The Bank of New York Mellon Corporation (NYSE:BK) Q1 2024 Earnings Call Transcript

The Bank of New York Mellon Corporation (NYSE:BK) Q1 2024 Earnings Call Transcript April 16, 2024

The Bank of New York Mellon Corporation beats earnings expectations. Reported EPS is $1.29, expectations were $1.19. The Bank of New York Mellon Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and welcome to the 2024 First Quarter Earnings Conference Call hosted by BNY Mellon. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or re-broadcast these materials without BNY Mellon’s consent. I will now turn the call over to Marius Merz, BNY Mellon’s, Head of Investor Relations. Please go ahead.

Marius Merz : Thank you, operator. Good morning everyone, and thanks for joining us. I’m here with Robin Vince, President and Chief Executive Officer, and Dermot McDonogh, our Chief Financial Officer. As always, we will reference our financial highlights presentation, which can be found on the Investor Relations page of our website at bnymellon.com. And I’ll note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures are available in the earnings press release, financial supplement and financial highlights presentation, all available on the investor relations page of our website. Forward-looking statements made on this call speak only as of today, April 16, 2024, and will not be updated. With that, I will turn it over to Robin.

Robin Vince : Thanks Marius, and thank you everyone for joining us this morning. Dermot will talk you through the financials in a moment, but in summary, BNY Mellon is off to an encouraging start for the year. The firm delivered solid financial performance, while we continued to take important steps in the deliberate transformation of our company. And we’re seeing early signs of progress that give us confidence, as we work toward the opportunity ahead. Looking beyond BNY Mellon, the first three months of the year provided a mostly constructive operating environment with global markets signaling expectations for continued growth. Equity and credit markets rallied, even as rate cut expectations partially unwound and bond yields rose.

Foreign exchange markets, on the other hand, saw a continuation of the relatively low volumes and muted volatility that we’ve now seen for the past several quarters. And of course, there are many tail risks, including a variety of different market scenarios, the possibility of escalation in one of the ongoing geopolitical conflicts or an unexpected result in the many elections taking place worldwide this year. As I’ve said many times before, being resilient matters and this represents a commercial strength for our business. We are constantly preparing and positioning for a wide range of potential scenarios to support our clients and deliver compelling outcomes for our shareholders. Now referring to page two of the financial highlights’ presentation.

BNY Mellon delivered double-digit EPS growth as well as pre-tax margin and ROTCE expansion on the back of positive operating leverage in the first quarter. We reported earnings per share of $1.25 up 11% year-over-year, and excluding notable items, earnings per share of $1.29 were up 14%. Total revenue of $4.5 billion was up 3% year-over-year. That included 8% growth in investment services fees, led by strength in asset servicing, issuer services, and clearance and collateral management, which more than offset revenue headwinds from muted volatility in FX markets and lower net interest income. Expenses of $3.2 billion were up 2% year-over-year and up 1% excluding notable items. Consistent with our goal to generate at least some operating leverage this year, in the first quarter, we did deliver positive operating leverage, both on a reported basis and excluding notable items.

Our reported pre-tax margin was 29% or 30% excluding notable items, and we generated a 21% return on tangible common equity. Our balance sheet remains strong with capital and liquidity ratios in-line with our management targets and deposit balances were up both year-over-year and sequentially. Year-to-date, we returned close to 140% of earnings to common shareholders through dividends and buybacks, and our Board of Directors has authorized a new $6 billion share repurchase program. On our last earnings call in January, we communicated medium-term financial targets and presented our plan to improve BNY Mellon’s financial performance. We framed this work for our people through three strategic pillars. Be more for our clients, run our company better, and power our culture.

Throughout the first quarter, we’ve made progress to be more for our clients, including both product innovation and greater intensity around better delivering our platforms to the market so we can truly help clients achieve their ambitions. As a global financial services company, our unique portfolio of market-leading and complementary businesses presents a tremendous additional value for our clients and shareholders. As you know, we are maturing our ONE BNY Mellon initiative by implementing this mentality into the nuts and bolts processes across the company. For example, we recently announced that Ashton Thomas Securities, an independent broker dealer and registered investment advisor, will use clearing and custody services from Pershing and BNY Mellon precision direct indexing capabilities from investment management.

