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

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The Bank of New York Mellon (BK)

Q3 2013 Earnings Call

October 16, 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

Analysts

Betsy Graseck - Morgan Stanley, Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Howard Chen - Crédit Suisse AG, Research Division

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

Cynthia Mayer - BofA Merrill Lynch, Research Division

Kenneth M. Usdin - Jefferies LLC, Research Division

Glenn Schorr - ISI Group Inc., Research Division

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

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Third 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, Shirley, 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 in 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, October 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.

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

Gerald L. Hassell

Thanks, Andy. Good morning, everyone, and thanks for joining us. As you saw from our release, for the third quarter, we reported earnings of $0.82 per share. Now this includes the benefit related to our recent favorable tax ruling, and after netting out this benefit, we had earnings of $0.60 per share.

Now looking at how our business model performed, we believe we earned about $0.58 per share on a core operating basis. And Todd will take you through those numbers and how we get there.

For the quarter, I see 3 key takeaways. First, we had strong year-over-year core fee revenue growth, reflecting our focus on driving organic growth, our ability to deliver enhanced solutions sets across our entire company and improved market conditions for most of our businesses. Second, we continue to exceed the goals of our operational excellence initiatives while making targeted investments to drive future growth. And finally, our businesses continue to be a strong generator of capital. And in fact, we generated more than $1 billion of capital this quarter.

For the quarter, we had total revenues of $3.8 billion, which is up 3% over the third quarter of 2012. Investment Management business performance continues to be strong and resulted in the 16th consecutive quarter of net long-term inflows. Net long-term inflows were $32 billion in the quarter, for a total in excess of $100 billion over the last 12 months. We continue to have particular strength in the liability-driven investments, but we also enjoyed nice flows into more active asset classes which have a higher fee realization. Our success in attracting new assets helped drive our -- drive a 13% increase in assets under management year-over-year to a record $1.53 trillion. This organic growth, along with higher equity values, helped mitigate the pressure from higher money market fee waivers, and Todd will talk to that in a few moments.

I would also note that Investment Management continues to invest in its franchise, including the wealth management sales force expansion, enhancements to the U.S. retail distribution platforms, and leveraging our Investment Services businesses, particularly in the Asia-Pacific region, to deliver solutions our clients need.

In Investment Services, we had a nice year-over-year fee growth in most of our businesses. This growth was driven by new business, increased volumes and improved equity values. We're continuing to see increased interest and dialogue around our Pershing or advisory services technology platform, and that services advisors and wealth managers globally. We see that as a long-term trend that we're well positioned to capitalize on. We have both scale and a leading technology platform to deliver what the market is looking for.

Global Collateral Services also contributed to the Investment Services growth, as changes in the regulatory marketplace have created new business opportunities, particularly in collateral segregation and optimization. Investment Services also benefited from better foreign exchange results. Certainly, increased market volumes and volatility contributed to this growth. However, the enhancements we've made to our electronic trading platforms also contributed to our improved performance.

On the expense front, we remain ahead of our operational excellence initiative targets. Our team has been focused on reengineering our processes and creating a simplified, end-state operating platform. We have also leveraged our procurement function and reduced our real estate footprints to reduce costs. These savings have provided us with the flexibility to make targeted investments for future growth and help absorb the impact of regulatory costs, which are not insignificant.

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