Bank of New York Mellon (BK) Earnings Report: Q1 2015...

transcript

CompanyName:Bankof NewYorkMellonCorpCompanyTicker:BKSector:FinancialIndustry:FinancialServices

EventDescription:Q12015EarningsCallMarketCapasofEventDate:45.45BPriceasofEventDate:42.305

BankofNewYorkMellon(BK)EarningsReport:Q12015ConferenceCallTranscriptThefollowingBankofNewYorkMellonconferencecalltookplaceonApril22,2015,08:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

ValerieHaertel;TheBankofNewYorkMellon;GlobalHead-IRGeraldHassell;TheBankofNewYorkMellon;Chairman,CEOToddGibbons;TheBankofNewYorkMellon;ViceChairman,CFOCurtisArledge;TheBankofNewYorkMellon;CEO-InvestmentManagementBrianShea;BankofNewYorkMellon;CEO-InvestmentServices

OtherPart icipants

AshleySerrao;CreditSuisse;AnalystLukeMontgomery;SanfordC.Bernstein;AnalystBrennanHawken;UBS;AnalystAlexBlostein;GoldmanSachs;AnalystBetsyGraseck;MorganStanley;AnalystKenUsdin;Jefferies;AnalystMikeMayo;CLSA;AnalystBrianBedell;DeutscheBank;AnalystGlennSchorr;EvercoreISI;AnalystJimMitchell;BuckinghamResearchGroup;AnalystAdamBeatty;BandofAmerica-MerrillLynch;AnalystGeoffreyElliott;AutonomousResearch;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodmorningladiesandgentlemenandwelcometothefirstquarter2015earningsconferencecallhostedbyBNYMellon.

Atthistimeallparticipantsareinalisten-onlymode.Later,wewillconductaquestionandanswersession.

Pleasenotethatthisconferencecallandwebcastwillberecordedandwillconsistofcopyrightedmaterial.YoumaynotrecordorrebroadcastthesematerialswithoutBNYMellon'sconsent.

IwillnowturnthecallovertoMs.ValerieHaertel.Ms.Haertel,youmaybegin.

Valerie Haertel(GlobalHead-IR):

Thankyou,Wendy.GoodmorningandwelcomeeveryonetoTheBNYMellon'sfirstquarter2015earningsconferencecall.WithustodayareGeraldHassell,ourChairmanandCEO;ToddGibbons,ourCFO;aswellasourexecutivemanagementteam.

Ourfirstquarterearningsmaterialsincludeafinancialhighlightspresentationthatwillbereferredtoin

thediscussionofourresultsandcanbefoundintheInvestorRelationssectionofourWebsite.

BeforeGeraldandToddbegin,letmetakeamomenttoremindyouthatourremarkstodaymayincludeforward-lookingstatements.Actualresultsmaydiffermateriallyfromthoseindicatedorimpliedbytheforward-lookingstatementsasaresultofvariousfactors.Thesefactorsincludethoseidentifiedinthecautionarystatementintheearningspressrelease,thefinancialhighlightspresentationandthoseidentifiedinthedocumentsfiledwiththeSECthatareavailableonourWebsite,bnymellon.com.

Forward-lookingstatementsonthiscallspeakonlyasoftoday,April22,2015,andwewillnotupdateforward-lookingstatements.

Now,IwouldliketoturnthecallovertoGeraldHassell.Gerald?

GeraldHassell(Chairman,CEO):

Thanks,Valerie,andwelcomeeveryoneandthanksforjoiningusthismorning.Asyoucansee,we'reachievingtheresultsconsistentwiththegoalsthatwesharedonInvestorDay.Forthefirstquarterearningspersharewere$0.67whichwasup18%yearoveryear.

Nowfocusingonouryear-over-yearcomparisonsonanadjustedbasis,totalrevenuewasup4%,totalexpensesweredown2%,sowegeneratedmorethan500basispointsofpositiveoperatingleverage.NowthestrongerU.S.dollarreducedbothourrevenueandexpensesbuthadalimitedeffectonnetincome.AndToddwillcoverthatmoreinamoment.

Ourreturnontangiblecommonequityinthequarterwas20%.Nowwealsoreturnedsignificantvaluetoourshareholdersintheformofdividendsandsharerepurchasesduringthequarter.Simplyputwe'reexecutingagainstourstrategicprioritiesandit'sshowingupinournumbers.

Letmeremindyouofwhatthoseprioritiesareandhowwe'redoingagainstthem.Nowourfirstpriorityisdrivingrevenuegrowth.DuringthequarterrevenueinInvestmentServicesbenefitedfromcontinuedgrowthinbothclearingandglobalcollateralservices.

Aswe'vebeensayingwe'reinvestinginbothoftheseareastodeliverenhancedcapabilitiestoourclients.AcrossInvestmentServicesandinassetservicinginparticularwe'vebeenquitetargetedaboutthebusinesswearetakingonversusgoingaftermarketshare.We'refocusingondeepeningourclientrelationships,deliveringthehighestvaluetoourclientsandgrowingprofitably.

AndIthinkourresultsareshowingjustthat.Nowyoualsorecallthatlatelastyearwecreatedthemarketsgrouptobringtogetherexistingcapabilitiesfromanumberofdifferentareas.We'vebeenrepositioningthebusinessbyexitingvariousactivitiesthatnolongerfitourstrategywhileinvestinginforeignexchange,securitieslending,collateralmanagementsolutionsforourclients.

Nowtheseinitiativesarealreadyimprovingourperformanceandreducingourcosts.Soforexample,ourenhancedelectronicforeignexchangeplatformsarecapturingmoreclientdrivenvolumesandwhenvolatilityincreasesaswesawinthefirstquarterweclearlybenefit.

Sothemarketsgrouphadstrongerforeignexchangeresults,strongercollateralmanagementandsecuritiesfinancingactivitywhilesimultaneouslyexitingderivativepositionsandreducingthecapitalandcostassociatedwithit.GoodoverallresultsthathelpedimprovetheCompany'soperatingmargin.

TurningtoInvestmentManagementtofurtherdiversifyourassetsundermanagement,we'rebuildingoutourretaildistributioncapabilitiesandinvestingandexpandingourwealthmanagementplatform.Theinflowsfromtheseretaildistributioninitiativesareinfactimprovingbutnotyetatthepointofbeingabletooffsettheactiveinstitutionalequityoutflowsthatweandtheentireindustryhavebeenexperiencing.

Nowafterquarter-endwereachedanagreementtosellourMeritenboutiquewhichisourGerman-basedboutique.Nowthisispartofourbusinessportfolioreviewprocesstoidentifyopportunitiestobetterredeployourcapital.

ThesalewillallowustofocusonthoseboutiqueswithglobalscalethatmostbenefitfrombeingpartofBNYMellonandwhereweseethegreatestgrowthopportunities.AndweexpectthesaletocloseattheendofthesecondquarterandourInvestmentManagementoperatingmarginshouldimprovewiththisdivestiture.

Ontheinvestmentperformancefront,duringthequarterwestrengthenedourcapabilitiesandtheywererecognizedthroughtworankings.InthefirstquarterasatestamenttoitscontinuedgrowthandsuccesstheDreyfus/StandishGlobalFixedIncomeFundhitthenumberonerankingintheworldbondcategoryforlong-terminvestorsandhasbeenconsistentlyatopperformer.Andourwealthmanagementbusinesswasnamedthe2015TopNationalPrivateAssetManagerandTopPrivateBankOfferingforFamilyOfficesbytheFamilyWealthReport.

Nowoursecondpriorityisexecutingonourbusinessimprovementprocesseswherewehavebeentakingactionfromtoptobottom,transformingourcompanythroughacontinuousimprovementprocess.Itisreducingstructuralcostandriskandimprovingclientproductivityandservicequality.

Nowletmesharesomeexamples.Wearesimplifyingandautomatingourglobalprocesses.Wearecontinuingtooptimizeandstreamlineourtechnologyinfrastructure,particularlyinassetservicing,leveragingacommonarchitecturetoreduceourcostandincreaseouragilitysowearedeliveringnewsolutionstoourclientsevenfaster.

