The Bank of New York Mellon Corporation (NYSE:BK) Q4 2023 Earnings Call Transcript

The Bank of New York Mellon Corporation (NYSE:BK) Q4 2023 Earnings Call Transcript January 12, 2024

The Bank of New York Mellon Corporation beats earnings expectations. Reported EPS is $1.28, expectations were $1.12. 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 2023 Fourth 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 rebroadcast these materials without BNY Mellon’s consent. I will now turn the call over to Marius Merz, BNY Mellon, Head of Investor Relations. Please go ahead.

Marius Merz: Thank you, operator. Good afternoon, and thank you all for joining us. I’m here with Robin Vince, President and Chief Executive Officer; and Dermot McDonogh, our Chief Financial Officer. As usual, we will reference our financial highlights presentation, which can be found on the Investor Relations page of our website at bnymellon.com. I’d like to 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, January 12, 2024, and will not be updated. With that, I will turn it over to Robin.

Robin Vince: Thank you, Marius. Good afternoon, everyone, and thanks for joining us. The fourth quarter marked a solid close to a year in which we supported our clients in navigating through a challenging operating environment with geopolitical tensions, macroeconomic uncertainty and evolving monetary policy. We started to show some early evidence that we can deliver higher financial performance in the near and medium term. We clarified our strategic priorities and we laid the foundation for a multi-year transformation of our company for the long-term. With a clearer focus on our direction of travel and having restored some confidence in our ability to deliver on our plans, today we are publishing financial targets for each of our business segments and the firm overall.

Dermot will review our fourth quarter financials, the outlook for 2024, and our medium-term financial targets in more detail. But let me first briefly address our performance in 2023. Referring to Page 2 of the financial highlights presentation. Our results for the year not only highlight BNY Mellon’s characteristic resilience, but they demonstrate the strength of our execution when we are appropriately organized and focused. On a reported basis, 2023, earnings per share increased by 38% year-over-year. On a core basis, excluding notable items, EPS of $5.05 increased by 10% year-over-year. Both pre-tax margin and return on tangible common equity improved on the back of significant operating leverage. Excluding notable items, we generated approximately 180 basis points of positive operating leverage.

ROTCE improved 0.5 percentage point to 21.6%, and pre-tax margin improved roughly 80 basis points to 30%. Moving on to Page 3. At the beginning of last year, we communicated three financial goals for 2023. First, we expected to generate approximately 20% net interest revenue growth year-over-year. We delivered 24%. Second, we set out to half our constant-currency expense growth rate in 2022 to approximately 4% year-over-year expense growth, excluding notable items in 2023. We delivered 2.7%. And third, we sought to return north of 100% of 2023 earnings to common shareholders through dividends and buybacks. We delivered 123%. Over the course of 2023, we returned $3.9 billion of capital to common shareholders, all while having further strengthened our regulatory capital ratios to be well-positioned for a wide range of macroeconomic and regulatory outcomes.

So we are still at the beginning of our transformation journey. Our ability this past year, not just to deliver on our commitments but to exceed them gives us confidence that we can effect meaningful change and consistently improve our financial performance over time. While mindful, there is a lot more work ahead of us. I’m proud of the effort that our people put in over the last 12 months as we embraced a focus on commerciality, accountability and efficiency, which drove these results. We are committed to improving the firm’s financial performance in the near, medium and long term, and we have framed this work for our people with three strategic pillars, which we describe on Page 4. Last year we introduced these three pillars to get at the heart of how we operate and who we are day-to-day for our clients, managing their money, moving it and keeping it safe.

Pillar number one, be more for our clients; number two, run our company better; and number three, power our culture. They are deliberately simple and our people are rallying around them. As I’ve said before, strategy is important, but ultimately just a set of words. Actually doing it and how we do it matters a lot. I’m encouraged by the progress we made in 2023, some of which we highlight on Slide 5. Our global clients across government’s pension funds, mutual funds, unions, endowments, corporations, financial services firms, and individuals, both trust and want to do more business with us. And our analysis clearly shows that is more for them to do with us as we continue to partner alongside them to help achieve their ambitions. As the global financial system grows and becomes ever more complex, demand for a trusted resilient partner with the scale to service clients across the entire financial life-cycle, such as BNY Mellon, grows as well.

