That was basic blocking and tackling but the bigger opportunity for sure is how the businesses work together, not only to be more for clients by saying, hey, that client over there is a client, but they’re not my client in my business, can we work together to basically make them a client of both businesses? That’s very significant. That’s where we talk about maturing One BNY Mellon into the real heart of a new commercial coverage model and that’s being driven by our Chief Commercial Officer. Another part of this is saying, there are things that we used to think of as standalone capabilities, some might call them products, we think about them as client platforms. And in fact, what the client is asking for, and we really heard this when we did our voice of client survey, they don’t want these individual products, they want us to take them and weave them together to create solutions for them that are on point to their needs.
And so we’ve also started to do that, and I mentioned some examples of that, and that’s a very powerful thing because that takes the breadth of our company, and rather than it being siloed, which is getting in the way of solutions, it’s now actually ending up being the opportunity for us to deliver from the breadth of our platforms to our clients with solutions that frankly some other people aren’t going to be able to do. So that’s we think very exciting and in those journeys, we’re still relatively early and that is cultural and we’ve been doing a lot of things internally in the firm to make sure that our people are lined up behind that. It’s early days, but we’re quite excited about the direction of travel.
Ebrahim Poonawala: Got it. Thank you both.
Operator: And our next question comes from the line of Brennan Hawken with UBS. Please go ahead.
Brennan Hawken: Good morning. Thanks for taking my questions. I’d like to start, Dermot, when you were walking through Pershing, I believe you talked about the offboarding and the impact of how that was weighing on the net new assets. Could you give us a update on how far we are along in that off-boarding process and how much we should continue to expect for the rest of the year? And then also LPL recently announced the acquisition of Atria, which I understand was a Pershing client, and they’re planning to consolidate those operations in 2025. So is that going to extend maybe some of the headwinds that we’re seeing from some of these idiosyncratic off-boardings?
Dermot McDonogh: Okay, thanks for the question. So the first thing I would say about Pershing in the context of the overall kind of the segment. With respect to Pershing, we continue to invest in Pershing. Pershing continues to grow. As we said since the deconversion was announced, we’re going to earn our way out of this situation. That’s what’s happening. So — we still as a business feel very good about Pershing and our ability — it’s a market that’s growing in mid-single digits on an annual basis and we’re a big player in that market. So we’re going to win our shares. So while the deconversion was unfortunate, we continue to march on and we learn our way out. Specifically, I would say, we’ll be largely done with the deconversion by Q3 of this year.
And as it relates to the second part, I would say look we’re in a competitive market, people are going to do things the LPL Atria thing it’s not a particular headwind, it’s not been highlighted to me, it’s not hit my radar in terms of oh my gosh, we need to worry about that. And so I think we’re winning more than we’re losing and we’re investing and that’s really going well. And when you take it in the context of what’s going on with Wove, we’re building a strong pipeline there. The backlog is looking good. We’ve added nine clients to the platform in Q1 of this year, and we made a commitment to the market that we would kind of add $30 million to $40 million of revenue this year, and we still feel very good about that guidance and that commitment that we made to you back in January.
Robin Vince : And Brennan, I just add on the business front to that, which is remember that when we look at a deconversion, for sure those happen, and the one that you’re referring to, the original one was a larger one. But we’re also growing with our clients. Our clients are growing with us and we also are on the receiving end of roll-ups as well. Our clients are quite acquisitive and we have a couple of clients who’ve been doing acquisitions and we have some of our largest clients who are growing very significantly and very healthily. So it’s always unfortunate when there’s a roll-up that goes against us, but when there are roll-ups that go with our clients, those things balance out to some extent which is why Dermot makes the point about overall, we still feel quite enthusiastic about the net new assets growth over time.
Brennan Hawken: Great thanks for that color And then when we think about the deposits, I’m trying to think about really, Dermot, the fact that here we are one quarter in. I get it — you maybe don’t want to update expectations. But it seems like, based on what we’ve seen so far, deposit trends seem to be doing better than expected. We saw a pick-up in the deposit balances at year-end. They sustained, which is a little unusual. And even though they’ve come down from [EOP at 331] (ph), they’re still in a similar ballpark to where you were on the average. Are you guys — is there something specific that’s driving the expectation for deposit decline or is it just a component of conservatism?