Wementionedlastweekthatwe'resucceedinginreducingourannualinfrastructurespendingandthatcurrenttrendcontinuedinthefirstquarter.We'realsoshrinkingourrealestateportfolioandconsolidatinglocations.Andwe'vebeenabletoacceleratesomeofoureffortswhichallowedustocomeinbetterthanexpectedonournetoccupancyexpenseline.

Nowalsoaspartofourbusinessimprovementprocesswe'reimprovingourreturnontechnologyinvestment.Todaywehavebest-of-breedapplicationsinmostofourimportantbusinessactivitiessuchastri-party,clearing,payments,settlementsandcollateralmanagement.Ourtechnologyiswellregardedbyindustryprofessionalsandweareparticularlyproudofourmostrecentacknowledgments.

OneofwhichwastheAnitaBorgInstituterecentlynamedusastheTopCompanyforWomenTechnologistsforachievingthehighestoverallscoreforallcompaniesevaluated.Thisrecognitionhelpsusattractandretaintoptalentintheindustry.

Ourthirdprioritycentersonbeingastrong,safe,trustedcounterparty.Theresultsofthe2015CCARdemonstratedthatunderseverelyadversescenarioourprojectedminimumTier1commonratioandourcommonequityTier1ratiounderstresswerethemostresilientamongallofthe14advancedapproachbankholdingcompanies.Sowearewell-positionedforallstressscenariosandfeelconfidentthatwecancontinuetoexecuteonourcapitalplansgoingforward.

Nowwealsofullyrecognizetheimportanceofourorganizationtothefinancialmarketplaceandthatourreputationisanassetthatwemustupholdeveryday.Tofurtherprotectandenhanceoursafetyandsoundnessweareinvestingandfocusingoncomplianceriskmanagementandcontrolfunctions.We'verecentlyresolvedsomeveryimportantissuesonthatfrontandtheactionswe'vetakenwillsignificantlyreducetheprobabilityoffutureissues.

Ourfourthpriorityinvolvesgeneratingexcesscapitalanddeployingourcapitaleffectively.Soduringthequarterwerepurchased10.3millionsharesfor$400millionandourcapitalplancallsfortherepurchase

ofupto$3.1billionofcommonstockoverafive-quarterperiod.

Andfinallyourfifthpriorityistoattractandretaintoptalent.We'vebeenexecutingagainstanintegratedtalentmanagementstrategyacrosstheentireCompanyandhavebeenfocusedondevelopingtalentfromwithinaswellasinfusingexpertisewithkeystrategichiresinareaswherewebenefitfromnewperspectivesandcapabilities.WerecentlypromotedseveralindividualsidentifiedthroughourtalentmanagementprocessthegreaterresponsibilitiesincludingournewlyformedBNYMellontechnologysolutionsgroup,globalfundaccounting,middleofficesolutionsandourEuropeanbank.

AdditionallyweaddedkeyexternaltalentincludinganewchiefauditorandanewBoardmemberwhoisourfourthnewdirectorinlessthanayear.Freshperspectives,ideasandtherightteamcompositionmakeusstronger.

Soinsummarywe'reexecutingagainstourprioritiesandfirmlybelieveweareontracktoachievetheearnings,expenseandoperatingleveragegoalsweoutlinedforyouonInvestorDay.SowiththatletmeturnitovertoTodd.

T oddGibbons (ViceChairman,CFO):

Thanks,Gerald,andgoodmorningeveryone.Mycommentarywillfollowthefinancialhighlightsdocumentandstartwithpage6thatdetailsournon-GAAPoroperatingresultsforthequarter.

AsGeraldnotedEPSwas$0.67.That'sup18%versustheyearago.

Revenueinthefirstquarterwasupapproximately4%yearoveryearand3%sequentiallyreflectinggrowthacrossallofourkeybusinesseswithparticularstrengthinassetservicing,clearingservicesandforeignexchange.Expensesweredown2%yearoveryearand1%sequentiallyasthebusinessimprovementprocesseshelpingtoincreaseefficiencyandreduceourcost.Ourabilitytodriverevenuegrowthincontrolexpensesresultedinalittlemorethan500basispointsofpositiveoperatingleverageyearoveryear.

Nowletmepointoutthatwe'veestimatedthatthestrongerU.S.dollarreducedourrevenuebyapproximately200basispointsanditreducedourexpensesbyapproximately300basispointsandhadaslightlynegativeimpactontotalnetincome.ThebusinessmostimpactedwasInvestmentManagementwhilecurrencyhadlessofanimpactonourInvestmentServicesbusiness'netresults.

We'veaddednewforeignexchangemetricsonpage6ofthenewsreleaseandthat'sgoingtohelpyoucapturetheimpactofthetwocurrencies.Ifyoulookatthatyou'llseethatthepoundwasdownapproximately9%yearoveryearandtheeurowasdown18%.

SoI'lldiscussbrieflytheestimatedimpactofeachofourbusinessunitasIcoverthesegmentresults.Incomebeforetaxeswasup16%yearoveryearand11%sequentially.

Onayear-over-yearbasisourpretaxmarginincreasedapproximately300basispointsto30%andthat'supfrom27%inthefirstquarterof2014.Returnontangiblecommonequitywas20%.

showsthedriversofourInvestmentManagementbusinessthathelpexplainourunderlyingperformance.Wehad7%year-over-yearAUMgrowthand$17billionofnewnetinflowsduringthequarter.YouwillalsonotethatweexperiencednetoutflowsinequitiesinthequarterwhileourLDIbusinesscontinueditsrapidgrowth.

Ourwealthmanagementbusinessalsoisperformingwellbenefitingfromourinvestmentsinpromotingourbrandandtheexpansionofoursalesforce.Averageloansanddepositscontinuedtotrendup.

Turningtopage8youcanseeourfinancialresultsforInvestmentManagement.AsIpreviouslynotedInvestmentManagementwasmostimpactedbycurrencytranslationsincewehavealargenumberofourboutiquesoutsideoftheU.S.anditresultsinabout42%ofourrevenueactuallybeingnon-U.S..

FirstquarterInvestmentManagementperformancefeeswere$850million.InvestmentManagementfeeswereup1%yearoveryearor7%onaconstantcurrencybasisreflectingthehigherequitymarketvalues,theimpactoftheCutwateracquisitionandstrategicinitiatives.

Wehadperformancefeesof$15million.Thatcomparesto$20millionintheyear-agoquarter.

OtherRevenuewas$47millioninthefirstquarterupfrom$16millioninthefirstquarteroflastyearand$7millioninthefourthquarter.Bothincreasesprimarilyreflecthigherseedcapitalgains.

Thesequentialincreasealsoreflectsreducedlossesonhedgingactivitieswithinoneoftheboutiques.Netinterestrevenueincreased6%yearoveryearand7%sequentiallyreflectingthehigherloananddepositlevelsmostlyattheprivatebank.Revenuegrowthonayear-over-yearbasiswasup4%inInvestmentManagementbutadjustedforthecurrencytranslationweestimateitwouldhavebeenupabout9%.

Earningswerealsonegativelyimpacted.Incomebeforetaxesexcludingamortizationofintangibleassetswasup6%yearoveryearand7%sequentially.

TurningtoourInvestmentServicesmetricsonpage9youcanseethatassetsundercustodyandadministrationatquarter-endwere$28.5trillion.That'sup2%yearoveryearandthat'sreallydrivenbyhighermarketvalues,netnewbusinessandpartiallyoffsetbythestrongerU.S.dollar.

LinkedquarterAUC/Awasflat;adjustedforcurrencyeffectsyearoveryeargrowthwouldhavebeenroughly5%.Themarketvalueofsecuritiesonloanatperiodendshowedstronggrowthonayear-over-yearbasis.Securitiesonloanwereup10%,theyarenowat$291billionandthat'sduetotheexpansionandthereceiptofsecuritiesaspotentialcollateralaswellastheimpactofnewclientsjoiningourlendingprogramandexistingclientsincreasingtheirlendingactivity.

Averageloansanddepositswerebothupsignificantlyhereaswell.Thekeybroker-dealermetricoftri-partyrepobalancesgrew9%.AllofourclearingmetricsrecordedprettygoodgainswithDARTSvolumesandaveragelong-termmutualfundassetseachshowingdouble-digitgrowth.

