The Bank of New York Mellon Corporation (BK) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call shows mixed signals. Strong revenue growth in Securities Services and Market and Wealth Services is positive, but a decline in Investment and Wealth Management revenue is concerning. Management's optimistic guidance on new client wins and digital assets is offset by vague responses and a lack of clear metrics. The commitment to shareholder returns is positive, but the uncertain impact of market conditions and expenses tempers enthusiasm. Overall, the sentiment is neutral due to balanced positives and negatives, with no clear catalyst for a strong stock price movement.
Key Financial Performance
Revenue Record revenue of $5.1 billion, up 9% year-over-year. Reasons for change: Broad-based strength, including double-digit revenue growth across Securities Services and Market and Wealth Services segments.
Pretax Margin Improved to 36%. Reasons for change: Approximately 500 basis points of positive operating leverage.
Return on Tangible Common Equity 26%. Reasons for change: Not explicitly mentioned.
Earnings Per Share (EPS) $1.88, up 25% year-over-year. Reasons for change: Strong revenue growth and operational improvements.
Fee Revenue Up 7%. Reasons for change: 10% growth in investment services fees driven by net new business, higher client activity, and market values.
Firm-wide AUC/A $57.8 trillion, up 11% year-over-year. Reasons for change: Client inflows and higher market values.
Assets Under Management (AUM) $2.1 trillion, flat year-over-year. Reasons for change: Higher market values offset by cumulative net outflows.
Net Interest Income $1.2 billion, up 18% year-over-year. Reasons for change: Continued reinvestment of maturing investment securities at higher yields and balance sheet growth, partially offset by changes in deposit mix.
Provision for Credit Losses Benefit of $7 million. Reasons for change: Changes in macroeconomic forecast, partially offset by higher reserves related to commercial real estate exposure.
Expenses $3.2 billion, up 4% year-over-year. Reasons for change: Higher investments, employee merit increases, higher revenue-related expenses, and unfavorable impact of weaker dollar, partially offset by efficiency savings.
Capital Returned to Shareholders Approximately $1.2 billion in the third quarter. Reasons for change: Not explicitly mentioned.
Securities Services Revenue $2.5 billion, up 11% year-over-year. Reasons for change: Higher client activity and market values.
Market and Wealth Services Revenue $1.8 billion, up 14% year-over-year. Reasons for change: Broad-based growth in collateral management balances and clearance volumes, higher market values, and client activity.
Investment and Wealth Management Revenue $824 million, down 3% year-over-year. Reasons for change: Mix of AUM flows, adjustment for certain rebates, partially offset by higher market values and weaker dollar.
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Operating Highlights
Digital Asset Products: BNY's early commitment to the digital asset space has positioned it to support institutional adoption. OpenEden appointed BNY as investment manager and primary custodian for its Tokenized U.S. Treasury Bills Fund. BNY also collaborated with Goldman Sachs to maintain blockchain-based records for money market funds.
AI Solutions: BNY launched Eliza 2.0, an advanced AI platform, and increased AI solutions in production by 75% quarter-over-quarter. Over 100 digital employees are deployed for tasks like payment validations and code repairs.
Client Wins: Franklin Templeton expanded its relationship with BNY for asset servicing and FX capabilities. TIAA selected BNY's Wove platform for wealth management solutions.
ETF and Alternatives Growth: ETF AUC/A grew by 35% year-over-year, and alternatives AUC/A grew by 12%, driven by market values, client inflows, and new business.
Platform Operating Model: 70% of employees transitioned to the new operating model, with benefits like faster client onboarding and automated delivery of complex NAVs. Full transition expected by fall 2026, with full benefits by early 2028.
Efficiency Savings: Efficiency savings partially offset higher investments and employee merit increases, contributing to a 4% year-over-year increase in expenses.
AI Collaboration: BNY partnered with Carnegie Mellon University to create the BNY AI lab, focusing on AI research, governance, and deployment.
Commercial Model 2.0: BNY is embedding integrated solutions into daily operations, aiming for higher and sustainable organic growth.
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Risk or Challenges
Geopolitical conditions and trade policies: Uncertainty and multiple tail risks remain due to geopolitical conditions and trade policies, which could impact global operations and market stability.
Fiscal deficits and market sustainability: Concerns about fiscal deficits around the world and the sustainability of enthusiastic markets pose risks to economic outlook and financial performance.
Regulatory landscape for digital assets: While there are positive developments, the evolving U.S. regulatory landscape for digital assets could create uncertainties and challenges for institutional adoption and product innovation.
Commercial real estate exposure: Higher reserves related to commercial real estate exposure indicate potential risks in this sector, which could impact credit losses and financial stability.
Net outflows in Investment Management: Cumulative net outflows in assets under management (AUM) and long-term strategies could hinder growth in the Investment and Wealth Management segment.
Operational transformation timeline: The full benefits of the new operating model are not expected until early 2028, which could delay the realization of efficiency and growth targets.
Macroeconomic uncertainties: Changes in the macroeconomic forecast and inflation lingering above the Federal Reserve's 2% target could impact financial performance and strategic planning.
