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

Okay. Good afternoon, everyone, and thanks for being with us today. My name is Rob Wildhack, and I'm very excited that we have Robin Vince joining us today. Robin has been BNY Mellon's CEO since last summer. And prior to that, he was Vice Chair and CEO of Global Infrastructure -- Global Market Infrastructure. Robin, thanks so much for joining us. When I first read your shareholder letter a couple of months ago, I was quite intrigued and thought it had strategic decisions written all over it. So this should be a welcome conversation. I'd like to start with your assessment of the franchise and your key priorities to unlock BNY Mellon's potential.

Sure. Well, first of all, Rob, it is great to be here. Appreciate you having us. So you referred to the shareholder letter. One of the things that I did in that letter was really reflect first on the key assets, as I saw them for the company. And so first of all, if I sort of frame this in a pretty straightforward way, there are really 3 that we've drawn out as being key for us. Number 1 is the businesses that we have. And I want to just spend a moment on this, and I'm sure we'll talk about some of them as we go through this. But we really have an interesting mix of businesses. And while we're known as a trust bank, and by the way, we're proud to be a trust bank, and we're very happy to be the world's largest custodian, which is one of our businesses, but we are a lot more than that. And that's been an important part of the focus that I have because while we've got asset management, asset servicing and with at least one of the trust banks, wealth management in common, we also have an issuer service business, which is the largest in the world. We also have a collateral management business, which is the largest in the world. We also have $2.3 trillion worth of assets on platform in our Pershing business, which is a super interesting play on the wealth market. We also have $2.5 trillion a day of a payment franchise. And so that sort of trust bank plus plus model, as I think about it, is actually a really important asset for us. The second key asset is our client base. And it's trite to say that sometimes because, of course, any business that's in the service business, clients, of course, are an absolutely critical asset. But there's a nuance with us, which I think is important, which is clients have a level of trust and embeddedness with us, which is actually pretty significant. And I think the trust factor is actually a little different than with many other parts of financial services. So I view that as an asset. Along with the fact that when I speak to them, and I've met with over 100 CEOs over the course of the past year or so, they want to do more with us. But we haven't really made that easy for them. So that's an asset, a client base that likes you, and wants to do more with you, and trusts you. And then the third thing is our culture. And it's not perfect, and it needs some additional things in it, which we can talk a little bit more about, and I'll talk about the way forward in a second. But that culture of client first, firm second and self-interest third is actually a very powerful attribute. People like working at the company. They like working together at the company. They enjoy working with each other across the company. Those are assets. So based on all of that, to the second part of your question, the question becomes, okay, well, why haven't we made more of that? And great, if you understand your assets, you have to understand the problem statement of why those assets haven't been fully brought to bear. So we've been quite focused on that. And to me, the path forward then becomes how do we really make sure that we're unlocking the value of those assets. And so to that end, one of those points is de-siloing the company because we've got these great businesses, but they've actually operated super independently of each other. So that de-siloing is very commercially important because if we don't do that, we have an asset, but we're not really leveraging it. And we've got the culture of collaboration that actually is very happy to do that. And then the third piece in addition to adding -- injecting some additional things into our culture, which I would really frame as a greater commercial mindset, a greater mindset of ownership and a greater focus on execution, is how do we evolve the operating model of the company to be able to operate a little bit more effectively? So the setup for me for these past 9 months that I've been the CEO has been: understand the key assets, really understand what the problem statement is, what we haven't unlocked in the past, and then figure out what do we need to do to make that different in the future.

Let’s spend some time on the culture. How do you affect the type of cultural change that you're targeting in a global organization with 50,000-plus employees?

