Gerard Cassidy: Okay, good. And I know this is not a big area for you guys, so maybe you could give us better insights since it’s not as big as it is for a traditional bank. But can you maybe give us some color on the commercial real estate? I know you pointed out you’ve built up the allowances there. What are you guys seeing? Is it similar to what we’re reading about and hearing from others or is it something different?
Dermot McDonogh: So I would say, look, we’re prudently marked in the commercial real estate portfolio. Overall, our CRE portfolio in the context of our overall balance sheet is quite small. 3% of total loans, $2 billion. And the reserve builds that we took in Q1 was really just kind of being prudent on a couple of specific situations that are coming up for restructuring. But I would let you know that they’re all still paying and everything is working, and their class A office buildings. And we feel good about the occupancy. So I would say overall very, very clean and nothing that really has me unduly concerned. And look, there has been a lot of chatter in the market, in the press over the last quarter about what’s going to happen.
I’m sure the back-up in rates, hasn’t really helped that chatter but like surveying other banks results so far this quarter I haven’t really noticed any specific CRE bills on the back of what’s been going on over the last couple of quarters, so it does feel like as a sentiment matter to be quite muted at the moment on the back of others earnings release, at least what I’ve observed.
Robin Vince : and Gerard I just add to that for the more general view which is I think the answer to what happens in corporate real estate, clearly it depends which markets you’re involved in. There are some markets around the country that are more distressed than others. It continues to be focused on office, as you know, although there are certainly some questions on multi-family, but the fact that we’re sort of still short housing in the US, as a general matter is probably, ultimately going to be helpful to that story. The most single most important driver of it, as we sit here today, is where are longer-term rates? And so there’s so much chatter about what’s going to happen in fed funds. Is the fed going to cut? Are they going to stay?
Are they going to hike a little bit? But what really matters is where’s the curve from five years to 10 years? And as that backs up to the extent that we cross 5%, you get very different outcomes on commercial real estate than you do at 10 years or at 4%. And if they ended up, for some reason, not our base case, but it’s possible, you’ve got to plan for it. If they end up at 6%, then for some folks in the market, that’s going to be a much more painful outcome. So I think you watch — so goes the [10 year] to some extent, so goes the commercial real estate market. Because this is a ‘24 a little bit, but really ‘25 refinancing story.
Gerard Cassidy: Thank you. Appreciate those insights. Thank you.
Operator: Our next question comes from the line of David Smith with Autonomous Research. Please go ahead.
David Smith: Good afternoon. Could you please help us think a little bit more about how far along you are in the efficiency opportunity journey? I know, it’s really never ending in some ways, but can you help us think about when the pace of improvement might start to decline, as you get through more of the low-hanging fruit?
Dermot McDonogh: So, thanks for the question. I was wondering when it was going to come. It’s a multi-year journey, and look let’s go back to last year and kind of go through it. And last year, we kind of ended up at 2.7% versus a guide of 4% versus a previous year of 8%. And this year, we’ve guided flat. And we started Q1 on an operating basis of 1%. You’ll see that our head count — we’ve largely, you know, give or take a few hundred people, it’s largely flat and so the headcount is flat, we feel like we have our arms wrapped around that. There’s a lot going under the hood in terms of bringing in — like growing our analyst class, high-value location growth, et cetera, et cetera. So we see a lot of opportunity to continue to improve the efficiency story.
Also, as we both said in our prepared remarks, the migration to a new way of working, the platform operating model over the next couple of years, we feel will not only help us grow top-line, but it will also just help us run the company better. And I think, it’s quite important culturally that we don’t really talk about efficiency internally. We talk about running our company better, which is very important strategically and also culturally. So I think you’re going to see quarter-by-quarter proof points on how we’re able to run the company better, which will result in efficiency, which will then in turn result in improved margin. So we feel very optimistic about what’s coming.
David Smith: Thank you. And lastly, just to confirm, you know, $1 billion or so of buyback in 1Q, does that come out of the $6 billion new re-purchase authorization or is the $6 billion incremental to what you did in 1Q?
Dermot McDonogh: So we did an authorization last year which was $5 billion. We have a little bit left in that. And so — it’s just more of an administration thing that we decided to get another authorization this year for $6 billion. That’s largely open-ended. So I wouldn’t really dwell on the size of the authorization that much. It’s just more of what we commit to you doing on an annual basis. And the key thing for you to take away is we’re committing to north of 100% this year.
David Smith: Got it. Thank you.
Dermot McDonogh: Thanks David.
Operator: Our next question comes from the line of Brian Bedell with Deutsche Bank. Please go ahead.
Brian Bedell: Great. Thanks for taking my questions. Maybe most of them have been asked and answered, but maybe just a couple of follow-ups. One, a little bit on that prior question, Dermot, I guess this could be for Robin as well. I think Robin you mentioned, earlier in the call about 15% of staff are in the new operating model. Maybe if you could just talk about your migration plan over time and going back to what you just answered, Dermot, about the efficiency improvement, should we be thinking of this over the long-term as maybe roughly even between expenses and revenue or still more geared towards expenses?
