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

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The Bank of New York Mellon (BK)

Q3 2012 Earnings Call

October 17, 2012 8:00 am ET

Executives

Andy Clark

Gerald L. Hassell - Chairman, Chief Executive Officer, President, Member of Executive Committee, President of the Bank of New York and President of the Mellon Bank NA

Thomas P. Gibbons - Vice Chairman and Chief Financial Officer

Curtis Y. Arledge - Chief Executive Officer

Timothy F. Keaney - Vice Chairman and Chief Executive Officer of Asset Servicing

Karen B. Peetz - Vice Chairman, Chief Executive Officer of BNY Mellon's Issuer, Treasury & Broker Dealer Services and Chief Executive Officer of Financial Markets & Treasury Services

Arthur Certosimo - Senior Executive Vice President and Chief Executive Officer of Alternative and Broker-Dealer Services

Analysts

Cynthia Mayer - BofA Merrill Lynch, Research Division

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

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

Betsy Graseck - Morgan Stanley, Research Division

Brian Bedell - ISI Group Inc., Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

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

Howard Chen - Crédit Suisse AG, Research Division

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

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Third Quarter 2012 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 to Mr. Andy Clark. Mr. Clark, you may begin.

Andy Clark

Thanks, Charlene. Welcome, everyone. With us today are Gerald Hassell, our Chairman, President 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, October 17, 2012, 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 thanks for joining us. As you've seen from the release, for the third quarter, we generated net income of $720 million and an earnings per share of $0.61. Now that did include the benefit of approximately $0.04 per share from a lower tax rate. As a reminder, we reported $0.53 per share in the third quarter of last year.

In a macro environment that continues to present challenges to all of us, we are winning new business, investing in organic growth opportunities, delivering on our operational excellence initiatives, improving on our already strong capital position, continuing to return capital shareholders and at the end of the day, our core revenues were up 2%, and core expenses were flat.

We were particularly pleased with the strength of our investment management area, which benefited from strong investment performance and a 12th consecutive quarter of long-term flows. We had $58 billion in net long-term flows over the last 12 months, which included $9 billion during the third

[Audio Gap]

helped drive assets under management to a record level of $1.4 trillion. And during the quarter, we received a number of industry awards, which is very, very gratifying. Insight was named the Fixed Income firm of the year and LDI firm of the year by Financial News. ARX, our Brazilian investment manager, was awarded Active Equity Manager of the Year, and the BNY Mellon Emerging Market Debt Fund was named Emerging Market Debt Fund of the Year.

We also purchased the remaining 50% of our West LB Mellon Asset Management joint venture, which further strengthens our franchise in Germany. We combined some of our Standish fixed income activities with Alcentra to create a world-class and sizable manager of credit strategy.

We also announced plans to combine our Pareto currency risk management boutique with Insight to creating one manager of risk management solutions. So there's lots of good things occurring in investment management.

Turning to Investment Services, we also benefited from new business, as well as typical seasonality in Depositary Receipts. In Asset Servicing, we had more than $520 billion in new assets under custody wins. Now with market values increasing and conversions to prior business won, assets under custody reached a record level of almost $28 trillion. Also during the quarter, we fully integrated the BHF Asset Servicing business onto our systems. So we are in fact integrating and retiring legacy platforms. And feedbacks on our newly formed global services organization has been overwhelmingly positive, as clients struggle to meet the current and emerging requirements of Dodd-Frank.

Now offsetting some of these positives were seasonal reductions in volumes that affected our foreign exchange and clearing businesses. Also, Corporate Trust continues to be negatively impacted by low levels in new issuance versus a natural retirement of existing securities. We continue to make good progress on our operational excellence initiatives, which are focused on providing great client service while improving productivity and reducing risk. And on the capital front, we generated strong returns on tangible equity, continue to return capital to shareholders and improve our already strong capital position.

Now going forward, we remain very focused on capitalizing on our core -- organic growth opportunities identified within our company that can help clients grow and navigate the current environment. Now there are some great examples of this. Take global collateral services where we're seeing real exciting opportunities. We're working to leverage the tremendous power of our Pershing distribution capability for our investment management products, and we're doing this globally, as we believe our technology and distribution platforms export well around the world. And we're also building on our trading capabilities to better service our clients to provide more opportunities to capture trading flows for a variety of instruments. We're a great counterparty and some natural extension of our business.

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