So to paraphrase Peter Drucker, execution eats strategy for breakfast and, sort of, culture eats strategy for lunch. And I do think about the world in that way because we've laid out for ourselves a series of pillars of strategy, but this point about execution and making sure that we're lifting up the culture of the company to align to it is absolutely essential for us to be able to unlock the value of the company. So we've done a whole bunch of different things. We've looked across -- when we did our strategic reviews, we looked at the businesses, but we also looked at the operating model and we looked at the aspects of culture as well. And we've really determined that, and I'll go back to those 3 things that I mentioned, a culture of ownership -- and that's important, because if you're a siloed organization, it's very easy to think about what's right in front of you in your business, but not necessarily to think about what's right for the whole company, and that's really the mindset that we want. So we wanted to promote a mindset of ownership. We've said that -- we haven't had enough commercial get up and go to really mine the scenes of the opportunities between the businesses, have clients do more things with us. So injecting that commercial focus, which by the way, also has an expense side to it, which is really making people feel that they're going to have a laser focus on the commercial aspect of reducing the expense base and there's value in that. And then the third thing is execution, which is really getting things done, not staring at anything, but actually really pushing through it. And to unlock that, we've done a bunch of specific things. So I'll give you an example on ownership. We want to talk about ownership. We want to promote a de-siloed organization. We want people to think about the whole, so we made everyone in the company a shareholder. We previously had 3,500 employee shareholders out of 50,000. Those were basically the senior managers, the people who earn higher levels of compensation that stock was part of their comp. But the other 45,000-plus weren't shareholders. But I want them to act to shareholders so we made them all shareholders, a program called BK Shares. We gave them 10 shares of stock last year. So that was promoting an example of that. Another thing we're doing is we're really focusing on the comms channels. I'm trying to communicate a little bit differently. And so an example of that is I do 3 minute-ish short-form videos every 3 or 4 weeks, wherever I am in the world, whatever it is that I'm doing, focusing and trying to give our people a lens onto our firm, treating it as our firm and giving them these glimpses into our franchise, into our businesses, into our locations, into our people that help them to understand that role in the broader endeavor. So all of that's culture to me.

Certainly. And I thought you made an interesting point too about being a trust bank plus, plus. Do you think you have the right portfolio of businesses? Or is there anything that isn't right for the road ahead? And same question with respect to anything that might be missing.

So when we looked -- we did strategic reviews. We started doing strategic reviews in the first week that I was the CEO. We looked across every business and every activity and every function that we did, not only what we did, our businesses, but also how we did them to make sure that there was a very crisp understanding of the various different sort of aspects of the problem statement there. And look, I benefited in that from the fact that I joined in COVID and had the opportunity in COVID, the world was very flat to me because it was on COVID, it was on Zoom. I could visit with clients all over the world. I could visit with employees all over the world, and I've met thousands of employees. And through that process, not only was that relevant for the culture, it was relevant for this concept of understanding whether we had the right components. Because as I listen to clients, having them tell us what it was they were doing with us and what they weren't doing with us was important. And in fact, if you look top to bottom at BNY Mellon, let's take the largest client who pays us the most money and the smallest client and you take the median point in that stack, that particular client does one thing with us. And that's sort of crazy when you think about the breadth of businesses that we have. So the problem we determined wasn't that we had too many things. It wasn't the fact that we had scattershot things. We're not in the retail business. We're not in the investment banking business, there's an industrial logic associated with the different components we have and they kind of plus or minus have one degree of separation from each other. The problem was we weren't leveraging the assets properly. There's no point having these adjacent assets if your client only does one thing with you. So the proverbial client who's a custody client, are they doing FX with us? But if they do FX, they could probably do margin with us. If they're doing margin with us, why aren't they doing collateral services with us? If they're doing collateral services with us, why don't they do treasury services with us? These things are one degree of separation from each other. They're not hard cross-sells, they're introductions. And going back to the client point, the clients actually kind of want to do those things with us. So we've been very deliberate about going through the portfolio, understanding. And in some cases, we've taken stuff from one bit of the business and realigned it somewhere else where we will actually be able to maximize the adjacency. So there's been some shuffling behind the scenes of components. And of course, we're also building. So I'll give you an example of something that we didn't do that we thought we should do, which was our Pershing X initiative, which, by the way, launches next week at our signature advisors conference, where we'll have 2,000 people. That was a new thing that we've built adjacent to something that we had because we heard from advisors that there was a missing set of capabilities for them in that particular business. So that's been exciting. To the question more broadly, bigger picture of whether or not there's stuff that's really missing, we feel that there's enough right in front of us in terms of being able to maximize what we have that we haven't actually been at all focused on bigger M&A-related activities. And for me, there's a very high bar for that. We have done smaller bolt-on things. There have been 1 or 2 little capabilities, one actually in the Pershing X example where we acquired a small direct index called Optimal Asset Management. That was important for our Pershing X journey. So we've been acquisitive on capabilities, but less interested in buying whole cloth new things because we're very focused on maximizing at least day one, getting ourselves back to being a really well-run company by maximizing the way we run what we have today.

Let's stay with Pershing. It's further down my list, but it's a great segue. It's been a business that you've highlighted for some time. And most recently, I think you called out mid-single-digit organic growth there in the first quarter. So first, what's driving that? And then how sustainable do you think that growth rate is?

