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Edited Transcript of BK earnings conference call or presentation 20-Jul-17 12:00pm GMT

Thomson Reuters StreetEvents

Q2 2017 Bank of New York Mellon Corp Earnings Call

NEW YORK Jul 21, 2017 (Thomson StreetEvents) -- Edited Transcript of Bank of New York Mellon Corp earnings conference call or presentation Thursday, July 20, 2017 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian T. Shea

The Bank of New York Mellon Corporation - Vice Chairman, CEO of Investment Services and Vice Chairman of BNY Mellon, NA

* Charles W. Scharf

The Bank of New York Mellon Corporation - CEO & Director

* Gerald L. Hassell

The Bank of New York Mellon Corporation - Chairman

* Mitchell Evan Harris

The Bank of New York Mellon Corporation - Senior EVP and CEO of Investment Management

* Thomas P. Gibbons

The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA

* Valerie C. Haertel

The Bank of New York Mellon Corporation - Global Head of IR

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Conference Call Participants

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* Alexander Blostein

Goldman Sachs Group Inc., Research Division - Lead Capital Markets Analyst

* Brennan Hawken

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials

* Brian Bertram Bedell

Deutsche Bank AG, Research Division - Director in Equity Research

* Geoffrey Elliott

Autonomous Research LLP - Partner, Regional and Trust Banks

* Gerard S. Cassidy

RBC Capital Markets, LLC, Research Division - Analyst

* Glenn Paul Schorr

Evercore ISI, Research Division - Senior MD, Senior Research Analyst and Fundamental Research Analyst

* Kenneth Michael Usdin

Jefferies LLC, Research Division - MD and Senior Equity Research Analyst

* Michael Roger Carrier

BofA Merrill Lynch, Research Division - Director

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Second Quarter 2017 Earnings Conference Call hosted by BNY Mellon. (Operator Instructions) 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 Ms. Valerie Haertel. Ms. Haertel, you may begin.

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Valerie C. Haertel, The Bank of New York Mellon Corporation - Global Head of IR [2]

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Thank you. Good morning, and welcome to the BNY Mellon Second Quarter 2017 Earnings Conference Call. With us today are: Gerald Hassell, our Chairman; Charlie Scharf, our CEO; Todd Gibbons, our CFO; and members of our executive leadership team. Our second quarter earnings materials include a financial highlights presentation that will be referred to in the discussion of our results and can be found on the Investor Relations section of our website.

Before Charles and Todd discuss the quarter, let me take a moment to remind you that our remarks today may include forward-looking statements. Actual results may differ materially from those indicated or implied by our forward-looking statements as a result of various factors. These factors include those identified in the cautionary statement in the earnings press release, the financial highlights presentation and in our documents filed with the SEC available on our website, bnymellon.com. Forward-looking statements made on this call speak only as of today, July 20, 2017. We will not update forward-looking statements.

Now I would like to turn the call over to Gerald.

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Gerald L. Hassell, The Bank of New York Mellon Corporation - Chairman [3]

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Thank you, Valerie, and thanks, everyone, for joining us to discuss our second quarter performance. As Valerie mentioned, Charlie is here with us today, along with Todd and members of our leadership team. Now I'll be taking you through the highlights for the quarter for one final time, and then invite Charlie to make some remarks after we've given you some color for the quarter. Next quarter, you'll be in Charlie's very capable hands.

Now turning to our release. As you may have seen, we again delivered double-digit EPS growth for the quarter as we achieved healthy revenue growth in both our Investment Management and Investment Services businesses and we benefited from the more favorable rate environment. We earned $0.88 per share, up 17% year-over-year. Total revenue grew 5%, driven by 6% growth in investment management and performance fees, 4% growth in Investment Services fees and 8% growth in net interest revenue.

Total noninterest expense was up 1%, and we generated more than 340 basis point of positive operating leverage. Our pretax margin increased to 33% and a 35% on an adjusted basis. And we're continuing to deliver high returns on tangible common equity this quarter, achieving a strong adjusted return of 22%. So this is now our 10th straight quarter of solid performance against the EPS goals we shared at October 2014 Investor Day, reinforcing how well our diversified lower risk business model is positioned to deliver consistent results in all market environments.

So now let me update you on some progress against our strategic priorities. As you know, our top priority is driving profitable revenue growth. Investment Services revenue reflected nice growth across virtually all business lines. Notable items include strong performance in our clearing businesses; net new business, including collateral management solutions; and of course, higher equity market value.

For the quarter, we add up $152 billion in estimated new AUC/A business wins. And that includes a $33 billion Prudential fund administration win that we disclosed in early April. And we continue to remain encouraged by the strength of our new business pipeline. We are benefiting for our investments in cutting-edge collateral management and U.S. government securities clearance capabilities and in market-leading technology to meet client and market demand in these areas.

Tri-party balances grew, reinforcing our multi-quarter growth trend and reflecting a high level of client uptake. For this year, we've onboarded a number of new repo and collateral management clients and the demand for our solutions remains high. And while the initial revenue impact is relatively small, we would expect these programs to build over time. Now we've also begun onboarding clients affected by JPMorgan's decision to exit the U.S. government securities clearance business. The revenue impact in 2017 will be modest as many of the largest revenue-producing relationships will not be coming onboard until 2018. We expect to see the full revenue impact in 2019.

Now our other clearing business remains strong as well, benefiting from the restoration of money market fee waivers and another quarter of strong growth in the mutual fund balances. Mutual fund consolidation, driven by the DOL Fiduciary Standard Rule, is contributing to increased clearing activity. We had an 11% increase in long-term mutual fund assets and solid growth in our sub-accounting services in asset servicing.

Now during the quarter, we became one of the first banks to go live as an intermediary for U.S. dollar payments with the first phase of the SWIFT global payments innovation, or gpi. Now that's a service that improves the speed and productivity of cross-border business-to-business payments. BNY Mellon clients will benefit from quicker and faster use of funds, greater transparency of fees and payments tracking.

