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

Good afternoon, everyone. Thank you for joining us in our fireside chat with Bank of New York Mellon Corporation. As many of you know, Bank of New York Mellon is the eighth largest commercial bank in the United States. It's one of our largest, or if not -- yes, one of our largest custody banks with $49 trillion (sic) [ $46.7 trillion ] in assets under custody. The company has a market cap that is approximately $41 billion. It moves around with the volatility of bank stock prices, as we all know. And it trades just above book value, about a 10% premium, and currently has a dividend of about 2.7%. So joining us today from Bank of New York is Akash Shah, and he's Senior Vice President and Chief Growth Officer. Akash has joined The Bank of New York back in 2018, and he was previously with McKinsey & Company, advising leading financial institutions. Akash, thank you for joining us this year.

Thank you so much for having me, Gerard. I appreciate it.

You're very welcome. I guess the first question would be, it's probably fair to assume that you're the first Chief Growth Officer in the 200-year history of Bank of New York. I don't think Mr. Alexander Hamilton had a Chief Growth Officer when he started the bank. But -- so in this newly established role that is unique amongst the traditional bank peers that Bank of New York competes against, can you share with us what -- the role that you play there? What's the remit? And how do you spend most of your time in this role?

No, I appreciate that. And Gerard, I just want to start with just acknowledging, of course -- we're in the middle of a humanitarian and geopolitical crisis. And of course, I think our hearts go out to all of those impacted. And I do appreciate this opportunity, though, to still talk about the way we're taking our company forward. But I do want to acknowledge, of course, all that's happening around us right now, quite tragically. Let me start by actually saying -- talking about who we are and what we're trying to be, right? We really think of ourselves as this central nervous system of capital markets. This institution that can connect the buy and sell side, wealth managers, asset managers, sovereign wealth funds, all the way down to the individual investor. And as you know better than anyone, that ecosystem continues to become dynamic. The needs of our clients have changed and grown. New partnerships are being formed. New competitors are being formed. And a large part of my role is to bring the full commercial capabilities of our enterprise into our clients, our partners and, ultimately, create value for our shareholders. So I spend about 80% of my time with clients and with partners and potential investments and, frankly, a large part of it on the road. So I clocked in 0.25 million miles, actual butt-in-seat miles, last year. And I think a large part of our role is showing up and showing up very differently for our clients. This comes out of a real conviction that we can do even more to help transform our clients and create their businesses in the model that allows them to win the future. And let me just describe that just for a moment, and I hope we get a chance to talk about it more specifically. So if you think about it, we're at the center of 3 ecosystems: the institutional buy side; the retail wealth market globally, both as direct through our private bank, but also a large technology provider to that market; and then to the sell side, helping global banks fund themselves, run their payment rails and do a whole lot more. And the way we think about our opportunity to help our clients across those is through our Securities Services business, which is the largest, and we are the market leader. A large part of our strategy is helping clients transform their business model. And what we call that transformation is building a data-centric operating model. And so that's working with large institutional asset managers to rethink their entire front, middle, back and, actually, rethink it in a completely different way. And we have both the technology, but very importantly, the expertise to do that. In our Market and Wealth Services, which is really one of the more unique features of who we are, we do a couple of things, right? We help wealth managers focus on the things that they are -- should be really great at, serving their clients well and building a great adviser and multichannel capability. And what we have through Pershing and capabilities also through our own private bank and investment manager is both the technology, the expertise and the product suite to help those clients, wealth managers grow. We serve banks, and we are known as the bank to banks. But what we can help banks do -- 2 things that are exceptionally important in the moment we're in. One, is to connect disparate pools of capital and collateral and bring it in an integrated, optimized way. And we do that not only through our own technology, but very importantly, going out and building partnerships with other institutions who, frankly, compete with us in other quarters, giving our end client that global integrated view. Another example of that is, we can take on complex broker-dealer activities for our clients and give them back both operating leverage and capital and give them both scale, the security of our balance sheet and the trust that an institution only with a 230-year history can afford. And then finally, in our Investment and Wealth Management business, again, market-leading, right, one of the world's largest asset managers and one of the largest private banks in the U.S., in our investment manager, it's really about bringing the power of specialty at scale. So we have a multi-affiliate model. But just to give you a sense of the scale, our active fixed income manager Insight itself is a $1 trillion-plus manager. So these are scaled institutions. And what we're doing more and more is bringing solutions that cut across that on behalf of our clients, but still getting the focus and expertise of the individual firms. In our private bank, it's a lot around helping the world's wealthiest people with intergenerational wealth transfer and dealing with a very complex environment and world. And what we've done is built some of the most, I think, market-leading, advice-led expertise -- particularly things like tax strategy, solutions, obviously, banking as well. So when you put that whole picture together, Gerard, a lot of what we have to spend our time doing is making sure we're bringing the full force of the firm to our clients because it connects across all of these things and doing it in a transformational way. So that's really what I spent my time doing working with my colleagues. It's my raison d'etre. And it's a really exciting time for us as a firm.

