The Bank of New York Mellon Corporation (BNY) Earnings Call Transcript & Summary

Okay. Are we live? Okay. All right. Okay. Great. Okay. All right. So thanks, everyone, for joining our virtual fireside chat. Sorry for the slight delay here, but we're very excited to have Roman Regelman from BNY Mellon with us today. Roman is the CEO of BNY Mellon's Asset Servicing business and Head of Digital and a member of the Executive Committee. He came to the bank in 2018 from Boston Consulting Group and became Head of Digital, which was a newly created role at the time, and then became CEO of Asset Servicing last year. As CEO of Asset Servicing, Roman focuses on product strategy and development to accelerate the transformation of Asset Servicing into a more data and analytics-led business. And he's responsible for driving end-to-end delivery of solutions to asset servicing clients. And then as Head of Digital, Roman sets the direction for the firm's digital future and drives investments in our -- in digital capabilities, including data management, analytics, artificial intelligence, machine learning and robotics. So welcome to the future. Thanks for being with us today, Roman.

Of course, thanks, Brian. Good to be here.

Yes. Thank you so much. So yes, we'll start off with some questions of my own. I will leave a little time for questions for participants. And just some quick instructions on that, you can either ask a question via the web portal or you can e-mail me directly at brian.bedell@db.com, whichever is easier, frankly. Maybe just to start off, Roman, with Asset Servicing. Just a big picture, where that fits into BNY's range of Investment Services businesses overall. And just in sizing that, it looks to me like Asset Servicing is easily the largest business at Bank of New York at over 35% of total revenue. So maybe start there.

And I think that's right. So Investment Services is roughly 75% of our revenue and Asset Servicing is half of that. So Asset Servicing is $5.7 billion of revenue. And obviously, other businesses within Investment Services are Pershing, Issuer Services, sometimes people talk about corporate trust and depositary receipts, Treasury Services and then Clearance and Collateral Management. Asset Servicing is very diversified business. We'll talk kind of what's happening within that. But the range of businesses are very complementary. And I actually think it's a differentiator against our peers. And in general, the franchise is very strong. Everything that we have is in kind of top 3 of the market, maybe with the exception of Treasury Services, which is a more fragmented (sic) [ fragmented market ].

All right. Okay. And then maybe just to characterize, within Asset Servicing at BNY, maybe just a little flavor of the Asset Servicing part, the key metrics that you look at for success and measurement amongst your peers.

Okay. So fundamentally, what we do, we service clients front to back across the investment life cycle. When I say clients, it's predominantly asset managers and asset owners. Traditionally, people know us for running the operations and driving efficiency in operations. But also critically, we help them manage data, and we increasingly get involved in distribution to end investors. And fundamentally, all of that accounts to us helping clients drive investment outcomes. Now I want to be specific. So we are world's largest custodian, as I'm sure you know. We work in over 100 markets. We have leading position in fund administration and fund accounting to traditional mutual funds. And we're quite strong in ETFs. ETFs alone is $1 trillion of AUC. We, obviously, play in other parts of the markets like alternatives. One of the businesses that distinguish us from competitors is transfer agency. It's a pretty unique business, and it allows us to really orchestrate solutions for the clients in conjunction with the rest of the services. People talk a lot about middle office. We've been investing in our platform. Pretty proud of what we have, but we also have partnerships, and we'll probably touch on that. So that's another business, again, kind of part of our front-to-back differentiation. And then lastly, I would say data. On our platform, it's $40 trillion of assets. We've been in the data business providing solutions for data management for 20 years. And now it's really embedded into the company. And we have cloud-native capabilities for front office and as well as for in the data platform, analytics. So as you could see, a very rich business, really working front to back for asset managers, asset owners across the investment life cycle. Then I think maybe one more thing to touch is you might have heard of this concept called OMNI. OMNI for us stands for open, modular, network and integration. Think of that as an ecosystem of all the services we provide, but it's not only BNY Mellon services, it's in the services that we get from other players in the market. Quite often they're fintechs, could be large technology companies like Microsoft and other market participants, people like, look at BlackRock, Amundi with their ALTO. And that would lead me to maybe the last point on this one, that we really offer integration with order management systems. We cover 98% of addressable market. So in essence, if a client has practically any order management system, they can expect data and process integration into the rest of our capabilities. And I would call out the relationship with Aladdin and ALTO, they're particularly strong. So it's not just the marketing alliances. It's really deep data and process integration. And maybe another thing to highlight is our investments into APIs. I mean clients use our APIs widely. We make 0.5 billion calls -- or clients make 0.5 billion calls on our APIs, which itself is up 25%. So if you see, it's a very rich business. What's really important for our success is we have incredibly talented and incredibly diverse team. It's really a combination of people that have been in BNY Mellon for a long time. We have the best people in the industry that we managed to attract from our competitors and then a number of people that actually come from outside of the industry really have experience working with fintechs, working experience working with clients that can bring this fresh perspective. And then the team itself is very diverse, both in terms of female and ethnic representation. So we're very proud of this team. And I think between the team and the capabilities we got, we really feel in a very strong position, offering our services to our clients.