Now turning to Investment Management. It also had a strong quarter with revenue up 5% year-over-year and pretax income, excluding intangibles, of 20%. Our adjusted pretax operating margins rose to 34%, up 4% year-over-year. Now then that benefits from the increased revenue and the margin expansion efforts that we've taken over the last year to focus on strengthening our core business performance. We achieved a record high of assets under management of $1.77 trillion. Now that's supported by $14 billion in increased flows with long-term active flows of $16 billion, which includes LDI and flows from our cash business of $11 billion. And that was partially offset by index outflows of $13 billion.

In terms of investment performance, against the backdrop of relatively strong quarter for Global Markets, our long-term active strategies performed well with 72% and 84% of the assets above their 3- and 5-year benchmarks, respectively. Now investments in other initiatives are continuing to gain traction as well. So for example, we are seeing strong interest in our newest boutique, Amherst Capital, where we have been strengthening our alternative offering that is part of our public and private real estate investment strategies.

Our wealth management business also had a strong quarter, delivering record levels of revenue and pretax income as a result of positive flows and higher net new business. The organic investment in expanding our wealth management sales teams has now turned profitable. So in summary, the diversity of our Investment Management business mix combined with the strategy of meeting the growing client demand for high-value active solutions and ongoing expense control continue to drive improved financial performance in this sector.

Our second priority is executing on our business improvement process to create efficiency and quality benefits for our clients and reduce technology operations and structural costs for us. So during the quarter, we expanded our cognitive technology functionality to deploy Optical & Intelligent Character Recognition through processing functions. We believe our use of cognitive technologies is leading-edge. So during the quarter, we were recognized at the Blue Prism World Awards for best use of robotics process automation to deliver overall business value. During the quarter, we also signed additional clients to our collateralized optimization technology application. It helps our Broker-Dealer Services clients achieve the optimal use of their assets and maximize capital efficiency. It's one example of how our business improvement process is contributing to revenue growth.

Our third priority centers on being a strong, safe, trusted counterparty. The results of the 2017 CCAR stress test demonstrates the high quality of our balance sheet. Of the U.S. G-SIBs, we had the lowest drawdown of our CET1 ratios through the supervisory severely adverse scenario. Through stress scenarios, we benefit from our fee-based recurring revenue stream, which delivers consistent earnings and strong capital generation. In addition, we have a very high-quality credit and investment portfolio in a low-risk business model.

Now from a regulatory ratio standpoint, our fully phased-in SLR is now 6%. We established a separate legal entity for our operational aspects of our U.S. government securities clearance and U.S. tri-party repo business to make us more resilient, transparent and resolvable. We also simplified our legal entity structure in Europe and across the globe, eliminating a number of entities in all of the regulatory requirements that go with them.

Our fourth priority involves generating excess capital and deploying it effectively. And you saw that during the quarter, we returned more than $700 million in value to our shareholders, repurchasing $506 million in shares and distributing $199 million in dividends. As we announced last month, the Federal Reserve did not object to our 2017 capital plan as part of CCAR. Our board has approved the repurchase of up to $3.1 billion of common stock, including the repurchase of $500 million of common stock contingent on a preferred stock issuance. Now this is over the next 4 quarters. And I'm pleased that we have been able to increase our quarterly dividend by approximately 26% beginning in the third quarter of this year.

And our fifth priority is attracting, developing and retaining top talent. The executive appointments we have made during the quarter demonstrate our ongoing focus on tapping into great talent and fresh perspectives in the marketplace while also providing growth opportunities for our top contributors from within our ranks. Now you know all about Charlie and the strong leadership experience he brings to our team. We spoke to many of you about that on Monday. And as you heard, I am thrilled with his selection. And he is absolutely the right person to lead the company into the next phase of growth.

Now in addition, last month, we welcomed Bridget Engle, a proven high-impact IT executive with more than 30 years of experience spanning AT&T, Lehman Brothers, Barclays and most recently, Bank of America, as she has focused on advancing our technology strategy. We promoted Michelle Neal, the CEO of our Markets business, to our executive committee, which speaks to our confidence in her ability to evolve and grow our Markets business and to leverage the broad expanse of our trading, financing and liquidity capabilities across our entire client base.

Frank La Salla was named CEO of Corporate Trust after a highly successful run leading our Alternative Investment Services business. Now Frank is working to further build out our Corporate Trust platform and sales and leadership team to deliver superior solutions for clients and extend our position in this important business. Chandresh Iyer succeeded Frank as CEO of Alternative Investment Services. Chandresh, who helped drive significant improvements to our asset manager, asset owner and hedge fund middle-office solutions business, will continue to build the company's real estate administration and ETF services while extending middle-office solutions to our hedge fund administration clients.

Joining Chandresh's team is Peter Salvage, our new Global Head of Hedge Fund Services. Peter is a veteran leader of the hedge fund middle-office, back-office services, innovation and technology space. Peter and his team are focused on expanding our client base of hedge, credit and hybrid private equity funds. And finally, we named Rohan Singh, Asia Pacific Head of Asset Servicing. He has nearly 3 decades of leadership and client-facing experience in the business. His hire demonstrates our continued investment in delivering our full capabilities in APAC. So as you can see, we continue to develop, promote and invest in the best talent in the world.

So in summary, we delivered strong EPS growth, nice revenue growth and significant positive operating leverage. We and our clients are just beginning to capitalize on the benefits of our strategy and our investments in growth. We have a proven ability to execute. And we have distinctive capabilities in areas of growing demand where we can help alleviate environmental and regulatory pressures on our clients and make it easier for them to access the insights and information they need to succeed. And we believe our early commitment to an open-source digital platform sets us up nicely to continue to differentiate ourselves in the global marketplace.

With that, let me turn it over to Todd.

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [4]

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Thanks, Gerald, and good morning, everyone. It was a good quarter as we continued to execute our strategy and build the foundation for future growth. When you look at the results for the year-over-year quarter, a few things stand out.

