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

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The Bank of New York Mellon Corporation (BK)

Q3 2010 Earnings Call

October 19, 2010 8:00 AM ET

Executives

Andy Clark – Investor Relations

Bob Kelly– Chairman and CEO

Todd Gibbons – Chief Financial Officer

Karen Peetz – CEO, Financial Markets and Treasury Services

Tim Keaney – Chairman, Europe, Chief Global Client Management Officer and Co-CEO, BNY Mellon Asset Servicing

Jim Palermo – Vice Chairman, BNY Mellon and CEO, Global Client Management

Analysts

Howard Chen – Credit Suisse

Betsy Graseck – Morgan Stanley

Glenn Schorr – Nomura

Mike Mayo – CLSA

Brian Bedell – ISI Group

John Levin – Levin Capital

Gerard Cassidy – RBC

John Golgart – Equinox

Scott Scher – Clovis Capital

Tom McCrohan – Janney Capital Markets

Presentation

Operator

Good morning, ladies and gentlemen. And welcome to the Third Quarter 2010 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 is being recorded.

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 Bob Kelly, our Chairman and CEO; Todd Gibbons, our CFO, as well as several members of 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, October 19, 2010 and 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 our businesses. We will be using the quarterly earnings review to discuss our results.

Now, I’d like to turn the call over to Bob. Bob?

Bob Kelly

Thanks, Andy, and good morning, everyone, and thanks for joining us. Q3 EPS was $0.51 or $625 million and that includes $0.04 of primarily M&I expense. Revenues were up 3% year-over-year and what is encouraging about that is our two largest sources of fees, namely security servicing and asset management, which together contribute over 80% of fee revenue are up nicely.

Specifically, security servicing fees are up 20% year-over-year. We’re benefiting from the GIS and BHF asset servicing acquisitions and of course, the new business growth. Underlying this, assets under custody were $24.4 trillion, up 10% year-over-year a new record for us.

Asset and wealth management fees were up 8% year-over-year. AUM was $1.14 trillion, up 18% year-over-year also a new record. This is our fourth consecutive quarter of positive long-term asset inflows for asset and wealth management. That’s $11 billion for the quarter and a total of $53 billion over the past 12 months.

In terms of offsets, it was weakness in FX and other trading, Q3 is seasonally the weakest quarter for FX, volatility was lower and derivatives and fixed income trading still weak. Trading volumes were low and that impacts Pershing and net interest income was down a few million dollars, sequentially which is essentially due to the impact of lower interest rates.

On the new business front on top of strong inflows and asset management we had new asset servicing wins of $480 billion in assets under custody, that’s up 15% from the second quarter. Pershing also had some significant new business wins that will start to be converted during the fourth quarter and into next year.

We’re already realizing revenue synergies related to the acquisitions, about a third of the $480 billion in new assets under custody was directly attributable to the acquisitions. Our newly combined capabilities position us to bid for and win pieces of business that we never would have won previously.

As a couple of examples in broker dealer services, we’ve already won three significant collateral management deals in Germany since the BHF acquisitions. Clients told us very clearly that our expanded infrastructure in Germany was an important factor in the decision towards new business.

Here in the U.S., our new integrated administration and transfer agency capabilities have already generated some nice wins in the insurance base. Credit quality continues to improve. The provision went from plus $20 million last quarter to minus $22 million this quarter.

Criticized assets were down 26% in behind that, expenses backing out acquisitions were only up 2% year-over-year and well controlled. Capital ratios were slightly above where we expected them to be after we closed on the acquisitions so our Tier 1 capital ratio was 12.2% and our Tier 1 common ratio was 10.7%.

Our business model generates a lot of capital and that would be approximately $800 million per quarter. As you know, we’ve been deploying some of that capital to make acquisitions both GIS and BHF were accretive to earnings and EPS in the third quarter.

There’s also been a lot of comments recently about the impact of Basel III, in fact it doesn’t have all the detail related to implementation, so there’s still guesswork involved however, given the strength of our balance sheet and our ability to generate significant levels of capital, we feel really good about our relative positioning versus peers.

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