Movingontodepositoryreceiptsmetricwe'vehadafocusonexitingsomeofthelowactivityprograms,theonesthatareatthelowerendofourclientbase,aswellasprogramsthatdonotmeetourprofitabilitycriteria.ThiscontinuedwiththeroutineclosureofprogramsduetocorporateactionshasresultedinanetdeclineinthenumberofsponsoredDRprogramsintheportfolio.

Onpage10youcanseedetailedsegmentreportingforInvestmentServices.ThekeyvariancesarereflectedinFeeandOtherRevenueonourconsolidatedresultsonpage11,solet'smovetothatpagewhereyouwillseethatassetservicingfeeswereup3%yearoveryearand2%sequentially.

Theyear-over-yearincreaseprimarilyreflectsnetnewbusinesslargelydrivenbyglobalcollateralservicesandsecuritieslendingaswellastheincreaseinmarketvalues.Thesequentialincreaseprimarilyreflectshigherclientexpensereimbursementsandhighersecurityandlendingrevenueandglobalcollateralservicesfees.Bothincreaseswerepartiallyoffsetbythestrongerdollar.

Clearingfeeswereup6%yearoveryearanddown1%sequentially.Theincreasefromthefirstquarterof2014wasprimarilydrivenbyhighermutualfundandasset-basedfeesandhigherclearancerevenuedrivenbyhigherDARTSvolume.Thesequentialdecreaseprimarilyreflectsfewertradingdaysinthefirstquarter.

Issuerservicefeeswereup1%yearoveryearand20%sequentially.BothincreasesreflecthighercorporateactionsandDRs.Additionallycorporatetrustfeesseemtohavestabilized.

Treasuryservicesfeeswereup1%yearoveryearandtheyaredown6%sequentially.Thesequentialdecreaseprimarilyreflectsseasonallylowerpaymentvolumes.FXandothertradingrevenueonaconsolidatedbasiswasup68%yearoveryearanditisup52%sequentially.

Forthislineitemyoucanalsorefertothetableatthetopofpage8inthenewsreleasetoseethedetailsI'mdiscussing.FXrevenueof$217millionwasup67%yearoveryear.That's32%sequentially,reflectinghighervolumesandvolatilityaswellasDRrelatedactivity.

Othertradingrevenuewas$12millionandthatcompareswithrevenueof$6millionintheyear-agoquarterandalossof$14millioninthefourthquarter.Bothincreasesreflecthigherfixedincometradingrevenues.Thesequentialincreasealsoreflectsreducedlossesfromthehedgingactivitybyoneofourinvestmentboutiques.

Investmentandotherincomeof$63millionwas$39millionloweryearoveryearandthatwasdrivenbylowerleasinggains.OnefinalimpactonthecurrencyimpactonourInvestmentServicesbusiness,whilelessimpactthanweseeinInvestmentManagementweestimatethatbothrevenuesandexpenseswouldhavebeenuproughly2%onaconstantcurrencybasis,wouldhavebeenupbyanadditional2%onaconstantcurrencybasis.Pretaxincomewasnotmeaningfullyimpacted.

Turningtonetinterestrevenueonpage12ofthefinancialhighlightsyou'llseethatNIRonafullytaxequivalentbasiswasunchangedversustheyear-agoquarterandup2%fromthefourthquarter.Yearoveryeartheincreaseindepositsdrovegrowthinoursecuritiesportfolioandoffsettheimpactofloweryields.

Thesequentialimprovementreflectsthebenefitofputtingmorecashtoworkasyoucanseeinloansandsecuritieswhichalsoincreasedourmarginforthefirsttimeinyears.Thenetinterestmarginforthequarterwas97basispoints,8lowerthantheyearagoand6fromthesequentialquarter.

Onpage13you'llseethatnoninterestexpensedecreasedby2%yearoveryearand1%sequentially.Theyear-over-yeardecreasereflectslowerexpensesinallcategoriesexceptthesubcustodianexpensewhichisvolumerelatedandotherexpense.AndIshouldpointoutthatotherexpenseincludestheimpactofthenewEuropeanUnionSingleResolutionFundaswe'reaccruingourestimatedannualcontributionrequirement.

Thelowerexpensesprimarilyreflectthefavorableimpactofthestrongerdollarandwe'reseeingtheimpactofourbusinessimprovementprocesshereaswell.Totalstaffexpensedecreased2%yearoveryear.Asyoumighthaveseeninourannualreportweelectedtofreezethedefinedbenefitplanandwereplaceditwithadefinedcontributionplan.

Inthefirstquarterwerecognizeda$30millionbenefitrelatedtothecurtailmentofthedefinedbenefitplan.Forthefull-yearweexpecttohaveapositivebenefittotheDDplanitselfresultingina$10millionnetcreditandthatincludesthecurtailmentgainwejustreceived.

Inadditionweexpecttohaveabout$12millionofadditionalexpenseinthebackhalfoftheyearfortheparticipantsthatwereformerlyinthedefinedbenefitplan.Asaresultyoucanexpectbenefitstoincreaseabout$30millioninthesecondquarter.

Ourheadcountwas900loweryearoveryear.Therewasasequentialincreaseof200.ThatreflectstheonboardingofemployeesrelatedtotheJanuaryCutwateracquisition,theliftoutoftheDeutscheBankprivateequityandrealestateadministrationbusinessandnewhirestosupportseverallargeclient

onboardinginitiatives.

Thedecreaseintotalstaffexpensewaspartiallyoffsetbyhigherincentivesreflectingbetterperformanceaswellasaloweradjustmentrelatedtofinalizationoftheannualincentiveawardsandtheimpactoflong-termstockawardsvestingforretirementeligibleemployees.Bothoftheselasttwoitemstypicallyoccurinthefirstquarter.

Asareminder,thefirstquarterusuallyhasaspikerelatedtolong-termawardsandwewouldexpectincentivestodeclineinthesecondquarterbysomewhereinthevicinityof$65millionbasedonperformance.OnourlastearningscallItoldyouthatouroccupancycostsshouldriserelatedtothesaleofOneWallStreetaswemoveintoournewfacilitywhichwouldresultindoublerentin2015.Thisincreasewasnotreflectedinthefirstquarterbecauseitwasoffsetbytheoutsourcingofmaintenancecosts,astrongerdollarandthesublettingofsomevacantspace.

Forthefull-yearwestillexpectoccupancycoststoincreaseaswe'vepreviouslyindicatedaswetakefurtheractionsinourrealestateportfolio.

Turningtocapitalonpage14withrespecttoourcapitalratiosthisquarterthefullyphased-incommonequityTier1ratioundertheadvancedapproachdeclinedfrom9.8%to9.1%andthatwasdrivenbyanincreaseinrisk-weightedassetsprimarilyrelatedtooperationalrisk.Nowaswe'vehighlightedinpreviousperiodsouroperationalriskmodelisimpactedbyextralossesincurredbyotherfinancialinstitutions.

Thisquarteronenotableexternallossinthepaymentspaceflowedthroughourmodelandaddedapproximately$11billionofrisk-weightedassetsandthereforenegativelyimpactedourratio.Imightwanttoaddhereandletyouknowthatinthesecondquarterweexpecttohaveabenefittoourrisk-weightedassetsaswebelievewewillbedeconsolidatingmanyofourinvestmentmanagementfundsasweintendtobeanearlyadopteroftherecentlyissuedconsolidatedaccountingstandard.

Soweeffectivelyexpecttoreversetheimpactofwhatwesawinthefirstquarter.Ourestimatedsupplementalleverageratioincreasedto4.5%aswegeneratedcapitalandreducedtheaveragebalancesheetsizeslightly.OurestimatedLCRisalreadyover100%andcompliantwiththefullyphased-inrequirementswhichis80%andwillstepupto100%overthenextcoupleofyears.

Nowafewfinalnotesaboutthequarter.Asyou'llseeinourrelease,oureffectivetaxratewas24.4%butthatincludes2%benefitrelatedtoincomewiththevariableinterestentitieswhichifyouincludeditinthein-line--excuseme,ifyouincludedthatinournumbersourtaxratewouldbeinlinewiththeguidanceofabout26%soIthinkthat'stheappropriatewaytolookatit.