And I forgot the statistic, but I think a very large percentage of people came -- have come from the fintech industry to Bank of New York Mellon over the last few years, like essentially a substantial change from the complexion of that servicing personnel prior to that, I believe.

It's exactly right. I mean the war for talent is real, and we are attracting people that otherwise would go to fintechs, small fintechs, large technology companies, Microsofts, Googles, Amazons. We constantly compete with them for talent. And I actually feel this competition is very healthy because within our ecosystem we now have people that think this way and work this way. And obviously, that segment of these people that know asset servicing for a long time and been in the client service for a long time.

Yes. Yes. It's a big change in the industry. Maybe just go back to the point you made on the OMNI platform. Maybe just a couple of examples of what exactly you're providing to clients across the asset servicing platform in that front-to-back OMNI framework.

All right. So maybe let me start with why it matters. The industry is evolving pretty rapidly. Our clients' models are evolving. They are obviously under intense pressure to evolve their own operating models. They become more complex, the need for data is increasing. And there are pretty significant threats like resiliency, cybersecurity concerns that all our clients experience. So fundamentally, OMNI for us is an ability to orchestrate front-to-back solutions for our clients. That doesn't mean it provides solutions entirely from Bank of New York Mellon. We've been this orchestrator, be relevant to the entire C-suite of our clients. We recently did a survey, 200 large global asset managers. Data analytics is number one strategical and operational imperative. It's data analytics to run operations, but also data analytics to drive investment performance. At the same time, it's a very complex thing to build. So 97% of clients looking to outsource data management infrastructure in some way in the next 3 years. They also plan consolidation of their platforms between front, middle and back office, which brings us to sort of the story of OMNI. Significant complexity, and that's why we're providing this integration, right? It's a Data-as-a-Service in a central integrated platform. It's solutions that combine what we have in Bank of New York Mellon and our partners and the vendors. It's really open. So if the client wants to bring their solutions, if the client likes particular fintech, we really integrate in the totality of the solution and orchestrate this thing, right? So it's not just a number of things come together. It's tightly orchestrated. It's an ability to provide and underwrite kind of the whole operating model. And that all obviously sits on a foundation of data because the data that you use in the front office can be used in a back office and vice versa. So the client benefits from all the information, in essence, on their fingertips. And that's why we're also making this pretty significant push into the front office, right? It's really helping clients with outsourced trading, with portfolio management, risk management trading tools and all of that to really be relevant across the value chain and be the orchestrator in the value chain. I mean I can talk about sort of the results that it accomplishes for us, but I think it's sort of pretty clear, right? Your reach to clients is deeper and broader. Traditionally, asset service has been relevant to the Head of Operations and to the Treasurer, but now they're relevant to Head of Marketing, Head of Sales, Head of Distribution, CRO, Chief Investment Officer, right, with the solutions that I described. And also by integrating them, the clients can no longer have a problem, okay, this data is in the back office, I want to see it in kind of front office. It's a very complex set of solutions for them to deal with themselves, and we really provide that. And that leads us to being pretty bullish on organic growth, because, again, the traditional services maybe account for 10% of our clients' wallets. I mean if you're a large asset manager, maybe you spend 10% on running operations. But ultimately, the whole wallet, front to middle to back, is much, much larger. And that's why you see clients like Charles Schwab, I think we mentioned on an analyst call, that really use us for data analytics solutions and our partnership with Microsoft around Azure Cloud is really helping us to differentiate.

Where would you see that 10% of spend towards the traditional side? What do you think that expands to in a full wallet? Is it 30% or less or more?

I mean we play in the entire value chain. Yes. So if we basically just kind of break down the value chain into running operations, right, so the traditional space, providing data, helping with distribution and then true kind of front-office activities, right? So I kind of described this value chain back to front, the back is roughly 10%. Obviously, majority of the spend is in front. Now my point is not that every single dollar is accessible, but the point is that we have solutions that help support clients across this whole value chain. Quite often, the solutions may not be ours, like order management system is not ours. But because it's integrated in our suite of products and services, it really provides a seamless experience to the client. And that obviously unlocks very different value for them and, obviously, different opportunity for us.