Dermot McDonogh: If I’m honest with you, I would say it’s a little bit of both, but I would expect, like everybody expected deposits to decline this year, and it hasn’t necessarily happened yet, And I kind of think — I make that statement in the context of QT. And so if you look at the [RRP] (ph) in Q1, the drain largely came from there. And if QT continues and rates stay higher for longer, on balance I would expect deposits to decline from here. And so I don’t see anything that tells me that I should update the guidance from down 10% NII year-over-year. And then underneath the hood, in terms of the composition of the deposits themselves, you have the mix between interest bearing and non-interest bearing. And as rates stay higher for longer, I would expect NIBs to grind a little bit lower.
So the overall balance may be higher, but you have to mix underneath, which will kind of feed into that overall NII guidance. So it’s not just the absolute level, it’s also the composition of it.
Brennan Hawken: Yeah, yeah, that’s great. Thanks for the candor and the embracing the uncertainty.
Operator: Our next question comes from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.
Mike Mayo: Hi.
Robin Vince : Hi, Mike.
Mike Mayo: Can you hear me? Yeah. So I guess non-interest bearing deposits inched down again, and I’m just wondering where that floor is. I guess it’s 18% versus 19% last quarter and 26% year-over-year. And so on the other hand, your servicing fees were up 8% year-over-year. So I’m not sure if I should draw a link or not. Maybe what you’re not getting in non-interest bearing deposits, you’re getting in servicing fees. So I guess the question is, how are you getting such strong servicing fee growth year-over-year of 8%, how much of that is due to markets, how much of that is sustainable, and is any of that simply a substitution effect from the non-interest bearing deposits to servicing fees?
Dermot McDonogh: Thanks for the question, Mike. So let’s go with the fee component first. Q1 is kind of one of those quarters where we came into the year I guess both in deposits and in pipeline and sales activity in very good shape. As it relates to kind of asset servicing in particular, the pipeline was strong, we felt good coming into the year, markets rallied nicely. And so clients were in risk on mode, doing more with us. Flows were stronger. Balances are higher. And we’re winning our share of mandates. Little factoids for like, of all the deals that we competed for in Q1, we won north of 50%. So we’re competitive, we’re pricing well, we’re very focused on client profitability and deal margin and it goes back to the point that we made in several quarters prior to this where we’re very focused on the cost to serve.
And so by improving margin, focusing on cost to serve, being more for clients, we can be more competitive in the pricing point. And I made that remark, I made the point in my prepared remarks that we saw repricing being de-minimis. So it was a good quarter all around and we feel very good about the backlog and the pipeline going forward. As it relates to the mix between fees and deposits, you know, we don’t lead with deposits as an institution. Clients do multiple things with us across the enterprise and as a consequence of that they leave deposits with us. You know, it’s an important point but two-thirds of our deposits are operational in nature and therefore very sticky. But with a higher for longer rate environment, it’s only natural to expect that people with NIBs are going to over time move out of that and look for a higher yield.
It’s inevitable and it’s a fact of life and we’re ready to deal with that but I’m very proud of what our global liquidity solutions team is doing in terms of winning their share of the business in terms of the deposits and how we price them and so sequentially, we’ve seen the balances go up because of that competitive pricing. So all-in-all, when you take the ecosystem together we feel very good about where we’re at.
Robin Vince : And Mike there was nothing idiosyncratic about trade-offs to the other part of your question. I don’t see the quarter built around that at all.
Mike Mayo: Okay. And so for — a separate question, for all the growth and servicing fees, asset management, what can you do to reverse the trend for sustainable growth? I mean, would it ever be an option to consider selling that? The synergies, when you think about One BNY Mellon, I kind of get the rest of the firm being all one cohesive unit over time, but how does asset management fit into that?
Robin Vince : Sure, so this is a question that we talked a little bit about last year and I said at the time that we think, and I’ll underline the word think, that the business really can complement the strategy of the firm, but we had more work to do and that — that was a thesis and we needed to put in place the various different steps to really be able to operationalize and make the most of that. And that’s what we’ve been working on over the course of the past few months. The basic thesis is we think there’s a strong industrial logic to have $2 trillion worth of manufacturing platform aligned to BNY Mellon’s $3 trillion worth of retail distribution capacity, if you look across wealth and Pershing together. Pershing alone having [$2.5 trillion] (ph) plus of client assets on the platform.
And so if you only operated in a silo in investment management where it was manufacturing and only its own distribution, there’s a legitimate question there about whether or not it would have the scale and the capacity to be able to truly compete but when you put it together with the rest of the company we think there’s a pretty compelling thesis there. And so we don’t think we’ve properly capitalized on those benefits in the past and so our strategy is let’s — let investment management stretch its legs in that new approach. And we see some early signs of progress on that. We’ve been joining some dots. I mentioned a couple of things in my prepared remarks, both in terms of us having a broader distribution platform that actually can attract other investment managers who maybe don’t have the benefit of our distribution and they want to come join our platform rounding out our offerings and essentially making our distribution platform more complete but also being attractive to them, so they don’t have to build their own.