I'llalsopointoutthatwehaveincreasedourtax-advantagedinvestmentsincludingenergycreditswhicharenowhavingtheeffectofreducingourtaxratingbutalsoreducingourpretaxincomeandthereforeouroperatingmargin.Soifweweretogrossuptherevenuefromthetaxcreditsandreporttheimpactonthetaxequivalentbasis,ourpretaxincomewouldhavebeenhigherbyabout$64millionandouroperatingmarginwouldhaveincreasedbyapproximately120basispoints.

Wehaveelectedtodisclosethisimpactinafootnoteonpage25ofournewsreleaseratherthanincludeitinourfinancials.Butwethinkitisimportantaswemaketheseinvestmentsandyouseeareductioninsomeofthepretax.

Alsointheearningsreleaseonpage11aresomeinvestmentsecuritiesportfoliohighlights.Youwillseethatthenetunrealizedgainonourportfoliowas$1.7billionatquarter-end.That'supfrom$1.3billionattheendofDecember.

Duringthequarterwetransferred$11.6billionofavailable-for-salesecuritiestoheld-to-maturitysecuritiesandwealsopurchasedadditionalheld-to-maturitysecuritiesduringthequarter.Ourstrategyisdesignedtoreducethevolatilityofourcapitalaccountfrominterestratefluctuations.

NowI'dliketodiscussafewpointstofactorintoyourthinkingaboutthesecondquarterandtheyearaswelookahead.Netinterestrevenueisexpectedtobeslightlyhigherinthesecondquarterascomparedtothefirstquarterof2015aswebenefitfromthechangeintheassetmixanddaycount.Wewouldexpectincentivestodeclineinthesecondquarterfromthefirstquarterastheydidlastyear.

WeexpectInvestmentManagementtocontinuetobeimpactedbythestrengthoftheU.S.dollarduetoitsnon-U.S.presencewhiletheimpactoftheoverallCompanyisexpectedtobenominal.Theeffectivetaxrateisexpectedtobeintherangeof25%to26%andweanticipateproceedingwithourcapitalplansubjecttomarketconditionsandanyotherfactors.

TosummarizeweareachievingresultsconsistentwiththegoalswesharedatInvestmentDay,executingagainstourstrategicprioritiesandontracktocontinuetohitourInvestorDaytargets.

WiththatletmehanditbacktoGerald.

Thanks,ToddandWendyIthinkwecanopenitupforquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

AshleySerrao,CreditSuisse.

AshleySerrao (Analyst-CreditSuisse):

Goodmorning.Gerald,atwo-partquestiononheadcount.OneIwashopingyoucouldhelpmejustreconcileyourcommentaryfromtheshareholdermeetingwhereyounotedthattheCompanylookedgoodonarevenueperemployeemetricbutthenatthesametimeyou'vereducedheadcountbyover1,000positionsoverthecourseoflastyear.Andtwo,aswethinkaboutthepotentialforyoutoleveragetechnologyacrossthefranchisewhyshouldn'tthisdeclineinheadcountcontinue?

Wellasyouknowlastyearwetookincreasinglyaggressiveactionontheheadcountsideandwereabletogetsomestructuralchangestoourheadcount.Wesawactuallyacontinuedpositivetrendinthefirstquarterofthisyearexceptforthefactwe'veacquiredacoupleofpiecesofbusinessandwe'vebeenbuildingoutsomecapabilitiesforsomenewclientsincertainkeyareas.

ClearlyourgoalaspartofourbusinessimprovementprocessistodrivedownthelaborcomponentofourCompanyandusetechnologyasastrategicasset.Sooneofourgoalsistogettherevenueperemployeeup,theemployeeexpensedownandusetechnologyasastrategicassettogetthere.Sothat'sclearlypartofourplanistoreducethatemployeeheadcountperrevenue.

Great.Andmyfollow-upisforTodd.Onthebalancesheetandreinvestmentofcashhowmuchmorerunwaydoyouhavethereandthencanyougiveusasenseofthedurationandreinvestmentyields

here?Thankyou.

Sure,Ashley.Whydon'twestartwithduration.Sowhatwe'veeffectivelydoneiswe'vegotabouthalfofthedurationoftheportfolioorcallithalfoftheratesensitivityoftheportfolioandtheheld-to-maturityandabouthalfintheavailable-for-saleaccountandthedurationofthetotalportfolioisprobablyaround2.5.

Sowe'vesoftenedthe--dampenedthevolatilityprettysubstantiallytoourOCImovementsininterestrates.Westillarestructuredtoseesomeprettysignificantbenefitfromariseininterestrates.Soifwewantedtoandournetinterestincomeaswellwithsomefeewaiversinotherpartsofourportfolio.Soifwewantedtowecouldprobablycontinuetoincreasetheportfolioabit.

LCRisnotnecessarilyalimitingfactorherebecausewecanincreasethedurationofourHQLAassetswhichiseffectivelywhatwe'vedonehere.SoIwouldsaythereisalittlebitofroomthere,Ashley,butnotalot.

Great,thanksfortakingmyquestionsandcongratsonthestrongquarter.

Operator :

LukeMontgomery,BernsteinResearch.

LukeMontgomery(Analyst-SanfordC.Bernstein):

Goodmorning,guys.Justanotherstabattheheadcountquestion.Investorsareclaimingthatyourfirmhastoomanyemployeesrelativetocomparablepeersandthedifferenceisn'texplainedbybusinessmix.

Ithink,though,ifyouadjustforthesalegainsyouhadlastyearitlookslikethecomptorevenueratiohasbeentrackingjustacouplepercentagepointshigherthanyourclosestpeers.Somaybethere'salittleworktodothere,youacknowledgetheplan.

ButIthinkthesensiblequestioniswhetherthereareunderlyingexplanationslikelower-costoffshoresupportoroutsourcingbyothersthatyoudon'tdo,maybelaborintensityofthebusinessesyouhadthattheydon't.SoIjustwantedtogiveyouanopportunitytospeaktothat.

Luke,thanks.There'sacoupleofthingsthatyoushouldfactorintoyourthinkingonacomparablebasis.Onewe'vebeeninsourcingourapplicationdeveloperswhereothershavebeeneitheroutsourcingitormoderatingitbutwe'reactuallygettingmorecapacityforlessdollarsinourtechnologyapplicationsbyinsourcingthosecapabilitiesandwelaidoutsomeofthosenumbersforyoulastweekandinpriorweeks.

ThesecondissueiswedointernallytransferagencybusinessesbothintheU.S.andinEuropewhereasourprincipalcompetitoractuallydoesitthroughajointventureoroutsourcesit.Transferagencyservicesareverylabor-intensiveandthereforeifyouweretocombinetheoutsourcingorjointventurearrangementwithourcompetitoryou'dprobablyfindalargerheadcountonapercentagebasisthanwemayexperience.

Lastbutnotleastwedohavethingslikecorporatetrustandclearingservices,treasuryservicesthatsomeofourcompetitorsdonothave.Theydohavealaborcomponentassociatedwithitbuttheyarealsogoodoperatingmarginbusinesses.SoIthinkthat'swherethecomparablebasisstartstobringinto

questiontheheadcountversusrevenues.

That'swhywe'refocusedontherevenueperemployeeandIthinkwecompareveryfavorablytootherinstitutions.OurgoalisstilltoimproveinthatcategoryandourgoalistostillimprovetheoperatingleverageofourCompany.That'swhatwelaidoutatInvestorDay,that'swhatwe'recommittedtodelivering.

Great,thanksforthat.Andthenasafollow-upIwonderifyoumighttakeastabatbreakingoutemployeesbybusinessormaybeconsideraddingsomedisclosuretothatinthefuture?

Okay,we'llgiveitsomethought.Thanks.

Allright.Thankyouverymuch.

Operator :

BrennanHawken,UBS.

BrennanHawken (Analyst-UBS):

Goodmorning.AquickquestiononFX.

Prettysolidthisquarter,nicebouncebackfromlastquarter.WasDRswitchingtoatailwindherethisquarterorwasthatneutralanddidsomeoftheadjustmentsthatyoumadetothatbusinessthatyoureferenceinyourpreparedremarkshelptomakethat--helptoimpactthatrevenuelineherethisquarter?

Youhadacoupleofquestionsthere,Brennan.IntermsofDRs,DRswerealittlestrongerinthefirstquarterandsomeofthatwastimingfromthingsthatwe'veseeninthefourthquarter.

