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

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The Bank of New York Mellon (BK)

Q4 2013 Earnings Call

January 17, 2014 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

Curtis Y. Arledge - Chief Executive Officer

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

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

Analysts

Betsy Graseck - Morgan Stanley, Research Division

Kenneth M. Usdin - Jefferies LLC, Research Division

Glenn Schorr - ISI Group Inc., Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Ashley N. Serrao - Crédit Suisse AG, Research Division

Josh Levin - Citigroup Inc, Research Division

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

Michael Mayo - CLSA Limited, Research Division

Cynthia Mayer - BofA Merrill Lynch, Research Division

Andrew Marquardt - Evercore Partners Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Fourth 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 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 will speak only as of today, January 17, 2014, and we will not update forward-looking statements. Our press release and earnings review are available on our website, and we'll 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. Welcome, everyone, and thanks for joining us. As you saw from the release, for the fourth quarter, we've reported earnings of $0.44 per share. Now this includes an after-tax loss of $115 million or $0.10 per share related to the write-down of an equity investment. After netting out this loss, we had adjusted earnings of $0.54 per share. We had a strong year-over-year growth in core Investment Management and Investment Services fees. The growth reflects improved market conditions and importantly, our success in providing solution sets across our businesses that our clients are seeking. As we have said in the past, we are making strategic investments in several areas to expand our capabilities and we're seeing early evidence of returns on those investments.

For the quarter, we had total revenues of $3.8 billion, which is up 4% over the fourth quarter of 2012. The Investment Management business performance remains terrific. Our success in attracting new assets help drive a 14% increase in assets under management year-over-year to a record $1.58 trillion. In 2013, net long-term flows were $95 billion as we continue to have particular strength in the liability driven investments category. Now this organic growth, along with higher equity values and performance fees, helped mitigate the pressure from higher money market fee waivers year-over-year. Similar to Investment Management, we had strong year-over-year growth in Investment Services. We saw growth in Asset Servicing, Issuer Services and Clearing fees driven by higher volumes, improved equity values and net new business.

Clearing Services in particular continues to show strong growth as our technology platform serving investment advisers is more broadly adopted. But some of our investments also contributed to this growth. Our Global Collateral Services business continue to collect -- gather collateral management assets. We enjoyed better foreign exchange results year-over-year as our investments in the electronic channel had made us more competitive and we are attracting greater volumes.

Now in terms of our expenses, seasonality played a large part of the sequential growth. Our expenses have been impacted by our strategic investments for future growth, as well as increasing regulatory and compliance requirements. Notably, our operational excellence initiatives' savings help mitigate some of this expense pressure. And you will see that we achieved our operational excellence targets of over $650 million, a full 1 year ahead of schedule. And, importantly, we're not done. We're now transitioning to a broader continuous improvement process designed to improve efficiencies. This process is not a program or an initiative or a one-time project. It will be an ongoing area of emphasis that is becoming part of the fabric of our culture. Now we already have line of sight into several hundred millions of dollars of financial benefit over the next few years.

Turning to the capital front. Our business model generates a significant level of capital and allows us to perform well in stress scenarios, giving us increased financial flexibility. In 2013, we have returned approximately $1.7 billion to shareholders in the form of dividends or share repurchases. Now in terms of share repurchases, during the first quarter, we are in a position to potentially increase the total share buyback relative to the fourth quarter. And Todd will cover that in more detail in a minute. So for the quarter, continued growth in core Investment Services and Investment Management fees, successful completion of our operational excellence initiatives, and continued strong capital position.

Now looking ahead to 2014. We expect to see more of the benefits in some of the investments we've been making. In Global Markets, we're continuing to roll out new electronics foreign exchange and capital markets trading capabilities that position us to capture additional activity. The growth of our Global Collateral Services business should benefit as the markets deal with new collateral regulations. In Investment Management, we're in the midst of greatly expanding our wealth management sales force. Additionally, we are making significant progress reaching individual investors by expanding our retail distribution capabilities and product offerings. We've also made progress in expanding our Investment Management and Investment Services capabilities in the Asia-Pacific region with our separately-managed accounts platform scheduled to go live shortly. We've successfully piloted an intermediate -- Intermediary Private Banking program between wealth management and Pershing and will look to build on that momentum. And we continue to reposition to benefit even more as fund managers look to leverage our technology and advisors and brokers move away from self-clearing. We like how we're positioned and we're upbeat about our prospects for 2014. With that, let me turn it over to Todd.

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