Robin Vince : Okay. Let me just start with the platforms operating model. So ultimately, if you just go back to why are we doing — what it is that we’re doing, we’ve been pretty siloed as a company as we’ve talked about before. We think that’s a bad artifact, at least it’s a bad artifact for a company like us, which is inherently a scale platforms provider. It’s kind of the nature of our business, diversified many different platforms but largely at scale. And so to have the separation of all of these pieces that are in support of that and in some cases, duplication, it just — in our opinion wasn’t the right way to run the company. So what is platform’s Operating Model going to do? It’s going to simplify how we work, it’s going to improve the client experience, and it’s going to create more empowerment for our employees.
It’s an opportunity to do things in one place, do them well and elevate the quality of overall execution. And so with that said, it sort of hits on the expense line, as a benefit and it hits on the revenue line as well. And we’ve done, remember we did a bunch of studies for this before we embarked on it because pretty significant change. We also did some pilots and to some extent we’ve even built new businesses using this operating rhythm because we built Wove in that way and that wasn’t entirely by accident. So we’ve had some experience associated with all of that and we feel pretty good therefore that we are going to get expense savings and revenue opportunities associated with it. We also think that from a cultural point of view, it’s just an opportunity for our people because we think our people, and this is certainly what the data so far has shown, they just feel more empowered working in the model.
They can see a problem, they can get on it more quickly, they’re more empowered to pull the levers to create change, and they no longer feel that maybe that they’re part of a long chain of a bureaucracy to make change. On the efficiency opportunity thing, the thing I would add in answer to your question from what Dermot said earlier on, is just to reinforce that there are short, medium and long-term opportunities for efficiencies and we’ve talked about it this way for a while now. As Dermot said, we had to bend the cost curve last year. We thought it was very important, so we took a bunch of slightly tactical but nonetheless important and decisive changes. We also laid the groundwork for some medium-term saves. We talked about project catalysts, 1500 ideas, sourced from our employees, essentially delivering savings in ’23, in ‘24, and ‘25.
And then we’ve got things that are longer-term, like the platform’s operating model, which are fundamentally changing the ways that people actually work. That’s a longer term opportunity. Probably get a little bit of benefit from that from ‘24, but ‘25 and ‘26 are places where we’ll probably see a bit more of that. And then in answer to Betsy’s question from earlier on, we’ve been investing in AI. Now that’s definitely not a ‘24 story for benefits, maybe not even ‘25, but a ‘26 and beyond story. So we’re layering in these different opportunities, recognizing that we wanted to take swift action, but then we also feel that we’re laying the seeds for future efficiencies over time.
Dermot McDonogh: And I would just, Brian, just to add on, I would just anchor you in a number. Like last year, when we grew expenses by 2.7%, we invested $0.5 billion in new initiatives within that 2.7%. And we’re replicating that again this year. And so as somebody who’s very close to the platform operating model strategy, the cultural point is when you walk the corridors of BNY Mellon now, you feel an energy and enthusiasm for our people, as Robin said, from embracing the model that hasn’t been seen before. And it is a very, very exciting strategy that’s going on at the firm.
Brian Bedell: That’s fantastic, color. And maybe just one — last one on the speaking of initiatives, the buy side trading solutions initiative. I know we’ve had a lot of other initiatives to talk about, so just maybe to get an update on how that’s tracking.
Robin Vince : Yeah, this was, I’ll take this one. This was always going to be a medium-term thing. As we’ve told you, we sort of have this capability in-house. It’s a great example of platform thinking. It was captive in one bit of the company, only looking internally. We essentially made it fit for external use as well. We onboarded, as we told you last quarter, a large client onto that platform, and that’s been going very well. I have a lot of conversations with clients about how they could consider part of their trading desks to be outsourced. Sometimes it’s all of it. Sometimes it’s a region or a product that somebody wants to essentially say, hey, I’m not at scale. You’re at scale. You’re executing a $1 trillion worth of volumes.
Can I rent that capability from you, essentially? We think there’s a large addressable market here, but it’s going to be, this is a longer sell process. The sale cycle of this takes longer. It’s definitely a C-suite conversation, but we continue to be cautiously optimistic about this over time.
Brian Bedell: Great. Thanks for all the color. Thanks so much.
Robin Vince : Thanks, Brian.
Operator: Our next question comes from the line of Ken Usdin with Jefferies. Please go ahead.
Ken Usdin: Thanks. I know we’re getting on here. I’ll try to ask just a couple quick cleanups. First of all, this is the first quarter that the securities book has actually grown in absolute terms, And I’m just wondering, is part of that an increased confidence in just where you do expect deposits to land, or was it more just opportunity cost of what your options were in the market?
Robin Vince : Thanks, Ken. I would say very much the latter. And when you look at the overall portfolio, you think of cash and securities together. And it was really the CIO team just optimizing yield and deploying cash where they see the opportunities.
Ken Usdin: Yeah, okay. And then I know you said a little bit of this before, but I was wondering if you could tighten up. You know, last quarter you said, to Glenn’s question, you talked about reinvesting at market rates. So last quarter you put that together and said that you would expect that this year’s reinvestments to be 150 basis points to 200 basis points on your roll-on, roll-off. And with higher rates, I’m just wondering if you’ve kind of put that together for us. Like, what do you think that net benefit is now versus that 150 basis points to 200 basis points?