SowedidgetabenefitofthatandtherearesomeFXrelatedtocorporateactionsinDRsandsowedidgetapickupthere.ThensomeoftheFXwassubstantialincreasesinvolumeswhichissomewhatmarketrelatedaswellasustryingtocaptureonthesystemsmoreofthevolumes.ThentheremainderofthepickupwasmarketdrivenwithsomeoftheeventsintheSwissinthehighervolatilitythatwesawinthefirstquarter.

Okay,thanksforthat.ThenIknowyoureferencedthatyouexpectassetmanagementmarginstoimproveontheGermandivestiturebutisitpossibletoquantifytheimpacttothemarginsthere?

Curtis,doyouwantto--

CurtisArledge (CEO-InvestmentManagement):

Themarinebusinesswasnotahugecontributortoouroverallpretaxandwasamodestcontributortobothrevenuesandexpenses.Butthestrategyaroundourdivestitureendedupbeingthatwereallydo

havestrongfixedincomecapabilitiesinEuropeandotherboutiquesandthebusinessdidn'tdriveasignificantamountofpretaxsuchthatitmadesensetocontinuetohaveasmuchofanofferinginGermanyaswehadthere.Soit'snotgoingtobeadramaticimpactonmarginsbutabsolutelypositive.

Okay,thanksverymuch.

Operator :

AlexBlostein,GoldmanSachs.

AlexBlostein (Analyst-GoldmanSachs):

Great,goodmorningeveryone.Todd,aquestionforyouonthebalancesheet,actuallyacouplequestionsthere.SoyourcommentearlieraroundputtingsomeoftheexcesscashtoworkIwaswonderingifyouguyscouldquantifythat.

WeobviouslyseethemixofthebalancesheetmovingoutofthecashandcashsittingattheFedintosecuritiesportfolio.HowmuchIguessoftheexcessdepositsyouguyscouldconsidermovingovertime?AndshouldweIguesstakethatmaybeasasignofconfidencethatyouguysarestartingtoseesomeofthatnonoperationalcash,youknowbecomingoperationalinyourviewandthat'swhyyou'redoingthat?

Yes,IthinkAthere'sgreaterclarityorthereisperfectclaritynowaroundthe--Ishouldn'tcallitperfect.There'sbetterclarityaroundtheLCR,Alex,whichgivesussomeconfidenceinhowtheHCMaccountwouldbetradedundertheLCR.

Sowehaveputprudencylimitsaroundhowfarwewouldgowiththat.SoifyoucanseeinthequarterIthinkcashdeclinedbyaboutthesizeoftheincreaseinthesecuritiesportfolio.Wedohaveaverystablecoredepositbase,wellinexcessoftheamountofcashthatweorsecuritiesthatwehaveinthehigh-qualityliquidassetsthatareintheHTMaccount.

Thereisprobablyalittlebitmoreroomforthat.Ithinkmostofwhatyou'llseeusdonowisworkonboththeassetsinthenon-HQLAtoseeifwecanbumpuptheyieldsalittlebitandtheassetsintheHQLAwiththesamepush.

Butwe'restickingwe'reat97basispointsofNIM.Ourguidancewas95to100inazerorateenvironmentandI'mgoingtotrytostickwiththat,Alex.Ithinkthat'sprobablythebestestimateofwherewe'regoingtobe.

Gotyou.Andthenafollow-uponjusttheoverallsizeofthebalancesheet.

Sothisisthefirstdeclineinaverageearningassetsofthissizewe'veseenfromyouguysinawhile.JustcuriousIguesswhereisthedeclineindepositscomingfrom,whatkindofclientbaseisthatandwhereisitgoingjusttogetsomebettersenseofthemovingpiecesthere.

Itisnot--asyoulookintothedetailsAlexyouwillseeit'snotinourdepositbase.Ourdepositbasewasaboutflattoupslightly.Whereyouseeitisinotherborrowedfundsandoccasionallywedoput

securitiesoutonrepoandwe'lltakeadvantageofsomeinterestearningopportunities.

Therewerelessofthemsowebroughtdownthebalancesheetby$10billion.Sothatwasself-inducedbyourtreasuryteam.

Gotyou.Great,thankssomuch.

Operator :

BetsyGraseck,MorganStanley.

BetsyGraseck(Analyst-MorganStanley):

Hi,goodmorning.Coupleofquestions.OneonjustonSLR.

Youmadealittlebitofprogressthisquarter,justwantedtounderstandhowmuchofabenefitdoconsolidationofthoseinvestmentsyoumentionedearlierweregoingtohave?Ifyoucouldrefreshourmemoryonthataswellasopportunitytoimprovemaybesoonerratherthanlaterwithprefissuance.

Goahead.

Intermsofthedeconsolidationwethinkit'sprobablyintheballparkofabout2%oftheassets,soifit's2%we'vegota4.5%ratio.Youcandothearithmetic,about9or10morebasispointsthere,Betsy.

It'snotahugemoverbuteverylittlebithelpsandthere'sobviouslythere'snocosttodoingthat.AswedisclosedinourCCARwearegivingsomeconsiderationtodoingapreferredandpreferredcouldbeanadditionalacheapersourceofcapitalobviouslythencommonanditmaybesomethingthatwecoulddoonourpathtocomplianceifwefeltitwasappropriate,basedonwhatweseehappeningtothedepositbase.

Thedepositbaseisrelativelystable.Itmightbeupalittlebitwhatwithsincetheendofquantitativeeasing.ButIthinkthere'sgoingtobesomeshiftingaroundandthefutureofthedepositbaseisgoingtobeafunctionofhowtheFedactuallyconductsitsmonetarypolicy.

Okay,andthenjustseparatelyonclearingwehadheardfromJPthatthingsgettougherthere'sthepossibilitytheymightfadetheclearingbusiness.Howdothinkaboutthat?

Howdoyouthinkaboutthefutureofclearing?Isthereanyeffortstopotentiallyputclearingintoasharedentityindustrysharedentity?

Whydon'ttakepartofitandthenI'llturnitovertoBrianShea.SoBetsyasyouknowwehavetwoformsofclearingbusinesses.

Oneistheinstitutionalside,thebrokerdealerclearancebusinesswherewehaveaverysignificantmarketshare.It'salwaysbeenthebasisforsomeofourtri-partycollateralmanagementcapabilities.It'sallowedustobuildourcollateralmanagementandenhanceitonaglobalbasissoit'sbeenacore

businessforusandit'sadifferentiatorforusinthemarketplace.

AsyoumayknowtheFederalReserveisourclientinthatspaceaswellonthereverserepoprogramsoweseeitasanimportantactivity.We'remindfulofthefactthatcentralclearinghousesandothermarketparticipantswanttoutilitizesomeofthoseactivitiesbuttodayit'sagoodearnerforus.We'reinvestinginitandit'sallowingustobringtomarketnewcapabilities.

Atourotherclearingbusinesswhichisreallyafinancialadvisorysolutionsplatform,i.e.,Pershing,weseethatasanincrediblystrategicassetfortheCompanygrowingvery,verynicely.Wealthmanagers,privatebanks,advisorsaroundtheworldwanttoutilizethatplatformtoservetheendinvestor.That'sastrategicgrowthassetofourCompanyandBrianyoumaywanttoaddsometoit.

BrianShea(CEO-InvestmentServices):

Ithinkyou'vedidaterrificjob,Gerald.Nothingtoadd.

Okay,thanks.

Operator :

KenUsdin,Jefferies.

KenUsdin (Analyst-Jefferies):

Thanks,goodmorningguys.Hey,Iwaswonderingifyoucouldtalkaboutwe'vegottentothepointwhereitseemslikewemayhaveseenthatturninprofessional,legalandotherservices,youguyshavetakencareofabunchofthelitigationandI'mjustwonderingifyoucangiveusalineofsightthere.That'sbeenthesecondbiggestcategory,that'sbeenapressureonearningsforquiteawhile.

Areweataninflectionpointthere?Areyouatthepointwhereyoucanatleastfeelconfidentthatwe'vepeakedorarestartingtoturndown?

Yes,Ithink,Ken,thereareacoupleofitemsthere.Alotofourpurchasedservicesarethingslikedatasourcesandinformationthatweusetorunourbusiness.Ourprocurementactivitiesareactuallyhelpingusdrivesomeofthoseservicesdown.Wethinkthereactuallyisalittlebitmoreroomthere.