This is a great example of multiple lines of business working together to provide holistic solutions for clients. As we continue to grow our client roster, we also know that delivering more to our existing clients represents a significant opportunity. As another example, last month we expanded on a long-standing relationship with CIFC, an alternative credit specialist and existing client of ours in asset servicing and corporate trust to bring their US direct lending strategy onto our global distribution platform. This also speaks to the incremental value that asset servicing can bring to our asset manager clients, by allowing them to tap into BNY Mellon’s global distribution platform to extend the reach of their capabilities. Consistent with our previously communicated intention to grow the revenue contribution of our market and wealth services segment, we’re starting to see our investments to accelerate revenue growth in this high margin segment begin to bear fruit.

For example, we continue to be encouraged by the level of interest from both new and existing clients in our Wove, Wealth Advisory Platform. We have several clients live on the platform today. We closed a number of deals in the first quarter, and the sales pipeline continues to be strong. Across market and wealth services, we also continue to bring new solutions to the market. For example, Treasury Services successfully launched virtual account-based solutions, a set of cash management solutions to meet our clients’ demands for more flexibility and transparency into their payment flows. Next, we are taking important steps to run our company better by simplifying processes, powering our platforms, and embracing new technologies. Over the past several months, we’ve been working to realign several similar products and services across our lines of business.

The largest of these changes was moving institutional solutions from Pershing to our Clearance and Collateral Management business. This is also part of making progress toward adopting a platform’s operating model. By uniting related capabilities, we can do things in one place, do them well, and elevate overall execution to better serve our clients and drive growth. Last month, we went live with the first step on the transition into our new model. While it has taken and will continue to take a lot of hard work as we transform our operating model over time. We are confident this new way of working will create better outcomes for our clients and it will also create more efficiency and enhanced risk management. Around 15% of our people around the world are now working in our new operating model, allowing them to feel more connected to what we’re doing and empowered to make change.

I’d like to thank our teams who are part of this exciting change for pushing us forward as we mark this important milestone. We also see meaningful opportunity over the coming years from continued digitization and re-engineering initiatives, as well as from embracing new technologies. To support this effort, we are making deliberate investments, enabling us to scale AI technologies across the organization through our enterprise AI hub. Last month, Nvidia announced that BNY Mellon became the first major bank to deploy a DGX SuperPOD, which will accelerate our processing capacity to innovate, reduce risk, and launch AI-enabled capabilities. Our people have identified hundreds of use cases across BNY Mellon, and we already have several in production today.

Across the company, it’s our people who continue to power our culture. If you were to walk the halls of BNY Mellon, you’d feel the energy and sense of purpose our leadership team feels when we visit our teams around the world. To that end, we’re investing in our people. Over the past several months, we launched new learning and feedback platforms powered by AI, expanded employee benefits, launched a new well-being support program, improved and accelerated our year-end feedback and compensation processes, and more. And we’re delighted to welcome Shannon Hobbs, who will join us as our new Chief People Officer in June. As we continue to power our culture forward, we adopted the following five core principles to guide how our teams work and collaborate as we drive our success as a company.

The client obsessed, spark progress, own it, stay curious and thrive together. To wrap up, our performance in the first quarter provides a glimpse of BNY Mellon’s potential. Running our company better, inclusive of our focus on platforms, is enabling us to improve profitability and invest in our future. While we are pleased to see early signs of progress, we remain focused on the significant work ahead of us, as we become more for our clients and deliver higher performance for our shareholders. As I have said before, the transformation of our company is a multi-year endeavor but we’ve started 2024, the year of our 240th anniversary, with a sense of excitement and determination around what’s possible. Now over to you, Dermot.

Dermot McDonogh : Thank you, Robin, and good morning everyone. Referring to Page 3 of the presentation, I’ll start with our consolidated financial results for the quarter. Total revenue of $4.5 billion was up 3% year-over-year. Fee revenue was up 5%. This reflects 8% growth in investment services fees on the back of higher market values, increased client activity and net new business, partially offset by a 14% decline in foreign exchange revenue, as a result of lower market volatility. Firm-wide assets under custody and our administration of $48.8 trillion were up 5% year-over-year, and assets under management of $2 trillion were up 6% year-over-year, both largely reflecting higher market values. Investment and other revenue was $182 million in the quarter.

