The Bank of New York Mellon (BK)

Q3 2011 Earnings Call

October 19, 2011 8:00 am ET


Andy Clark -

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

Gerald L. Hassell - Chairman, Chief Executive officer, President, President of The Bank of New York, President of The Mellon Bank N A and Member of Executive Committee

Karen B. Peetz - Vice Chairman, Chief Executive Officer of Financial Markets & Treasury Services and Senior Executive Vice President

Timothy F. Keaney - Executive Vice President, Chief Global Client Management officer, Senior Executive Vice President, Vice Chairman and Chief Executive officer of Asset Servicing


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

Brian Bedell - ISI Group Inc., Research Division

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Howard Chen - Crédit Suisse AG, Research Division

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

Michael Mayo - CLSA Asia-Pacific Markets, Research Division

John Stilmar - SunTrust Robinson Humphrey, Inc., Research Division

Betsy Graseck - Morgan Stanley, Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division



Good morning, ladies and gentlemen, and welcome to the Third Quarter 2011 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 over to Mr. Andy Clark. Mr. Clark, you may begin.

Andy Clark

Thanks, Wendy, and 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, Forward-looking statements in this call speak only as of today, October 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 Quarterly Earnings Review document available on our website, which provides a quarterly review of the total company and individual businesses. We'll be using the Quarterly Earnings Review document to discuss our results.

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

Gerald L. Hassell

Thanks, Andy, and good morning, everyone. And thanks so much for joining us today in what I know is a very busy day for all of you. I'd like to make a few comments about the quarter, comment on the FX legal issues that we're facing and then turn it over to Todd for a deeper dive into the numbers.

The headline for our quarter is solid fee and net interest revenue growth and 200 basis points of positive operating leverage. Sequentially, we certainly faced difficult market conditions, which have resulted in lower revenues. But we were able to manage expenses down despite higher litigation, legal and severance costs. The result was earnings per share for the quarter of $0.53 or $651 million. That's an improvement of 4% year-over-year. Revenue was up 8% year-over-year, the fact that we achieved the growth notwithstanding the macro environment, low interest rates, the continued aversion to riskier assets and the lack of structure debt issuance reflects the strength of our business model.

Fees were up 9%, as we benefited from new business, net long-term asset flows and increased foreign exchange revenues. In addition, DR has had a particularly strong quarter as certain corporate actions for some clients moved up to the third quarter versus the fourth quarter.

Net interest income was up year-over-year and sequentially, driven primarily by higher client deposits. Our loan loss provision was actually a credit of $22 million, and we remain very focused on containing expense growth and bringing down our run rate. It's one of the things we can control in this very challenging environment.

Now we're taking -- we're undertaking a number of actions to achieve what I call operational excellence, a term that brings together the concepts of improving efficiency, reducing risk and delivering the highest quality of service to our clients. And we'll talk more about this at our Investor Day next month.

Now looking at our 2 major businesses on a year-over-year basis. Investment services fees were up 11% with issuer services benefiting from the seasonal strength in DRs I mentioned earlier. We had strong new business activity in our clearing businesses, and asset servicing was also up as we grew assets under custody to almost $26 trillion. Investment management fees were up 5% as we had yet another quarter of positive long-term asset flows.

In terms of capital, we generated $718 million in Basel Tier 1 common equity. We deployed approximately $620 million of that to a combination of share buybacks and dividends. Our Tier 1 common ratio came in at 12.5%, and we delivered a return on tangible common equity of 22%.

So to summarize the highlights of the quarter, year-over-year revenue growth was solid, we generated positive operating leverage and managed expenses down sequentially in the face of legal headwinds. Our balance sheet remains strong and extremely liquid, and we continue to generate significant levels of capital and are committed to controlling our expenses in a challenging environment.

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