Bank of New York Mellon Corp Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Update: 2024 was a strong year for BNY with record net income of $4.3 billion and record revenue of $18.6 billion, generating a return on tangible common equity of 23%. Launched a new commercial coverage model, acquired Archer, developed new client solutions like CollateralOne, Alts Bridge, etc. Increased investments and generated $0.5 billion of efficiency savings. Commenced a phased transition to the platform operating model, transitioning ~13,000 employees. Simplified and modernized the brand. Met financial goals and returned 102% of 2024 earnings to shareholders.
• 2025 Outlook: Entering 2025 with strong momentum. BNY plays a central role in global capital markets with significant AUCA, debt serviced, wealth assets, and collateral management assets. Fastest-growing businesses include treasury services, clearance, collateral management, and corporate trust. The wealth business is focused on the ultra-high net worth space. Private markets and digital assets present opportunities. 2025 will be a milestone for the platform operating model, aiming to have over half of employees in the model by end of March. Investing in digitization and AI for efficiency and topline growth.

Segment Performance

• Security Services: Total revenue was $2.3 billion, up 7% year-over-year. Total investment services fees were up 6% year-over-year. In Asset Servicing, investment services fees grew by 7% due to higher market values, client activity, and net new business. ETF AUCA was $2.8 trillion, up over 60% year-over-year. Issuer services investment services fees were up 4%, with healthy net-new business in corporate trust offset by lower depository receipt fees. Foreign exchange revenue was up 25% year-over-year. Net interest income for the segment was up 7% year-over-year. Segment expenses were up 1% year-over-year. Pre-tax income was $643 million, a 39% increase year-over-year, and pre-tax margin was 28%.
• Market and Wealth Services: Total revenue was $1.7 billion, up 11% year-over-year. Total investment services fees were up 12% year-over-year. Pershing investment services fees were up 9% due to higher market values and client activity. Clearance and Collateral Management investment services fees increased by 13% due to higher collateral management fees and clearance volumes. Treasury Services investment services fees were up 15% due to net-new business. Net interest income for the segment was up 9% year-over-year. Segment expenses were up 2% year-over-year. Pre-tax income was up 28% year-over-year at $806 million, representing a 48% pre-tax margin.
• Investment and Wealth Management: Total revenue was $873 million, up 29% year-over-year. Investment Management revenue was up 41% (excluding a notable item in the prior year quarter, up 5% due to higher market values). Wealth Management revenue increased by 9% due to higher market values and net interest income. Segment expenses were up 2% year-over-year. Pre-tax income was $173 million and pre-tax margin was 20%. Assets under management of $2 trillion increased by 3% year-over-year, with net outflows of $15 billion in Q4. Wealth Management's client assets of $327 billion increased by 5% year-over-year.

Guidance

• Full-year 2025 net interest income (NII) is expected to be up mid-single-digit percentage points year-over-year based on current market implied forward interest rates.
• Fee revenue is expected to be up year-over-year.
• Expenses, excluding notable items, are expected to grow 1%-2% year-over-year for the full year 2025.
• First quarter staff expenses are typically elevated due to long-term incentive compensation expense for retirement-eligible employees.
• Effective tax rate for the full year 2025 is expected to be in the 22%-23% range.
• Anticipate returning 100% plus or minus 2025 earnings to shareholders through dividends and buybacks, with the pace of buybacks calibrated considering balance sheet growth opportunities and macroeconomic/interest rate environments.
• Tier 1 leverage ratio management target remains 5.5%-6%, with management aiming for the upper end of the range in the foreseeable future.

Risks

• Geopolitical tensions and conflicts, uncertainty about trade and fiscal policies, and market volatility.
• Potential downturn or recession in the US, impact of higher interest rates, and cyber risk.

Question and Answer

Q: Ebrahim Poonawala asks about the resiliency of pretax margin targets.

A: Dermot McDonogh responds that BNY has a track record of execution and feels confident in hitting the medium-term targets sustainably through the cycle.

Q: Betsy Graseck inquires about the impact of the platform model on operating leverage.

A: Robin Vince discusses the phased delivery of the platform operating model and how it will drive incremental topline growth and make fee growth more resilient over time.

Q: Brennan Hawken asks about net-new assets at Pershing and sources of strength.

A: Dermot McDonogh mentions momentum in Pershing, with a guide for Wove being re-guided higher, and Robin Vince adds on the focus on ultra-high net worth and the US wealth market.

Q: Mike Mayo questions the transformation and operating leverage during the transition.

A: Robin Vince explains the need for a commercial front end and a unified back-end organization, and Dermot McDonogh talks about tech spending and AI efforts.

Q: Alex Blostein asks about fee operating leverage and NII repo business.

A: Dermot McDonogh states focus on total operating leverage and Robin Vince notes the repo business is a small part of NII but expected to grow.

Q: Brian Bedell asks about deposit base growth and fee revenue sensitivity to markets.

A: Dermot McDonogh comments on balance sheet management and fee revenue sensitivity to market growth, with a rough sensitivity of $70 million for a 10% market increase.

Q: David Smith asks about AUCA and asset servicing competition.

A: Dermot McDonogh highlights asset servicing's strong performance and competitive strength.

Q: Thomas Leddy asks about risks and trading volatility impact.

A: Robin Vince and Dermot McDonogh discuss geopolitical risks and how increased trading volatility benefits businesses like clearance and collateral management.

Q: Brian Bedell asks about Wove revenue guide.

A: Dermot McDonogh provides details on Wove's incremental revenue for 2025, with 36 clients on the platform and 41 signed contracts.