Effective January 1, we adopted new accounting guidance for our investments in renewable energy projects resulting in an approximately $50 million increase to investment and other revenue. We have restated prior periods in our earnings materials to provide you with like-for-like, year-over-year and sequential comparisons. The adoption of this new accounting guidance is largely neutral to net income and earnings per share, as the increase in provision for income taxes roughly equals the increase in investment and other revenue. Net interest income decreased by 8% year-over-year, primarily reflecting changes in the composition of deposits, partially offset by the impact of higher interest rates. Expenses were up 2% year-over-year on a reported basis and up 1% excluding notable items, primarily severance expense.

Growth was from incremental investments and employee merit increases offset by efficiency savings. Provision for credit losses was $27 million in the quarter, primarily driven by reserve increases related to commercial real estate exposure. As Robin mentioned earlier, we reported earnings per share of a $1.25 up 11% year-over-year, a pre-tax margin of 29% and a return on tangible common equity of 20.7%. Excluding notable items, earnings per share were $1.29, up 14% year-over-year. Pre-tax margin was 30%, and our return on tangible common equity was 21.3%. Turning to capital and liquidity on Page 4. Our tier 1 leverage ratio for the quarter was 5.9%. Average assets increased by 1% sequentially, as deposit balances grew. And tier 1 capital decreased by 1% sequentially, primarily reflecting capital return to common shareholders partially offset by capital generated through earnings.

Our CET1 ratio at the end of the quarter was 10.8%. The quarter-over-quarter decline reflects a temporary increase in risk-weighted assets at the end of the quarter, which was driven by discrete overdrafts in our custody and securities clearing businesses, as well as strong demand for our agency securities lending program. Consistent with tier 1 capital, CET1 capital decreased by 1% sequentially. Over the course of the quarter, we returned $1.3 billion of capital to our shareholders, representing a total payout ratio of 138%. Turning to liquidity. Our regulatory ratios remained strong. The consolidated liquidity coverage ratio was 117% flat sequentially. And our consolidated net stable funding ratio was 136% up 1 percentage point sequentially.

Moving on to net interest income and the underlying balance sheet trends on Page 5. Net interest income of over $1 billion was down 8% year-over-year and down 6% quarter-over-quarter. The sequential decrease was primarily driven by changes in the composition of deposits, partially offset by the benefit of reinvesting maturing fixed rate securities [and] (ph) higher yielding alternatives. Against typical seasonal patterns, average deposit balances increased by 2% sequentially. Solid 4% growth in interest bearing deposits was partially offset by a 5% decline in non-interest bearing deposits which was in-line with our expectations. Average interest earning assets were up 1% quarter-over-quarter. We reduced our cash and reverse repo balances by 2% and increased our investment securities portfolio by 5%.

Average loan balances remained flat. Turning to our business segments starting on Page 6, please remember that in the first quarter we made certain realignments of similar products and services across our lines of business, consistent with our work to operate as a more unified company. As Robin mentioned earlier, the largest change was the movement of institutional solutions from Pershing to Clearance and Collateral Management both in the Market and Wealth Services segment. And we made other smaller changes across our business segments. We have restated prior periods for consistency. Please refer to the revised financial supplement that we filed on March 26th for detailed reconciliations to previous disclosures. Now, starting with Security Services on Page 6.

Security services reported total revenue of $2.1 billion, up 1% year-over-year. Investment services fees were up 8% year-over-year. In asset servicing, investment services fees were up 8%, driven by higher market values, net new business and higher client activity. We’ve remained focused on deal margins, and as a result the year-over-year impact of repricing on fee growth was de-minimis. Consistent with past quarters, we continue to see particular success with our ETF offering. ETF assets under custody and/or administration surpassed $2 trillion this quarter up over 40% year-over-year on the back of higher market values, net new business and client flows, and the number of funds serviced was up 16% year-over-year. While the pace of alternative fund launches was slower than in the prior year quarter, investment services fees for alternatives were up over 10% on a year-over-year basis.

Throughout the quarter, we saw broad-based strength across client segments, products and regions. In issuer services, investment services fees were up 11% reflecting net new business across both depository receipts and corporate trust, as well as higher cancellation fees in depository receipts. Foreign exchange revenue was down 11% year-over-year and net interest income was down 12%. Expenses of $1.5 billion were flat year-over-year, reflecting incremental investments, as well as the impact of employee merit increases offset by efficiency savings. Pre-tax income was $591 million, a 4% increase year-over-year, and pre-tax margin expanded to 28%. Next, Market and Wealth Services on Page 7. Market and Wealth Services reported total revenue of $1.5 billion, up 3% year-over-year.

