. Its also the composition of it.
Dermot William McDonogh: Yeah, yeah, no, that's great. Thanks for the candor and for embracing the uncertainty.
Speaker Change: Yeah, Yeah, no that's great. Thanks for the candor and the embracing the uncertainty.
Speaker Change: Okay.
Operator: Our next question comes from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.
Speaker Change: Our next question comes from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.
Michael Lawrence Mayo: Hi. Hi, Mike. Can you hear me?
Speaker Change: Yeah.
Speaker Change: Hi.
Michael Lawrence Mayo: Hi, Mike can you hear me yeah. So.
Michael Lawrence Mayo: Yeah. So, non-interest-bearing deposits inched down again, and I'm just wondering where that floor is. I guess it's 18%, versus 19% last quarter and 26% year over year. And so, on the other hand, your servicing fees were up 8% year over year. So I'm not sure if I should draw a link or not.
Michael Lawrence Mayo: I guess noninterest bearing deposits.
Michael Lawrence Mayo: Inched down again.
Michael Lawrence Mayo: <unk>.
Michael Lawrence Mayo: I'm just wondering.
Michael Lawrence Mayo: Where that floor is I guess, it's 18%.
Michael Lawrence Mayo: At 19% last quarter and 26%.
Michael Lawrence Mayo: Year over year.
Michael Lawrence Mayo: So on the other hand, your servicing fees were up 8% year over year. So I'm not sure if I should draw a link or not maybe what youre not getting a noninterest bearing deposits youre getting and servicing fees. So I guess the question is how are you getting such strong servicing fee growth year over year of 8%.
Dermot William McDonogh: Maybe what you're not getting in non-interest bearing deposits, you're getting in servicing fees. So I guess the question is, how are you getting such strong servicing fee growth year over year of 8%? How much of that is due to the markets? How much of that is sustainable? And is any of that simply a substitution effect from non-interest bearing deposits to servicing fees?
Michael Lawrence Mayo: That is due to markets how much of that is sustainable and is any of that.
Michael Lawrence Mayo: I play a substitution effect from the noninterest bearing deposits to servicing fees.
Dermot William McDonogh: Thanks for the question, Mike. So Q1 is kind of one of those quarters where we came into the year, I guess both in deposits and in pipeline and sales activity in very good shape. As it relates to asset servicing, in particular, the pipeline was strong. We felt good coming into the year. Markets rallied nicely.
Speaker Change: Thanks for the question, Mike So, let's go with the fee.
Speaker Change: The fee component for us.
Q1 is kind of one of those quarters, where.
Speaker Change: We came into the year.
Speaker Change: I guess both in deposits.
Speaker Change: And in pipeline and sales activity in very good shape.
Speaker Change: As it relates to kind of asset servicing in particular, the pipeline was strong we felt good coming into the year markets rallied nicely and so clients were in risk on mode doing more with us flows were stronger.
Dermot William McDonogh: And so clients were in risk-on mode, doing more with us, flows were stronger, balances were higher, and we're winning our share of mandates. Little factoids for example, of all the deals that we competed for in Q1, we won north of 50%. So we're competitive, we're pricing well, we're very focused on client profitability and deal margin. And it goes back to the point that we made in several quarters prior to this, where we were very focused on the cost to serve.
Speaker Change: Balances are higher and we're winning our share of mandates little factoid for like.
Speaker Change: Of all the deals that we competed for in Q1, we won north of 50%. So we're competitive we're pricing well, we're very focused on client profitability and margin and it goes back to the point that we've made in several quarters. Prior to this where we're very focused on the cost to serve.
Dermot William McDonogh: And so by improving margin, focusing on cost to serve, and being more for clients, we can be more competitive in the pricing point. And I made that remark; I made the point in my prepared remarks that we saw repricing being de minimis. So it was a good quarter all around.
Speaker Change: And so by improving margin focusing on cost to serve being more for clients. We can be more competitive in the pricing points and I made that remark I made the point in my prepared remarks that we saw repricing being de Minimis. So it was a good quarter all around and we feel very good about the backlog and the pipeline.
Dermot William McDonogh: And we feel very good about the backlog and the pipeline going forward, as it relates to the mix between fees and deposits. You know, we don't lead with deposits as an institution. Instead, clients do multiple things with us across the enterprise. And as a consequence of that, they leave deposits with us. You know, it's an important point, but two-thirds of our deposits are operational in nature and, therefore, very sticky. But with a higher for longer rate environment, it's only natural to expect that people with NIBs are going to move out of that and look for a higher yield.
Speaker Change: Going forward.
Speaker Change: As it relates to the mix between fees and deposits.
Speaker Change: You know, we don't lead with deposits as an institution clients do multiple things with us across the enterprise and as a consequence of that they leave deposits with us.
Speaker Change: It's an important point, but two thirds of our deposits are operational in nature, and therefore, very sticky, but with a higher for longer rate environment. It's only natural to expect that people with <unk> are going to over time move out of that and look for a higher yield it's inevitable and that's a fact of life and we're ready to deal with that.
Dermot William McDonogh: It's inevitable and it's a fact of life, and we're ready to deal with that. But I'm very proud of what our global liquidity solutions team is doing in terms of winning their share of the business in terms of deposits and how we price them. And so sequentially, we've seen the balances go up because of that competitive pricing. So, all in all, when you take the ecosystem together, we feel very good about where we are.
Speaker Change: But I'm very I'm very proud of what our global liquidity solutions team is doing in terms of winning their share of the business in terms of the deposits and how we price them and so sequentially. We've seen the balances go up because of that competitive pricing. So all in all when you take the ecosystem together we feel.
Speaker Change: Very good about where we're at.
Michael Lawrence Mayo: and Mike, there was nothing idiosyncratic about trade-offs to the other part of your question that I don't see. I don't see the quarter built around that at all.