Look, Pershing is, for us, a terrific business. We are in wealth business directly. We have a $300 billion approximately a wealth manager. But for us the bigger play in the wealth space, which is a big and growing space here in the U.S., but also globally, is our Pershing business. So we have $2.3 trillion assets on platform, as I said before. And of that, we have actually $1.9 trillion of asset management product. We can come back to that sort of an interesting question about why more of that isn't our own asset management product. That's an example of the seams between the businesses. But that particular business has been one that's been important to us for several years. If you go back 5 years ago, we were #1 in the broker-dealer space in that business, but we were really fairly early in our RIA journey. Now cut forward to today, we touch almost 1/3 of all RIAs in the U.S. with $1 billion or more of AUM. So we've come a very long way in that RIA journey. And last year, we added 5% of net new assets on platform, that's $120 billion worth of net new assets. And so we're very pleased with the progress of that business. But when we really spoke to our advisor clients, they pointed out to us that the Pershing business really satisfies the investors because we're providing tools and capabilities to the investors, but we weren't providing a full range of tooling to the advisors themselves. And advisors find themselves in the sort of cut and paste worlds of lots of individual little fintech apps, which might be kind of cool, but they're not connected. And so data and moving stuff between them is important. That's what's giving rise to our investment in Pershing X, which we think is going to be very exciting. So we've built that thing as a fintech inside the company. We hired employee #1 in October of 2021. We had hands on keyboards in April of last year, and we're going live into the market next week. We've already had clients in beta. We've got client advisory panels. We're focused, obviously, on launching that thing quite well. And we think that that's quite exciting. But what fintech has the benefit of existing in the broader ecosystem of BNY Mellon with all the other capabilities that we have, wouldn't die frankly, for the installed book of client business of $2.3 trillion worth of assets on platform that Pershing already has. So that's all been exciting. Now we grew by an equivalent amount in the first quarter, about 6% of net new assets. There's a little bit of headwind, I suspect in 2023 because First Republic was a big client of ours. And First Republic will get absorbed in various different ways. And so there'll probably be some migration of that. But to the extent that assets leave that platform, some of them might actually come back and find their way to other clients of ours, but we'll have to see how that goes.

And as it relates to Pershing, and I would include some of your other business lines, what do you say to the occasional client pushback that we get that's yes, Pershing, Issuer Services, they're nice businesses, but they'll never be big enough in terms of moving the needle on fees and growth at the total company level.

It always makes me sort of a little wry smile when I hear that because if we had 75% concentration in one business, people will be like, well, where's the diversification in your platform? And now we've got a beautifully diversified business where we have all of these different cylinders that are firing in the business. Actually, I love the diversification. To the point about, can it move the needle or not: look, Pershing is 15% of our revenue as a company. So it's pretty big. It's our second biggest revenue business. And now we're building -- not only are we building that forward and continuing to drive it, and we've talked about its growth, but we're now building a new capability that's joined onto it, which should hopefully be able to add even more. Investor services -- Issuer Services, excuse me, that's about 10% of revenues of the company. And by the way, those 2 businesses and Market and Wealth Services, which is where Pershing is, highest margin in the company, most profitable segment in the company and fastest growing in the company. Issuer Services, which also has a very healthy margin, contributes very nicely to that diversification. And it has 2 other interesting benefits, which, again, I think, can sometimes get a little lost in the story of what is BK, but is very on point to this trust bank plus, plus concept. Number 1 is, it’s actually the second largest contributor of noninterest-bearing deposits to the company. So that's interesting because we like diversification when it comes to the liability structure. And it's also got more clients in sheer number than any other business in the company because of the nature of what it does. And so it gives us this very broad touch point, which is super exciting.

That's very interesting. And if we could zoom out and talk maybe about the core custody business. AUCA has increased about 20% from the fourth quarter of 2019 to the fourth quarter of '22. That's roughly double the rate of increase in investment services fees. So why is there such a divergence there? How much do you think you can improve the fee growth? And what will it take to get there?

So I understand -- sort of when you think about asset servicing, I understand the desire to try to correlate AUCA to fees, sort of makes sense. Except that 50% of the fees aren't actually driven by market levels and values, they're driven by volumes and other things like that. And in fact, that's true across the company. And I like this diversification that exists in the company as well, because if you think about the different things that drive our revenue profile, sure we have market values, that's important. We also have transaction volumes. So that's a little different. It does not have a perfect correlation, of course, to market values. We also have a number of accounts. We also have interest rates, and we also have pure software sales, which are in the company as well. So that broader diversification, I think, is really pretty neat. And that exists in asset servicing as well. Having said that, we are very focused on wanting to grow fees in that business. And that business is one where there's opportunity to do that. We're happy to talk more about sort of margin and pricing and things like that as a separate point. But specifically on those fees, what we're finding from clients is that there is a desire to grow into different aspects of the relationship with us. So data is very important to them, integrating the data. We are an open architecture, and it's different than some of our competitors. We’re open architecture in terms of the way that we prosecute that, so that we think the ability to bring in other custodians, other service providers and knit the picture back together for our asset owner and asset manager clients, that's important. We are -- we recently announced outsourced trading as something that we were going to drive. We already do $1 trillion a year of value of outsourced trading. We just do it for 3 of our own firms. So that was a great example of something that we didn't, in fact, need to invest a ton of money in, but we could actually further build. So that again, that will be a different angle, triggers off something that's a little different than AUCA.