Total investment services fees were up 7% year-over-year. In Pershing, investment services fees were up 3%, reflecting higher market values and client activity, partially offset by the impact of business lost in the prior year. Net new assets were negative $2 billion for the quarter, reflecting the ongoing deconversion of the before-mentioned lost business. Client demand for our Wealth Advisor platform, Wove, continues to be strong. In the first quarter, we signed nine additional client agreements, including our first direct indexing clients, and we onboarded four clients onto the platform. In treasury services, investment services fees increased by 5%, driven by net new business. We continue to invest in our sales and service teams, new products and technology.

And so we are pleased with this solid growth and momentum continues to build. Last but not least, strength in clearance and collateral management continued with investment services fees of 13% on the back of broad-based growth both in the US and internationally. Net interest income for the segment overall was down 7% year-over-year. Expenses of $834 million were up 7% year-over-year, reflecting incremental investments, revenue-related expenses, and employee merit increases, partially offset by efficiency savings. Pre-tax income was down 2% year-over-year at $678 million, representing a 45% pre-tax margin. Moving on to Investment and Wealth Management on Page 8. Investment and Wealth Management reported total revenue of $846 million, up 2% year-over-year.

In Investment Management, revenue was up 2% driven by higher market values partially offset by the mix of AUM flows and lower performance fees. In our wealth management business, revenue also increased by 2%, driven by higher market values, partially offset by changes in product mix and lower net interest income. Expenses of $740 million were flat year-over-year, primarily reflecting the impact of incremental investments and employee merit increases, which was offset by efficiency savings. Pre-tax income was $107 million, up 15% year-over-year, representing a pre-tax margin of 13%. As I mentioned earlier, assets under management of $2 trillion increased by 6% year-over-year. In the quarter, we saw $16 billion of net inflows into our long-term active strategies with strength in LDI and fixed income.

And we saw $15 billion of net outflows from index strategies. Strength in our short-term cash strategies continued with $16 billion of net inflows on the back of differentiated investment performance in our [drivers] (ph) money market fund complex. Wealth management client assets of $309 billion increased by 11% year-over-year, reflecting higher equity market values and cumulative net inflows. Page 9 shows the results of the other segments. I will close by reiterating our existing outlook for the full year 2024. As I’ve said before, we have positioned our balance sheet for a range of interest rate scenarios and we’re managing both sides of it proactively. And so, despite the repricing of the curve since the beginning of the year, we continue to expect net interest income for the full year to be down 10% year-over-year, assuming current market implied interest rates for the remainder of 2024.

Similarly, on expenses, our goal continues to be for full year 2024 expenses excluding notable items to be flat year-over-year. We are off to a good start, but we have more work ahead of us to realize further efficiency savings and drive year-over-year expense growth rates lower over the coming quarters, while we continue to make room for additional investments across our businesses. Overall, we remain determined to deliver some positive operating leverage this year. While we don’t manage the firm to operating leverage on a quarterly basis, our performance in the first quarter with positive operating leverage on both a reported and an operating basis gives us confidence that we’re on track. In light of the adoption of the new accounting guidance for our investments in renewable energy projects, which, as I discussed earlier, increases both our investment and other revenue, and the provision for income taxes.

I’ll note that we expect our effective tax rate for the full year 2024 to be between 23% and 24%. And finally, we continue to expect returning 100% or more of 2024 earnings to our shareholders through dividends and buybacks over the course of the year. As always, we will manage share repurchases cognizant of the macroeconomic environment, balance sheet size and many other factors. And so for the foreseeable future, we will calibrate the pace of buybacks to maintain our tier 1 leverage ratio close to the top end of our 5.5% to 6% medium-term target range. To wrap up, over the past three months, we’ve made good progress towards achieving our target for 2024. And we’re encouraged by the drive we’re seeing in all corners of the firm, as our people embrace being more for our clients, running our company better and powering our culture.

With that operator, can you please open the line for Q&A?

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Alex Blostein with Goldman Sachs. Please go ahead.

Alex Blostein: Hi, good morning. Thanks for the question. So Robin, really nice progress I guess on organic growth initiatives across a handful of businesses underneath BNY Mellon, as some of the things you talked about are starting to kind of take hold. Can you maybe frame what the firm’s organic growth rate aspirations are for the next couple of years? How are you thinking about that for 2024 as well? And then as a side question I guess to that, we’ve seen quite significant amount of activity in sort of Clearance and Collateral Management. Can — you maybe help size what is sort of transitory versus more of a recurrent baseline to think about from here. Thanks.

