The Bank of New York Mellon(BK) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported earnings per share (EPS) for the full year of $2.90, down 30% compared to the prior year, with a return on tangible common equity of 13% [4] - Excluding notable items, EPS was $4.59, up 8% year-over-year, and return on tangible common equity was 21% [4][21] - Total revenue for Q4 was $3.9 billion, down 2% on a reported basis but up 9% excluding notable items [17] - For the full year, total revenue grew by 3% on a reported basis and by 6% excluding notable items [20] Business Line Data and Key Metrics Changes - In Asset Servicing, total revenue was $2.2 billion, up 18% year-over-year, with net interest revenue increasing by 79% due to higher interest rates [24] - Market and Wealth Services reported total revenue of $1.4 billion, up 19%, with investment services fees up 22% in Pershing [25] - Investment and Wealth Management reported total revenue of $825 million, down 19%, with assets under management declining by 25% year-over-year [27] Market Data and Key Metrics Changes - Firm-wide assets under custody and/or administration were $44.3 trillion, a decline of 5% due to lower market values and currency translation [18] - Assets under management decreased to $1.8 trillion, reflecting lower market values and the unfavorable impact of a stronger U.S. dollar [18][27] Company Strategy and Development Direction - The company aims to improve revenue growth and efficiency, focusing on expense discipline and profitable new business growth [12][14] - Long-term growth initiatives include digital assets, real-time payments, and the reimagining of custody and collateral [9][10] - A new $5 billion share repurchase program has been authorized, indicating a commitment to returning capital to shareholders [15][31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges faced in 2022 but expressed optimism about the company's ability to achieve positive underlying growth in 2023 [12][14] - The company expects net interest revenue to increase by approximately 20% year-over-year, assuming current market-implied interest rates [29] - Management is focused on bending the cost curve and achieving nearly double the efficiency savings compared to previous years [13][30] Other Important Information - The company experienced a 5% growth in net new assets in its wealth management segment, despite a challenging environment [8] - The operational readiness of the company's systems and personnel was highlighted as a key strength during turbulent market conditions [11] Q&A Session Summary Question: NII expectations and drivers - Management indicated that the NIR outlook is based on forward curves, expecting another 50 basis points of hikes in the first quarter [36] Question: AOCI accretion timeline - The company expects to recover approximately 50% of the $2.5 billion unrealized loss in the AFS portfolio over 15 to 18 months [39] Question: Fixed income market outlook and fee dynamics - Management noted that strength in the fixed income market would benefit the investment management business, with various opportunities across their franchise [42][43] Question: Resilience in a recession scenario - The company highlighted its diversified portfolio, which includes higher growth, higher margin businesses that contribute to stability in different market conditions [50] Question: Growth initiatives and revenue contribution - Management discussed ongoing investments in initiatives like Pershing X and digital payments, emphasizing both near-term and medium-term growth opportunities [52] Question: Deposit trends and drivers - Management expects average deposits to decline modestly, primarily from noninterest-bearing deposits reverting to historical averages [57] Question: Efficiency gains in Securities Services - Management is committed to achieving a 30%-plus margin over the medium term, with a focus on revenue growth and efficiency initiatives [66]