In 2023, we launched several new solutions that allow us to deepen our relationships with existing clients and to open the door to new ones. Of course, that includes the launch of Wove, Pershing’s wealth advisory platform, as well as the rollout of our buy-side trading solutions offering, but it goes far beyond these more visible product launches. All of our businesses are bringing new client solutions to the market, Bankify, real-time payments on FedNow, white labeling Liquidity Direct, bond-wise intraday repo settlement, BNY Mellon Advisors are all examples. And in 2023, we filed more patent applications than ever before. At the same time, we have an opportunity to bring more of BNY Mellon to clients who currently use us for just a single service.

Last year, we hired our first Chief Commercial Officer as we began to operationalize our one BNY Mellon initiative across the organization. As part of enhancing the organizational setup and focus of our client coverage organization, we created an integrated team to facilitate multi-line of business solutions at scale, and we also formed a coverage practice group to implement consistency and approach and tooling. Next, while 2023 was a foundational year and what will be a multi-year journey to transform to a more streamlined and effective operating model, we took important steps toward running our company better to improve efficiency, reduce bureaucracy, and be more intentional with how we spend so our investments in the business go further.

We generated nearly double the amount of efficiency savings versus the prior year, which allowed us to self-fund over $0.5 billion of incremental investments, and we laid the foundation needed to transition to a platform’s operating model, including successful pilots in two areas of the organization, which were important proof points as we start to unlock the power of our platforms in several phases over the next couple of years. While we focus on being more for our clients and running our company better, we know none of it can happen without our people, which is why we are powering our culture to make BNY Mellon a place where people are proud to work and excited to grow their careers. We elevated recruitment and retention programs, including welcoming the largest class of campus analysts in BNY Mellon’s history, a class double the size of the previous year and we’re going to double it again this year.

We launched our BK shares program to grant shares to the 45,000 employees who didn’t previously receive stock as part of their compensation to cascade a sense of ownership and accountability across our company. And we rolled out enhanced employee benefits recognizing value in fostering both a human and high-performing work environment. I’ll wrap up where I began. We remain confident in the strength of our culture, our strategy and our ability to execute to help us unlock value for our clients, our shareholders, and our people. 2023 was an important year in which we assembled more of the team that can deliver on what is needed and we got ourselves pointed in the right direction for what we need to achieve, but it was also a year where being humble and resilient mattered.

While we have a lot of work ahead of us, what started as a theory and a belief now has early proof points, and we can see the possibility of what we can achieve. We have an ambitious agenda as we move forward, but I continue to be optimistic about the opportunity ahead. With that, I’ll turn it over to Dermot.

Dermot McDonogh: Thank you, Robin, and good afternoon, everyone. I’m picking up on Page 6 of the presentation with our consolidated financials for the fourth quarter, and as Robin noted, I’m also going to speak to our 2024 outlook and medium-term targets, including how we are going to execute on our goals. For the fourth quarter, our reported results reflect several notable items. Approximately $750 million of non-interest expense is related to the FDIC special assessment severance and litigation reserves. And we had $150 million reduction in investment and other revenue, primarily related to a fair-value adjustment of a contingent consideration receivable. Total revenue of $4.3 billion was up 10% year-over-year, or up 2% excluding notable items.

Total fee revenue was flat, reflecting 3% growth in investment services fees, which was offset by a 5% decline in investment management and performance fees, and 25% decline in foreign-exchange revenue. Investment and other revenue was a negative $4 million in the quarter, reflecting the fair-value adjustments as I mentioned before. Net interest revenue was up 4% year-over-year, primarily reflecting higher interest rates, partially offset by changes in balance sheet size and mix. Expenses were up 20% year-over-year on a reported basis, primarily reflecting the FDIC special assessment. Excluding notable items, expenses were up 4%, reflecting higher investments and the impact of a weaker dollar, as well as inflation, partially offset by efficiency savings.