Got it. And I do want to talk about pricing. I'm starting to think that you can see my sheet of questions.

I cannot. I need my glasses for that.

We talked a bit about holding the line on pricing in your most recent earnings call. I think we can all understand why competing too aggressively on price isn't necessarily the best option. But as the largest player in what should be a very scale-dependent and scale-driven business, why not be the pricing leader?

So -- well, we are the largest custodian and being #1, frankly, we should have that greater ability to be able to drive pricing in the market. And look, to some extent, of course, while this is a service business and there's always pricing pressure in every service business, we're also in a world that's been pretty inflationary. And so it's not unreasonable that the prices for some things to just go up. It’s not inevitable that the prices for everything always have to go down. But I actually don't view pricing as the most important point directly in this particular business because, while we have repriced some things, while we have had deals that have been poorly priced in the past, and we've sharpened that up and in some cases, restruck them. And in certain new businesses, we've certainly changed price. For me, the real benefit of being the biggest isn't necessarily the pricing power you have, it's the fact that you should be able to deliver the service more cheaply. Because if you've got the benefit of scale then you can, in fact, reduce the cost to serve, that can widen the margin. So I think the path in Asset Servicing is partly on pricing, but it's actually very much in this focus on cost to serve and how do we reduce the cost of actually delivering the service. And we're doing a lot of things related to that. We're really focused on -- we've gone out to the company more broadly in expenses. And we've said to every person in the company come up with ideas, please, on how to be able to reduce complexity that exists in the firm and to be able to streamline things that we do. We got 1,500 ideas out of that process, and we've been actually delivering those, and that is helping us in terms of not only the company expenses, but specifically in Asset Servicing, it's helping to standardize. It's helping to automate, how can we deliver it better, and that will ultimately cause us to be able to push the margin up through improving automation and the cost to serve. And I think that's going to be more of the trick in Asset Servicing than pricing itself.

And going back to the broader array of businesses, a common thread or refrain that I've heard is being a siloed organization currently. What do you mean by that? How do you change it? And then what happens when you do unlock that silo, that currently siloed structure?

Well, the method of unlocking it is partly structural and organizational and people in charge of things, but it's also cultural. And so we're pushing on both threads at the same time. I agree the premise we have been siloed. And there are a variety of different reasons in history of why that might have been the case. But to be honest, any rationale that might have existed in the past has largely fallen away in my mind. And so I reject the premise of us as a siloed conglomerate, I think we should really be one company. And I'll give you one example of that on the sort of sales and delivery side. We started about a year ago, a little bit over a year ago, an effort called 1 BNY Mellon. And that was designed -- it was really a movement originally in its starting point. It was sort of a call to action to people to say, hey, we've got more than one product. You should be helping to connect the dots and deliver more of these products to your client. It's unacceptable that we would be as siloed in the delivery of the company to clients. And so that was a call to action. I would say Phase 1 was really getting people energized about it, educating people about it, getting people excited about it. And we've got leaderboards and all sorts of things associated with that. Now I think we've moved past Phase 1 now. And now in Phase 2, it's beginning the process of putting in place a variety of different structures and processes around that. So for instance, at the end of the year, we compensated people based on how they'd actually contributed to 1 BNY Mellon in part. So that was important. We also have established market leadership teams. So regional teams that focus on clients in that particular area across the company. And so there are a variety of other things like that, which are beginning this process of what I would describe as institutionalizing the de-siloing. We just hired, she started last week, our first Chief Commercial Officer, Cathinka Wahlstrom, who's got deep experience in financial services platforms and helping -- she's taken charge of all of our sales apparatus and our sales and relationship managers to be able to really start to pull those threads together and be able to deliver more of the whole company to our clients. And that's, for us, I think, is going to be an important part of the trick.

Just out of curiosity, how did you measure someone's or a given person's contribution to 1 BNY Mellon?

