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

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The Bank of New York Mellon (BK)

Q2 2013 Earnings Call

July 17, 2013 8:00 am ET


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

Curtis Y. Arledge - Chief Executive Officer


Betsy Graseck - Morgan Stanley, Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Josh Levin - Citigroup Inc, Research Division

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

Howard Chen - Crédit Suisse AG, Research Division

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

Cynthia Mayer - BofA Merrill Lynch, Research Division

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

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Brian Bedell - ISI Group Inc., Research Division

James F. Mitchell - The Buckingham Research Group Incorporated



Good morning, ladies and gentlemen, and welcome to the Second 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 materials. 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. 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 15 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, July 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, everybody, and welcome. As you saw from the release, for the second quarter, we reported earnings of $0.71 per share. This included an after-tax gain of $0.09 per share related to an equity investment.

Now looking at how our business model performed, we believe we earned about $0.58, $0.59 per share on a core basis. And Todd will take you through the numbers in just a moment on how we get there. Clearly, the headline for the quarter was strong revenue growth across all of our businesses without exception. Total revenues reached a record $4 billion for the quarter. After excluding the impact of the investment gain, revenues were up 6%. It's a clear sign of how our business model benefited from better market conditions during the quarter. But more importantly, it's a sign of our success in collaborating across our businesses to deliver solutions our clients need.

Turning to Investment Management. It continued to have strong revenue growth again in the quarter. This quarter, Investment Management benefited from the 15th consecutive quarter of long-term inflows and improved equity value. We had net long-term flows of $21 billion with particular strength in the liability-driven investment area, certain equity and fixed income funds. Our success in attracting new assets helped drive a 10% increase in assets under management year-over-year to a record $1.43 trillion.

In Investment Services, fees also showed nice improvement across the board driven by growth in asset servicing, issuer services and clearing services fees. We also had a strong quarter for foreign exchange revenues, which benefited from improved market conditions as volatility and volumes increased.

In terms of our FX business, we're seeing some growth in our traditional products as well as our new product offerings. We're also beginning to see the early benefits of our FX technology enhancements, and we expect those enhancements to drive further growth.

Now that's a theme running throughout all of our businesses. We're making targeted investments to enhance our product capabilities, and it's starting to pay off. A good example is in global collateral services. Our investment in creating an end-to-end solution for our clients' growing collateral needs is starting to show up in our revenue numbers. Optimization and segregation balances have grown nicely. We were also awarded a U.S. patent for a key process enabling the secure management of collateral. It's a demonstration of our innovation and market-leading practices in this area, and it positions us well as new collateral regulations continue to kick in.

Within Investment Management, we made progress on a number of fronts. In the Asia Pacific region, we've been granted a license to establish a separately managed account business out of Hong Kong, and that's leveraging the partnership between Investment Management and Pershing. And we're already in the process of closing our first SMA client win. We're also investing in expanding a greater share of the U.S. retail market, where we just launched our first close-end fund in a number of years which has already attracted nearly 300 million of assets under management.

Now last quarter, I mentioned how we began expanding our wealth management franchise. During the second quarter, we officially kicked off the next phase of our multiyear growth strategy. We're proceeding with plans to increase our sales force by 50%, add private bankers, portfolio managers and wealth strategists, as well as additional sales support staff. The new hires will strengthen the sales teams in our current locations and establish offices in key wealth management markets. It's early days, but again, it's strong commitment to driving organic growth.

Meanwhile, wealth management is also focused on better leveraging the rest of our firm. For example, we recently started making private banking loans available to Pershing customers, and we're already seeing a nice level of receptivity. Now we're also investing in our brand to help raise awareness that we have a more complete investment solution. The message of our branding campaign is beginning to resonate as clients and prospects are recognizing that we are the only financial services firm that can provide solutions across the entire life cycle of a financial asset, and it's our sole focus as a firm.

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