Speaker Change: Mike There was nothing idiosyncratic about trade offs to the other part of your question that I don't see I don't see the quarter built around that tool.
Michael Lawrence Mayo: Okay. And so for a separate question, for all the growth and servicing fees, asset management, what can you do to reverse the trends for sustainable growth? I mean, would it ever be an option to consider selling that? The synergies. When you think about one BNY Mellon, I kind of get the rest of the firm being all one cohesive unit over time. But how does asset management fit into that?
Speaker Change: Okay, and so separate question for all of the growth in servicing fees.
Speaker Change: Asset management, and what can you do to reverse the trend for sustainable growth I mean.
Speaker Change: Would it ever be an option to consider selling that and the synergies. When you think about one being wide nelon I kind of get the rest of the firm being all one cohesive unit over time.
Speaker Change: But how does the asset management fit into that.
Robin Antony Vince: Sure, so this is a question that we talked a little bit about last year. And I said at the time that we think, and I'll underline the word think, that the business really can complement the strategy of the firm, but we had more work to do. And that that was a thesis, and we needed to put in place the various different steps to really be able to operationalize and make the most of that.
Speaker Change: Sure. So this is a this is a question that we talked a little bit about last year.
Speaker Change: And I said at the time that we think and I'll underline the word sync that the business really can complement the strategy of the firm, but we had more work to do and that that was the thesis and we needed to put in place the various different steps to really be able to operationalize and make the most of that and that's what we've been.
Robin Antony Vince: And that's what we've been working on over the course of the past few months. The basic thesis is that we think there's a strong industrial logic to have $2 trillion worth of manufacturing platform aligned to BNY Mellon's $3 trillion worth of retail distribution capacity if you look across Wealth and Pershing together, Pershing alone having two and a half trillion plus of client assets on the platform. And so if you only operated in a silo in investment management where it was manufacturing and only its own distribution, there's a legitimate question there about whether or not it would have the scale and the capacity to be able to truly compete. But when you put it together with the rest of the company, we think there's a pretty compelling thesis there. And so we don't think we've properly capitalized on those benefits in the past.
Speaker Change: Working on over the course of the past few months. The basic thesis is we think there's a strong industrial logic to have two trillion dollars worth of manufacturing platform aligned to <unk> Mellon's three trillion dollars worth of retail distribution capacity, if you look across well.
Speaker Change: <unk> and Pershing together <unk> alone, having two and a half trillion plus of client assets on the platform and so if you only operated in a silo in investment management, where it was manufacturing in only its own distribution. There's a legitimate question there about whether or not it would have the scale and the capacity to be.
Speaker Change: To truly compete but when you put it together with the rest of the company, we think Thats a pretty compelling thesis there and so we don't think we've properly capitalized on those benefits in the past and so our strategy is let's let investment management stretch its legs in that new approach and we see some early signs of progress on that we've been joining.
Robin Antony Vince: And so our strategy is to let investment management stretch its legs in that new approach. And we see some early signs of progress on that. We've been joining some dots.
Robin Antony Vince: I mentioned a couple of things in my prepared remarks, both in terms of us having a broader distribution platform that can attract other investment managers who maybe don't have the benefit of our distribution and want to come join our platform, rounding out our offerings and essentially making our distribution platform more complete, but also being attractive to them so they don't have to build their own. If you will, they're building their business on one of our platforms.
Speaker Change: Some dots I mentioned, a couple of things in my prepared remarks, both in terms of us having a broader distribution platform that actually can attract other investment managers, who maybe don't have the benefit of our distribution and they want to come join our platform rounding out our offerings and essentially making.
Speaker Change: Our distribution platform more complete but also being attractive to them. So they don't have to build their own. If you will that building that business on one of our platforms and so we've given you our targets we want to be able to expand the pretax margin in the business to over 25%, it's not for nothing that we didn't.
Robin Antony Vince: And so we've given you our targets. We want to be able to expand the pre-tax margin in the business to over 25%. It's not for nothing that we didn't grow expenses in that segment or in security services, for that matter, because we're really focused on the margin in those businesses, and we have had some growth. And so this is about really working that set of opportunities, and we'll see in the coming quarters how we do, but this quarter was one where we felt we took an important step forward. All right, thank you.
Speaker Change: <unk> expenses in that segment or in security services for that matter, because we're really focused on the margin in those businesses and we have had some growth and so this is about really working that set of opportunities and we'll see over the coming quarters, how we do but this quarter was one where we felt we took an important step forward.
Speaker Change: Alright, thank you.
Michael Lawrence Mayo: Thanks.
Operator: And our next question comes from the line of Glenn Schorr, with Evercore ISI. Please go ahead.
Speaker Change: Thanks.
Speaker Change: Yeah.
Speaker Change: And our next question comes from the line of Glenn Schorr.
Glenn Paul Schorr: With Evercore ISI. Please go ahead.
Glenn Paul Schorr: Hi, thanks very much. We haven't mentioned it, so maybe it wasn't that big of a deal, but T plus one starts at the end of May. I'm curious if it was a big expense lift that we get some relief on going forward. And then, related to that, are there any headwinds on NII and any benefits on capital that we have to think about as a result of moving towards a more T plus one world?
Glenn Paul Schorr: Yeah.
Glenn Paul Schorr: Hi, Thanks very much.
Glenn Paul Schorr: Hey, Ken mentioned that so maybe it wasn't.
Glenn Paul Schorr: If it wasn't that big of a deal but keep costs. One start at the end of May I'm curious if it was a big expense lift that we get some relief on going forward and then related to that are there any headwinds on NII and any benefits on capital that we have to think about.
Glenn Paul Schorr: As a result of moving towards a more T plus one world. Thank you.