That's great. It's a very clear picture that you painted of your responsibilities and the opportunities that Bank of New York, of course, has. And maybe you could -- we could weave that into my next question, which is about organic growth. It has picked up, clearly, obviously, for Bank of New York. From the outside, it's challenging to assess what's really driving that organic growth higher. And more importantly, or as importantly, is it sustainable on a go-forward basis? And so what do you think has changed to where the organic growth has picked up? And how do you keep that momentum going?

That's a great question. Gerard, I think, first thing, I want to start with just a little bit of humility, right? We are a company that, until recently, showed very little organic revenue growth, but we're actually quite proud of getting up to 2% last year and where we're tracking to this year. And a lot of my belief and conviction comes from, once you get that flywheel moving, organizations do incredible things. And momentum begets momentum. So I'm a big believer in that. I've seen that in banking. I've seen that in technology services, a lot of the analogous things to what we do. So here, I think, the 2 dimensions of things that we're doing differently. I think one is, we've always had great products, but we now have some truly exceptional and market-leading products. And I think that innovation cycle, the investments we've made over the years are really coming together and building market-leading capabilities, and that's exciting. But there's another part of the story that, frankly, as a company, we probably haven't spent as much time on, which is the power of sales alpha. It's the sheer power of coming into a client with the right people, the right expertise at the right level, and coming in with a point of view of how do we create the 10x value for you. And when you come in at the CEO of a client, and you can describe a vision that actually has real purpose and track record because you've done it a dozen times or 100 times before, and you can show them a journey that takes them from A to B to C, and you bring people who are super credible and product and solutions that underpin that, that's the unlock for us. Our strategy is really around we are with most of the institutions we want to be with in the world. There's, of course, exceptions to that. There are places that I fight every day to get inside the front door. But we have one of the most prestigious client rosters anyone could imagine: most of the world's largest banks, most of the world's largest asset owners and sovereign wealth funds, most of the world's largest asset managers and wealth managers. But what we have to do is now be a larger part of their future. And so what we've done as a very concerted effort as a company is started with our overall strategy of where can we be truly differentiating to our clients? Where are we investing, both in terms of capability and geography? Translating that into clear marketable campaigns, where we go in and take a really strategic view to where we're going to show up, how we're going to show up. Frankly, a real upgrade around our sales capability and talent, we brought in some great people. We've elevated some great people across the firm. And then all of the tracking and metrics and, frankly, the sales disciplines that you know that companies who are sales alpha-oriented do. And just one example of that. Every week, the executive committee gets a report around our pipeline, conversions, so wins [Audio Gap] to revenue and also retention. That is the same [Audio Gap] just one example of bringing the entirety of the organization and putting these disciplines in time after time. And let me just give you an example of what that discipline means to a client, right? What it means is, if you're a large institutional asset manager, we're going to show up engaging with your CEO, and we're going to talk to her or him and we're going to say, look, we have a perspective across how you could grow your business, get better investment alpha and stronger distribution. We have a point of view of how you can rethink your entire front, middle, back services, by the way, preserving choice by using data and data management as the fulcrum for your organization. And we have a point of view of all the other technology and vendors and other things you want to use because we've partnered with them all and more deeply integrated with them than anyone else. And if you let us take you on this journey, which we mutually have to commit, C-suite to C-suite, and we can only do this with a handful of institutions at a time, here's the scorecard of metrics that could fundamentally change from you -- from growth, operating leverage, risk metrics. And when we have done that every time, Gerard, and we've taken our clients on that journey, these results are phenomenal. It brings us into a part of the firm that we never touched before, new revenue sources. And frankly, it brings us in as a partner, not just a vendor, not a point solution. And we hope that that means there's longevity in the contract and how we work with that institution over a longer period of time. So I have to credit a lot of this to that, right, showing up differently, quite frankly.