Provision for credit losses was $84 million, primarily driven by reserve builds for commercial real-estate exposure. Reported earnings per share for the fourth quarter were $0.33. Pre-tax margin was 8% and return on tangible common equity was 6%. Excluding notable items, earnings per share were $1.28, pre-tax margin was 28%, and return on tangible common equity was 21%. Turning to capital and liquidity on Page 7. Our Tier 1 leverage ratio of 6% remained largely unchanged, down 8 basis points to be precise compared to the prior quarter. Tier 1 capital remained essentially flat at $23.1 billion as the impacts of capital distributions to common shareholders and our redemption of $500 million preferred stock were offset by an improvement in AOCI and capital generated through earnings.

Average assets increased by 1% sequentially, primarily reflecting deposit inflows in the fourth quarter. Our CET1 ratio was 11.6% which represents a 20 basis points improvement compared with the prior quarter. CET1 capital was up 3% sequentially, primarily reflecting capital generated through earnings and the improvement in AOCI, partially offset by the impact of capital distributions to common shareholders. Risk-weighted assets increased by 1%. Consistent with the prior quarter, we returned $450 million of capital to our common shareholders through share repurchases, and we paid approximately $330 million of common stock dividends in the fourth quarter. The consolidated liquidity coverage ratio was 117%, a 4 percentage points sequential decrease, primarily reflecting deposit inflows in the quarter, which are considered non-operational until they are seasoned under our operational deposit model, and our consolidated net stable funding ratio remained roughly unchanged at 135%.

Next, on Page 8, net interest revenue and additional details on the underlying balance sheet trends. Net interest revenue was $1.1 billion. It was up 4% year-over-year and up 8% quarter-over-quarter. The sequential increase was primarily driven by balance sheet growth and changes in balance sheet mix. Total deposits averaged $273 billion in the fourth quarter, up 4% sequentially, a strong finish to the year. Interest-bearing deposits were up 5%, and non-interest-bearing deposits remained flat. Interestingly, since August, we’ve seen four consecutive months of growth in average total deposit balances. Our team is highly engaged with our clients and we’re encouraged by the demand we’ve been seeing for our on-balance sheet liquidity solutions, and we are pleased with the stabilization.

We remain vigilant, preparing for a variety of different outcomes and financial conditions in 2024. On the asset side, average interest-earning assets increased by 2% quarter-over-quarter. This includes cash and reverse repo up 5%, and loan balances up 3%. The size of our investment securities portfolio decreased by 3% sequentially. Moving to our business segments starting with Securities Services on Page 9. Securities Services reported a total revenue of $2.2 billion, flat year-over-year. Investment services fees were up 1% year-over-year. In asset servicing, investment services fees were flat as the positive impact of higher market levels, net new business, and a weaker dollar was offset by lower client activity. We ended the year on a high note, with our strongest sales quarter of 2023, including wins in the Middle East, new mandates from several mid-sized investment managers, and expanded mandates from some of our largest existing clients.

And we saw continued strength in our ETF servicing business with another quarter of strong net inflows capped a year of above-market growth. Within Issuer Services, investment services fees were up 5%, reflecting healthy new business and higher client activity. Foreign exchange revenue was down 21% year-over-year on the back of lower volatility and lower volumes. And net interest revenue was down 3% year-over-year. Expenses of $1.7 billion were up 5% year-over-year, reflecting higher investments and higher revenue-related expenses, as well as inflation, partially offset by efficiency savings. Pre-tax income was approximately $460 million, representing a 21% pre-tax margin. Next, Market and Wealth Services on Page 10. This segment reported a total revenue of $1.5 billion, up 7% year-over-year.