Intermsofthemanagementconsultingandsomeoftheconsultingexpensesthatweareincurringrelatedtosomeofourmajorplatforminitiatives,thosewillprobablyberunningattheratethatwe'reseeingnoworintheballpark.Therewasquiteaspikeinthefourthquarter.Wewouldn'texpectthattorecur,buttheycouldbeinthesamelevelthattheyareattoday.

Legalisalittlebitearlytocall.Thereshouldbeapiecedividendwithoursettlement,sowemightseesomebenefitoutofthatforsomeofourlitigationdefenseswhichalsofallonthatline.SoIthinkintheshort-term,I'dlookforittostaydownatthislevelthatwesawitcomefrom,comedownfrominthefourthquarter.Theremightbesomeroomgoingout,butatthispointIdon'tthinkI'dreallygiveguidancetoabignumberyet.

Okay.Andmysecondquestion,maybeoneforCurtisjuston,intheInvestmentManagementbusiness,Todd,hearingyourpointsontheeffectofFX.Butthegrowthratesevenadjustedforthethreeindividualinvestmentmanagementlinesaresomewhatsubdued,meaningitimpliesthatthefeecapturerateslookliketheyarestillundersomepressurewithyourmixingstillintoLDIandoutofactiveequity.

Justwonderingifyoucanshedsomeadditionallightonjustcontinuedoptimizationthereandwhatshouldweexpectasfarastheoutlookforfeecapture?

Yes,sofeecapturewhenyoublendassetswehavefeesthatareverydifferentineachassetclassandsowhatwehaveseenisthefeecapturedeclinesreallyhavebeenaresultofthesuccessofourrapidlygrowingLDIbusiness.SoLDI,againtheU.S.LDIandEuropeanUKspecificallyLDIbusinessesaresomewhatdifferent.ThebiggestpartofourLDIbusinessisintheUKandEuropethroughInsightandtheyhavecontinuedtogarnerassetsaspensionplansarederisking.

Thebusinessthatbusinessisactuallyquiteactivebusiness.You'retryingnotjusttomanageagainstaninterestrateliabilitybutalsoaninflationliability.

Theyearnbothbasefeesandperformancefees.Sowhentheyperformwelltheirfeerealizationisactuallymeaningfullyhigherbutagainwhat'shappeningonthetotalfeecaptureisthatthedeclines,wecoveredthisatInvestorDayyoumayremember,Ken,thatitreallyhasalottodowiththefactthatourLDIbusinessisgrowingsorapidly.Butagainit'snotapassivebusiness,it'sverymuchanactivebusinessandmuchofourperformancefeesoverthepastmanyquartershavebeenfromourLDIbusiness.

Okay,thankyouguys.

Operator :

MikeMayo,CLSA.

MikeMayo (Analyst-CLSA):

Hi.Ihaveonequestionwiththreeparts.AttheannualmeetingnewDirectorEdGardensaidthatBankofNewYorkisfocusedonbeingbest-in-classineverythingwedo.

Sofirstareyoubenchmarkingversusbest-in-class?Second,whatisthebest-in-classnumberforROTCEandthemarginsforInvestmentManagementandInvestmentServices?Andthirdwhenyoulookatbest-in-classwouldn'titbemoreappropriateinsteadoflookingatrevenueperemployeetolookatnetincomeperemployeeandonthatmeasureitseemslikeyourankbelowpeer?Thanks.

Thanks,Mike.Wecertainlyaspiretobebest-in-classineverythingwedoandtoberecognizedastheindustryleaderintheareasweoperatein.

Wedometricourselvesagainstavarietyofdifferentinstitutionsandavarietyofdifferentmetricstotrytoachievethosegoals.We'vechallengedourteamsacrosstheCompanytoaspiretothosemetrics.

Forthepublicconsumptionwegiveyoubroadmetrics.It'stoughtogiveyoueverysinglemetricthatweareoperatingtheCompanywithinandsothingslikefeetoexpenseratioacrossInvestmentServicesweseecontinuousimprovementthere.Therevenueperemployeeisadmittedlyabroadmetricbutit'sanindicativemetricofoneofthethingswe'retryingtoworktowards.

Welookatclientsurveys,clientsatisfactionsurveys.Wemeasurethose.Thosethatwesharedwithyouattheshareholdermeetinglastweekareextremelyhighscores.

Wewanttogetto100%.I'mnotsurewe'llevergettherebutthosearesomeofthethingswe'retryingtoworktowards,thingslikestraight-throughprocessingrates,accuracyratesareallthingsthatwemeasureinInvestmentServices.

OntheInvestmentManagementsidewelookattheinvestmentperformanceoftheboutiquesandtheassetclassesversustheirfeerealization.SowehavealotofmetricsacrosstheCompanywherewe'reaspiringtobethebestineverythingwedo.

Willwealwaysgetthere?Itwillbeachallengetogetthereineverysinglecategorybutthat'scertainlyouraspiration.

Onefollow-upthenbecauselastweekyoudidmentiontherevenueperemployeeandaftergettingbacktomydeskandlookingatnetincomeperemployeeyoudidn'tlookquiteasgoodorunderperformedpeer.SowhyisrevenueperemployeetherightmetrictolookatinsteadofnetincomeperemployeeandalsowhenyousellyourGermanboutiquewillthathelpthatmetricandcanyouelaborateonthatsalebecausethatseemsnew?

Mike,whetherit'srevenueperemployeeornetincomeperemployeeIthinktheyareametric.ButIthinkthemetricultimatelythatyouneedtofollowiswhatishappeningtoouroperatingmarginandhowareweperformingbecauseifweinsourceoroutsourcewhicheverwayyougothere'sgoodreasonsforonecompanytodoitonewayversusanotherdoingitanotherway.

Ultimatelyit'sgottodroptothebottomline.AndIthinkwhatyou'veseeninourperformancethisquartera300basispointincreaseinouroperatingmarginisprettysubstantialandwecontinuetofocusondrivingthemargin.

Wethinkthestrategiesultimatelywillpayoff.Wethinktheinsourcingofourapplicationdevelopersnotonlydowehavetheintellectualpropertyclosetoourclientswhichcanmakeusthebest-in-classintermsofprovidingtechnologysolutionswealsohaveitatalowercostbecauseweownitandthat'sbeingreflectedinourtechnologycostswhicharedeclining.

SoIthinkthat'showultimatelyyouhavetomeasureusbecauseit'sjusttoohardtotellexactlywhat'sgoingonwithheadcountandhowpeoplecomputeitandwhetherthey'vegotcontractorsinversusfull-timeemployeesandsoforth.IntermsofMeritenI'llturnitovertoCurtis.

Yes,thanksTodd.OnethingIwouldwanttomakesurethatwehighlightisthatweinadditiontosellingMeritenwealsoacquiredCutwater.Thereisactuallyanetreductioninstaffasaresultofthatbutit'snotgoingtomeaningfullychangeanyofthemetricsthatyou'relookingat,Mike.

Sothatreallywasastrategicrepositioningofourportfolio.AgainwehadmorefixedincomecapabilityinEuropethanwefeltlikeweneededandwealsowanttogrowInsight'sterrificLDIcapabilitiesintheU.S..

SopartneringthemwithanexcellentfirmatCutwaterreallywaswethoughtafantasticmove.SoIjustwanttomakesurewecapturebothofthose.

YesandIthinkMeritenispartbyitselfit'snotgoingtomovetheneedlealot.Butasweporeovertheportfolio,aswechangeourderivativesbusiness,aswestreamlineourcapitalmarketsactivities,asweexitedthefuturesclearingmargin,asweexitedtwocorporatetrustactivitiesinJapanandMexico,nowthrowMeritenintothat,aswecontinuetoporeoverwhatmakessenseinaggregatetheyarestartingtomovetheneedle.

Allright.Thankyou.

Operator :

BrianBedell,DeutscheBank

BrianBedell(Analyst-DeutscheBank):

Hi,goodmorningfolks.Maybejustfollowingalongthatpathontheactualcostsavesfromstrategicactionsandmaybeifyoucanjustupdateusontheaggregatelevelofcostsavesonayear-over-yearbasisthatyouexpectfromconsolidatingsomeofthebackofficeplatformsinassetservicinglikemovingtotheoneplatformincustody?

