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

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The Bank of New York Mellon Corporation (BK)

Q1 2014 Earnings Conference Call

April 22, 2014 8:00 AM ET

Executives

Andy Clark – Investor Relations

Gerald L. Hassell – Chairman and Chief Executive Officer

Thomas P. Gibbons – Vice Chairman and Chief Financial Officer

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

Curtis Y. Arledge – Vice Chairman and Chief Executive Officer-Investment Management

Analysts

Betsy L. Graseck – Morgan Stanley & Co. LLC

Glenn P. Schorr – International Strategy & Investment Group LLC

Alexander Blostein – Goldman Sachs & Co.

Luke Montgomery – Sanford C. Bernstein & Co. LLC

Ken M. Usdin – Jefferies LLC

Cynthia Nevins Mayer – Bank of America Merrill Lynch

Geoffrey Elliott – Autonomous Research

Robert Lee – Keefe, Bruyette & Woods, Inc.

Brennan Hawken – UBS Securities LLC

Ashley N. Serrao – Credit Suisse Securities LLC

Rob C. Rutschow – CLSA Americas LLC

Jim F. Mitchell – The Buckingham Research Group, Inc.

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the First Quarter 2014 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 call and 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 and in the press release and those identified in our documents filed with the SEC that are available on our Web site bnymellon.com.

Forward-looking statements in this call speak only as of today, April 22, 2014, and we will not update forward-looking statements. Our press release and earnings review are available on our Web site, 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, Wendy, Andy and good morning everyone. Thanks for joining us. As you’ve see from our release we achieved good results this quarter with pretax earnings up 12% year-over-year. We’re reporting earnings of $0.57 per share, with total revenues of $3.6 billion.

We also achieved a 3% fee growth in Investment Management and Investment Services, which within a context of what is a persistently slow economic recovery is deep and see growth. Investment Management benefitted from our continued success in attracting new assets. We recorded our 18th consecutive quarter of positive long-term flows, with net long-term in flows of $21 billion.

Assets under management was up 14% year-over-year to a record $1.62 trillion. Driven by the continued strong flows into our liability-driven investment strategies. Investment Services fees were also up, benefitting not only from strong growth in clearing, but also a nice growth in asset servicing.

Now Investment Services business was also held by the growing contributions from Global Collateral Services. As usage of our optimization and segregation solutions continue to improve. And in Global Markets, the enhancements we’ve made to our electronic foreign exchange platform have helped us attract greater volumes.

Now during the quarter the strength and quality of our asset servicing capabilities were recognized in a key market service. Among our peer group, we earned a number one overall score in the R&M Global Custody survey of clients and fund managers. We were also the number one in the expert’s category, which included investment managers who rated 5 or more global custodians.

In total, we received 10 number one ranking in our peer group. It’s the latest vote of confidence in our ability to provide the expertise clients need to navigate the challenging times as they struggle to manage regulatory change risk and cost. And we were able to achieve the growth in Investment Management and Investment Services fees in spite of some ongoing sizable challenges.

One, the substantial impact of money market fee waivers; and two, the decline in the pretax income of Corporate Trust. As a revenue from structured debt securitizations has run-off faster than a revenue coming from new business. Year-over-year, our rough estimate is that money market fee waivers and a run-off in Corporate Trust fees, accounted for a drive for a total fee revenue growth of approximately 200 basis points. On the expense front, total expenses were down both year-over-year and sequentially.

And Todd will cover more on expenses in a moment, but what I do want to emphasis, is that we are taking aggressive action in virtually every expense category from moderate to growth rate here.

So, for example, we are controlling a rate of expense growth in technology by in-sourcing application development, reducing storage cost in consolidating platforms. We are reducing our real estate foot print. We are reengineering how we work including rationalizing our client-coverage teams, making it more efficient and allowing us to reduce costs while enhancing the client experience. And importantly, using evidence of all of these moves and our commitment to aggressive expense management this year.

I should add that like all large financial institutions, our regulatory control and compliance costs have risen substantially and continued to be high, and I have to say it is a critical that we maintain a great control environment. But now that we are beginning to gain more clarity on the new rules, the rate of related expense growth should begin to slow and that’s encouraging. On the capital front, our capital story is among the very best in the industry.

Our key capital ratios continued to strengthen. We achieved an excellent return on tangible common equity at 18%. Now given that significant levels of capital that we generate and our strong capital positions, we have the financial flexibility to invest in our businesses and maintain a high payout ratio, which was more than 80% in the first quarter of 2014. Earlier this month, we announced another dividend increase of 13% which followed a 50% increase last year.

So, the bottom-line is we are executing to drive our shareholder value and we are actively aligning our business model and we are focused on managing expenses well and generating strong returns on tangible common equity.

With that let me turn it over to Todd.

Thomas P. Gibbons

Thanks Gerald and good morning everyone. My comments will follow the quarterly earnings review and we’ll start on Page 2. As Gerald noted the EPS was $0.57, we should note that the $0.57 includes about $0.03 to $0.04 for the combined benefits of a lower tax rate. And also we had a loan loss provision credits.

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