BNY Mellon’s new CEO vows to hold the line on expenses

Bank of New York Mellon CEO Robin Vince said Friday that the $406 billion-asset company’s performance over the last decade has been “disappointing,” and that he is “determined to change things.”

Less than five months after Vince took the helm at the world’s largest custody bank, he pledged to cut annual expense growth in half.  

Discussing BNY Mellon’s earnings on a conference call with investor analysts, Vince said that the company “fell short” in controlling noninterest expenses, which totaled $13 billion in 2022, up about 8% year over year on a constant-currency basis, excluding one-time events. 

In light of those numbers, “bending the cost curve” has emerged as a key 2023 objective, according to Vince and Chief Financial Officer Emily Portney. 

The improvement “will come from instilling further expense discipline across the firm and from focusing more on profitable new business growth,” as well as from “saying no to more things when the economics aren’t what they should be,” Vince said.

New York-based BNY Mellon is “very committed” to delivering year-over-year expense growth of 4.5% in constant-currency terms, Portney added.

BNY Mellon’s bottom line was negatively impacted by a one-time event for a second consecutive quarter. 

For the three months ending Dec. 31, the company reported $449 million in losses tied to securities repositioning. The losses cut into fourth-quarter net income, which totaled $509 million.

Three months earlier, the firm’s profits were dragged down by a $680 million goodwill impairment charge. 

Excluding the securities losses and some other, smaller one-time items, BNY Mellon would have earned about $1.1 billion for the three months ending Dec. 31, a 24% increase over the adjusted result from the same period in 2021.

BNY Mellon sold about $3 billion in lower-yielding municipal and corporate bonds in the fourth quarter and has been replacing them with securities earning about 5% — fully 250 to 300 basis points more — according to Portney. 

Brian Bedell, who covers BNY Mellon for Deutsche Bank, characterized the fourth-quarter results as “relatively solid overall,” while reiterating a “Hold” rating and a $51 price target for the company’s shares. The stock was trading up about 2.7% at $49.45 on Friday afternoon.

BNY Mellon’s assets under custody or administration of $44.3 trillion and its assets under management of $1.8 trillion both declined in the fourth quarter, by 5% and 25% respectively, due primarily to market fluctuations. Fee income, BNY Mellon’s largest revenue source, totaled $3.2 billion for the fourth quarter, level with the same period in 2021 and with the quarter that ended Sept. 30.

BNY Mellon’s Pershing unit, which provides clearing and custody services for institutional investors, broker-dealers, registered investment advisors and other wealth professionals, proved a particular bright spot in the fourth quarter, generating $502 million in investment services fees, up 22% year over year. 

Pershing’s fourth-quarter successes included winning the insurer State Farm and Arta, a digital financial management platform, as customers.

Vince, who joined BNY Mellon in October 2020 from Goldman Sachs, is staking many of his expense reduction hopes on an initiative launched in 2022. That initiative asked employees to suggest ways the company could manage itself more efficiently. About 200 ideas have already been implemented, with another 500 slated for adoption in 2023, Vince said. 

While he did not detail any of the ideas BNY Mellon has greenlighted, the initiative is on track to double the amount of efficiency savings in recent years, according to Vince.

“No one knows the ins and outs of our products, services and processes better than our people,” Vince said.