First, we experienced solid revenue growth in both segments with investment management and performance fees up 6% and Investment Services fees up 4%. Second, we grew total revenue by 5%. And that's at a time when FX is under a bit of pressure due to low volatility. And I think that demonstrates how our well diversified lower risk model is positioned to create increased value through most environments that we face. Third, our net interest revenue and our net interest margin benefited from the rate increases. And finally, expenses were a little higher yet we still generated excellent positive operating leverage and increased our operating margins.

Now if you turn to our financial highlights document, I'll continue my commentary, starting on Slide 5, which gives an overview of our results for the quarter. Our second quarter EPS was $0.88. That's 17% higher than a year ago. And if you look at the underlying performance on a year-over-year basis, the second quarter fee revenue was up 5%, expenses were up 1% and we generated more than 340 basis points of positive operating leverage. Our adjusted pretax operating margin was up 2 percentage points to 35%. Net interest revenue also increased a strong 8%. And that was driven by higher interest rates.

As we have noted in prior quarters, the strength of the U.S. dollar continues to impact our results negatively for revenue and positively for expense. On a consolidated basis, however, the net impact from currency translation was essentially neutral once again. Income before taxes was up 12% and our adjusted return on tangible common equity was 22% for the quarter. And that compares to 20% in the year-ago quarter.

Moving ahead to Slide 7. I'll discuss our consolidated fee and other revenue, primarily on a year-over-year basis. Total Investment Services fees were up 4%. Asset servicing was up 1% year-over-year and 2% sequentially. Both increases reflect net new business, including the continued growth of our collateral management solutions businesses as well as higher equity market values. The year-over-year increase was partially offset by the unfavorable impact of a stronger dollar and the impact of downsizing the retail U.K. transfer agency business.

Clearing services fees increased 13% year-over-year and they were up 5% sequentially. They were driven primarily by higher money market fees as well as growth in our long-term mutual fund assets on the platform. Issuer service fees were up 3% year-over-year and that reflects higher depository receipt fees. On a sequential basis, issuer service fees were down 4%. And that's primarily due to seasonality in Depositary Receipts revenue. Treasury services fees increased 1% year-over-year and sequentially and that reflects higher payment volumes. Now that's partially offset by higher compensating balance credits. If you adjust for the compensating balance credits, treasury service fee revenue would have been an additional 4% higher.

Investment management and performance fees increased 6% year-over-year and 4% sequentially. That reflects higher market values, money market fees and performance fees. The year-over-year increase was partially offset by the unfavorable impact of a stronger U.S. dollar and that's principally driven by the British pound. On a constant currency basis, investment management and performance fees increased 9% year-over-year. Investment Management's focused approach to delivering profitable revenue growth that centers on expanding our product offering to meet the evolving client demand and high-value active strategies, coupled with ongoing improvement to business processes as well as increased efficiencies. As a result of the actions that we've taken over the last year, the adjusted pretax operating margin for the quarter increased 397 basis points to 34% year-over-year.

Foreign exchange and other trading revenue on a consolidated basis was down 9% year-over-year and it was up 1% sequentially. FX revenue of $151 million was 9% lower and 2% lower sequentially, reflecting lower volatility that we saw in both periods. The year-over-year decrease was partially offset by increases in volumes. Investment and other income of $122 million compared with $74 million in the year-ago quarter and $77 million in the prior quarter, both of those comparisons primarily reflect lease-related gains in the second quarter.

Slide 8 shows the driver of our Investment Management business. And I think it will help explain some of the underlying performance. We achieved record assets under management of $1.77 trillion. That's up 6% year-over-year. That benefited from higher market values, net inflows that will offset a little bit by the unfavorable impact of a stronger dollar once again against the British pound for the most part. Long-term active flows were $16 billion. That was driven by the second consecutive quarter of positive LDI inflows with $15 billion in Q2 and continued momentum in fixed income flows, where we saw $2 billion of inflows.

While we experienced outflows of $2 billion in active equities, outflows this quarter were among the lowest we've seen over the past few years. While we had index outflows of $13 billion, those were primarily due to portfolio rebalancing from several large international clients. And similar to last quarter and in contrast to the industry trend, we experienced cash inflows of $11 billion. And that's benefiting from our strong performance from our core money market funds. Of note, client assets in wealth management reached record levels this quarter and it's up 10% year-on-year.

And turning to our Investment Services metrics on Slide 9, we achieved record assets under custody and/or administration of $31.1 trillion, up 5% year-over-year and 2% sequentially, mostly driven by higher market values. We estimate total new assets under custody and/or administration business wins were $152 billion in the second quarter, once again a pretty good result.

Looking at the other key investment metrics. You'll see average deposits declined 10% year-over-year. That reflects the impact of the rate increase as well as our efforts to proactively manage our balance sheet to meet the current liquidity and capital requirements. Given the strength that we've been seeing in our capital ratios, we were able to accommodate some additional client deposits this quarter. And our average deposit balances actually increased 1% sequentially and that contributed a little to our net interest income. Tri-party balances grew a strong 19% year-over-year and they were up 5% sequentially. And volume increased with the additional businesses we are onboarding.

Turning to net interest revenue, that's on Slide 10. You'll see that on a fully taxable-equivalent basis, NIR was up -- was at $838 million. That's up 7% versus the year-ago quarter and 4% sequentially. Both increases primary reflect the benefit of higher interest rates. Year-over-year increase also reflects lower premium amortization that's partially offset by lower interest-earning assets and higher average long-term debt. The sequential increase also reflected an additional interest-earning day as well as a modest increase in interest-earning assets.

Turning to Slide 11. You will see that adjusted noninterest expense increased 1% year-over-year and was up slightly sequentially. Expenses were a little higher in the second quarter than we had guided on our first quarter earnings call. About half of that increase was due to the weakening of the U.S. dollar in the quarter. Although it was up on a year-over-year basis, it was actually weaker in the quarter. The other half was due to higher incentive expense. And that was both due to performance of the businesses as well as the impact of a higher share price and the mark-to-market impact on the variable compensation component of incentives.