Robin Vince : Sure, Alex. Good morning. So, let me start with the growth question. As you point out, we are quite — feeling quite good about the early momentum that we have in growth. As you know, we set it out last year to really get our house in order, generate positive operating leverage and really think about the various different investments to drive sort of shorter, medium and longer-term growth. And that’s really what we’ve been focused on and we’re pleased that we’ve got a good start to the year on it. Clearly, we’re trying to control the things that we can control. As I mentioned in my prepared remarks and as Dermot touched on as well, our focus here has really been wrapped around being more for our clients, our commercial model.

We hired our first Chief Commercial Officer. We’re operationalizing One BNY Mellon, as I called it, the nuts and bolts, kind of getting into building that into our client coverage organization, our coverage practice, starting to deliver integrated solutions. I gave a couple of examples of those in my prepared remarks. And we’ve got a whole bunch more things that really cut across all of the different segments that are related to that. So look, it’s early in the journey. I would have said maybe last year we were working the problem. I think now I would say we’re working the opportunity. Could you just remind me the second part of your question?

Alex Blostein: Yeah, sure. Really nice results out of Clearance to Collateral Management for the firm and it’s been a pretty active market in Q1, related to treasury issuance and activity there broadly. I’m just trying to get a sense for a better baseline to think about from here. Was there anything kind of transitory in the first quarter that helped the numbers or this is a good baseline to think about going forward.

Robin Vince : Look, I would say in terms of transitory, not really, but let me just go through a few of the drivers. So remember that it’s a business that like several of the businesses we have, respond to volumes and it was an active quarter when it comes to trading volumes in the US Treasury market. Now for better or for worse, US Treasuries is kind of a growth business and so that’s probably a bit more of a secular tailwind, as opposed to something cyclical. And then remember under the hood in Clearance and Collateral Management, we’ve also been investing in the operating model of that business as we talked about in our prepared remarks and took something that was very, very adjacent to our Clearing business from Pershing institutional clearing and aligned it with the rest of our clearing — bigger clearing business in Clearance and Collateral Management.

And what we’re finding now in those conversations with customers, it’s a much cleaner conversation because we’ve got the ability to deliver all the solutions in our clearing business whether it’s US Treasuries, whether it’s international, whether it’s the different models of clearing that we offer we’re able to deliver that in one conversation with a client, and clients are responding to that. So I would call that secular as well.

Alex Blostein: Great. Thanks so much. I’ll hop back in the queue.

Robin Vince : Thanks Alex.

Operator: And our next question comes from the line of Steven Chubak from Wolfe Research. Please go ahead.

Steven Chubak: Hi. Good morning, Robin. Good morning, Dermot.

Robin Vince : Good morning, Steven.

Steven Chubak: So I want to start with a question on capital, a bit of a two-parter, if you will. I was hoping you could just speak to the drivers of RWA growth in 1Q, which was fairly robust, where you’re seeing attractive opportunities to deploy that excess capital. And just — how we should be thinking about the cadence of the buyback. You alluded to this somewhat, Dermot, but I was hoping we could drill down into — you noted the 6% target or that upper bound on tier 1 leverage is, how should we be thinking about the cadence of buyback in light of planned balance sheet actions and growth potential.

Dermot McDonogh: Okay, I’ll take that one. Steven, good morning. So some of the capital increase, there are two parts to the RWA increase, one was a kind of temporary increase around quarter end, as it relates to discrete overdrafts in custody and securities clearing businesses. So that kind of come and gone. And then there was also — there was strong demand for our agency securities lending program throughout the quarter and particularly leading up to quarter end and that’s continued into this quarter. So I would say, half of it was that and half of it was temporary. As it relates to the buyback, I guess there’s a little bit of a Groundhog Day here in terms of how we thought about a Q1 of last year versus how we’re thinking about a Q1 of this year.

Both quarters, we got off to a strong start. But look at there — there’s a lot of rate volatility out there in the market. You’ve seen the backup in rates last week with the hot inflation report. Last year it was the war in Ukraine, this year it’s the geopolitics in the Middle East. And so we kind of gave a guidance in January where we said we were going to be 100% more of earnings throughout the year. We don’t give quarter-by-quarter guidance. I would reiterate the guidance of 100% or more, notwithstanding the fact Q1 was very good at 138%. I wouldn’t expect that pace to continue, but we’ll take it quarter-by-quarter.