Total investment services fees were up 6% year-over-year. In Pershing investment services fees were up 1%, reflecting higher equity market values and higher client activity, partially offset by the impact of expected lost business. Net-new assets were negative $4 billion for the quarter, also reflecting this expected loss business. In Treasury Services, investment services fees increased by 5%, primarily reflecting higher client activity, partially offset by higher earnings credits for non-interest-bearing deposit balances. In Clearance and Collateral Management, investment services fees were up 16%, reflecting broad-based strength across Clearance and Collateral Management, both in the US and internationally. Net interest revenue increased by 10% year-over-year.

Expenses of approximately $840 million were up 7% year-over-year, reflecting higher investments and inflation, partially offset by efficiency savings. Pre-tax income was approximately $630 million, representing a 42% pre-tax margin. Turning to Investment and Wealth Management on Page 11. Investment and Wealth Management reported total revenue of $676 million, down 18% year-over-year. In investment management, revenue was down 26%, reflecting the fair-value adjustment of the receivable and the impact of the prior year divestiture, as well as the mix of AUM flows, partially offset by higher market values, seed capital gains and the weaker dollar. In our wealth management business, revenue decreased by 3%, driven by changes in product mix, partially offset by higher market values.

Expenses of approximately $680 million were down 2% year-over-year, primarily reflecting efficiency savings and the impact of the divestiture in 2022, partially offset by higher investments, inflation and the unfavorable impact of the weaker dollar. Pre-tax income was a loss of $5 million. Excluding the impact of notable items, pre-tax income of $151 million increased 1% year-over-year and represents an 18% pre-tax margin. Assets under management of $2 trillion increased by 8% year-over-year, reflecting higher market values and the weaker dollar, partially offset by cumulative net outflows. In the quarter, we saw $7 billion of net inflows into short-term strategies and $4 billion of net inflows into long-term active strategies, while we saw $10 billion of net outflows from index strategies.

Wealth management client assets of $312 billion increased by 16% year-over-year, reflecting higher equity market values and cumulative net inflows. Page 12 shows the results of the other segments. Total revenue improved year-over-year, primarily reflecting the absence of a net loss from repositioning the securities portfolio recorded in the fourth quarter of 2022, and expenses of $693 million included $505 million related to the FDIC special assessment. Having reviewed our results, I will now turn to Page 14, and our current outlook for 2024. We’re entering the year on a strong footing and we set ourselves up determined to at least break even from an operating leverage perspective. Considering our healthy pipeline across the businesses, we expect fee revenue growth to turn positive in 2024.

With regards to net interest revenue, our expectation for an approximately 10% decrease year-over-year is based on the assumption of market-implied forward interest rates and we assume ongoing quantitative tightening puts further downward pressure on deposit balances. We intend to keep expenses excluding notable items, roughly flat in 2024. And finally, with regard to capital management, we expect to return north of 100% of 2024 earnings to common shareholders through dividends and buybacks. As Robin discussed earlier, 2023 was a foundational year for us. We took decisive actions to demonstrate some early evidence of our ability to deliver stronger financial performance, and importantly, we’ve developed a clear roadmap for our multi-year transformation.

Over the next couple of slides, we’ll provide you our medium-term financial targets for the firm and some of the most impactful actions we’re taking to keep delivering on our goals. Page 15 summarizes our consolidated targets. It is our goal to improve the firm’s pre-tax margin to 33% and our ROTCE to 23% over the medium-term, while maintaining a strong balance sheet. I’ll double-click on our business segments in a moment, but along our three strategic pillars, there are a number of teams that transcend our lines of business and segments. Robin mentioned several updates when he talks about our progress in 2023, so I’ll highlight just a few with them. The first is our enhanced commercial model. We’re driving a new culture of commerciality to deliver all of BNY Mellon in a unified front to facilitate deeper client relationships with solutions from across the firm.

