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

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The Bank of New York Mellon Corp. (BK)

Q1 2010 Earnings Call

April 20, 2010 8:00 am ET

Executives

Andy Clark - Investor Relations

Bob Kelly - Chairman & Chief Executive Officer

Todd Gibbons - Chief Financial Officer

Ron O’Hanley - Vice Chairman

Jim Palermo - Co-Chief Executive Officer

Brian Rogan - Chief Risk Officer

Karen Peetz - Chief Executive Officer of Financial Markets & Treasury Services

David Lamere – Chief Executive Officer, BNY Mellon Wealth Management

Analysts

Betsy Graseck - Morgan Stanley

Brian Foran – Goldman Sachs

Brian Bedell - ISI Group

Tom McCrohan - Janney Montgomery Scott

John Stilmar - SunTrust

Gerard Cassidy – RBC Capital Markets

Presentation

Operator

Welcome to the first quarter 2010 earnings conference call hosted by BNY Mellon. (Operator Instructions) I will now turn the call over to Mr. Andy Clark. Mr. Clark, you may begin.

Andy Clark

Thank you and welcome everyone to the review of the first quarter 2010 financial results for BNY Mellon. This conference call webcast is to be recorded and will consist of copyright material. You may not record reproduce, retransmit or rebroadcast these materials or any portion thereof without BNY Mellon’s express written consent.

Before we begin, let me remind you that our remarks may include statements about future expectations, plans, and prospects, which are considered forward-looking statements. The 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 14 of our press release and those identified in our documents filed with the SEC that are available on our website www.bnymellon.com. Forward-looking statements in this call speak only as of today, April 20, 2010. We will not update forward-looking statements. This morning’s press release provides the highlights of our results. We also have the quarterly earnings review document available on our website which provides a quarterly review of the total company and business segments. We will be using the quarterly earnings review to discuss our results.

This morning’s call will include comments from Bob Kelly, our Chairman and CEO and Todd Gibbons, our Chief Financial Officer. In addition, several of our Executive Management Team members are available to address questions about the performance of our businesses.

Now, I would like to turn the call over to Bob.

Bob Kelly

Thanks, Andy and good morning everyone and thank you for joining us. Our EPS for the quarter was $0.49 or $601 million. On an operating basis that was $0.59 or $715 million. Earnings were reduced by about 10% mainly due to increased litigation reserves for several existing matters.

Overall I would characterize the quarter as an encouraging quarter. Fee revenue was positively impacted by higher market values and we demonstrated superb asset quality in both our loan and security portfolios. Offsetting this was money market fee waivers, lower trading volume and lower volatility quarter-over-quarter.

As you know our business model is really levered to rates edging up and financial flows beginning to normalize at higher levels and we have yet to see that at this point. Fee revenue has been unchanged sequentially, mostly due to seasonality in some of our businesses which are somewhat unique and off 6% versus a year ago. Asset and wealth management fees were up 13% over a year ago.

We had net positive long-term flows of $16 billion in client assets. Asset servicing fee revenue grew by 17% year-over-year. Security lending spreads and FX volatility levels remain muted. NII is down slightly compared to last year but up 6% sequentially principally reflecting the higher yields related to the restructured assets in our securities portfolio. Operating expenses remain very well controlled.

Together with our success in winning new business we achieved another quarter of positive operating leverage. On the new business front in addition to strong inflows and asset management we had new asset servicing wins of over $200 billion in assets under custody cutting across all client segments and geographies whether it is corporate, financial institutions, endowments or international.

[Inaudible] a number of mandates which we expect to be able to announcement shortly and wealth management had its 17th consecutive quarter of net long-term client asset inflows. Realize too that since the beginning of our financial crisis a couple of years ago we have been successful in creating new products to help our clients fulfill more difficult and stringent reporting requirements. A couple of examples might include our new portfolio of stress testing capabilities and our Derivatives 360 product which improves the transparency and helps clients reduce risk overall. Both of these products are strengthening our ties with clients and creating new revenue streams for the company overall.

Credit quality trends are improving nicely. You may notice the provision is down 46% and nonperforming assets were down 17% sequentially and our unrealized pre-tax loss on the investment portfolio is not quite at break-even yet but it is down 77% from year-end which was the last three months.

Service levels remain very strong. The last annual R&M survey of custody clients and fund managers BNY Mellon Asset Servicing was ranked number one overall in six key categories and ahead of our peer group in a further seven categories. In Global Investor Magazine’s annual FX survey we were ranked number one in 25 categories including four overall performance categories and 14 of the 20 service categories. This is the third consecutive year in which we have essentially dominated this survey.

On the capital side all of our key capital ratios strengthened during the quarter. You may have noted that our Tier 1 common and our Tier 1 capital are up over 100 basis points sequentially. As you know we are using our capital to make accretive acquisitions and to support organic growth in both our core asset management and security servicing businesses. Our asset management results this quarter are already benefiting from the acquisition of Insight which was closed last November.

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