Robin Antony Vince: Thank you.
Robin Antony Vince: So, T plus one, sure, we had to spend money in different parts of the company in order to be able to ready ourselves for this. We view that as, frankly, the ordinary course of business. There's always some market structure change going on in the world that we have to respond to. So while they may be individually lumpy, there's always something.
Glenn Paul Schorr: So T plus one show we had just for sure spend money in different parts of the company in order to be able to ready ourselves for this we view that as frankly ordinary course of business. There's always some market structure change going on in the world that we have to respond to so while they may be.
Glenn Paul Schorr: Individually lumpy, there's always some things. So we just think about that as part of the expense of running the company.
Robin Antony Vince: So we just think about that as part of the expense of running the company and not something that will yield a particular benefit when we happen to have finished the work. Now, I do think that T plus one overall provides benefits to the financial system, improvements in efficiency, and some risk reduction. I would say to the second part of your question that more of that probably accrues to our clients because we're not as big a principal player there.
Glenn Paul Schorr: And not something that will yield a particular benefit when we happened to have finished the work now I do think that T. Plus one overall provides benefits to the financial system improvements inefficiency some risk reduction I would say to the second part of your question that more of that probably accrues to our clients because we're not as big a prince.
Robin Antony Vince: It can improve liquidity and capital requirements in the fullness of time. The industry's come a long way. You know, it wasn't that long ago that we were at T plus five, T plus three, sort of moving down the curve.
Glenn Paul Schorr: Full player that it can improve liquidity and capital requirements in the fullness of time.
Glenn Paul Schorr: The industry has come a long way you know it wasn't that long ago that were at T. Plus five T plus three sort of moving down the curve and I would also say from an opportunity point of view not only to clients look to us to help them navigate these types of things because they're complicated and detailed and they want us to essentially help them in executing.
Robin Antony Vince: And from an opportunity point of view, not only do clients look to us to help them navigate these types of things because they're complicated and detailed, but they want us to essentially help them in executing this type of change. And that's exactly what we've been doing. But we also think that there are opportunities associated with these sorts of inflections because clients look at us, and it does sometimes cause the question to be raised of, huh, another big change in the post-trade landscape. Life's too short.
Glenn Paul Schorr: This type of change and that's exactly what we've been doing but we also think that they were just opportunities associated with these sorts of inflections because clients look at us and it does sometimes causes the question to be raised of ha. Another big change in the post trade landscape life's too short I'm an investment.
Robin Antony Vince: I'm an investment manager or I'm a broker dealer. I wanna go about the core of my business. I don't wanna have to worry about that stuff as much as I currently do. BNY Mellon, can you help us?
Glenn Paul Schorr: Joe or I'm, a broker dealer I want to go about the core of my business I don't have to worry about that stuff as much as I currently do being one Alan can you help us can you help us and maybe Theres a platform sale opportunity there for a little bit more outsourcing because as the world makes these changes speeds up gets more complicated more change management, we of course have the benefit of sky.
Robin Antony Vince: And maybe there's a platform sale opportunity there for a little bit more outsourcing because as the world makes these changes, speeds up, gets more complicated, more change management, we, of course, have the benefit of scale. We get to change once, and we get to take some of those problems off their hands. And so I'd call that out when it comes to real-time payments. I'd call it out in T plus one. I'd call it out in clearing.
We get to change once we get to take some of those problems off their hands and so I'd call that out when it comes to real time payments side call. It out in T plus one I called it out in clearing each time. These things happen, we look at it through a lens of opportunity as well as the lens of client service, but overall also.
Robin Antony Vince: Each time these things happen, we look at them through the lens of opportunity as well as client service, but overall, it is also just good for the market. Nothing good happens between trading and settlement, as it is often said.
Glenn Paul Schorr: Good for the market nothing good happens between trading and settlement as is often said.
Dermot William McDonogh: and Glenn, on the specific point about headwinds as it relates to NII, I kind of, kind of, I look at the last two quarters together in terms of the strength of what we've done on NII, and I feel overall, we're in a good place. The balance sheet is very clean.
Glenn Paul Schorr: And that plan on the specific points about headwinds as it relates to NII I kind of.
Glenn Paul Schorr: I kind of I look at the last two quarters together in terms of the strength of what we've done on NII and I feel overall, we're in a good place the balance sheet is very clean.
Dermot William McDonogh: And our CIO book is well positioned and of kind of short duration, and the CIO is doing a really good job at optimizing yields. And so when you see our securities that are maturing at the moment, they're rolling off at a kind of two to 3% rate, and then they are to be deployed at current market yields. So based on what I see today with the backup and rates that happened last week as a result of the hot inflation report.
Glenn Paul Schorr: Our CIO book.
Glenn Paul Schorr: <unk> is well positioned and kind of short duration.
Glenn Paul Schorr: And the CIO is doing a really good job at optimizing yields and so when you see our securities that are maturing at the moment, they're rolling off is that kind of 2% to 3% race and that ought to be deployed at current market yields so based on what I see today with the backup in rates that happened last week.
Glenn Paul Schorr: As a result of the harsh inflation report we.
Dermot William McDonogh: We feel pretty good about where things are for the balance of the year, just using that forward curve. As I said earlier, rates up a little, down a little don't materially impact us. And so we feel like our base case is, we feel pretty good about it.
Glenn Paul Schorr: We feel pretty good about where things are for the balance of the year just using that forward curve.
As I said earlier rates up a little down a little don't materially impact us and so we feel like our base case is we feel pretty good advisors.
Glenn Paul Schorr: Thank you all.
Operator: Our next question is going to come from Gerard Cassidy with RBC. Please go ahead.
Speaker Change: Thank you all.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Our next question is coming from.
Speaker Change: Cassidy with RBC. Please go ahead.