The year-over-year increase primarily reflects higher professional, legal and other purchased services that were partially offset by the stronger U.S. dollar as well as lower net occupancy expense. The increase in professional, legal and other purchased services is primarily related to regulatory and compliance costs, especially the 2017 resolution plan. Earlier this month, we delivered that plan, which we believe makes us more resilient and resolvable. We incurred significant cost due to the construction of the plan itself, which has made us more resolvable. And we continue to expect some of these expenses to be phased out over the coming quarters.

Now occupancy expense decreased as we continue to benefit from the savings we generated from the execution of the business improvement process. And sequentially, lower staff expense was offset by higher other, business development and software and equipment expenses. The decrease in staff expense was driven by the impact of the vesting of long-term stock awards for retirement-eligible employees that we recorded in the first quarter as we've done in previous years.

Turning to capital on Slide 12. Our fully phased-in supplemental leverage ratio increased to 6%. And that meets the upcoming 2018 regulatory requirements plus it has what we now believe is a very reasonable buffer. We also remain in full compliance with the liquidity coverage ratio.

A few additional notes about the quarter. Our effective tax rate of 25.4% is in line with guidance. On Page 9 of our press release, we show investment securities portfolio highlights. At quarter-end, our net unrealized pretax gain on our portfolio was $151 million. That compared with a pretax loss of $23 million in the last quarter with the improvement primarily driven by the decrease in market interest rates for the period. In summary, a strong quarter performance as we continue to execute well against our 3-year goals.

Now let me provide you with some color on how we are thinking about the next quarter and the full year to assist you with your modeling. Third quarter earnings are typically impacted by a seasonal slowdown in transaction volumes and market-related revenue, particularly things like foreign exchange, collateral services and securities lending. That all is often offset by the seasonally higher activity that we see in Depositary Receipts. However, for this coming quarter, we would expect the seasonal bump in DRs to be about half of what it was last year. And that's around $50 million, reflecting a somewhat less favorable market environment.

Now during our first quarter call, we indicated that our net interest revenue should be up in the range of 2% to 4% for the second quarter. As you can see, we came in at the high end of that range. We had also indicated at that time that we expect it to be in the 4% to 6% range for the full year, that NIR would be up in that range. Given the performance that we've seen in the second quarter as well as our outlook now for NIR, it has improved. And we think we should be at the high end of that 4% to 6% range.

Another item back in January, I told you that investment and other income should be in the range of $60 million to $80 million each quarter. In this quarter, it was elevated quite a bit because of the lease-related gains that I mentioned earlier. As you have seen over many quarters, this line does tend to be a little bit bumpy. But for the full year, we still expect to average the high end of the $60 million to $80 million range per quarter.

On expenses, as we noted last quarter, we expect to see a $10 million decline in each of the last 2 quarters or about $20 million in total, mainly from reduced consulting fees related to the resolution plan. For the full year, we expect our total adjusted expenses to be up around 1%, although the improved revenue performance and the recent decline of the dollar may make us a bit more challenging. Regarding taxes, we expect our 2017 effective tax rate to be in the range of 25% to 26%, along the lines of what we've previously guided. And finally, we expect to generate positive operating leverage for the entire year of 2017.

With that, let me hand it over to Charlie to say a few words.

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Charles W. Scharf, The Bank of New York Mellon Corporation - CEO & Director [5]

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Thanks, Todd. It's great to see that Gerald and the team were able to deliver more solid results in Gerald's last quarter as CEO and that he and the team have been able to create momentum.

I know I said it a few days ago, but I have tremendous amount of respect for what Gerald has accomplished during his 44-year career and 6-year tenure as CEO here at BNY Mellon. We're working very well together and look forward to his continuing advice and counsel. We'll continue to build on all that he and the team have accomplished and will focus on both efficiency and growth. While we understand that short-term results give us the credibility and resources to invest for the long term, we will sustain a strong, trusted and well-respected company with real long-term sustainable growth.

Gerald and Todd are in the best position to comment on the quarter, so I'll hand it back to them, and I look forward to speak with you more after I'm settled. Gerald?

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Gerald L. Hassell, The Bank of New York Mellon Corporation - Chairman [6]

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Charlie, thank you very much for those kind remarks. And operator, we're now able to open it up for questions. Operator, can we open it up for questions? Yes, thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Ken Usdin with Jefferies.

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Kenneth Michael Usdin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [2]

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Gerald, congratulations also on a great career at BK, and Charlie, best of luck. If I could just ask on NII, Todd, to your point on the good progression. Just as far as your outlook, I was wondering the securities book yields were flat sequentially. And I'm wondering if you can just help us understand just the on and off, what's coming on, what's coming off, and any changes that you're seeing in terms of just the environment, and how you're able to invest in there. It seems like the benefits you got were more in the cash deposits and in the loan book and the securities yields were flat. So I'm just wondering if you could help us understand the movements there and how that looks forward.

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [3]

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Sure, Ken. So the securities books does have about 30% of it that is floating. So that reprices regularly and it has a little bit of lag to that. But we see that reflected in the numbers over the past couple of quarters. The other 70% is being reinvested in similar duration securities and there is -- there's a flat yield curve. So those rates really haven't gone up much, so it's not really benefiting from a change in the rate environment. As we look forward, we would expect to see those yields continue to grind up if they follow the forward yield curve. You probably see the entire securities portfolio continue to grind up maybe in the range of 6 or 7 basis points a quarter.

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Kenneth Michael Usdin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [4]

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Got it, great. And secondly, just on the -- if you could provide a little color on that issuer services commentary. Is this an environmental point about the seasonality being different? Or are you seeing some structural changes to either the usage of DRs or the way that market is moving around nowadays?