With our clients at the center, our module is led by client coverage teams with clear accountability to retain business, expand revenue into new areas and drive client satisfaction. Our new sales operations and enablement organization, the client coverage practice, will make it easier for our clients to do more business with BNY Mellon and create consistent commercial roles, tools and support internally for an enhanced and more efficient sales experience. And what we call integrated solutions represents a new more focused approach to assembling components from multiple client platforms into a piece will go-to-market capabilities that span across our lines of business, driving better value for our clients and higher profitable growth. The second one I’d like to highlight is our transition to a platform’s operating model.

By grouping similar activities together into logical platforms and uniting related capabilities, we are enabling the streamlining of internal processes to drive higher efficiency and further enhance resiliency and risk management. Our model is based on two types of platforms. Client platforms will own the delivery of a commercial solution to our external clients, while enterprise platforms will own the delivery of internal services. Over the past few months, we’ve developed a detailed implementation approach and our transition into this new model will be gradual and deliberate, starting with the first implementation wave this spring. And the third is our culture. People come to BNY Mellon to make an impact on global financial markets. While we focus on driving growth and running our company better, none of it can happen without our people.

That’s why we’re making meaningful investments, including in enhanced learning, development and feedback to foster exciting careers. Moving to our segments, starting with Securities Services on Page 16. Here, we are reiterating our existing 30% pre-tax margin target. Over the past 24 months, we’ve improved the margin from 21% in 2021 to 25% in 2023. We are pleased with the performance of the business over the past two years, but we appreciate that the path from 25% to 30% will be the harder yards. First of all, we are firmly focused on driving down the cost-to-serve. We have and we continue to make significant investments in uplifting several platforms that support core services, including fund accounting, tax services, corporate actions and loan administration.

Additionally, we continue going after inefficient processes. Over the past couple of years, we cataloged all of these processes and we’ve made some good progress in our digitization efforts, but there is more work to do. We’re also taking a more strategic approach to deepening client relationships going forward. Using enhanced tools to better understand client behavior, quality of service, economics and revenue opportunities, we are expanding wallet share and improving client profitability. Last but not least, we’re pursuing several opportunities to drive an acceleration of underlying growth. On the back of our investments over the years, we have become a premier provider of ETF servicing globally, and we expect to maintain our strong momentum through continued innovation.

Similarly, in private markets, another one of the fastest-growing market segments, we’ve established a strong market position with more room to expand our capability set. Moving on to Market and Wealth Services on Page 17. As you can see on the left side of the page, this segment has a good track record of solid growth and attractive margins. Our focus here is to accelerate growth through deliberate investments without compromising profitability. I’ll start with Pershing, our company’s second-largest line of business. As the number-one clearing firm for broker-dealers and a top three RIA custodian, Pershing benefits from a strong position in one of the fastest-growing segments in financial services, i.e., the US wealth market. Notwithstanding near-term headwinds from the events of 2023, we are confident that our investments in the core platforms and client experience will drive further market-share gains in the attractive market segments after growing $1 billion-plus RIAs and hybrid broker-dealers.

And our Wove platform continues to gain momentum. As we’re capturing business from existing clients and new opportunities to deliver the platform, data and investment solutions, we’re currently projecting $30 million to $40 million of incremental revenue from Wove in 2024. In Treasury Services, we’re benefiting from a strong position with financial institutions and we’re one of the top-five US dollar payment clearers in the world. Leveraging the strong position, we are selectively expanding our reach by targeting new client geographic and product segments. For example, we’ve been adding bankers to drive growth with e-commerce and NBFI clients and the completion of a multi-year uplift of our payments platform is expected to drive an increase to our swift market share through growth in several geographies.

Additionally, by joining forces with our markets business, which provides FX solutions in over 100 currencies, Treasury Services will enhance the FX capabilities that it can provide its clients. Rounding out the segment, Clearance and Collateral Management. As the primary provider assessment for all US government securities trades and the largest global collateral manager in the world, we have a special role in financial markets and we’re taking this role very seriously. No doubt, this business grows as markets grow, but we’re not resting on our position. Our Clearance and Collateral Management business is one of the most innovative in the company. And so we’re confident that this business can maintain its healthy growth trajectory by continuously launching new flexible collateral management solutions that position our clients to meet their growing liquidity needs and by continuing to increase collateral mobility and optimization across global client venues.

