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

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The Bank of New York Mellon (BK)

Q1 2013 Earnings Call

April 17, 2013 8:00 am ET

Executives

Andy Clark

Gerald L. Hassell - Chairman, Chief Executive Officer, Member of Executive Committee and President of The Mellon Bank NA

Thomas P. Gibbons - Vice Chairman and Chief Financial Officer

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

Mitchell Evan Harris - Senior Executive Vice President and President of Bny Mellon Asset Management

Brian T. Shea - Chairman of Pershing LLC, President of Investment Services, and Head of Client Service Delivery & Client Technology Solutions

Analysts

Howard Chen - Crédit Suisse AG, Research Division

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

Josh Levin - Citigroup Inc, Research Division

Betsy Graseck - Morgan Stanley, Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

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

Cynthia Mayer - BofA Merrill Lynch, Research Division

Brian Foran - Autonomous Research LLP

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

Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division

Brian Bedell - ISI Group Inc., Research Division

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the First Quarter 2013 Earnings Conference Call hosted by BNY Mellon. [Operator Instructions] Please note that this conference call 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 several members of our executive management team. Before we begin, let me remind you that our remarks today may include 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 the press release and those identified in our documents filed with the SEC that are available on our website. Forward-looking statements in this call speak only as of today, April 17, 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.

Now I'd like to turn the call over to Gerald. Gerald?

Gerald L. Hassell

Thanks, Andy, and good morning, everyone. And thanks for joining us today. I know you have a busy day ahead of you, so let's get right to it.

As you saw from our earnings release, for the first quarter, we reported a loss of $0.23 per share. This included, of course, our previously announced charge of $854 million or $0.73 per share related to a U.S. Tax Court's disallowance of certain tax credits. We were obviously very disappointed in that ruling, and we will appeal it.

Now looking at how our business model performed, we believe we earned about $0.52 or $0.53 per share on a core basis, and Todd will take you through those numbers and how we got there in just a moment. We are pleased to see the year-over-year growth in some of our key revenue items, and Investment Management in particular had another excellent quarter, benefiting from high market values and the 14th consecutive quarter of net long-term inflows. In fact, it was a record quarter in terms of those net long-term flows of $40 billion.

Our record asset flows in the first quarter were driven by increases across all of our asset classes, both passive and active strategies. With passive, we're seeing strong flows in equity products. And our active products are trending upwards, principally with LDI, global equity and global real returns strategies. Our success in attracting new assets helped drive assets under management to a record level of nearly $1.43 trillion. Our investment performance continues to improve versus the 1-, 3- and 5-year periods, and we recently won several awards, notably Lipper Fund Awards, 2 for Dreyfus and 2 for Newton. So all of this bodes well in terms of continuing to capture long-term flows in Investment Management.

In Investment Services, overall fees grew, driven by increases in asset servicing transaction levels and treasury services volumes. It was also nice to see foreign exchange revenues bounce back as volumes have improved and there was a sequential increase in volatility. Now the market environment remains challenging for DRs, Corporate Trusts and net interest income as capital markets activity continues to trend below normal levels, and we all know interest rates remain historically low. The low-rate environment creates the opportunity for us to realize gains as we rebalance and manage the duration risk of our investment securities portfolio. As we've said in the past, you should look at NII and net securities gains combined when assessing our performance.

Expenses were up 3%, and Todd will go through them in just a minute. And as you look at them, you'll see that our discretionary expenses, we believe, are being well controlled. Against that backdrop, we remain very focused on our key priorities of investing in our businesses to drive organic growth and sustainable shareholder value, delivering on our operational excellence initiatives, maintaining a strong balance sheet and, of course, returning capital to shareholders. So let me share some highlights on each of these fronts.

In terms of investing in our businesses, I want to single out a few efforts. First, in Investment Management, we continue to invest in building out our manufacturing and distribution capabilities with a particular focus on the Asia-Pacific region. We've also been expanding in our wealth management franchise, and the results are bearing good fruit. In global collateral services, our investment in creating an end-to-end solution for our clients' growing collateral needs is helping us capture more opportunities. Our new business pipeline is growing very nicely, particularly in the areas of collateral segregation and optimization, as our clients prepare to meet the Dodd-Frank requirements later this summer. And in global markets, we've been building out our capabilities to capture more of our clients' trade order flow across a wider variety of asset classes. And in foreign exchange, we've invested in electronic trading platforms, and we're providing more options to execute standing order instructions. And we've also equipped our traders with enhanced technologies to better negotiate trades. So in essence, we're giving our clients many more reasons to trade with us.

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