Gerard Sean Cassidy: Hi Robin. Hi Dermot.
Cassidy: Hi, Robyn.
Robin Antony Vince: Hey Gerard, Roger.
Cassidy: Hey, Gerard.
Gerard Sean Cassidy: Jeremy, can you give us some color? You said in your prepared remarks that the average loan balances were essentially flat in Q1 versus Q4, but I noticed the spot number, the year-end or quarter-end number for loans, was actually quite a bit higher, you know, around $73 billion versus the spot number in the fourth quarter. Was there something at the end of the quarter that caused that to increase?
Cassidy: Jeremy can you give us some color I noticed you said in your prepared remarks, the average loan balances were essentially flat in Q1 versus Q4.
Cassidy: But I noticed the spot number the year end quarter end number for loans was actually quite a bit higher.
Jeremy: Around 73 billion versus the spot number in the fourth quarter was something at the end of the quarter that caused that to increase.
Dermot William McDonogh: Thanks Gerard, that again it was a little bit of what I call the Good Friday effect, where clients used our overdraft facility mechanisms going into that weekend. And so that really caused the spot balances to go up, and that's kind of largely cleaned out. So it has reverted more to the average numbers that you're familiar with.
Jeremy: Yeah, Thanks, Gerard that again.
Jeremy: It was a little bit of.
Before I call the good Friday after the good Friday effect where clients.
Use our overdraft facility mechanisms going into that weekend, and so that really caused.
Jeremy: The spot balances to go up and Thats kind of largely cleaned out so has reverted more to the average numbers that you are familiar with.
Gerard Sean Cassidy: Okay, good. And I know this is not a big area for you guys, so maybe you could give us better insights since it's not as big as it is for a traditional bank. But can you maybe give us some color on the commercial real estate? I know you pointed out you've built up the allowances there.
Speaker Change: Okay. Good and then I know this is not a big area for you guys. So maybe you could give us better insights since it's not as big as it is for traditional bank.
Speaker Change: Can you maybe give us some color on the commercial real estate I know you pointed out you've built up the allowances there.
Dermot William McDonogh: What are you guys seeing? Is it similar to what we're reading about and hearing from others, or is it something different?
Speaker Change: What are you guys seeing is it similar to what we're reading about and hearing from others or is it something different.
Dermot William McDonogh: So I would say, look, we're prudently marked in the commercial real estate portfolio. Overall, our CRE portfolio in the context of our overall balance sheet is quite small, 3% of total loans, $2 billion, and the reserve build that we took in Q1 was really just kind of being prudent on a couple of specific situations that are coming up for restructuring but I would let you know that they're all still paying and everything is working and they're Class A office buildings and you know we feel good about the occupancy so I would say overall very very clean and nothing that really has me unduly concerned and look there has been a lot of chatter in the market in the press over the last quarter about what's going to happen I'm sure the backup and rates has
Speaker Change: So I would say look where we're prudently marks.
Speaker Change: And the commercial real estate portfolio overall, our CRE portfolio in the context of our of our overall balance sheet is quite small 3% of total loans $2 billion.
Speaker Change: And the reserve build that we took in Q1 was really just kind of being prudent on the spin on.
Speaker Change: A couple of specific situations that are coming up for restructuring, but I would let you know that they are all still paying and everything is working and there are class a office buildings and you know we feel good about the occupancy. So I would say overall very very clean and nothing that really has me on Julie concerned.
Speaker Change: I look there has been a lot of chatter in the markers in the press over the last quarter or about what's going to happen I'm sure the backup in rates.
Speaker Change: It Hasnt really helps that chatter bus like surveying other banks our results. So far this quarter I haven't really noticed any specific CRE bills on the back of what's been going on over the last couple of quarters. So it does feel like a sentiment matter to be quite new shows at the moment on the back of.
Speaker Change: Others earnings release at least what I've observed and Gerard I would just add to that for the more general view, which is I think the answer to what happens in corporate real estate clearly it depends which markets you're involved in there are some markets around the country that are more distressed than others. It continues to be focus.
Robin Antony Vince: And Gerard, I just add to that for the more general view, which is I think the answer to what happens in corporate real estate. Clearly, it depends which markets you're involved in. There are some markets around the country that are more distressed than others. It continues to be focused on office, as you know, although there are certainly some questions about multifamily, but the fact that we're sort of still short housing in the U.S. as a general matter is probably ultimately going to be helpful to that story.
Speaker Change: On office as you know, although there are certainly some questions on multifamily.
Speaker Change: That was sort of still short housing in the U S. As a general matter is probably ultimately can be helpful to that story. The most single most important driver of it as we sit here today is where our longer term rates and so there is so much chatter about what's going to happen in fed funds is the fed going to.
Robin Antony Vince: The single most important driver of it, as we sit here today, is where longer-term rates are. And so there's so much chatter about what's going to happen with Fed funds rates: is the Fed going to cut? Are they going to stay? Are they going to hike a little bit?
Speaker Change: Card are they going to stay or they get a hike a little bit, but what really matters is whereas the curve from five to 10 years and as that backs up and to the extent that we crossed 5% you get very different outcomes on on commercial real estate than you do if 10 years are at 4% and if they ended up for some reason not our base case, but it's.
Robin Antony Vince: But what really matters is where the curve is from five to 10 years, and as that backs up, and to the extent that we cross 5%, you get very different outcomes on commercial real estate than you do if 10 years are at 4%. And if they end up, for some reason, not our base case, but it's possible, you got to plan for it. If they end up at 6%, then for some folks in the market, that's going to be a much more painful outcome. So I think you watch, so goes the 10 year to some extent, so goes the commercial real estate market because this is a 24, a little bit, but really 25, refinancing story.