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [5]

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Okay. The comment I made was we typically see in the third quarter a fairly substantial bump. We expect to see that in this quarter but not as large as what we've seen in the past. I think, Brian, you can kind of point out what the factors that are driving that.

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Brian T. Shea, The Bank of New York Mellon Corporation - Vice Chairman, CEO of Investment Services and Vice Chairman of BNY Mellon, NA [6]

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Yes. Sure, Todd. I think the reason the growth in the third quarter wouldn't be as high as last year are really driven by 3 different factors. One is just market and economic conditions have driven a decline in DRs outstanding in a couple of large emerging markets. Second, there were some nonrecurring M&A activity and privatization activity last year in the second quarter that won't repeat itself this year. So that's going to create a year-over-year difference. And then we are seeing pretty aggressive competitor pricing in the marketplace. And we've been sticking to our discipline around profitable growth. And as result, we've lost a couple of clients in the DR space, which is another factor. So those are the 3 factors. But honestly, we think our profitable growth strategy is the right one long term for the shareholder. And in terms of our market share of new issuance, our market share still remains market-leading and solid.

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [7]

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And corporate actions in this space tend to be episodic anyway, so you are going to get some swings there from period-to-period.

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Operator [8]

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Our next question comes from the line of Alex Blostein with Goldman Sachs.

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Alexander Blostein, Goldman Sachs Group Inc., Research Division - Lead Capital Markets Analyst [9]

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So I'll continue to be kind of fixated in the whole repo clearing collateral management issues. So maybe I'll take another stab at this. Any way you guys can help advise how much this contributes to revenues today? And I guess, more importantly, the opportunity you see from JPMorgan exiting this business, I guess, a couple of years ago, heard you talking about onboarding some clients. But any way you can help us size this, I think that will be helpful. And I guess, just more importantly, taking a step back, the Treasury's suggestion on the SLR relief. If that does come into fruition, should be pretty positive for the repo markets broadly. Again, maybe taking a step back, you can help us think through how this could impact BNY Mellon's revenue as a whole.

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [10]

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Okay, Alex, you're layering a lot of questions for us. But let's see how we can handle them. I'll start with the clearance topic and ask Brian to pitch in. So when we look at collateral management, it's another form of custody, so we're acting as a custodian, as do many of our competitors, and that falls to the asset servicing line. It's a relatively small component of the total asset servicing line, but it is the fastest-growing component. And we're starting to see that actually move the needle a little bit. So when we look at the growth in the quarter and we look at the underlying growth rate, probably about half of that was contributed by improvements in collateral management. I don't know, Brian, do you have anything to add to that with the new clearance clients coming on?

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Brian T. Shea, The Bank of New York Mellon Corporation - Vice Chairman, CEO of Investment Services and Vice Chairman of BNY Mellon, NA [11]

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Yes. I mean, JPMorgan, as you said, announced their exit from the government clearing business and -- last year. But we're only now beginning to transition them after putting in place the enhanced governance model and the enhanced resolvability model that Gerald talked about. So we actually converted our first small JPMorgan client in the second quarter. And we'll be converting now over the course of the rest of this year and the course of '18, the rest of the -- those clients as well as some other clients, new market entrants into this space. So we think that the U.S. government clearing and tri-party and Global Collateral Services will be an increasing driver of growth over the next 18 months. And we're all aligned to drive that growth responsibly.

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [12]

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And I think, Alex, the related question you had is how about the impact of the treasury paper on regulatory change. A component of that was to exclude things like treasuries and central bank cash and perhaps new treasury repo out of the denominator of the leverage ratio and the SLR. As you look out to the binding constraints for the big broker-dealer -- big identities that have broker-dealers, that is their binding constraint. So I would assume if they've got some relief, the match books that they had run in the past could probably grow, and we would benefit from more activity. So we would be -- we'd be very welcoming of seeing that. We think it would be healthy for the treasury market itself because I think it would add greater liquidity to the market, tighten up spreads. And we'd also think there would be more transaction volume flowing through us if that were to be the case.

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Alexander Blostein, Goldman Sachs Group Inc., Research Division - Lead Capital Markets Analyst [13]

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Got it. That's very helpful. And then the second question around the NIR dynamic and just deposit betas you guys have seen in the quarter. Any meaningful change from the last hike, given client behavior you guys observed, I guess, post the June hike? And then specifically with respect to noninterest-bearing deposits, it seems like that's been fairly stable for you guys. But any sign you're seeing that customers in that bucket are starting to look around for places of a little more yield?

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [14]

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Yes, why don't I talk to -- talk about a couple of points here? If you look at the Page 8 of our earnings release, we disclosed what the cost of our interest-bearing deposits and the change in the quarter. And you can see this quarter, it went from 3 basis points to 9 basis points. So we had about a 29 basis point increase in the -- on average in the interest on excess reserves. So if you take into consideration about 75% of our deposits are U.S. dollar-denominated, that equates to the quarter of somewhere between a 25% and a 30% beta. We do think that beta with future rate increases will increase, but it will continue to add positively to our NIM. So we do anticipate beta is moving up above the 50% range with the next few movements. In terms of deposit behaviors, they've probably outperformed our expectations a little bit in the second quarter. In terms of the total deposits, they're up a little bit. U.S. deposits are just about dead-flat on a sequential basis both in the noninterest-bearing and in the interest-bearing. And we do believe, depending on how the Fed does its tapering, that we might continue to see some modest runoff in noninterest-bearing deposits. I think what goes on in the interest-bearing is going to be just related to the betas. So there's no reason that we'd have to see that kind of a runoff. But the net impact is still a positive one with our NIM increasing more than the impact of the runoff. That's what we're currently modeling.

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Gerald L. Hassell, The Bank of New York Mellon Corporation - Chairman [15]

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Yes, maybe I can add a little something, Alex. And that is we have a very, very good process internally by business segment around seeing the deposit flows. I mean, that's one of the benefits of enhanced data by business line, by segment. They can work with our treasury area in making sure we're pricing the deposits the right way for the best outcome for the firm and for the clients. And that process is working very smoothly.