Next, Investment and Wealth Management on Page 18. Investment and Wealth Management reported a pre-tax margin of 12% for the full year 2023, or 17% excluding notable items. Our plan is to improve the segment margin to 25% or higher over the medium term on the back of a combination of growth and efficiency initiatives. First, we’re unlocking BNY Mellon’s distribution power for the benefit of our investment firms and our clients. Most importantly, we’re in the process of creating a firmwide distribution platform that combines enhanced products with offerings from select third-party managers to provide best-in-class solutions. Additionally, we’re making enhancements to how we’re offering Dreyfus Cash products across our enterprise-wide open architecture liquidity ecosystem to improve visibility and enhance platform share.

Second, we’re expanding our products and solutions with a focus on scaling our investment capabilities across Investment Management, Wealth Management and Pershing. And heard, we’re driving efficiency and scale by realizing the benefits as multi-year infrastructure investment programs are nearing completion, and by better leveraging the enterprise to transform fragmented and sub-scale support activities into scaled enterprise platforms. Moving onto our capital management philosophy on Page 19. BNY Mellon benefits from a capital-light business model that allows us to drive organic growth while typically returning nearly 100% of earnings to our common shareholders over time. Over the past 10 years, the firm grew dividends per share at an 11% CAGR and returned almost 100% of earnings to shareholders through a combination of dividends and buybacks.

Our philosophy for capital deployment and capital distribution remains unchanged. We’ve entered the year with strong capital ratios at or above our management target of approximately 5.5% to 6% Tier 1 leverage and approximately 11% CET1. And assuming interest rates follow marks implied forwards, we expect to generate additional excess capital from the unrealized loss related to AFS securities pulling to par over time. Wrapping up on Page 20. Over the past year, we conducted thorough strategic reviews, we developed detailed business and financial plans, and we’ve taken the first steps on what would be a multi-year transformation of our company. Our business plans drive as achieving what we laid out across our three strategic pillars, be more for our clients, run our company better and power our culture.

And our financial plans aim to improve the firm’s pre-tax margin to 33% and our ROTCE to 23% over the medium-term, while maintaining a strong balance sheet. In publishing our medium-term financial targets together with our most important strategic priorities and the actions that will help us achieve them, we are providing transparency to allow you all to track our progress, and we are confident that we will deliver. We are excited about the work ahead of us and today is an important milestone for our team. Now for those of you who are still with us, we promise to let you start your long weekend soon. With that, operator, can you please open the line?

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Brennan Hawken with UBS. Please go ahead.

Brennan Hawken: Good afternoon. Thanks for taking my question, and thanks for all the detail that you provided in the deck on the targets really very, very helpful and very, very thoughtful. I’d love to start there. So it seems as though you guys see a really strong pre-tax margin enhancement opportunity. Where do you expect that you’re going to see the results of that opportunity come through first? And while I appreciate that the targets are over a three to five-year period, is the profile of the improvement that you expect likely to look straight-line? Or is there going to be sort of a more parabolic curve, resulting in more of a back-end weighting? Thanks.

Dermot McDonogh: Hi, Brennan. This is Dermot. I’ll start off. So the way I kind of think about it, if you take the comments stock both Rob and I have prepared and we’ve just laid out over the last 30 to 35 minutes, you can see truly that 2023 was a foundational year. We did a lot of kind of exploratory work, detailed planning. We’ve made a bunch of investments, both which will drive efficiency and which will drive growth. We’ve talked over the last few quarters about Wove, which we launched last June, and in my prepared remarks, I talked about $30 million to $40 million of revenue this year. So I would say we are making investments in all of our segments, and you can also see is in investments in wealth management, where we are beginning to see green shoots, and you can see, we’re making a lot of investments in our security and services business, modernizing our platforms.