It is a great example of sort of Stage 1, Stage 2, Stage 3 because in Stage 1, it was very simplistic. It was, did you make a referral, yes or no? How many referrals did you make? So then we tightened that up a little bit more, and we started to understand the value of referrals and did a better job across the company tracking it. That's when we started to attach some compensation to it because we felt comfortable with the data. And then in this next phase, I think Cathinka is going to really be able to dig in and figure out how do we do more sort of planning around that set targets for people and expectations for people. We've just started it. So for a few individual products and services, we've actually started to really get campaigns across the company around certain things doing -- going. But in this next phase, it will be, okay, have you done X yet this month? And that's when I expect we should be able to get more traction. But this is going to be years in the full making because it's a big change. We're America's oldest bank, 239 years old next Friday. And so we are -- we've got all of this history, but we certainly have a little bit of a habit around certain things, which is why this point about culture is so important to the change, but we're super resolute on it.

That's fascinating. Shifting to the expense side. You've had a -- or saw a prolonged period of relatively flat expenses for most of the 2010s, and that was followed by a couple of years of mid-single-digit expense growth despite a fairly significant 300 basis point benefit from the stronger dollar last year. So what happened there? And how are you changing that trajectory? And how does that expense plan fit with all the sort of revenue culture initiatives that you just discussed?

So first of all, we've -- our expenses have been too high. The growth has been too high. And so you quoted last year, last year was 8% on an ex-currency basis. And it was similar in terms of expense -- total expenses in terms of growth the year before. And we just resolved that we will not accept that type of expense growth in the company. And so we've committed for 2023 that we’ll halve the rate of expense growth and so call it, 4% on a year-end currency basis. 4.5% on a constant currency basis. And we've said that we're going to halve it, and you should hold us to that because that's an important thing. And we've said we're going to be transparent in this journey, and it's a good example of that. We're going to make commitments that we feel that we understand, we feel that we can deliver, and then we're going to report on them regularly, and we reported our progress at the end of the first quarter on that. Now the question then is, okay, so where from there and how are we doing that? And to be clear, 4% is too high for the future years, and we wanted to be able to do that a little differently. But we're actually focused on operating margin (sic) [ operating leverage ]. And so -- of course, in the world where our revenues were growing much higher than that, maybe we would be able to tolerate a bit more expense growth. But our focus on operating margin (sic) [ operating leverage ] is really the thing. We've committed this year to delivering some operating margin (sic) [ operating leverage ] and that's obviously our focus. My expectation is that from a revenue point of view, pushing expenses down below 4% growth rate will be important for that operating margin (sic) [ operating leverage ]. And so that's why we're quite focused on margin in each of our different business segments. Now to the how, because you can't just sort of like imagine it, and it will be so. I talked a couple of minutes ago about the ideas. So that's one of the things that we've done. We've gone deep into the organization. People generated these ideas. And as a result, our savings, our in-year savings this year versus last year, we expect to be about double what we realized last year. And quite a lot of that is from this particular ideas exercise. We also looked very carefully at who we have in the organization, particularly at the management layer. And we've gone through and we've actually cleaned a lot of stuff up there as well. That obviously helps to make a difference. As does thinking about who we're using on vendors. So we've restructured some of our vendors. We've restructured some of our procurement processes. We’ve thought about where we do business. And so we've really been very clear with our teams about where it's acceptable to have people and where it's not acceptable to be growing people. And so the footprint, our real estate. So we've been -- we've put a new Chief Administrative Officer in place, who's been crawling through all of these line items really making a difference. That's very important. And then this broader point about digitization, operationalization of processes, and we've got real opportunity there. Literally, just today, our new Head of Operations started. And he has a very good set of experiences and thoughts about how to really drive digitization, and that will be an important contributor to expenses as well. And I touched right at the outset around operating model. And operating model is important for us because I'm not going to say that we're a technology company. It's a bit poly glamorous to say that. Sometimes I think financial firms do that. But we are a platforms company. And if you define a platforms company as a technology firm would, as being where you have these very large at-scale capabilities that then power the products that you actually have. Well, when you're the world's largest custodian, when you're the world's largest collateral manager, when you're the world's largest Issuer Services firm, and you do all of these things that we do at the scale that we do them, we should be able to have the economies of scale that we talked about under the Asset Servicing heading, across the company. But we have 2 custody systems. We have several different call center systems. We have more than one deposit system. And so there's so much opportunity if we can really take that platform mentality and apply it across the company in a significant way, because then we'll be doing things in one more consistent way, which makes it much easier to automate, digitize and at the end of the day, take some of the cost out.

And zooming in on the different business segments, there are some fairly different margin trends there. Securities Services, Wealth and Market Services are showing some healthy margin improvement; Investment and Wealth Management is showing the opposite. As you think about those different segments, how do you get -- or how do you bridge current margins to target margins? And then what does that mean for the margin profile, what's the right margin profile for the company as a whole?

