Q3 2024 Earnings Summary
- BNY Mellon reported strong financial performance with 5% revenue growth, flat expenses, a 33% pretax margin, and a 23% return on tangible common equity, demonstrating the company's operational efficiency and profitability.
- The company is investing heavily in AI and transitioning to a platform operating model, with 25% of employees already transitioned and plans to reach 100% in 18 months, aiming to drive top-line growth and operational efficiency.
- BNY Mellon is executing strategic acquisitions, such as Archer, to enhance its capabilities in fast-growing areas like managed accounts, which is expected to contribute to future revenue growth and strengthen its market position.
- Reliance on favorable market conditions: Management acknowledges that recent strong performance may be partly due to benefiting from a "terrific backdrop in terms of markets", suggesting that downturns could adversely affect future performance.
- Concerns about return on equity resilience: When asked about return on equity resiliency in unfavorable market conditions, management emphasized their commitment to positive operating leverage but did not fully address potential challenges in sustaining a 23% return on tangible common equity in less favorable environments.
- Prolonged transition to new operating model: The company's shift to a platforms operating model will take another 18 months to complete, and management indicates that benefits will take even longer to materialize, potentially delaying expected efficiencies and increasing execution risk.
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Expense Outlook
Q: Are expenses expected to be even lower in Q4?
A: While we've guided expenses to be roughly flat for the full year, higher revenues may put some pressure on expenses in Q4 due to revenue-related costs and integration expenses from the Archer acquisition. We remain committed to financial discipline and being good stewards of our expense base. -
Client Growth Drivers
Q: Is growth due to smart management or market luck?
A: While we've benefited from favorable markets, our deliberate strategy is driving growth. We've rallied around three strategic pillars: being more for our clients, running the company better, and fostering a winning culture. Clients are now buying from us across more than one line of business, sometimes even four, which was not possible a few years ago. -
M&A Strategy
Q: What's your outlook on future acquisitions?
A: We're open to opportunistic, bolt-on acquisitions that align with our strategic priorities and offer attractive returns, like the Archer acquisition. Our capital-light model allows us to invest prudently and return excess capital to shareholders. -
NII Guidance
Q: Is $1 billion quarterly NII the bottom for now?
A: We've seen NII between $1 billion and $1.1 billion over the past five quarters. For Q4, we expect NII to be around $1 billion. We don't foresee NII being a headwind in 2025. -
ROE Resiliency
Q: How is your ROE resilient in unfavorable markets?
A: We're committed to delivering positive operating leverage through the cycle. In the recent quarter, we achieved a 23% return on tangible common equity and 22% EPS growth. By focusing on delivering for clients and shareholders, we believe valuation will take care of itself. -
Revenue Growth Outlook
Q: How will the enterprise approach impact revenue growth?
A: We're seeing solid underlying growth across all three business segments. Our enterprise approach delivers holistic solutions to clients, leading them to buy more from us. This strategy is driving revenue growth, and we feel positive about opportunities in 2025. -
ETF Growth Revenue
Q: Is ETF revenue fully reflected this quarter?
A: ETF revenue is partly reflected this quarter. We have $2.7 trillion in ETFs on our platform, up 70% year-on-year. Some revenue from recent wins is on the platform, with more to come as clients onboard in phases. -
Platform Model Transition
Q: Will the entire firm move to the platform model?
A: Yes, we plan to have the entire firm on the platform model over the next 18 months. This transition is about driving top-line growth and fostering collaboration, not just efficiency improvements. -
AI Integration
Q: How does AI relate to your platform strategy?
A: AI is integral to our platform strategy. We have an AI hub with a couple hundred people and are investing to make our people more effective and efficient. We're enthusiastic about AI's potential for our business.