Yes. Yes, that makes sense. Maybe on that point, there's obviously a debate in the industry whether to have a straight-through front to middle to back office or to have it in an open architecture format. So maybe just your perspective on that. And then how do you work with Aladdin as well in terms of that partnership? Or how that works to the benefit of BNY's clients?

I would say that straight-through and open architecture really go together. The debate may be about ownership. And I really believe that you don't need to own things to provide seamless straight-through experience to the clients. In fact, we put our clients in a position to, in essence, future-proof their operating models. And today, some particular vendor may be in favor, everyone likes some solution. Three years from now, they are having another vendor. By having this open architecture and, more importantly, the mindset of partnerships, which I actually think became our differentiated capability, we really can provide solutions to the clients. That's why we talk about OMNI. It's open and modular, but it's network and it's integrated. So it's really the future-proof solution for the clients. So specifically, if I talk about OMS, the integration with our partners is pretty deep, right? You can get client custody insights. You can get insights on the transactions, on liquidity, on holdings. You can have analysis on your net asset value. So it's not a marketing alliance, okay, 2 companies can happen to work together. It's really on a level of kind of data and process, right? This information is embedded. We were the first custodian to integrate our apps within Bloomberg, right? We have -- we are one of the very few people providing apps in Aladdin. We're doing same thing with Amundi ALTO, right? The clients are really taking advantage of this thing, right? They don't need to go to 2 different places and get information, right? So that's what I think the differentiation is. Because if I own one platform, of course, I can have some, in theory, good integration with that. But I really think the clients expect choice, and that's why we integrated with everyone. Plus, many clients actually want multiple OMS. They may have one OMS in one geography, another OMS in a different geography. They may have one OMS for equities, another OMS for fixed income. So integrating to all of them is really becoming critical. And then taking it another level, M&A. I mean there's a lot of M&A in this industry. Asset managers are merging. So now you have -- each of them have 2 OMSs, now they have 4. I mean, okay, they may overlap, maybe it's 3. So really creating a solution across that is important. But it's not just the industry big players. It's fintechs that we bring into the equation. Milestone provides contingency and shadow net asset value, very important capability. Our clients need this capability. So of course, they can go and contract with them directly. But also they can go to us, and it all becomes one ecosystem. So you have net asset value from us and then you have shadow, contingency net asset value. All obviously are with the same resilience. Another thing that we're using is Evisort, using them on the contracting process. Again, something that we could potentially build ourselves. But if somebody's already done that, then why not bring to the ecosystem? And again, it's easier for the client not to go through kind of their own process. So I really think our marketing capability is a differentiator as well as the open ecosystem.

Yes. No, that makes sense. Maybe thinking about organic growth, which is at the top of the house at BNY, you've started talking about organic growth, given the number of growth initiatives and some of your competitive advantages in these businesses. If you think about just Asset Servicing and what you're doing now and the digital journey that you're on, how do you think that can enhance organic revenue growth within the Asset Servicing business for BNY?

Well, you're being an orchestrator, you actually have access to this kind of whole wallet. And that creates opportunities for organic growth. I mean our relationships with clients is truly second to none. And when you have this relationship and you can bring the entire set of capabilities, you actually unlock very different opportunities. I mean, I'll take data. I mean, we've been in data management business for 20 years. So data is an asset by itself. I mean you can sell data management solutions as we do, and we're pretty successful in that. But also, data that actually underpins your entire operating model allows that to be, in essence, a connecting tissue between your custody and your TA, between your custody and accounting, between middle office and the back-office services. And suddenly, you actually unlocked very different opportunities for yourself and for your clients. I mean middle office is a similar thing. If a client already has Aladdin as an order management system, we can support them on Aladdin as a middle office provider or have our own platform, which is great, and we provide clients for that. So these opportunities really create organic growth. So it's organic growth through our own products, organic growth through orchestrated solutions and then data to unlock these opportunities.

On the incremental organic growth, I guess, is it fair to say that data and analytics, if you had to describe one type of service or a range of services that are really adding to that, you would attribute that more to the data and analytical side of what you're doing?

Yes, but in 2 ways. First of all is direct. But second of all, in 20% of deals in the pipeline, we have data-analytics as a part of that. So in essence, it's a revenue, but it's also opportunity to unlock and differentiate other services. You put together data-analytics and custody, and you have much stronger solution for the client.