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Operator [16]

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Our next question comes from the line of Glenn Schorr with Evercore ISI.

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Glenn Paul Schorr, Evercore ISI, Research Division - Senior MD, Senior Research Analyst and Fundamental Research Analyst [17]

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A question on asset servicing. We try to get at this once in a while. And there's a lot of moving parts. But assets -- the markets are up a lot, your assets are up a lot, asset servicing up just 1%. I wonder if you could parse out what's mix shift, what's price breaks, what's currency, what's the U.K. TA business impact. It just came up lighter, and I think there's just a bunch of moving parts in there.

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [18]

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Sure. How about if I start, and then Brian? So one of the things that I want to make clear is if you look at the asset servicing line for the enterprise, that does include some fee revenue that's generated in Investment Management and some fee revenue that's generated -- most of it obviously is generated in the Investment Services business. So on the Investment Management side, we've seen in the -- in our boutiques a little lower securities lending and the kind of the custody-related business in wealth management, it's been relatively flat. The remainder of it is running through Investment Services. And Brian, you can speak to that.

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Brian T. Shea, The Bank of New York Mellon Corporation - Vice Chairman, CEO of Investment Services and Vice Chairman of BNY Mellon, NA [19]

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Yes. From an Investment Services perspective, I mean, the revenue growth up 2% year-over-year. If you adjusted that for the impact of currency and the impact of our repositioning of the U.K. retail TA business, the growth rate is more like, I'd say, approximately 3.5%. So it's a reasonably solid growth rate. We still think that this business is positioned well for growth long term. Asset managers face with secular trends that are putting pressure on their cost base. And we really are part of that solution in terms of extending variable cost, shared economies of scale solutions. So we see significant growth opportunity ahead in the middle-office space and the real estate private equity fund administration space. We're strengthening our team in the ETF services space. And we sort of have a lifecycle approach to ETF services, not just the core servicing, but we're an authorized participant and we have a platform for asset gathering, and now a new no transaction fee ETF asset gathering platform approaching. So I think the -- we're continuing to do the foundational things we need to enhance the growth of this business. And as Todd and Gerald already mentioned, collateral management, which is core to it, is one of those drivers going forward.

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [20]

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I think just as a reminder, too, our business mix is a little bit different. So we're much more fixed income-oriented. As you know, fixed income is actually down a little bit year-over-year. But we're benefiting from the expertise that we have in the collateral management side of that. So I think that's a -- so we do get a market bump, there's no question about it. But it's probably not as high as you might see as somebody that was more oriented towards equities.

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Glenn Paul Schorr, Evercore ISI, Research Division - Senior MD, Senior Research Analyst and Fundamental Research Analyst [21]

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Fair and all good, I appreciate that. Just one little follow-up, I'm not sure if I missed it. You mentioned what you thought the -- what you won in the quarter. Do you have a number for what's won but not yet funded pipeline?

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [22]

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We don't have that number handy. But it's not a huge number though at this point, Glenn.

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Operator [23]

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Our next question comes from the line of Brian Bedell with Deutsche Bank.

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Brian Bertram Bedell, Deutsche Bank AG, Research Division - Director in Equity Research [24]

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Maybe just back on the balance sheet. Todd, if you could comment on how you would potentially envision the balance sheet size if some of the recommendations by the Treasury do come to fruition in terms of releasing cash and treasury securities from the SLR denominator, how that might -- I know it's very early, of course, but how you might think about that shaping your balance sheet size strategy over the next couple of years. And then just also just quickly on the other securities portfolio line, the yield was down 10 bps. Just wondering if there's any premium amortization increase in that in 2Q.

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [25]

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Well, I'll have to ask a follow-up question of your question on the second question. But as to the balance sheet size, Brian, if we do get relief from the Treasury recommendations, we're going to have to think through what to do. That would relieve a fair amount of our capital requirements. And so we've been pretty disciplined in the past, and I expect that we will be in the future. And so if putting that -- if growing the balance sheet makes sense, we'll do that. If not, we'll buy back our shares. And so we'll have to compare what the alternatives are with that incremental cash. We'd love to see it because we think it would propel behavior. And we love the optionality that it would provide. But again, that activity would have to be contingent on making a decent return because ultimately it's freed-up capital, so we've got to do something with that capital. And so that's how we're thinking about it. I didn't completely understand your second question, Brian.

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Brian Bertram Bedell, Deutsche Bank AG, Research Division - Director in Equity Research [26]

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That was just on the other securities portion on the average balance sheet. I think yield went down. I mean, it's a small thing, but it's a $28 billion balance. The yield went down by 10 basis points, if I'm not mistaken, 1.25% to 1.15% in the quarter, just didn't know if there was anything to that in terms of mix. Or was premium amortization a factor?

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [27]

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Yes, I don't know off the top of my head. There isn't a lot of a premium amortization impact. So I don't think that's going to going to be driving it. But I don't -- if you recall back in the fourth quarter, we adopted what we call the prepayment method for amortization, the premium amortization. And under that method, I think we've reduced quite a bit of a volatility out of the numbers. So we're going to have to look into that. I don't have that detail, Brian.

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Brian Bertram Bedell, Deutsche Bank AG, Research Division - Director in Equity Research [28]

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Okay. And then just a follow-up for Brian on the client adoption of NEXEN. I know you guys have been talking a lot about increasing client usage of a number of different services and beginning to see a little bit of an incremental revenue impact us. Did that impact asset servicing positively this quarter? And are you seeing that as a potential revenue impact in the second half? And then just maybe I know Charlie is going to comment a lot more next quarter, but in terms of the technology initiatives that you've been putting in place in the business improvement process, should we be thinking of any type of strategic change to those priorities with Charlie in the CEO position.