Steven Chubak: Understood. And for my follow-up, maybe just drilling down into the investment and wealth margins, in particular, since across the other segments, we’re seeing continued progress towards the longer-term targets. That’s admittedly the segment with the biggest shortfall. I know in the prepared remarks, Dermot, you noted that you’re making investments in the business and just wanted to better understand, one where are those dollars getting deployed? And maybe if you could just speak to the primary drivers underpinning that glide path to 25%. How much is contingent on revenue growth versus expense optimization?

Dermot McDonogh: Okay, so the first point would be pre-tax margin for the Q1 there was around 13%. If you normalize that for typical seasonal volatility in terms of retirement eligible stock and such, like, if you back that out and adjust it, the margin would have been somewhere in the 16% zip code. So we feel pretty good about that. Still a ton of work to do. And I would say, it’s not one thing over the other, it depends on which part of the business you’re talking about. In some of our asset managers, we’re investing, we’re launching new products. Clients, in some places, continue to de-risk and move from more risk on equity to passive fixed income. But in other cases, we see clients coming in and AUM growing. We saw — we were very pleased with the performance of our drive with cash management business in Q1, where we saw strong inflows and the performance of the business in terms of returns was — first quarter, so we feel very good about that.

So we are investing the business to give our clients good products to invest in. The flip side is, we still believe as it relates to running the company better and desiloing the firm and connecting asset management to the broader enterprise, there’s a lot of opportunity there. And at the same time as the opportunity, it allows us to take costs out and become a lot more efficient. So I would say we’re working both sides of us. We see more opportunity on the revenue side, and we’re working the problem on the efficiency side.

Steven Chubak: Very helpful, color. Thanks so much for taking my questions.

Operator: Our next question comes from the line of Betsy Graseck with Morgan Stanley. Please go ahead.

Betsy Graseck: Hi. I had two questions. One was just on the AI commentary that you were leading with in the prepared remarks and I wanted to understand how you’re thinking about the benefits to the expense ratio and the time frame with which this is going to flow through? Because there’s clearly revenue enhancing opportunities and expense reducing or flattening. And how much of this AI investment is, how important is it to your 2024 expense outlook. And yeah, if you could give us the medium-term outlook, that’d be helpful, thanks.

Robin Vince : Sure, hi Betsy. First of all, it’s great to have you on the call. Really glad to have you back and to know that you’re doing well.

Betsy Graseck: Thanks so much.

Robin Vince : So on the AI, I’ll start with the sort of the latter part of your question, which is I really don’t think this is a 2024 story. Of course, we’re doing things in 2024. But if you ask me to try to put a pin in where the real benefits and sort of tailwinds kick in, I’m actually going to say it’s not even necessarily a 2025 story, although maybe we’ll see a little bit in ‘25. I think this is a ‘26 and on out benefit on the expense line. But let me go back to the sort of the premise of your question and just sort of briefly mention how we’re embracing it, so I’ll put it actually through the three pillars that we’ve laid out in terms of — the guiding so much of what we’re doing in the company. So first, being more for our clients, we think there are solutions out there for clients that are going to help them make better decisions, see risks, be able to be more efficient themselves.

We’ve got software in market today doing that with predictive trade analytics around fails and settlements, allowing clients to be able to look out and to see and take evasive action essentially on potential fails. And by the way, some of those actions involve using other parts of the BNY Mellon platforms in order to be able to improve their businesses. And so that’s an interesting example and there are going to be a lot more of those. Under the heading of running our company better this is going to be about streamlining business processes, productivity, figuring out and seeing anomalies that we can see, code assistant, as so many people talk about for our developers. I was walking around one of our buildings the other day, talking to one of our developers.

They’ve been out of school for a year and change and already they think that 25% more productive as a developer and that’s in the very early days of using GitHub Copilot. So that’s going to be — there’s going to be more there — and that ultimately is going to create efficiencies for us. And then under the culture heading, which is very important, we want AI to empower our people to be able to go out and be able to be more efficient in terms of what they’re doing. And there are any number of different examples of things over time that we think AI is going to be able to help with us. Now importantly in this — is the way in which we’re doing it. Both Dermot and I talked about platforms and another concept in our platform strategy is to create these hubs, these centers of excellence.