BrianShea(CEO-InvestmentServices):

SoBrian,thisisBrianShea.WecontinuetodriveforwardwithourbusinessimprovementprocesswhichyouknowistransformingforsuccessandasGeraldmentionedearlierwe'regoingacrosstheboard.

SofromabusinessexcellenceperspectiveToddjusttalkedaboutthebusinessportfolioreviewactions.Meritenwasthelatestinaseries.Wecontinuetodrivemoreleverageacrossthefranchiseintermsofenterpriseteamwork.

We'reexecutingonagloballocationstrategytorepositionpeopletolowercostlocations.We'vetalkedabouttheinsourcingoftechnologydevelopmentwhichnotonlyimprovesourspeedtomarketandintellectualcapitalleveragebutitalsoreducesourcostandreducesourdependencyoncontractorsandtheconsultants.

Wearemovingforwardwithplatformconsolidations.Inthelatestquarterorinthelastmonthwe'vecompletedthefinalstageofourcorporatetrustreplatformingtoourtargetplatformandthatwillenableustoretireanotherlargehistoricallegacyplatformoftheCompany.Sothere'slotsgoingonbutthekeymessageI'dsayisone,wegaveyouatargetatInvestorDay.

We'regoingtomeetthattargetandwe'reontracktomeetthattarget.Andtheworkthatwe'redoingisnotone-timecostdriven,it'ssustainablecontinuousimprovement.Andsowebelievewecancontinuetodriveimprovementinthisprocessoverthelongterm.

AndBrian,Iwouldjustaddthatwe'velearnedthelessonofannouncingabigprogramandthendeliveringontheprogram.Andunlessitshowsupintheoperatingmarginandtheoperatingleverageitdoesn'tcountandit'sshowingupintheoperatingleverageandintheoperatingmargin.Soourmarginwentupby300basispointsfromthefirstquarteroflastyear.

OurfeetoexpenseratiohasimprovedinInvestmentServicesandweproducedover500basispointsofoperatingleverage.Thosearethefacts.

AndIwouldaddtothat,Brian,alltheactionsthatwe'retakingtostreamlinetheorganizationandthetransformationthatBrianjusttalkedaboutmakeusalittlesimpler,alittlelessrisky.Buttherearealsocontinuetobesignificantregulatoryrequirementsforus,theresolutionplanning,meetingsomeofthedatarequirementsthataresubstantial.Sotheregulatorscontinuetoincreasethebarandweneedtobepreparedtobeabletofundthoseinvestmentsandsomeofthiswilldroptothebottomlineandsomeofitwillenableustofundtheincreasingdemandsfromtheregulators.

Right.Sothatremainsthewildcardontheregulatoryfrontfromanexpenseperspectiveitsoundslike.

Yesitdoes.

AndthenjusttofollowupthismightbetooearlytotrytofigurebutyoutalkedalittlebitabouttheNEXENplatformattheshareholdermeeting.Maybeifyoucouldisthereawaytoquantifythecompetitiveadvantagesyouthinkyouwillbeabletogetfromthatfromnewproductrollout,someoftheinternalsourcingthatyoujustmentionedsayoveratwo-orthree-yearperiodfromarevenueperspective?

Iwouldn'twanttogiveyouaspecificrevenuetargetbutIcansaythatwe'recommittedtobetheinvestmentindustrytechnologyleader.Partoftheinsourcingstrategythatwementionedisnotjustaroundbeingmorecost-effective,it'sabouttransferringdomainbusinessknowledgeintothetechnologydevelopmentteaminawaythatcreatesacompetitiveadvantage.NEXENwillbeavisiblemanifestationofthattoourclients.

It'sthesortofnext-generationtechnologyplatformthat'sgoingtoallowustoconnectthevariousapplicationsacrossthevariousbusinessesanddeliveramoreseamlessandstate-of-the-artintuitiveplatformtoBNYMellon'sclients.Itisbasedonasecurecloud-based,privatecloud-basedplatformwhichacceleratesourspeedtomarketfornewcapabilitiesandactuallyreducesourcostofinfrastructure.

IthasanEPImarketplaceessentiallyallowingseamlessintegrationwithourclientsandsowe'llbeaneasierfirmtodobusinesswithandintegratewithfromatechnologyperspective.Itwillbecompletelymobileinawaythatwedeliver,soanymobiledeviceanywhereanytimepeoplewillabletoconnectthroughNEXEN.

Ithastheequivalentofanappstorewhichmeansthatwe'regoingtobeabletoeasilyintegratethird-partyprovidersofchoiceintotheplatformsothatwereduceourclients'vendormanagementandintegrationcost.Andultimatelyitwillbethedeliveryvehicleforourbigdatasolutionswhichwe'realreadydevelopinganddeliveringtoclientsintheareaofliquiditymanagement,collateralmanagementbutwillallowustodeliverinsightstoourclients.

Sowe'rerollingthisoutinternallyinthebeginningthisquarterandwewillstartrollingitouttocustomersinthesecondhalfoftheyearforselectedbusinesses.Andoverthecourseof2016we'llrollitoutmorebroadlytothebroaderclientbase.Ihopethathelps.

Yes,that'sgoodcolor.Thankyou.

Operator :

GlennSchorr,EvercoreISI.

GlennSchorr (Analyst-EvercoreISI):

Hi,thanksverymuch.Questioninmoneymarketland,I'mcuriousifyoufeellikeyouhavetheproductofferingsetwhereyouwantedtobeaswetransitionnextyear?Andwhatkindofsensitivitiesyouthinkyou'relookingatintermsofclientbalancemigrationprimefundstotreasuryfundsandwhatkindoffeegiveupandfeewaivergiveupthatwe'rethinkinggetsrecapturedthatmightnotbebasedonhowclientsmigrate?

Hey,Glenn,it'sCurtis.LetmegiveyoutheviewfromtheInvestmentManagementperspectiveandthenmaybeToddorBriancantalkaboutitontheotherside.Sofirstofallyouareseeingpeoplerepositiontheirmoneymarketofferingsaswegetclosertonextyear'sfloating-rateNAVforinstitutionalprimefundsandwe'veactuallybeenspendingalotoftimeonthataswellandsonotreadytoannounceanythingjustyetbutIthinkit'sfairtosaythattheindustrywillpositionitselfforwhatwedobelievewillbeashiftinassets.

TherearealotofpeoplewhocurrentlyinstitutionalclientsthatusefixedNAVprimefundsthatwillnotbeabletohavethembeinafloatingstatus.Soweknowassetsarelikelytomove.WecontinuouslysurveyourclientsandnotjustacrossInvestmentManagementbutthewholeCompany.

We'reobviouslyaverylargeplayerhereandwedobelievethatbetweenthethirdand50%ofclientswillshifttotreasuryfunds.Andsotoansweryourquestionaboutwhatthatmeansfromafeewaiverperspectiveit'sverysignificantwhereinterestratesarewhenthatoccurs.FeewaiversaremorechallengingintreasuryfundssoifinOctober2016interestrateshaven'tmovedtherewillbeanegativeimpactfromfeewaiversfromthatactivity.

Oneoftheotherthingsthatissomewhatoffsettingto,though,andyou'veseensomebanksbeginasSLRishavinganimpactchangingtheirviewsondeposits.Sowehaveabsolutelyseenhedgefundsandotherclientswhowouldhaveleftdepositsonbankbalancesheetsmovethosetwomoneymarketfunds.

Andsowe'reactuallyinthefirstquarteracrossourplatformandwithintheInvestmentManagementwesawbalancesremainrelativelystable.Theseasonalitywouldhavesuggestedthattheywouldhavebeendownsomewhat,sothere'sagrowthinmoneymarketfundsoccurringasaresultofregulation,sothere'ssomecountervailingforcesatplayhere.

SoIthink,Glenn,fortheCompanyasawholethatifinterestratesweretostayatzeroandyoudidseeamovementfromprimeagainwhatCurtisjustindicatedisthemovementyou'reseeingintotreasuryfundsisnotnecessarilycomingfromprimerightnowit'scomingfrombankdeposits.Butintheeventaswemoveforwardwithmoneymarketfundreformwewouldexpectprimetogomoretowardtreasury.