So I would say you’re going to see us quarter-by-quarter and I think over time as you get to know Robin and myself, you’ll see us do is and then talk about us rather than pre-announce it and then do it. So we’re in execution mode and we will deliver, but you’re going to see this happen quarter-by-quarter.

Brennan Hawken: Okay. Thank you very much for that color. I appreciate it. The environment rather different from the last time we spoke. We’ve seen an indication of the Fed pivot. Everyone is now expecting a far more short-order rate — policy rates to be declining. And so we saw an uplift, even though there was only a little bit of averaging in of policy rate a little higher this quarter, we did see an uptick in — on the deposit cost side. So what drove that? And then how should we be thinking about the mechanics of the lower policy rate and how that might flow through on the deposit side? And what’s captured in your NII outlook for 2024? A few questions in there. Sorry, Dermot.

Dermot McDonogh: Yeah. Look, I’m going to say for a follow-on question that was special, yes.

Brennan Hawken: [Multiple Speakers]

Dermot McDonogh: Yeah. Hopefully, others won’t have to ask the same question again. So, look, if you go back 12 months when we gave our 20% guidance for 2023, there was a disconnect between what the market thought was going to happen in 2023 and what the Fed thought was going to happen in 2023. The market was calling for rate cuts in June of 2023 and the Fed wasn’t. We guided 20%. The year played out very, very differently to what everybody thought was going to happen, and we ended up with a 24% year. To one of your questions where why did deposit costs go up, I think our NIM for Q4 was in the 1.26% range, and that really is — balances rolling off and new balances coming on at market rates, and we ran strong to the tape at the year-end.

And look, I have to say how we did on deposits in Q4 was a little bit of one BNY Mellon effort between lines of business, our deposit team, our treasurer and our CIO book. So we feel very good about how we finished the year and we outperformed $1.1 billion of revenue. So all in all, we feel very good about that. This year again, I think the Fed and the markets are a little bit at odds. We had a Fed commentator talked a couple of days ago about March being too early. Notwithstanding that, the market think there’s an 80% probability of a rate cut happening in March. So we’re neutrally positioned in the outlook for 2024 on balance if rates — if the rates happen — happen this year, we might expect balances to go up. If it’s higher for longer, we expect people to optimize and we say continued outflow of deposits.

Well, we started the year strong with $273 billion of average deposits in Q4. We feel good about our NIM for 2024. So we feel we’re set up nicely but the balance of outcomes we think down 10% for 2024.

Brennan Hawken: Okay. Thanks for taking my questions and thanks for the patience with multiparter.

Operator: Our next question comes from the line of Mike Mayo with Wells Fargo Securities. Please go ahead. Mr. Mayo, your line is unmuted. Please go ahead. Check your mute button.

Robin Vince: Mike, we can’t hear you. So we’ll come back to you. Maybe we have an issue connecting.

Mike Mayo: Actually, I’m here. Hey, can you hear me now?

Robin Vince: Yeah. Just in the nick of time

Mike Mayo: Okay. Okay, just made it. So let me see if I did okay in my math class in school. So in 2024, you’re guiding for flat expenses, flat or higher operating leverage. NII down 10% that implies fees up 3%. So did I do my math correctly? And if I did it correctly, why only up 3%?

Robin Vince: So, Mike, it’s Robin. And we’re not going to quibble with your math or with your English comprehension either from our commentary. You’ve gotten right what we said. We’ve intentionally not guided on fees because of the nature of the year and we recognize that there were a lot of different inputs to that. So we recognize that a year can in fact turn out in various different ways. We feel committed to the flat to plus on the operating leverage that we’ve committed to, and we’ve guided to how we think the other things are going to play out. And so that was quite deliberate and we’re focusing you on the things that we’ve talked about. But obviously, from a math point-of-view, we understand how the math works.