So let me tick through them individually. So Securities Services, go back to 2021, the margin of that business -- that segment was 21%. And we said in December of 2021, that we committed to a medium-term target of 30% as a margin for that segment. And last year -- or actually in this first quarter, we got that to 26%. So we're actually more than halfway there to our target. Now admittedly, the easier yards are behind us because we had the tailwind of rates. Now that 21% was in a zero rate environment in a business that has some rate sensitivity. I don't expect us to go back to zero rates in the very near future. And so I'm fairly confident that we're going to be able to maintain that bit of the tailwind. But driving that extra 4 percentage points to the 30%, that really requires this cost to serve focus, which we've talked about a good amount already. Some of that will come from revenue, but there's a good amount that comes on the expense line. That gets that business to 30%. Market and Wealth Services, 48% margin last year (sic) [ last quarter ], what’s not to like? Let's have more of that. And so not by accident, that's where our growth investments are focused. I should do a little detour on this point and just mention the sort of budgeting. Because we talked about expenses, but we changed the way we were budgeting because of the way of these focuses on margin. And at the end of last year, we recast our budget system, which essentially very simply, we put into 4 buckets. We're going to run certain things. We're going to spend money on running. We're going to spend money on growing. We're going to spend money on transforming, and we're going to spend some money on fixing because there's always fixing to do in a big firm. But we very carefully and deliberately said, hey, segment by segment, where is your margin? And what should your focus areas be? And in the past at BK -- I was introduced to this term. I had never heard it in the context of budgeting before, but peanut-butter budgeting, which is like spread a thin layer over everyone and everyone will sort of be unhappy and happy at the same time. I mean, it's crazy. So we didn't do that. And instead, we said, no, we're going to say, you, Securities Services, I'm exaggerating a little bit, no growth for you. You transform, because that's what's needed on that expense line for the margin. But go back to Market and Wealth Services, that's a grow agenda. And so there, not by accident, we have our largest growth investments. We've invested significantly in real-time payments. We think that that's an important opportunity for us. We've invested in Pershing X. We're investing in some of the outsourced trading capabilities. And so that's really been that focus area. And that's why for that segment, most profitable, highest margin, fastest growing, more is the answer. The most challenged segment from a margin point of view, Investment and Wealth Management, which you picked up 11%, which is poor, and that was in the first quarter. Now go back a couple of years, that was a 30% margin segment. And so to be fair, it probably is the low point in the cycle with asset values and all various things that have occurred. And so we see that. We understand that. We've been launching a variety of things that relate to the top line of that business, but we also have to work on the expense line in that business, and we're doing some structuring changes there as well, which will be helpful. But my expectation for that, there's no particular reason why it shouldn't be able to return to a 30% margin. So we haven't given a margin target for the overall company, but you can sort of get a little bit of a sense of where we might think it is based on all of that.

And of those investments you mentioned, this question isn't confined just to Market and Wealth. But what investments are you making today that you think will have the biggest payoff, call it, 5 years from now?

Well, so I'll answer the question in the direct way, which is -- the biggest one is Pershing X. So we think that's very important. Pershing's second largest business part of the -- we don't break out the margin individually, but it's part of -- it's the second largest business in the company is part of the highest margin segment. So you can get a sense of what that margin might be. And that business is 1 that we want to grow, and so now we're adding additional capabilities. And that's been a significant build, we're very energized about it. I talked about it a little bit before, but that's actually the largest investment in the way that I think about it. Now in the next component is we've invested a bunch in real-time payments. We think that's very exciting because each of these investments are designed to capitalize on something that's going on in the world. So Pershing X, the importance of wealth management, the call from our clients to really be able to bring them more tools, as I talked about before, that's been a great opportunity. In real-time payments and banking as a service because we have the components of banking as a service in the company across all of the things that we do, that's also taking advantage of a disruption that's going on in the payments ecosystem with real-time payments. We were the first bank in the U.S. to do Real-Time Payments on The Clearinghouse payment rails, the first bank to do real-time payments with the Fed in their test environment, and we're looking forward to launching on FedNow when it goes live. But that disruption in the ecosystem provides an entry point for us. And again, we make $2.5 trillion of payments a day. So we've got a business to really go in there. So those have been meaningful. Another one I'll call out, which actually has been very low dollars from an investment point of view is outsourced trading. We already do, as I said before, $1 trillion a year of execution. We do it. We already have it set up to be able to do it as a platform, but to be able to do it for third-party clients because we have to treat our own asset management clients as third-party clients. So we were 90% of the way there to being able to fully externalize it for an external client. So we announced that business, and now we're very focused on the marketing of that to clients as part of our broader sale. Good example of 1 BNY Mellon as well. If you're a midsized asset manager, why wouldn't you do outsourced trading with us. There is no way of $50 billion or $100 billion or $200 billion asset manager can afford a full-service trading desk. And there's no alpha in it. I'm sorry to break it to the traders. There isn't alpha in that aspect of it. So focus on portfolio construction, focus on asset selection, let us help you with the outsourced trading. That's a plug, by the way. So that opportunity, we think, is also there. But let me touch on 2 quick other aspects of investments. So one, we are investing in our culture because if you want to do things -- so we spend a little bit of money to give everybody 10 shares of BK, that was an investment. But we do that because we think that by aligning our people to the mission, we're going to get a very high return on that investment associated with the culture of the firm, remembering that we're trying to pivot and change a little bit. We've also made very significant investments in our infrastructure and that is actually largely behind us. We've built great new capabilities and resiliency, which was very important to us, but that has been a big investment. But the fact that we've done so much of that now allows us to turn to more of the digitization type of environment. So the new investments that we're making have a much higher, obvious ROI as opposed to a very indirect ROI, which I would have said the infrastructure investments had.