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Brian T. Shea, The Bank of New York Mellon Corporation - Vice Chairman, CEO of Investment Services and Vice Chairman of BNY Mellon, NA [29]

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So let me start with -- it's Brian Shea. Let me start with the NEXEN comment. We continue to see increasing adoption of the NEXEN platform. And we continue to build out capabilities and add more capabilities to enhance the client experience and their ability to operate effectively. We've now crossed the threshold of over 100,000 client and internal users on the NEXEN platform, which is good. In terms of revenue generation, there's going to be some fee revenue growth from core services like API, access and processing, and then obviously premium services. It is not yet -- mean a full contributor to the revenue base. But expect that, that revenue impact will grow over time. And at this point, we don't want to provide specific guidance on that, want to just continue to build the platform out and see greater client adoption. I would say that the client impact is growing and positively more and more case studies and examples, where getting the access to the real-time data through APIs is making a meaningful difference in our clients' business and enabling them, for example, in one case, a major financial institution getting collateral and liquidity information multiple times and today enabling them to manage their collateral and liquidity more effectively and saving our clients millions of dollars. So really adding value, more and more, and there's more proof points and case studies that, that's going to continue to grow. In terms of the business improvement process, I'll comment on it. And if Charlie wants to add something to it, I'm sure he will. Look, the business improvement process is going to continue. It's critical to our performance, the environment. And the market environment requires us to continuously optimize our existing investments in order to fund strategic growth investments and reward shareholders. So I don't -- I see this as a process, not a project and something that we would continuously do as part of a continuous improvement culture. And so we have a pipeline of initiatives already underway and already being analyzed that we continue to drive momentum in that space. And I would hope and expect that Charlie would agree to that. And he's going to have a chance to decide right now. Go ahead, Charlie.

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Charles W. Scharf, The Bank of New York Mellon Corporation - CEO & Director [30]

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It's completely what Brian said. And I just look forward to getting into the detail and understanding the specifics a little bit more.

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Operator [31]

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Our next question comes from the line of Brennan Hawken with UBS.

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Brennan Hawken, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials [32]

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I just wanted to follow up on the deposit growth trends. We saw the foreign office deposit growth pick up. And I think, Todd, you referenced that U.S. deposit stable, so it seems like all that deposit growth came from foreign offices. At the same time, we saw the cost of those switch from negative to positive. So number one, I guess, what drove that cost? And was there any particular region driving that? And was there a mix shift there in that line item?

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [33]

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Okay. So yes, we're kind of mixing apples and oranges here. Where the deposits are booked is not necessarily a reflection of the underlying currency. So what we did see -- and a fair amount of our deposits are booked at foreign branches. With that, the actual mix of U.S. dollar and non-U.S. dollar deposits changed just slightly because we saw our U.S. dollar deposits flat and our non-U.S. dollar deposits increased slightly. So as we go through the pickup for the period on our interest-earning deposits, the cost moved from -- moved up from 3 to 9 basis points. And all of that was attributed to the dollar impact. So when we walk through -- and I mentioned this earlier on the call, when we do the arithmetic, that equates to somewhere between a 25% and a 30% beta on your dollar-denominated interest-earning deposits.

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Brennan Hawken, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials [34]

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Okay, got it. So regardless of domicile, currency driver was all USD, no real change in the non-U.S. dollar base deposits?

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [35]

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That's correct. It was flat from period-to-period on average.

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Brennan Hawken, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials [36]

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Got it. Okay, great. That's very helpful. And then when we think about revenue growth in clearing services, I want to say that, that drove -- that was a pretty strong component that we saw here this quarter. And when we think about durability, I know you had some decent growth in the cash products as far as flows go. Is this just a catch-up there? And therefore, we should think about this as the right jumping-off point for that line item? It's tough because we cannot see the exact AUM in the disclosures yet in those products. So I'm just not completely sure how much that's up.

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Gerald L. Hassell, The Bank of New York Mellon Corporation - Chairman [37]

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So why don't I take a stab at this and to bridge both of our major sectors? First of all, on the clearing side, the further consolidation of mutual fund assets on to our platforms is increasing. And it's very gratifying to see that our platforms are being used more extensively as that consolidation process occurs and we are winning business from brokers, accelerating that pace and more importantly advisers as we shift to an advisory model, utilizing our platform to capture assets. And that's one of the reasons why you've seen the clearing business pick up as nicely as it did as well as the fee waiver impact. The second part of your question is we are seeing and capturing more cash through our various portals and platforms. So whether it's the Pershing platform, our liquidity services platform, we are capturing and internalizing more that flow. And that's why I think we're outperforming capturing cash in our money market business. And that flows into the Investment Management area. And I think our performance in the management of the money market funds has also improved. So we are now very, very competitive on the returns in the money market funds. So the combination of the increased performance on the funds and the capture of the cash is allowing us to outperform.

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Operator [38]

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Our next question comes from the line of Gerard Cassidy with RBC.

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Gerard S. Cassidy, RBC Capital Markets, LLC, Research Division - Analyst [39]

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I had technical difficulties on the call on Monday. So my first question goes, congratulations, Gerald, for your great career, and welcome, Charlie. Charlie, can you share with us -- I know you've got the technical background from Visa and how that will help probably in the Investment Services area. But when you look at Slide 3 of today's handout, you see that the Investment Management revenues have been pretty much flat for now 2.5 years. What's your view about the Investment Management business when you look forward?

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Charles W. Scharf, The Bank of New York Mellon Corporation - CEO & Director [40]

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Well, if I think generically, it's -- I mean, the business -- the underlying business dynamics are something that fits very well into what we do. I obviously have a lot to learn about our boutique model, what drives the performance, what drives how we've done. And honestly, I've spent just a little bit of time with Mitchell, but we're going to spend a bunch more time going through what the plans are. And when there's more to talk about, we'll certainly do, which I would certainly be by the end of the quarter and at Investor Day.

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Gerald L. Hassell, The Bank of New York Mellon Corporation - Chairman [41]

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Yes, Gerard, one slight correction to your comments. The revenue growth in Investment Management was up very nicely and the pretax income is up even more. So we just want to stand correct it a little bit that the performance in the Investment Management area has actually been quite robust this year.

