Bank Of New York Mellon Corporation (The) (BK)

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The Bank of New York Mellon (BK)

Q4 2012 Earnings Call

January 16, 2013 8:00 am ET

Executives

Andy Clark

Gerald L. Hassell - Chairman, Chief Executive Officer, President of The Bank of New York, President of The Mellon Bank N A and Member of Executive Committee

Thomas P. Gibbons - Vice Chairman and Chief Financial Officer

Curtis Y. Arledge - Chief Executive Officer

Brian T. Shea - Head of Global Operations & Technology, Head of the Broker Dealer & Advisor Services, Chief Executive Officer of Pershing Llc and President of Investment Services

Timothy F. Keaney - Vice Chairman and Chief Executive Officer of Investment Services

Karen B. Peetz - President

Analysts

Howard Chen - Crédit Suisse AG, Research Division

Betsy Graseck - Morgan Stanley, Research Division

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Brian Bedell - ISI Group Inc., Research Division

Josh Levin - Citigroup Inc, Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Earnings Conference Call, hosted by BNY Mellon. [Operator Instructions] Please note that this conference call or 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 Mr. Andy Clark. Mr. Clark, you may begin.

Andy Clark

Thanks, Wendy, and welcome, everyone. With us today are Gerald Hassell, our Chairman and CEO; Todd Gibbons, our CFO, as well as our executive management team.

Before we begin, let me remind you that our remarks today may include forward-looking statements. Actual results may differ materially from those indicated or implied by the forward-looking statements as a result of various factors. These factors include those identified in the cautionary statement on Page 13 of the press release and those identified in our documents filed with the SEC that are available on our website, bnymellon.com. Forward-looking statements in this call speak only as of today, January 16, 2013, and we will not update forward-looking statements. Our press release and earnings review are available on our website, and we will be using the earnings review to discuss our results today. Now I'd like to turn the call over to Gerald. Gerald?

Gerald L. Hassell

Thanks, Andy, and good morning, everyone. As you saw from our release for the fourth quarter, we generated net income of $622 million and earnings per share of $0.53. Just as a reminder, we recorded $0.42 per share in the fourth quarter of last year, which included restructuring charges related to our operational excellence initiatives of $0.06 per share.

Now I'm pleased to report strong growth in a number of our businesses. Investment Management had another excellent quarter, benefiting from the 13th consecutive quarter of long-term inflows and higher market values. We've had $56 billion in net long term flows over the last 12 months, which included $14 billion during the quarter. Our success in attracting new assets helped drive assets under management to a record level of $1.4 trillion. In Investment Services, Asset Servicing, Clearing and Treasury Services all saw nice growth in fee income as well. Now that being said, the market environment continues to be challenging to some of our revenue streams as volumes, volatility, interest rates and tepid capital markets all continue to trend below normalized levels. These factors resulted in a decline in revenues in our lower variable cost businesses such as Depositary Receipts, foreign exchange and net interest income. And we were able to offset the decline in these revenues with growth in investment management and other investment services businesses, but the growth occurred in those areas that have higher variable costs. So the shift in the revenue mix was the principal cause of the growth in expenses year-over-year and sequentially above the level that you might have expected. In addition, we acquired the remaining 50% interest in the West LB Asset Management joint venture, which we renamed Meriten, that brought with it a higher expense base. And finally, we had some seasonally higher expenses in the fourth quarter and we are investing in our brand, businesses and strategic initiatives to help our clients succeed in a very difficult market.

Now we have a relentless focus on creating organic growth, continuing to drive some of the opportunities we've outlined for you in the past. Some examples: accelerating our asset management growth strategies, particularly in Asia and the retail space; capturing opportunities through our global collateral services business; leveraging our Pershing platform and distribution capability and building out global markets to capture more order flow. And we recently received approval to launch our new Issuer Central Securities Depository based in Belgium, which will enhance our offering for investment services and collateral management for clients in Europe. All these initiatives will help drive our long term growth, but do in fact require investments today that are showing up in our expense base. So we are not standing still waiting for the markets to improve, and we are in fact taking actions to strengthen our revenue streams. In that regard, we announced several executive appointments to accelerate our progress. Karen Peetz was named President of the company, and she will focus on one of the 3 key pillars of our firm: our clients and employees. So client management, the regions, innovation, collaboration, employee training and development and some of our key growth initiatives will come under Karen. The second pillar is investment services, and Tim Keaney is now CEO of all our investment services businesses, and this brings together all of our capabilities under one manager, which will improve collaboration and enhance our ability to offer integrated solutions.

Brian Shea is now President of Investment Services and very importantly, Head of Operations and Technology for the company. These businesses are technology and operations intensive, and we want those attributes closer to the client and part of the fabric of any business decision. I also firmly believe that we have the opportunity to simplify our operating model and get better operational efficiencies across our businesses beyond the operational excellence initiatives we are currently tracking. That is one of Brian's challenges and I know he's up for it. And finally, the third pillar of our firm is investment management, which Curtis Arledge continues to run. We have built some very nice revenue momentum here, and the team is executing on our important growth opportunities. So we have a broad deep leadership team. We're sharpening our client focus, better collaborating across our businesses and driving further productivity gains in our operating platform, all while maintaining a strong capital position and returning capital to shareholders. With that, let me turn it over to Todd to go through the numbers.

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