Speaker Change: Possible you got to plan for it if they end up at 6% then for for for some folks in the in the market that's going to be a much more painful outcome. So I think you watch so goes the 10 year to some extent so goes the the commercial real estate market. Because this is a 24 a little bit.
But rarely twenty-five refinancing story.
Gerard Sean Cassidy: Thank you. I appreciate those insights. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you I appreciate those insights thank you.
Operator: Our next question comes from the line of David Smith with Autonomous Research. Please go ahead.
Speaker Change: Our next question comes from the line of David Smith with Autonomous Research. Please go ahead.
David Smith: Good afternoon. Could you please help us think a little bit more about how far you are along in the efficiency opportunity journey? I know it's really never ending in some ways, but can you help us think about when the pace of improvement might start to decline as you get through more of the low-hanging fruit?
David Smith: Good afternoon could you. Please help us think a little bit more about how far you are along you are in the efficiency opportunity journey I know, it's really never ending in some ways, but help us think about when the pace of improvement might start to decline as you get through marvell low hanging fruit.
Dermot William McDonogh: So thanks for the question. I was wondering when it was going to come.
Speaker Change: So thanks for the question I was wondering when it was going to come.
Robin Antony Vince: It's a multi-year journey. And look, let's go back to last year and kind of go through it. Last year we kind of ended up at 2.7 versus a guide of 4 versus a previous year of 8, and this year we've guided FLAS. And we started Q1 on an operating basis of 1%. You'll see that our headcount, we've got, we've largely, you know, give or take a few hundred people, is largely flat. And so the headcount is flat.
Speaker Change:
Speaker Change: It's a multiyear journey.
Speaker Change: And look let's go back to last year and kind of go through us.
Speaker Change: And.
Speaker Change: Last year, we kind of ended up at two seven versus a guide of four versus the previous year of Ace.
Speaker Change: And this year, we've guided flat.
Speaker Change: And we started Q1 on an operating basis of 1%.
Speaker Change: You'll see that our head count we've got we've largely you know give or take a few hundred people is largely flat and so.
Speaker Change: The head count is flat, we feel like we have our arms wrapped around that there's a lot going on under the hood in terms of.
Dermot William McDonogh: We feel like we have our arms wrapped around that. There's a lot going on under the hood in terms of bringing in new people, like growing our analyst class, high-value location growth, etc., etc. So we see a lot of opportunity to continue to improve the efficiency story. Also, as we both said in our prepared remarks, the migration to a new way of working, the platform operating model, over the next couple of years, we feel will not only help us grow the top line, but it will also just help us run the company better.
Speaker Change: Bringing in like growing our analyst class.
Speaker Change: High value location growth et cetera, et cetera. So we see a lot of opportunity to continue to improve the efficiency story also as we both said in our prepared remarks, the migration to a new way of working to platform operating model over the next couple of years, we feel.
Not only help us grow topline, but it will also just help us run the company better.
Dermot William McDonogh: And I think it's quite important culturally that we don't really talk about efficiency internally. We talk about running our company better, which is very important strategically and also culturally. So I think you're going to see quarter by quarter proof points on how we're able to run the company better, which will result in efficiency, which will then, in turn, result in improved margin. So we feel very optimistic about what's coming.
Speaker Change: And I think it's quite important culturally that we don't really talk about efficiency internally, we talk about running our company better which is very important strategically and also culturally so I think youre going to see quarter by quarter proof points on how we're able to run the company better which will result in <unk>.
<unk> C, which will then in turn result in improved margin. So we feel very optimistic about what's coming.
David Smith: And lastly, just to confirm the, you know, not a billion dollars or so of buyback in one cue. Does that come out of the six billion new re-purchase authorization, or is the six billion incremental to what you did in one cue?
Speaker Change: Thank you and lastly, just to confirm the.
Speaker Change: $9 billion or so of buyback in <unk> does that come out of the 6 billion new repurchase authorization or is the $6 billion incremental to what you did in <unk>.
Dermot William McDonogh: So, we did an authorization last year, which was $5 billion. We have a little bit left over from that, and so it's just more of an administration thing that we decided to get another authorization this year for $6 billion. That's largely open-ended, so I wouldn't really dwell on the size of the authorization that much. It's just more of what we commit to you doing on an annual basis, and the key thing for you to take away is that we're committing to north of 100 percent.
Speaker Change: So so we did an authorization last year, which was <unk> 5 billion and we have a little bit left in that and so it's just more of an administration thing that we decided to get another authorization. This year for 6 billion. That's largely open ended so I will.
Speaker Change: Wouldn't really dwell on the size of the authorization that much its just more of what we commit to you doing on an annual basis and the key thing for you to take away is we're commissioning to north of 100% this year.
Operator: Thanks. Our next question.
Speaker Change: Got it thank you.
Brian Bertram Bedell: of Brian Bedell with Deutsche Bank.
Speaker Change: Thanks, Steve next question.
Speaker Change: From the line of Brian Bedell with Deutsche Bank. Please go ahead.
Robin Antony Vince: Great, thanks for taking my questions. Maybe most of them have already been asked an answer, but maybe just a couple of follow-ups. One, a little bit on that prior question Dermot, I guess this could be for Robin as well. I think Robin, you mentioned earlier in the call about 15% of staff are in the new operating model. Maybe if you could just talk about your migration plan over time and go back to what you just answered, Dermot, about the efficiency improvement, should we be thinking of this over the long term as maybe roughly even between expenses and revenue, or still more geared towards expenses?
Brian Bertram Bedell: Oh, great. Thanks for taking my questions.
Brian Bertram Bedell: Most of them have been asked and answered, but maybe just a couple of follow ups.
Brian Bertram Bedell: One of them.
Brian Bertram Bedell: Little bit on that prior question, Germany, I guess this could be for Robin as well I think Robin you mentioned earlier.