Yes. And obviously, it comes down to execution, which you mentioned is a critical part of that. Can I send you my mailing address for one of those reports? Only kidding.

Sure. One day. One day.

Only kidding. I don't want either of us to get in trouble. Anyway, when you look across in your portfolio of businesses, and you've got an interesting seat because you're in touch with each one of those businesses. So you've got a good handle on what's driving them. So when you look across those businesses, where do you see the biggest growth opportunities for Bank of New York?

Sure. Well, let me walk you through just a client example, and then I'll elevate it up just for a second, right?

Sure.

So let's take a large global bank, right? Now let's start off with a premise that we're viewed more neutrally and positively than most other global banks, even though, as you pointed out, we are the eighth largest commercial bank in the United States. So first of all, we get inside the door in a very different way. Now many global banks also have asset managers, wealth managers, broker-dealers and, of course, they have to think about their whole funding. So what do we get to do with them, right? So first of all, let's start with funding. We can sit down with the CFO and Treasurer and say, let's look at your global funding model. Obviously, through our special responsibility as the sole clearer of U.S. Treasuries and our leadership in global collateral, we have a point of view on how all the optimization levers you can pull to drive value in that. And those things add up to real bottom line impact, right, as we know. Two, you have payment rails that you're running, particularly here in the U.S. Well, we have one of the truly flagship RTP, real-time payment rails. We can partner with you and some of the largest sort of invoicers in the world, whether they're large telecoms, et cetera. And again, you're going to view us in a more neutral way. So you're not directly competing with us, and we can go and work together on something like that. Then we get into -- oh, wow. Like you have -- let's say, you're not a U.S. institution. You have a large amount of broker-dealer activity here in the U.S. You want to serve your global clients in the U.S. and -- but you really don't want to pay for all the fixed cost of maintaining a broker-dealer, the capital, the regulatory scrutiny, all of that. Well, we can be your outsourcer of that. You get to preserve the client, but you get access to our operating leverage, our balance sheet, where it makes sense. And most of all, again, we're not going to be competing with you for the same client base. So like you can be rest assured that you're going to be able to preserve those relationships, and while we're giving you all this value back, right, and an ability to invest in that business. And then it's like, wait, you're running a wealth management business. Well, here, we can do 2 things really well for you. I think one is, through Pershing, we can be the technology backbone for your wealth management franchise, again, letting you focus on clients and advisers. And we can give you access to the enormous third-party product that we have on our platform, trillions, right, and one of the largest sort of open platforms in the world. But of course, we also have our Investment Management business that has some great solutions as well. And you'll be able to compare and see, and we can work with you to create custom products, where it's relevant and useful. And then finally, you have an Asset Management business, and there, we can run the whole playbook from sitting down with your Head of Distribution and working with them on what are the 100 micro levers that you can pull to drive real bottom line impact and growth there because we have the best data set in the world through our sub-accounting business, through Pershing, et cetera, what the dynamics are of the end wealth customer. We can sit down with your COO and CTO and think about their entire front-to-back structure, as I've described. We can sit down with your Chief Investment Officer and spend time on what are data signals and information sets that we have that we can put directly on their desktop that creates it. And I guess, my point is, Gerard, I'm using this as an example because this is actually how we live and breathe every day. But think about all of that on one page, one agenda with the CEO of one of the world's largest institutions and imagine being able to execute one-by-one, everything I mentioned, Future of Collateral, real-time payments, wealth technology and scaling up a wealth management franchise, really helping build alpha generation signals in your Asset Management business and being able to do that through one global partnership, I think that's actually, to me, how we are creating the opportunities in virtually every one of our businesses and then bringing it to a client.

