Q1 2024 Earnings Summary
- Investment Services fees increased by 8% year-over-year, driven by higher market values, net new business, and higher client activity. The company achieved a win rate of over 50% on deal completions, indicating strong business momentum.
- BNY Mellon is implementing a multi-year efficiency improvement program, including a new platform operating model that is expected to improve profitability, drive revenue growth, and enhance employee empowerment and client service. The company invested $0.5 billion in new initiatives within expense growth last year and is replicating that investment this year.
- The company is committed to returning over 100% of 2024 earnings to shareholders through dividends and buybacks, including a new $6 billion share repurchase authorization, demonstrating strong capital return commitment.
- Net Interest Income Decline: Net interest income decreased by 8% year-over-year and 6% quarter-over-quarter, primarily due to changes in the composition of deposits.
- Increase in Credit Loss Provisions: The provision for credit losses was $27 million, mainly driven by reserve increases related to commercial real estate exposure.
- Expense Growth: Expenses increased by 2% year-over-year on a reported basis and 1% excluding notable items, due to incremental investments and employee merit increases, which may pressure margins despite efficiency savings.
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Organic Growth Outlook
Q: What are your organic growth aspirations for '24 and beyond?
A: Management is pleased with early momentum in growth initiatives and is focusing on controlling controllable factors. They are operationalizing the "ONE BNY Mellon" approach, enhancing client coverage, and delivering integrated solutions. While it's early in the journey, they are optimistic about working the opportunity rather than the problem. -
Capital Deployment and Buybacks
Q: How should we think about capital deployment and buyback cadence?
A: The firm saw robust Risk-Weighted Assets (RWA) growth partly due to temporary factors and strong demand in securities lending. They remain committed to returning 100% or more of earnings to shareholders through buybacks, but don't provide quarter-by-quarter guidance. They expect to take it quarter by quarter. -
Deposits Outlook and NII Guidance
Q: What are your assumptions on deposit balances and NII trajectory?
A: Period-end deposits saw a significant uptick due to temporary factors. Deposits have returned to normal levels in the high $270 billion range. The guidance remains at approximately down 10% for Net Interest Income (NII) year-over-year, given rate volatility and expectations for deposits to decline with quantitative tightening. -
Efficiency Initiatives and Expense Outlook
Q: How far along are you in your efficiency journey?
A: The efficiency journey is multi-year, with work on both revenue and expense sides. Investments in the business are ongoing, and there's a focus on running the company better rather than just cutting costs. The platform operating model and AI investments are expected to yield benefits starting from 2025 and beyond. -
Asset Management Margins and Strategy
Q: How are you addressing the investment and wealth margins shortfall?
A: Management is investing in the business, launching new products, and seeing growth in areas like cash management. They aim to expand pretax margins to over 25%, focusing on both revenue growth and expense optimization. Integration with the broader enterprise is expected to unlock further opportunities. -
Commercial Real Estate Exposure
Q: Can you provide color on your commercial real estate exposure?
A: The commercial real estate portfolio is small, about 3% of total loans ($2 billion). Reserve builds were taken prudently for specific situations, but overall, the portfolio is clean with Class A properties performing well. The impact is expected to be modest, with broad industry challenges depending on longer-term rates. -
Pershing Offboarding and Growth
Q: Update on Pershing offboarding and its impact on net new assets.
A: The deconversion process is expected to be largely completed by Q3. While offboarding has impacted net new assets, the firm continues to invest in Pershing, adding new clients and building a strong pipeline. They feel confident about winning more mandates and meeting revenue commitments. -
Impact of T+1 Settlement
Q: What is the impact of T+1 on expenses and capital?
A: The transition to T+1 settlement involves expenses considered ordinary course of business. While it may not yield immediate cost relief, it provides benefits to the financial system and clients. There are potential opportunities for outsourcing solutions as clients navigate these changes. No significant headwinds on NII or capital are expected. -
Non-Interest-Bearing Deposits and Servicing Fees
Q: Is servicing fee growth substituting for declining non-interest-bearing deposits?
A: Non-interest-bearing deposits have declined due to higher rates, as clients seek higher yields. However, servicing fees grew 8% year-over-year, driven by strong pipelines, higher balances, and winning mandates. The growth in fees is not a direct substitution for deposits but reflects competitive pricing and focus on client profitability. -
Securities Portfolio Growth
Q: Securities book grew; is this due to deposit confidence or market options?
A: The growth in the securities book is due to optimizing yield and deploying cash where opportunities exist, rather than increased confidence in deposit levels. The bank remains neutrally positioned regarding rate movements and continues to manage the balance sheet conservatively.