Speaker Change: Earlier in the call about 15% of Sapphire in the new operating model.
Speaker Change: Maybe if you could just talk about your mind your migration plan overtime and.
Going back to what you just answered German about the efficiency improvement.
Speaker Change: Should we be thinking of this over the long term as.
Speaker Change: You know, maybe roughly even between expenses and revenue or.
We're still you know more and more geared towards the expenses.
Dermot William McDonogh: Okay, let me just start with the platform's operating model. So ultimately, if you just go back to why are we doing what it is that we're doing. We've been pretty siloed as a company, as we've talked about before; we think that's a bad artifact. At least it's a bad artifact for a company like us, which is inherently a scale platform provider. It's kind of the nature of our business, diversified, many different platforms, but largely at scale. And so to have the separation of all of these pieces that are in support of that, and in some cases, duplication, it just, in our opinion, wasn't the right way to do it.
Speaker Change: Okay, Let me just start with where the platforms operating model. So ultimately.
Speaker Change: If you just go back to why are we doing what it is that we're doing.
Speaker Change: We've been pretty Siloed as a company as we've talked about before we think that's a bad artifact at least it's a bad artifact for a company like us which is inherently a scaled platforms provide or it's kind of the nature of our business diversified many different platforms, but largely at scale.
Speaker Change: And so to have the <unk>.
Separation of all of these pieces that are in support of that and in some cases duplication. It just in our opinion wasn't the right way to run the company. So what is platforms operating model going to do it's going to simplify how we work it's going to improve the client experience and it's going to create more empowerment for our.
Robin Antony Vince: way to run the company. So what is the platform's operating model going to do? It's going to simplify how we work, it's going to improve the client experience, and it's going to create more empowerment for our employees. It's an opportunity to do things in one place, do them well, and elevate the quality of overall execution. And so with that said, it sort of hits on the expense line as a benefit, and it hits on the revenue line as well.
Speaker Change: Employees, it's an opportunity to do things in one place to the well and elevate the quality of overall execution and so with that said it sort of hits on the expense line as a benefit and it hits on the revenue line as well and we've done remember we did a bunch of studies for this before we embark.
Robin Antony Vince: And we've done, remember, we did a bunch of studies for this before we embarked on it because it's a pretty significant change. We also did some pilots. And to some extent, we've even built new businesses using this operating rhythm. Because we built Wove in that way. And that wasn't entirely by accident.
Speaker Change: Perfect on it because it's pretty significant change. We also did some pilots and to some extent, we've even built new businesses using this operating rhythm because we built wove in that way and that wasn't entirely by accident. So we've had some experience associated with all of that and we feel pretty good. Therefore that we are going to get expense savings.
Robin Antony Vince: So we've had some experience associated with all of that. And we feel pretty good, therefore, that we are going to get expense savings and revenue opportunities associated with it. We also think that from a cultural point of view, it's just an opportunity for our people because we think our people, and this is certainly what the data so far has shown, they just feel more empowered working in this model. They can see a problem, they can get on it more quickly, they're more empowered to pull the levers to create change. And they no longer feel that maybe they're part of a long chain of bureaucracy to make change.
Speaker Change: And revenue opportunities associated with it. We also think that from a cultural point of view it as just an opportunity for our people because we think our people and this is certainly what the data. So far has shown they just feel more empowered working in the model. They can see a problem. They can get on it more quickly than more empowered to pull the levers to create change and then.
Speaker Change: No longer feel that maybe that that part of a long chain of a bureaucracy to make change on.
Dermot William McDonogh: On the efficiency opportunity thing, the thing I would add in answer to your question from what Dermot said earlier is just to reinforce that there are short, medium, and long-term opportunities for efficiencies, and we've talked about it this way for a while now. As Dermot said, we had to bend the cost curve last year. We thought it was very important, so we made a bunch of slightly tactical but nonetheless important and decisive changes.
Speaker Change: On the efficiency opportunity, saying the thing I would add in answer to your question from what <unk> said earlier on it's just to reinforce that they're a short medium and long term opportunities for efficiencies and we've talked about it this way for a while now has done that said we had to bend the cost curve last year, we thought it was very important.
Speaker Change: So we took a bunch of slightly tactical, but nonetheless important and decisive changes. We also laid the groundwork for some medium term saves we talked about project catalyst 500 ideas source from our employees essentially delivering savings in 'twenty, two and 23% and 24% and 25.
Dermot William McDonogh: We also laid the groundwork for some medium-term saves. We talked about Project Catalyst, 1,500 ideas sourced from our employees, essentially delivering savings in 2023, 2024, and 2025. And then we've got things that are longer term, like the platform operating model, which is fundamentally changing the ways that people actually work. That's a longer term opportunity, probably getting a little bit of benefit from that at 24, but 25 and 26 are places where we'll probably see a bit more of that.
Speaker Change: And then we've got things that are longer term like the platforms operating model, which are fundamentally changing the ways that people actually work, that's a longer term opportunity however to get a little bit of benefit from that from 'twenty, four but 25% and 26 are places, where we'll probably see a bit more of that and then an answer to betsy's question from earlier.
Dermot William McDonogh: And then, in answer to Betsy's question from earlier, we've been investing in AI. Now that's definitely not a 24 story for benefits, maybe not even 25, but a 26 and beyond story. So we're layering in these different opportunities, recognizing that we wanted to take swift action, but then we also feel that we're laying the seeds for future efficiencies over time.
Speaker Change: Iran. We've been investing in AI and that's definitely not a 24 story for benefits may be not even 25, but 26 and beyond story. So we are layering in these different opportunities recognizing that we wanted to take Swift action, but then we also feel that we're laying the seeds for future efficiencies over time.
