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

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The Bank of New York Mellon (BK)

Q4 2010 Earnings Call

January 19, 2011 8:00 am ET

Executives

Gerald Hassell - President, Director, President of The Bank of New York and President of The Mellon Bank N A

Andy Clark -

Thomas Gibbons - Vice Chairman, Chief Financial Officer and Senior Executive Vice President

Robert Kelly - Chairman, Chief Executive Officer, Member of Executive Committee, Chief Executive Officer of The Bank of New York and Chief Executive Officer of Mellon Bank N A

Analysts

Brian Bedell - ISI Group Inc.

Michael Mayo - Deutsche Bank

John Stilmar - SunTrust Robinson Humphrey Capital Markets

Thomas McCrohan - Janney Montgomery Scott LLC

Alexander Blostein - Goldman Sachs Group Inc.

Betsy Graseck - Morgan Stanley

Kenneth Usdin - Jefferies & Company, Inc.

Howard Chen - Crédit Suisse AG

Gerard Cassidy - RBC Capital Markets, LLC

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2010 Earnings Conference Call hosted by BNY Mellon. [Operator Instructions] 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 Bob Kelly, 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 13 of the press release and those identified in our documents filed with the SEC that are available on our website, bnymellon.com.

Forward-looking statements in this call speak only as of today, January 19, 2011, and we will not update forward-looking statements. This morning's press release provides the highlights of our results. We also have the Earnings Review document available on our website, which provides a review of the total company and individual businesses. We will be using the Earnings Review document to discuss our results.

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

Robert Kelly

Thanks, Andy, and good morning, everyone. Thanks for joining us. Fourth quarter EPS was $0.55 or $690 million, and that includes $0.04 of primarily M&I expense. Total revenues grew 14% year-over-year and 9% versus third quarter. Significantly, 38% of all our revenue came from outside the U.S., which is a new record for us. And to put that into perspective, in 2007, that number was 32% so we continue to becoming more global company.

NII was stable. Our growth came from fee revenue, which was 11% during the quarter, our best quarter since the financial crisis began back in 2008. In the 11% growth, there was virtually no impact from acquisitions because they have essentially started at the beginning of the third quarter. So it's organic.

Securities servicing fees were up 8% sequentially. Depositary Receipts and clearing had a very strong quarter. Asset Servicing continue to benefit from new business, and assets under custody reached $25 trillion, a new record and up 12% year-over-year. Asset and Wealth Management fees were up 14% over Q3 due to stronger markets, performance fees and long-term flow growth. AUM was up 3% in the quarter to a new high of $1.17 trillion.

Foreign exchange trading revenue was down and up 29% sequentially due to high volumes and volatility. And on the new business front in Asset and Wealth Management, we had our fifth consecutive quarter of positive long-term asset inflows, which is up $9 billion for the quarter for a total of $48 billion in 2010. We had new Asset Servicing wins of $350 billion in assets under custody. We're seeing a lot of new business opportunities from our acquisitions. Last year, frankly, better than we expected. In fact, a lot of the deals in Asset Servicing and their pipelines are with our GIS acquisition and our new Asset Servicing clients in Germany, which is really encouraging.

Our balance sheet has remained what I'd characterize as pristine all year. Provision in the quarter was negative $22 million, identical to the third quarter. Criticized assets were down 32% in the quarter and down 66% for the full year. Our provision for the full year was only $11 million, and we had security gains of $27 million, a significant improvement compared to 2009. I'd like to think we're returning to normal levels there.

Expenses were up 8%, a little higher than we'd like, driven by growth, some seasonality and some cost above our typical run rate. Two benefits of our model that provide us with strong capital ratios are, of course, firstly, earnings. They generate us 20% to 25% of our equity base annually, and that would be higher than most financial institutions, we would expect. And we also have a low level of risk-weighted assets. This quarter, we generated $576 million of new Tier 1 common, up 5% from the last quarter, and we continue to invest our assets in high-quality securities and central bank deposits.

Tier 1 and Tier 1 common, both strengthened over 100 basis points during the quarter. Our priority on the capital front remains to return capital to our shareholders through dividends and stock buybacks. As you would expect, we've submitted our capital plans to our regulators a few weeks ago, and we hope to know with them the next few months how we did on the latest stress test and whether we'll get to go ahead to start executing on it. Given all the capital to generate, with the quality of our assets and the fact that we finished number one in the 2009 stress test, we expect we'll do fine.

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