Let's talk about the balance sheet and net interest income quickly. You grew deposits on an end-of-period basis last quarter, and noninterest-bearing deposits remain a little bit elevated from where you expect them to end up. Going forward, how are you thinking about deposit levels and mix? And what are the variables that would have the biggest effect on that outlook?

So we said at the beginning of the year that deposit levels should decline over the course of the year, we said mid-single digits, I think that's right. It could be a little higher than that in the grand scheme of the overall year. But that's not a BK thing as much as that's what's going on in the world thing. So quantitative tightening. We've had 5% of rate hikes. There's a lot -- all of these factors create for us the expectation, this is going back to January, of the fact that there will be a decline in deposits over the year. We didn't actually experience that in January (sic) [ April ], because we had the whole regional bank thing going on, and we're a bit of a port in the storm and so people come to us understandably based on our sort of resilience and our history and our brand, and our rating and high-quality balance sheet, very liquid, all the things that you know about us. And so we actually ticked up, which wouldn't have been our base case expectation. But my expectations still over the course of the year, I would still think that, that macro story would play out. And then from a composition point of view, it's similar. We had an expectation at the beginning of the year, which was that our noninterest-bearing deposits would decline in percentage terms as a percentage of our total deposits and they decline and we'd probably be in the range of the 20% to 25%, which is sort of the cycle range that we saw last time. And that still seems like a pretty reasonable expectation, albeit that actually it didn't happen in the first quarter. And so it was higher than that, which is fine, and that's good, but not our expectation that it would necessarily stay above those levels.

And you've been highlighting your broader cash ecosystem. Talk a little bit more about that.

Yes, I think this is another aspect of the company that's a little bit overlooked, which -- and one of the benefits of having these different components to it. So sure, $281 billion of deposits at last quarter end. But beyond the deposits, we have a much broader cash ecosystem, which if you put it all together, is $1.3 trillion worth of cash, what does that make up? That's our own money market fund, Dreyfus, very good performing money market fund. So we have the ability to have clients invest in there. We have a market-leading platform called LiquidityDirect, which is essentially a tool for cash managers to be able to invest cash in different ways. They can put it in repo. They can buy bills, they can put it in other people's money market funds. It's fully open architecture. We have cash reinvest. We have repo on that. So $1.3 trillion plus $5.5 trillion worth of collateral on platform, including the Fed's reverse repo facility. And so that gives us this touch point of money in motion. And there's a lot of value in that because we're able to help clients navigate, okay, what makes most sense for their cash. We're navigating for their interest, but we're also able to price according to our own appetites. So if it's hot money -- we don't want that as a deposit. We're happy to put that somewhere in the ecosystem, but we haven't lost touch with the money. So there's a lot of, to us, play on this breadth of BNY Mellon because there, you're looking at the Treasury Services business, you're looking at our Markets business, you're looking at our -- of course, our own balance sheet. You're looking across the collateral business, and those are all things that just have this breadth, which is what contributes to that -- what would be if you added the collateral and the cash together a $7 trillion short-term ecosystem.

BNY Mellon is somewhat unique in that you have some of the business lines we've been talking about or some segments beyond custody that they lend themselves to unique depositor relationships namely a noninterest-bearing deposit. It's been a long time since those business segments and those relationships saw a 5% plus Fed funds rate. So I'm wondering if there's a structural potential for those noninterest-bearing deposit relationships to change at all given the higher rate environment?