Brian Bertram Bedell: To add on, I would just anchor you in a number, like last year when we grew expenses by 2.7%, we invested half a billion dollars in new initiatives within that 2.7. And we're replicating that again this year. And so as somebody who's very close to the platform operating model strategy, the cultural point is when you walk the corridors of BNY Mellon now, you feel an energy and enthusiasm for our people, as Robert said, from embracing the model that hasn't been seen before. And it is a very, very exciting thing that's going on at the firm.
Speaker Change: And I would just Brian just to add to add on I would just anchor you and a number like last year. When we grew expenses by two 7% we invested half a billion dollars in new initiatives.
Speaker Change: Within that $2 seven.
Speaker Change: And we're replicating that again this year.
Speaker Change: And so as somebody who is very close to the platform operating model strategy. The cultural point is when you walk the car doors of BMI matter now.
You feel an energy and enthusiasm for our people as Robert said from embracing the model that hasn't been seen before and it is a very very exciting strategy that's going on at the firm.
Operator: That's fantastic color. And maybe just one last one on the subject of initiatives, the buy side trading solutions initiative. I know we've had a lot of other initiatives to talk about, so just maybe to get an update on how that's tracking.
Speaker Change: That's fantastic color and maybe just one last one on the speaking of initiatives. The buy side trading solutions initiative I know we've had a lot of other initiatives to talk about so just maybe to get an update on how that's tracking.
Kenneth Michael Usdin: Yeah, this was, I'll take this one. This was always going to be a medium-term thing. As we've told you, we sort of have this capability in house. It was a great example of platforms thinking it was captive in one part of the company only looking internally, but we essentially made it fit for external use as well.
Speaker Change: Yes. This was a.
Speaker Change: I'll take this one this was always going to be a medium term thing is as we've told you we sort of have this capability in house. It was it's a great example of platforms thinking it was captive in one bit of the company only looking internally, we essentially made it fit for external use as well we've we onboard.
Dermot William McDonogh: We've onboarded, as we told you last quarter, a large client onto that platform, and that's been going very well. I have a lot of It takes longer, it's definitely a C suite conversation, but we continue to be cautiously optimistic about this over time.
As we told you last quarter, our large clients onto that platform and that's been going very well I have a lot of conversations with clients about how they could consider a part of that trading desks to be outsourced, sometimes it's all of that sometimes it's a region or a product that somebody wants to essentially.
Kenneth Michael Usdin: Great. Thanks, Robert Culler. Thanks so much.
Dermot William McDonogh: Thanks, Brian.
Say, hey, I'm not at scale, you're at scale you are executing a trillion dollars worth of volumes can I rents that capability from you essentially we think there's a large addressable market here, but it's going to be this is a this is a longer sell process. The sales cycle of this takes longer its definitely a C suite.
Kenneth Michael Usdin: Our next question comes from the line of Ken Ustin with Jeffries. Please go ahead.
Dermot William McDonogh: Thanks, I know we're getting on here. I'll try to ask just a couple of quick questions. First of all, this is the first quarter that the securities book has actually grown in absolute terms, and I'm just wondering... Is part of that an increased confidence in just where you do expect deposits to land, or was it more just the opportunity cost of what your options were in the market?
Speaker Change: Conversation.
But we continue to be cautiously optimistic about this over time.
Speaker Change: Okay, great. Thanks for all the color. Thanks, so much.
Speaker Change: Thanks, Brian.
Speaker Change: Our next question comes from the line of Ken <unk> with Jefferies. Please go ahead.
Kenneth Michael Usdin: Thanks, Ken. I would say very much the latter. And when you look at the overall portfolio, you think of cash and securities together. And it was really the CIO team just optimizing yield and deploying cash where they see opportunities.
Ken: Thanks, I know, we're getting on here I'll try to ask just a couple of quick cleanups.
Ken: First of all just as the first quarter that the Securities book is actually grown in absolute terms and I'm just wondering.
Ken: This is part of that and increased confidence and just where you do expect deposits to to land or was it more just opportunity cost of what your options were in the market.
Dermot William McDonogh: Yeah, okay. And then I know you said a little bit of this before, but I was wondering if you could tighten up, you know, last quarter, you said to Glenn's question, you talked about reinvesting at a market rate. So last quarter, you put that together and said that you would expect that this year's reinvestments to be 150 to 200 basis points on your roll on, roll off. And with higher rates, I'm just wondering if you've kind of put that together for us, like, what's your net benefit is now versus that 150 to 200?
Speaker Change: Thanks, Ken I would say very much the latter and when you. When you look at the overall portfolio I think of cash and securities together I know it was really the CIO team, just optimizing yield and deploying cash where they see the opportunities.
Speaker Change: Yes, Okay, and then I know you said a little bit of this before but was wondering if you could tighten up last quarter you said.
Speaker Change: And to Glenn's question, you've talked about reinvesting at market rates. So last quarter, you put that together and said that you would expect that this year's reinvestments to be 150 to 200 basis points on your roll on roll off and with higher rates I'm. Just wondering if you've kind of put that together for us like what's what do you think that net benefit is now versus that 150 to 200.
Kenneth Michael Usdin: I think it's in the 200 zip code.
Speaker Change: I think it's in the 200 Zip code.
Dermot William McDonogh: Okay, and then last one, just the duration of the portfolio. Can you just give us an update on where that stands?
Speaker Change: Okay, and then last one just duration of the portfolio can you just give us an update on where that stands.
Speaker Change: Roughly.
Dermot William McDonogh: Roughly two years, give or take, yeah, but yeah, two years is the best number to give you on that one.
Speaker Change: Two years give or take half, but yeah. Two years is the best number to give you on that one okay. So to your point like still keeping really short and opportunistic.