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Guidance & Outlook
Net Interest Income (NII): Expected to be approximately flat sequentially in Q4 2025, resulting in a full-year 2025 NII increase of 12% year-over-year.
Expenses: Excluding notable items, full-year 2025 expenses are projected to increase by approximately 3% year-over-year.
Effective Tax Rate: Projected to be approximately 21% for Q4 2025, bringing the full-year 2025 effective tax rate to a range of 21%-22%.
Capital Returns: Expected to continue at a pace consistent with a total payout ratio of 90%-100% for the full year 2025.
Platform Operating Model Transition: Transition expected to be completed by fall 2026, with full benefits of the new operating rhythms anticipated by early 2028.
AI Integration: Significant focus on embedding AI solutions, with 117 AI solutions in production by Q3 2025, and further adoption expected to drive operational efficiency and innovation.
Investment and Wealth Management Growth: Early-stage efforts to reorganize and streamline operations, with progress expected to unlock growth opportunities in collaboration with other segments.
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Shareholder Return Plan
Dividends: Over the course of the third quarter, we returned approximately $1.2 billion of capital to our common shareholders, resulting in a 92% total payout ratio year-to-date.
Share Repurchase: Capital returns through common stock repurchases were part of the $1.2 billion returned to shareholders in the third quarter.
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Key Q&A
Q:How much of the year-over-year growth is attributed to company actions versus market conditions?
A:The growth is attributed to a mix of organic growth, higher market levels, and FX. Management highlighted the impact of the new commercial model, platform operating model, and cross-selling efforts. They emphasized that the company is better positioned to take advantage of constructive markets due to these initiatives.
Q:Can you expand on the derisking of the balance sheet and interest rate risk management?
A:Management highlighted investments in tools and risk management over the past three years, which have improved their ability to predict deposit trends and optimize the deposit mix. They emphasized the clean and liquid balance sheet, supported by a $1.7 trillion liquidity funnel. Seasonal declines in deposits were offset by strong capital markets activity and M&A escrow business.
Q:What trends have been observed in securities lending due to capital markets activity?
A:Management stated that there has been no noticeable change or step function in securities lending activity. They emphasized the adjacency of securities lending to their broader collateral management franchise and highlighted its importance as part of their capital markets footprint.
Q:What is the outlook for Pershing and the impact of recent client wins like TIAA Wealth Management?
A:Management noted that Pershing has performed well despite noise from deconversions and conversions. They highlighted the TIAA Wealth Management win as part of over 50 clients signed onto the Wove platform. They expect growth in net new assets to reaccelerate for the balance of the year.
Q:What is the impact of stablecoins and falling rates on the money market ecosystem?
A:Management views the evolution of stablecoins and digital assets as an opportunity rather than turbulence. They emphasized their ability to support technological evolution in money market funds and stablecoins through their investments in digital assets and mobility capabilities. They see this as part of broader megatrends they are positioned to capitalize on.
Q:How does the company plan to achieve operating leverage over time?
A:Management highlighted consistent positive operating leverage over the past three years, driven by cultural alignment and execution of their strategy. They emphasized the long-term view of their transformation projects, including the commercial model, platform operating model, and AI efficiencies, which are expected to deliver benefits over the next several years.
Q:What is the company's approach to digital assets and stablecoins?
A:Management emphasized their long-term investment in digital assets and stablecoins, focusing on enabling the ecosystem rather than issuing their own stablecoin. They highlighted their capabilities in custody, mobility, and transaction services, positioning them to support the evolution of digital assets and stablecoins.
Q:What is the company's strategy for share buybacks and capital allocation?
A:Management reiterated their commitment to returning 90-100% of earnings to shareholders through buybacks and dividends. They emphasized their conservative approach to capital management and their focus on investing in growth opportunities while maintaining flexibility.
Q:What is the company's perspective on M&A opportunities?
A:Management is open to M&A opportunities that align with their strategic priorities, cultural fit, and financial returns. They emphasized their focus on organic transformation and the runway for growth, which reduces the pressure to pursue M&A.
Q:Review of Unclear Management Responses
A:Management avoided providing specific metrics or clear comparisons for certain questions, such as the exact proportion of growth attributed to company actions versus market conditions, detailed metrics on multiline business solutions, and the tangible revenue opportunity from digital assets and stablecoins. Additionally, they used broad language when discussing the potential impact of stablecoins and the timeline for achieving full benefits from transformation projects.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI collaboration
AI hand
AI investment
AI lab
AI opportunity
AI research
Agentic AI
Bills Fund
CEO Chairman
CMU market
Carnegie Mellon
Cash Fund
Chairman highlight
Co Head
Corporate Development
Development Co
Dreyfus Treasury
ETF product
Eliza people
Equity market
FX capability
Finance remark
Fund capital
Fund development
Head Finance
TIAA
adoption
capacity
client onboarding
culture
financials
market fund
mission
money market
rhythm
statement measure
success
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Frequently Asked Questions
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