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Gerard S. Cassidy, RBC Capital Markets, LLC, Research Division - Analyst [42]

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And then Todd, can you give us an update? In 2014 at Investor Day, you talked about the balance sheet shrinking maybe $40 billion to $70 billion over time. Where are you on that number? When you calculate it, you picked deposits to where they are today, how much are you down?

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [43]

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If you look at it on average, interest-bearing deposits on a year-over-year basis are down about $25 billion. So we're pretty far along the way. Most of that is in dollars. Now when we gave that indication, we assumed a parallel shift in all currencies. And so we haven't seen that, so we're not seeing any decline in the nondollar deposits at this point, Gerard. So I think we've pretty much tracked along our expectations. And we could see a modest additional decline. Now that all being said, the markets are growing. And so with the growth, the natural underlying growth may offset some of what the interest impact and the Fed tapering impact would otherwise have.

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Operator [44]

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Our next question comes from the line of Michael Carrier with Bank of America.

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Michael Roger Carrier, BofA Merrill Lynch, Research Division - Director [45]

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First question, just on Investment Management, I think most of the trends you guys mentioned in performance, flows, revenues, margin, everything looked pretty good. Just 2 items I just had a quick question on. One is the other line, it looks like there was a loss there. I think that's usually seed, but markets are pretty strong. So I don't know if that was something a little unusual. And then I think you guys mentioned on the high net worth side, deposit balances declining for net interest income. I think we're seeing that across the industry. But just any color on how much of that's tax-related versus clients being more engaged in the market versus sitting on cash?

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [46]

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Yes, I'll make a brief comment, then Mitchell can jump on. We are seeing a little bit of a decline in the wealth deposits. And I don't know if you have any further comment on that.

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Mitchell Evan Harris, The Bank of New York Mellon Corporation - Senior EVP and CEO of Investment Management [47]

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Just on wealth deposits, you have a couple of things I think going on. You have seasonality that happens in the second quarter with tax payments. And with interest rates moving up, at least private clients are moving into other products right now, so they're shifting out. With respect to the other revenue comment, it's really primarily an abatement of the cash waivers that we pay out to Investment Services. So it's more of an internal transfer from us over to Investment Services.

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [48]

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And Michael, were you referring to the segment line or the enterprise line for investment and other income?

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Michael Roger Carrier, BofA Merrill Lynch, Research Division - Director [49]

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It was the same thing.

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [50]

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Okay, right.

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Michael Roger Carrier, BofA Merrill Lynch, Research Division - Director [51]

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And then just a quick follow-up. Todd, just on the investment gains, you just mentioned in terms of the full year, that $60 million to $80 million. I just want to make sure we're thinking about that right, meaning $60 million to $80 million for the remaining 2 quarters? Or do we take the elevated level that you have this quarter and the rest of the year would be lower?

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [52]

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Yes. You would adjust -- take the number on average, we should -- on average, pretty aggregate for the year, it should be on the high end of that $60 million to $80 million. So 4 times $80 million is $320 million, so there's...

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Gerald L. Hassell, The Bank of New York Mellon Corporation - Chairman [53]

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There's your number.

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [54]

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That's what I would point toward.

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Operator [55]

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Our final question comes from the line of Geoffrey Elliott from Autonomous Research.

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Geoffrey Elliott, Autonomous Research LLP - Partner, Regional and Trust Banks [56]

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Back to the deposits. Firstly, could you remind us why your clients leave noninterest-bearing deposits with you? You've got over $70 billion of them. It's a very sophisticated client base. I'm sure they'd rather earn some interest if they could. So why do clients leave those noninterest-bearing deposits at BNY Mellon?

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [57]

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Well, there's a substantial amount of those that are nondollar. And so right now, in the nondollar category, interest rates are extraordinarily low or negative in some instances. In U.S. dollars, it tends to be frictional cash. I mean, most of us leave a little money in our checking accounts. And it looks a lot like a retail business when you have many thousands upon thousands of accounts and people -- and our clients are trying to make sure that they don't incur overdrafts in those accounts. So they'll leave a little bit of a cushion for that frictional activity. And then the final point in some of our payments businesses, we actually give an earnings credit. So we don't pay interest on the accounts, but we credit fees for the accounts. So that's still denominated as a noninterest-bearing account, but it effectively offsets fees for the services provided. This quarter alone, we saw a pretty healthy payments business. It only was up -- the fees were only up 1%. But if we reflected what the credits that they got from noninterest-bearing balances, that would have added another 4%. So the actual underlying activity was up a pretty healthy number.

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Geoffrey Elliott, Autonomous Research LLP - Partner, Regional and Trust Banks [58]

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And then just to follow up on that, noninterest-bearing is obviously a much higher percentage of liabilities or earning assets or however you want to look at it than it was before the crisis. Is there anything structural that's changed that means that it should be higher, other than the interest rate environment?

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Thomas P. Gibbons, The Bank of New York Mellon Corporation - Vice Chairman, CFO, Vice Chairman of BNY Mellon NA and CFO of BNY Mellon NA [59]

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I wouldn't say that there is. Obviously, the value of managing that tighter and tighter will go up as interest rates go up. And that's why we would expect in our models and we've reflected that, that is probably going to be the case. If you kind of look back at us prior to the crisis, we were running those numbers somewhere around 16% of the balance sheet. It's probably a little bit higher than that now. But I believe the nondollar component of it has contributed a fair amount of that as well.

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Gerald L. Hassell, The Bank of New York Mellon Corporation - Chairman [60]

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And thanks, everyone, for dialing in. We really appreciate it. And I'm sure you'll follow up with Valerie and our team on further questions.

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Operator [61]

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If there are any additional questions or comments, you may contact Ms. Valerie Haertel at (212) 635-8529. Thank you, ladies and gentlemen, and this concludes today's conference call and webcast. Thank you for participating.