No, that was a great example. Very clear. And I guess, would we refer to that as then the One Bank of New York Mellon, that moniker that you guys are using to bring this together to clients?

It is. And I think you know better than anyone. If you can't put that agenda on one piece of paper, it doesn't mean anything to anyone. And I'm a strong believer that when you get 2 organizations, us and a client, working closely together, really big things can happen. And by the way, one of the coolest things is how we've actually created new businesses partnering with our clients because it just opens the door to do more and more and more as you bring credibility through that end-to-end transformation.

Yes. Very good point. Sticking with this One Bank of New York Mellon approach, how much more runway do you think there is in terms of driving incremental organic growth by delivering the firm more holistically to your customers? And then are there any particular areas in which you see any outsized opportunities?

Absolutely. So let me start with the macro. And I know, at some point, numbers don't matter. But you have to remember, I live in a company where we start with $49 trillion (sic) [ $46.7 trillion ] as one of the numbers we measure every day. So I've had to reset any sense of magnitude. But the way I always think about it is the entire world of financial intermediaries is, call it, around $6 trillion. And we are actively in one of that $6 trillion, right? And so -- and we're about $15 billion, $16 billion of revenue. So that's the macro like, hey, we're only 1% of this fast and big world that's continuing to evolve. But then I go micro, which is to say -- and this is really where all the analytics, the disciplines really come through, right? What are the client segmentation list? What are the targets? Who are the institutions where we have a relationship, but we want to completely change it? Where are the institutions where we actually have no relationship, and we need to turn that prospect into something completely different, right? And then where are the relationships where, actually, on one hand, it feels very mature, but it's actually because we haven't pushed the next big thing with them? We've gotten to a great place where the day-to-day transactions work really well, but there's the next bit of an agenda. And so when I get to that micro, which is really how we operate, right, virtually in every one of our client segments -- and you know that we're fairly equally distributed across both the buy and sell side and all the underlying. On each one of those, there are meaningful institutions that fit into all 3 categories. And so I know for a fact, down to the last dollar, where the wallet is and where we can create it. So that's one bit of it, right, micro, macro, micro. Now specifically, I think what that means is a few things. I think one is, as I mentioned, for asset managers, I think the big play is you spend a lot of time as an asset manager, making the internal wiring work. And a lot of that cost is actually not seen. We have both the data management solutions as well as outsourced operating solutions that bring that together and actually take out an entire cost that you probably don't even fully know how to account for and give you what I really believe is the real thing, which is the front office signals and information set that allow you to do your jobs better. Well, that's a whole new revenue play. Even in clients where we are deeply penetrated with our more traditional Securities Services, and that's like tons of headroom there. And sometimes, it's our most established clients where we're doing that, where you think, on one hand, boy, where could you go even farther or deeper? And this has opened up a whole new window, and that's really important. I think the second area that I'm really excited about is, look, if you think about how we face off to the world's most dynamic industry, which is Wealth Management, we do it through Pershing as the core technology that both advisers and end investors need. And we're making tons of investments here. But also, we're the best integrator of this technology, bringing third parties together. Whether it's a CRM platform or a custom indexing tool or whatever, we bring it in and deliver it on behalf of our clients. But then we also bring the power of our own private bank and our investment manager all behind it, right? And now you have this integration vehicle that can serve an industry that is just naturally growing. And what we can do is serve everyone from the FinTech that wants to turn the cash that they have because they're doing some other activity into an investment opportunity and tool for their clients to the most established and largest wealth managers and private banks in the world. And we just see runway everywhere there. And the fact that we don't compete head-to-head with most of those wealth managers, unlike some of the other technology providers we think is a core source of advantage for us. So that's another big area of growth. And then I would say that in our investment in Wealth Management business, I'm particularly keen on, look, it is -- we can come back to the philosophical point around this, but the wealthy are getting wealthier, and our private bank does cater to some of the most sophisticated and wealthiest individuals and family offices. We do bring one of the most trusted set of solutions there, and I think there's just runway in us doing more with them and, frankly, as they grow their wealth, being a good partner alongside it. And then in our institutionally oriented Investment Management business, we have great solutions for sustainability and ESG particularly out of the U.K., and we're just, I think, quite forward thinking about it. And as we continue to think about insurance and this LDI-driven world, again, through some of our asset managers, we're just able to optimize balance sheets in a way that very few institutions can do at our scale. So I think between data and analytics and our continued ability to bring that whole front-to-back set of services but in an open architecture way, so for the buy side, our ability to serve wealth managers in the most extensive way possible, our ability to help serve banks in the way that I described in the prior example, and then the things we're doing through our private bank and investment management, I just feel like there's lots of headroom across the board. It's not going to be easy. By the way, I don't want to come off here as anywhere -- I'm obviously an optimistic person, but I just feel like we have the products, and we're showing up differently to our clients every day. And that gives me confidence that there's a lot of headroom to manage.