Kenneth Michael Usdin: Okay, so to your point, like still keeping really short and opportunistic. Correct. Yeah. All right, great. Thanks a lot.
Speaker Change: Correct Yep.
Speaker Change: Alright, great. Thanks, a lot.
Operator: And our final question comes from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: And our final question comes from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.
Michael Lawrence Mayo: Hi, when you mentioned your comments about commercial real estate, I was just wondering, I don't think you have much exposure, but you highlighted that commercial real estate, I guess, for the industry, or you're talking office, you said it's really a 2025 refinancing story. And as goes the 10 year, as goes commercial real estate, it's just If you could provide any color, why did you highlight that, and why do you have that sort of conclusion? Thanks.
Michael Lawrence Mayo: Hi, I just when you mentioned in your comments about commercial real estate.
Michael Lawrence Mayo: Just wondering.
Michael Lawrence Mayo: Thank you have much exposure, but.
Michael Lawrence Mayo: You highlighted that it's commercial real estate I guess for the industry or are you talking office you said, it's really a 2025 refinancing story and ask those the tenure as goes commercial real estate just.
Michael Lawrence Mayo: If you could provide any color why did you highlight that and why do you have that sort of conclusion.
Robin Antony Vince: Well, the question, Mike, was more general in nature. It wasn't really applicable to us. Dermot talked a little bit about us, in particular commercial real estate, but I think the question that was being asked was just using our vantage point. I think it was from Gerard, just using our vantage point in the world because we're not particularly invested in the space. What do we see in the world, maybe as a slightly less conflicted observer? And so I was just giving my perspective on it.
Michael Lawrence Mayo: Yeah.
Speaker Change: Well the question Mike was more general in nature, It wasn't really applying to us Dermot talked a little bit about us in particular on commercial real estate, but I think the question that was being asked was just using our vantage point I think it was from Gerard just using our vantage point in the world because we're not particularly invested in this space what do we see.
Speaker Change: In the World, maybe has a slightly less conflicted observer and so I was just giving my perspective on it.
Michael Lawrence Mayo: Yes, from your perspective, what's the I'm just curious, interested, as it goes to 10 year, it's a 2025 refinancing story, any color behind that?
Speaker Change: Yes, you are.
Speaker Change: Perspective, what's the.
Speaker Change: I am just curious interested.
Speaker Change: As goes to 10 year into 2025 refinancing story any color behind that.
Robin Antony Vince: So at the end of the day, as you look at the various different owners of commercial real estate who have refinancings, and they're looking at their own occupancy levels, they're looking at their own maturity of their own debt stack, and they need to go out, and they need to find refinancing, of course, as you know better than anybody when their debt stack starts to come due. That isn't a Fed funds type of refinancing because they're not for funding of very short dates, and most of them, for understandable reasons, like to lock in funding as well.
Sure. So so at the end of the day. The as you said as you look at the various different owners of commercial real estate, who have refinancings and theyre looking at their own occupancy level, they're looking at their own maturity of their own debt stack and they need to go out and they need to find refinancing of course as you know.
Speaker Change: Better than anybody when they when that debt stack starts to come dew that isn't a fed funds type of refinancings and up for funding of very short dates and most of them for understandable reasons like to like to lock in funding as well. So theyre looking further out the curve is not precisely at the 10 year point.
Robin Antony Vince: So they're looking further out the curve. It's not precisely at the 10-year point, but my point really is the risk of refinancing in the commercial real estate space is very correlated to the shape of the treasury curve overall. So clearly, credit spreads matter as well, but it's a different proposition when you have the longer, call it 10 years, but it's probably a little inside of that, part of the curve at 4% versus 5% versus 6%, and that was the purpose of my observation.
Speaker Change: But my point really is the risk to refinancing in the commercial real estate space is very correlated to the shape of the treasury curve overall, clearly credit spreads matter as well, but it's a different proposition when you have the longer call. It 10 years, but its probably.
Speaker Change: A little inside of that part of the curve at 4% versus five versus six and that was the purpose of my observation.
Michael Lawrence Mayo: All right, that's helpful. Thank you. You're welcome.
Speaker Change: Alright Thats helpful. Thank you.
Robin Antony Vince: And with that, that does conclude our question and answer session for today. I would now like to hand the call back over to Robin, with any additional or closing remarks.
Speaker Change: Youre welcome.
Speaker Change: And with that that does conclude our question and answer session for today I would now like to hand, the call back over to Robyn with any additional or closing remarks.
Robin Antony Vince: Thank you, Operator. I'd just like to wrap up by thanking our employees for their hard work to unlock the tremendous opportunities inside of BNY Mellon. We started the year with great momentum, delivered very solid results in the first quarter, and the pace of change continues to pick up. And I want to thank our investors for their continued support. We appreciate your interest in BNY Mellon and thank you for your time today. If you have any follow-up questions, please reach out to Marius and the IR team. Be well.
Thank you operator, I'd, just like to wrap up by thanking our employees for their hard work to unlock the tremendous opportunity inside of being why Mellon. We started the year with great momentum delivered very solid results in the first quarter and the pace of change continues to pick up and I want to thank our investors for their continued <unk>.
Speaker Change: We appreciate your interest in being why Mellon and thank you for your time today. If you have any follow up questions. Please reach out to <unk> and the IR team B well.
Operator: Thank you, and that does conclude today's conference call and Webcast. A replay of this conference call and webcast will be available on the BNY Mellon Investor Relations website at 2 Eastern Standard Time today. Have a great day.
Speaker Change: Yeah.
Speaker Change: Thank you and that does conclude today's conference.
Speaker Change: And webcast a replay of this conference call and webcast will be available on the BN why Mellon Investor Relations website at <unk> Eastern standard time today have a great day.
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Speaker Change: Yes.
Okay.
Speaker Change: Yeah.