Look, there's always -- I think this is one of the things that is important. I've been a treasurer in my past, I've been a Chief Risk Officer, and I've run a money markets business. So I've seen a lot of things in terms of hubris, and also in terms of different rate environments. Rates were 6.5% when I joined the market. So there's no part of me that thinks they have to stay at 5%, and they can't go to 6%. It's absolutely or beyond. That's all that's possible. So look, I say this because there's a humility associated with what could that range be in the way that we run the company. We're in the preparedness business. We're not in the predicting business. So I try to give you my best sense of what might happen, but we don't organize the company around that having to happen, and that's a very important distinction. But look, history is a pretty good guide. I said 20% to 25% before for noninterest-bearing deposits. There are probably some puts and takes within that. Probably on the take side, you'd say, well, rates have gone up like super quickly in this particular environment. We have more digitization, more tools, more data. Clients have all of that, so they can be more dynamic in terms of the way that they think about it. People can optimize to a finer degree of precision than maybe they could have in the world before. So there's all of that on one side. On the other side, some of those businesses are bigger than they were last time we saw this type of cycle. And so we've got scale in some of the businesses because of the diversification, again, it's not just from the Asset Servicing business, it's also from the Issuer Services business. It's also from the Treasury Services business, it's also from the Clearance and Collateral Management business. They all contribute to that NIB balance. So look, 20% to 25% feels right. History doesn't repeat, it rhymes. So we'll see exactly how it evolves, but that's probably as good a guide as I could give you.

Got it. And on the capital front, you've kept a very strong capital position and maintained your expectation to return more than 100% of net income to shareholders this year. What would you have to see to change that stance on capital return? And longer term, is a 100%-plus payout ratio still the right level?

So I think about capital as sort of a waterfall of what can we do? What do we want to invest? What might we use the capital for? And then absent that, obviously, thinking about it in terms of return. We returned $1.6 billion in the first quarter across capital return, including dividends. And we're not a really capital-heavy business, and our investments aren't particularly capital heavy. It hasn't taken a lot of capital to build Pershing X, it takes expense dollars. So as a result of that, we felt quite confident with what we said at the beginning of the year, which was we should be able to return 100%-plus of capital this year. Now that was obviously at the beginning of the year. We're still on track for that given what we've done so far. But we're not going to be so wedded to -- we're going to be dynamic about this because you've got to look at AOCI. There is a pull-to-par benefit from that. But if rates go the other way, there's obviously -- it's the opposite. And so we're going to be dynamic around the size of the balance sheet, the composition of the balance sheet. It's still our expectation that that would be the case. But if rates go to 7%, it would be different.

Fair enough. A high-level question for you to close and putting aside any macroeconomic dynamics or volatility. What's the best version of BNY Mellon? And what does it look like when the company is really on fire? And how are you going to get there?

So thanks for the question because we think we understand our key assets. We think we understand the path forward in terms of what we need to do, what we need to do differently and how we need to change the company to be able to live up to this. But then it really becomes an environment where our clients -- we can serve our clients across the life cycle of their investment life cycle. We do it with a premium product, and we do it with a relationship that they continue to trust and really enjoy the warm embrace of BNY Mellon around them. That we have an employee base who are motivated and excited to make a difference in that journey because at the end of the day, those key assets of clients and people, they're very related things. And that we do it in a way which lives up to the heritage of BNY Mellon also an important firm in the financial services industry and doing important things in the world. For instance, we have a sleeve of our money market fund where we have $5 billion of AUM in a sleeve of our money market fund, and we share the profits with the scholarship fund to Howard University. We did a bond deal 2 weeks ago, small bond deal, $500 million in the bank, which was entirely led, not just co-manager, but like lead manager, by minority-owned, women-owned and veteran-owned institutions. First time that's ever been done by a large bank. And we've given them a credential, a calling card that they can now go out in the world and they can say, hey, we did this for BNY Mellon, we can do it for you. So our ability to have an impact that's beyond just who we are is important. And that's important for other stakeholders. It is important for clients. It attracts business to us, and it's also important for our own employees. And it's funny, as I reflect on the history of the firm as we do turn 239 years next year, I have U.S. warrant #1 on the floor. The first ever piece of debt of the United States. We have it. We made the loan to the United States government. It was in 1789, birth of a nation right after the signing of the Constitution. And come full circle, we settled $16 trillion worth of U.S. Treasuries on our U.S. Treasury platform a couple of weeks ago, turned over half the debt stock of the United States. So there are some things that we do which are important to who we are, and they'll continue to be important to attracting people to our platform, and I’m proud to do them.

A fascinating way to end there. Thank you to the audience. Thank you especially to the BNY Mellon team. And thank you, Robin.

Good to be with you, Rob. Thank you.