Yes. No, that's very helpful. And we're running out of time, but I do want to get this question in because it ties into what you were just saying about the products and the headroom. If you look at the Asset Servicing business, in particular, and you've got an ambitious, obviously, growth agenda for the business, and the wins last year were up very meaningfully, if I recall, about 50%, so what was driving that meaningful pickup? Was it the service quality? Was it the pricing? Or was it the open architecture? And maybe some comments on just what was driving that.

Sure. Yes. So I think it's a few things. I think one is client experience matters all, right? Like you can't -- if you had an open door, it closes the moment you don't deliver great client experience, and we made a ton of investments in both people and technology to just give people a better experience for themselves and also on behalf of their investors in these asset management firms that we serve. That's one. I think the second is what we've been describing this end-to-end data-centric operating model. And this idea to run an entire playbook from how do we help you distribute more of your products? How do we help you create data and insights that help you make better investment decisions? How do we unplug a lot of wiring and re-plug it in with a data platform that, even today, has $45 trillion of assets under data management and 20 years of history and track record? So this is not a fly-by-night operation by any sense. And then how do we think about thoughtful outsourcing of your operational activity? And how do we do it actually by transforming the activity rather than just taking it out of the organization and putting it into another one? And I think we've been running that playbook really hard, candidly. And then we also say in minding all of the fiduciary responsibilities you have to have with these sorts of things in preserving all walls. But we also say, hey, we have several trillion dollars on our Pershing FundVest platform. Curious how you're doing on that platform. Curious how you could put the right types of products on it and grow. Hey, we have space elsewhere in our franchise to do that. And we can at least make the introductions and open those doors. And so now, Gerard, the way we're winning is we're now having such a comprehensive conversation that it's not just the COO who's advocating for BNY Mellon, it's the Chief Investment Officer, it's the Head of Distribution, it's the Head of Data and Analytics. And suddenly, you get a real partnership going. And that's where we're, frankly, winning. And I put a large part of it to both our actual solutions and then how we show up to these organizations.

Got it. I could sit here and talk with you all afternoon, Akash.

I know. I know.

But the clock is not our friend right now. So really, very great content, really informative. This was really quite good. And I really appreciate you joining us this year. Thank you so much.

Thank you for the opportunity. Thanks, Gerard.

You're welcome.