Release Date: April 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total revenue of $4.5 billion was up 3% year-over-year, with fee revenue up 5% due to growth in investment services fees.
- Assets under custody and administration increased to $48.8 trillion, up 5% year-over-year, and assets under management rose to $2 trillion, up 6% year-over-year.
- The company returned close to 140% of earnings to common shareholders through dividends and buybacks, and authorized a new $6 billion share repurchase program.
- BNY Mellon is making progress in its strategic pillars, including product innovation, delivering platforms to the market, and implementing the One BNY Mellon initiative.
- The company is investing in new technologies, such as AI, and deployed a DGX Superpod from NVIDIA to accelerate processing and innovation.
Negative Points
- Net interest income decreased by 8% year-over-year, primarily due to changes in the composition of deposits.
- Expenses were up 2% year-over-year on a reported basis and up 1% excluding notable items, primarily due to incremental investments and employee merit increases.
- Provision for credit losses was $27 million for the quarter, driven by reserve increases related to commercial real estate exposure.
- Foreign exchange revenue declined by 14% as a result of lower market volatility.
- The company's Tier 1 leverage ratio for the quarter was 5.9%, with average assets increasing by 1% sequentially as deposit balances grew.
Q & A Highlights
Q: So Robin, really nice progress 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 as well? And then as a side question, I guess, to that, we've seen quite significant amount of activity in sort of clearance and collateral management. Can you maybe help size what is sort of transitory versus more of a recurrent baseline to think about from here?
A: (Robin Vince - CEO) Sure, Alex. So let me start with the growth question. 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, 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, 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 on BNY Mellon as I called it the nuts and bolts kind of getting into building that into our client coverage organization, our 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 that are related to that. So look, it's early in the journey. I would have said maybe last year, 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?
Q: Yes, 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 this is a good baseline to think about going forward?
A: (Robin Vince - CEO) 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 respond to volumes, and it was an active quarter when it comes to trading volumes in the U.S. treasury market. Now for better or for worse, 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 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 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 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 1 conversation with the client and clients are responding to that. So I would call that secular as well.
Q: So I wanted to start with a question on capital. A bit of a 2-parter, if you will. I was hoping you could just speak to the drivers of RWA growth in 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 is how should we be thinking about the cadence of buyback in light of planned balance sheet actions and growth potential?
A: (Dermot McDonogh - CFO) Okay. I'll take that one, Stephen. So some of the capital increase, there are 2 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 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 -- so I would say half of it was that and half of it was temporary. As it relates to the buyback, 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're thinking about Q1 of this year. Both quarters, we got off to a strong start. Look, there's a lot of rate volatility out there in the market. You've seen the backup in rates last week with the hot inflation report. Last year, it was the war in Ukraine. This year, it's the geopolitics in the Middle East. And so we kind of gave a 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 would reiterate the guidance of 100% or more, notwithstanding the fact Q1 was very good at 138%. And I wouldn't expect that pace to continue, but we'll take it quarter-by-quarter.
Q: 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 the segment with the biggest shortfall. I know in the prepared remarks, Derma, you noted that you're 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%. How much is contingent on revenue growth versus expense optimization?
A: (Dermot McDonogh - CFO) Okay. So the first point would be pretax margin for the Q1 there 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 adjusted the margin would have been somewhere in the 16% ZIP code. So we feel pretty good about that, still a ton of work to do, and I would say, it's not one thing over the