If you will, they’re building their business on one of our platforms. And so we’ve given you our targets. We want to be able to expand the pre-tax margin in the business to over 25%. It’s not for nothing that we didn’t grow expenses in that segment or in security services for that matter because we’re really focused on the margin in those businesses and we have had some growth. And so this is about really working that set of opportunities and we’ll see over the coming quarters how we do. But this quarter was one where we felt, we took an important step forward.
Mike Mayo: All right. Thank you.
Operator: And our next question comes from the line of Glenn Schorr with Evercore ISI. Please go ahead.
Glenn Schorr: Hi, thanks very much. [Robin] (ph) mentioned it, so maybe it wasn’t that big of a deal, but T+1 starts at the end of May. I’m curious if it was a big expense lift that we get some relief on going forward? And then related to that, are there any headwinds on NII and any benefits on capital that we have to think about as a result of moving towards a more T+1 world? Thank you.
Robin Vince : So T+1 , sure we had to for sure spend money in different parts of the company in order to be able to ready ourselves for this. We view that as frankly ordinary course of business. There’s always some market structure change going on in the world that we have to respond to. So while they may be individually lumpy, there’s always something. So we just think about that as part of the expense of running the company and not something that will yield a particular benefit when we happen to have finished the work. Now, I do think that T+1 overall provides benefits to the financial system, improvements in efficiency, some risk reduction. I would say to the second part of your question that more of that probably accrues to our clients because we’re not as big a principal player there.
It can improve liquidity and capital requirements in the fullness of time. The industry’s come a long way. You know, it wasn’t that long ago that we’re at T+5, T+3 sort of moving down the curve. And I will also say from an opportunity point of view, not only do clients look to us to help them navigate these types of things because they’re complicated and detailed, and they want us to essentially help them in executing this type of change, and that’s exactly what we’ve been doing. But we also think that there are just opportunities associated with these sorts of inflections, because clients look at us and it does sometimes cause the question to be raised of another big change in the post-trade landscape life’s too short I’m an investment manager or I’m broker dealer or I want to go about the core of my business, I don’t have to worry about that stuff as much as I currently do.
BNY Mellon, can you help us? Can you help us and maybe there’s a platform sale opportunity there for a little bit more outsourcing? Because if the world makes these changes, speeds up, gets more complicated, more change management, we of course have the benefit of scale, we get to change once and we get to take some of those problems off their hands. So I’d call that out when it comes to real-time payments, I’d call it out in T plus 1, I’d call it out in clearing. Each time these things happen, we look at it through a lens of opportunity as well as a lens of client service but overall also just good for the market nothing good happens between trading and settlement as is often said.
Dermot McDonogh: And Glenn on this specific point about headwinds as it relates to NII, I kind of look at the last two quarters together in terms of the strength of what we’ve done on NII and I feel overall we’re in a good place. The balance sheet is very clean. Our CIO book is well positioned and kind of short duration and the CIO is doing a really good job at optimizing yield. And so when you see our securities that are maturing at the moment, they’re rolling off at a 2% to 3% rate and then are being deployed at current market yields. So based on what I see today with the back-up in rates that happened last week as a result of the hot inflation report, we feel pretty good about where things are for the balance of the year just using that forward curve. As I said earlier, rates up a little, down a little, don’t materially impact us. And so we feel like our base case is, we feel pretty good about it.
Glenn Schorr: Thank you all.
Operator: Our next question is come from Gerard Cassidy with RBC. Please go ahead.
Gerard Cassidy: Hi, Robin. Hi, Dermot.
Robin Vince : Hey, Gerard.
Gerard Cassidy: Dermot, can you give us some color? I noticed you said in your prepared remarks the average loan balances were essentially flat in Q1 versus Q4. But I noticed the spot number, the year-end — quarter-end number for loans was actually quite a bit higher, you know, around $73 billion versus the spot number in the fourth quarter. Was it something at the end of the quarter that caused that to increase?
Dermot McDonogh: Thanks, Gerard. Again, it was a little bit of what I call the Good Friday effect, where clients use our overdraft facility mechanisms going into that weekend. And so that really caused the spot balances to go up and that’s kind of largely cleaned out so has reverted more to the average numbers that you’re familiar with.