And in AI that’s particularly important. We do not want to repeat the problems we’ve had in the past of having everyone go off in their own direction. And actually in AI, it’s particularly important because problem statements that sound different can in fact have very common root causes. So you might want to be able to respond to an RFP. You might want to generate summaries of documents. You might want to be able to get a head start on a research report. But actually, when you look under the heading, those three things sound different. But the AI that’s actually powering them, some of the — sort of mini platforms that are required are very, very similar. So we’re using our AI hub to collect these different use cases and then be able to sort of deliver solutions and many AI platforms that can then be used in multiple places around the company.

So we’re excited about this. We think it’s going to be very significant over time, but it’s not a 2024 story.

Betsy Graseck: Okay, got it. That’s super helpful with the color. Appreciate that. And then just a follow up on the tax rate guidance. This is part of the accounting change, I believe, is that right? And can you tell us where in the [PPOP] (ph) the offsets are, thanks?

Robin Vince : Sorry, I missed the last part of it, Betsy. Where are the –.

Betsy Graseck: Offsets — there’s the offsets, right, to the tax — the taxes impacted by the accounting change, is that right?

Robin Vince : Yeah, so it’s economically it’s net neutral for the firm. It’s just a gross up in revenue which will show up in the interest and other revenue line and then the offset to that is in the tax line. And we filed an 8-K, a couple of weeks ago where we restated all the prior periods for comparison so that people will see it on a consistent basis going forward.

Betsy Graseck: Sure, I just wanted to highlight that your tax rate guide has the offsets in the revenue. So I appreciate that. Thank you.

Robin Vince : Yeah.

Operator: Our next question comes from the line of Ebrahim Poonawala with Bank of America Securities. Please go ahead.

Ebrahim Poonawala: Thank you good morning.

Robin Vince : Good morning Ebrahim.

Ebrahim Poonawala: Yes, I guess, not sure Dermot if this was addressed here but in terms of your outlook on deposits, I think the period ends, so a pretty big uptick to $309 billion. Just give us a sense of, within your NII guidance, one what are you assuming in terms of deposit balances? And secondly, if the forward curve holds, is the next inflection on NII and margin higher or lower? Yeah, thank you.

Dermot McDonogh: So, as at the quarter end, Ebrahim, I think the spot number was around $310 billion of deposits. And that was largely, you may recall that quarter end this year fell on a good Friday where markets were closed. So we got a lot of clients putting cash in, so that they could make certain payments. And so we saw a kind of surge in deposits over the last few days of the quarter. And they’ve largely left the system now. We’ve returned to more normal levels, which is in the kind of high [270 range] (ph). So that’s kind of really the explanation for the spot deposit balance versus the average trend. So sequentially, we’re down 6% in the deposits, or NII, an 8% year-over-year. And we saw a 2% growth in the deposit balance, generally speaking.

Our guide at the beginning of the year was down 10% and given the rate volatility and what’s going on with the inflation report last week and the back-up in rates et cetera, et cetera, we don’t see, you know, there’s nothing that’s causing us to think that we should change our guidance between now and the balance of the year. We’re very neutrally positioned, as to whether rates go up a little bit from here or down a little bit from here. And we feel very good about the overall guidance that we gave in January, which was approximately down 10%.

Ebrahim Poonawala: Got it. And I guess one just follow up in terms of some of the actions you took in moving businesses in Pershing. As we think about the strategic review, I guess Robin, maybe it began a year ago or longer than that, give us a sense of in terms of the franchise positioning, how the businesses are talking to each other and if they are in the right place within the enterprise. Is all of that done? How close are you to getting the franchise synced up in terms of what is coming along with regards to what you want to achieve in terms of client synergies? Thank you.

Robin Vince: So the punch line is we’re making good progress, but you’re essentially asking a cultural question and we’re not done on that. So when we did, to go back to your point, when we did our original strategy reviews, which is 18 months or so ago now, and took us a few months to go through, we were really focused on answering the questions of what are we doing, are we doing the right things, how are we doing them, are we doing them in the right way, do we have the right people doing them, and so we looked at that and we certainly found bits of the company that were just in the wrong place and so we’ve lifted those bits up and we put them in what we now think of the right place so that’s what both Dermot and I talked about in our prepared remarks and that was what some of the restatement of prior periods so that you could make the easier comparisons there was about.