Andifinterestratesstayedatzerothatwouldbeanegativeforusbecausethere'sloweryieldintreasuryandthereforetherearegoingtobeamodestincreaseinfeewaiversasaresultofthat.Ifinterestratesnormalizethentherecoverytrackoffeewaiverswouldbeaswe'vedescribed.

Gotit.Okay,Iappreciateit.Andthenjustonelittlecatchuponoccupancycost.

Youmentionedthatwecouldn'tseethedoubleoccupancycostinfirstquarter.Ijustwanttomakesure

theyweretherebuttheywereoffsettingitemsbecauseIjustwanttomakesurewe'remodelingsecond,thirdandfourthquartercorrectly.

Yes,letmeclarifythatandmakeitabsolutelyclear.Soyes,wearepayingthedoublerent.Wehadalittlebenefitfromcurrencytranslation.

Wealsohadalittlebenefitfromouroutsourcingofmaintenancewhichfallsthroughthatoccupancyexpenseline.Andinadditionsomeofthecostsassociatedwiththemovehavenotbeenreflectedinthatline.

SoIthinkthebestguidanceIcouldgivewehadindicatedthatwethoughtthelinewouldbeupabout$30millionforthefull-year.It'sprobablybesttothinkofitataboutthatamount.

Okay,Iappreciateit.Thankyou.

Operator :

JimMitchell,BuckinghamResearch.

JimMitchell(Analyst-BuckinghamResearchGroup):

Yes,goodmorning.Maybejustaquickfollow-uponthedepositdiscussion.Obviouslygivenleverageconstraintsacrosstheindustryit'ssortofadifficultproblemforeverybody.

Howdowethinkaboutitlongterm?Isitmoreofthathey,wecan'treallytellourclientswhattodobecausewedon'twanttoloserelationshipsandpushdepositsdownlikeaJPMorganandlongertermtheeconomicswithhigherratesyoukindofgettoacrossoverpointwhereyouactuallyearnyourcostofcapitalonthosedeposits?

Isthatsortofthestrategythatoristheresomethingmoreproactiveyoucandotopushdownleverageandmoveintomoneymarkets?Justwonderingifthere'sanykindofconstraintsonmoneymarketsforalotofcorporatetreasurersiftheyhaveariskofbeinglockedupfor30daysandthingslikethat?

Wellwhydon'tIstartandI'llturnitovertoTodd.One,it'saverydynamicsituation.Assupplementalleveragephasesinandweworkourwaytowardsitobviouslythelevelofthebalancesheetbecomesincreasinglymoreimportant.

We'dliketoearnsomemoneyonthosedepositsintheshortrun.We'rewatchingourdepositbaseandourclientactivity.Weclearlywanttotrytodrivethedepositbasetowardsoperationaldepositswhichhaveamorefavorabletreatment.

We'reeducatingallofourteamsaroundtheCompanyaroundclientactivitywhetherit'soperationaldepositsornotandthereforethevalueassociatedwiththem.Thathelpsusengagewithourclientsbetterandreallydrivebetteroutcomesforourclientsandourselves.

Soit'saverydynamicsituation.We'reveryengagedwithourclientsonit.Wherewethinkit'sappropriateaswe'vedoneinEuropewherewe'rechargingfordepositswearebutwe'remodelingthisandwatchingitverycarefully.

Yes,Jim,Iwouldjustaddtothatthatit'shardtopredicthowdepositsaregoingtomoveuntilyouareclearaboutwhattheFedmonetarypolicyisgoingtobe.Soiftheyaredrainedinatraditionalwaywhichwouldbethroughreverserepothenwewouldthinkdepositswouldrunoffanditwouldbepricebased.

Anotheralternativeisliterallyjusttopricethem.Sotherearegoingtobenonoperationaldepositswhichmeantheyaren'tveryattractiveundertheLCRandIthinkbankswillbenotwillingtopayalotforthemespeciallyiftheyaresomewhatconstrainedbytheSLRratio.

Intheeventthatinterestratesriseandthosedepositswanttostickwithinstitutionsthatareverystronginstitutions,therewillbeacrossoverat60or70basispointsthatlooksprettyattractiveasareturnoncapitalevenjustleavingitattheFedareas.Sotheremightbeapointwhereyou'dprobablyraisesomepreferredorcapitaljusttokeepthebalancesheet,keepthemonthebalancesheetandmakeavery--actuallyazeroriskreturnbutadecentreturnonregulatorycapital.

Okay,thanksforthat.That'sveryhelpful.Thenmaybeaquickieonthenetsharecount.

Ithinkyoulastyear'sbuybacknetofemployeestockissuancewasaboutIguess35%,40%dilution.Isthatthewaytothinkaboutitgoingforwardorshouldwethinkabouttheemployeeissuanceismoreofafixedcostandasthebuybackincreasesthenetsharecountreductionimproves?

It'srelativelystablesoyou'llseealittlebitofahigheroneasthebuybackincreasesbutnotalot.Soyoushouldstillthinkinthesametermsthatyoujustmentionedthattherewillbeshareissuancewiththeemployees,inthatkindofaballpark.

Okay,great.Thanksalot.

Operator :

AdamBeatty,BankofAmericaMerrillLynch.

AdamBeatty(Analyst-BandofAmerica-MerrillLynch):

Thankyouandgoodmorning.AcoupleofquestionsonInvestmentManagement.Specificallyonthemulti-affiliatemodelIappreciateyourcommentssofaronMeritenandCutwaterandInsight.

Justmorebroadlyacrosstheaffiliateportfolio,isthereadditionalstreamliningthatyou'rethinkingabout?Aretherecapabilitiesthatyou'relookingtoaddormaybesomeaffiliatesthataresubscale?

Justmorebroadlyhowareyouthinkingabouttheaffiliateportfolio?Thanks.

Yes,sooneofthethingsthatweannouncedrecentlywastheformationofactuallyanewinvestmentboutiquefromstartwiththestateofTexasasacornerstoneinvestor.WeactuallylaunchedafirmcalledAmherstCapitalandit'sdesignedinmanywaystobenefitfromalotofregulatorychangesthatwe'retalkingaboutwherebanksarehavingtoholdmorecapital.

Muchofthechangesinrealestatefinancehavebeenimpactedbythatandsothatboutiquewillactuallymanagefundsinrealestatefinanceasaresultofthischange.Sothat'sanexampleofthekindofthingwherewearecontinuouslylookingforplaceswherewebelieveourclientscanearnsomevery

attractivereturnsrelativetotheirliabilitiesandrelativetotheirneeds.Andsoonewaythatwemanageourportfolioisbystartingnewthings,launchingnewthingsanditwasagreatthingtohaveaverywell-known,sizableinstitutionalclientlaunchthatwithus.

OntheotherhandtheMeritensaleverymuchwaslookingatourportfolioandseeingthegreatgrowththatwe'veseenfromotherinvestmentfirmsinourmixsobothInsight,Standish,Alcentra,NewtonevenhassomeverygoodEuropeanfixedincomecapabilities.Sowhenwefeellikeourcapabilitiesgettothepointthatthereisamoreattractiveownerofthefirmwehavesoldit.Inthepastwe'veclosedfirmsthatbecamesubscaleordidn'tdelivertheinvestmentperformance.

We'realwayslookingtofindthoseinvestmentcapabilitiesthatwethinkareexcellentthatfitneedsthatwethinkourclientshaveandthatareinlinewithmarkettrendssuchastheoneIdescribearoundAmherst.It'sacontinuousprocess.Iwilltellyouthatwearenottradersofourinvestmentboutiques.

Iwanttomakesurethatwedon'tsendthatmessagebecausethetruthofthematteriswearetryingtohaveaninvestmentlineupthatsatisfiesthecompletesolutionforourvastglobalclientbase.AndagaintheMeritenenterprisebyitselfisnotacorestrategyofourstosellfirmsbutreallyjustmakemoresensetodosomethingdifferent.TheCutwateracquisitionagainexpandingpensionderiskingcapabilitiesintotheU.S.isamajormarkettrendandthat'swhywemadethatacquisition.

Makessense.Thankyouforthecolor.

Thenjustturningtotheequitycapabilitywhichstandsoutalittlebitfromanotherwisestrongfranchiseonthosetermsarethereproductgapsthatmaybeyou'relookingtofill?Isitaquestionofcurrentproductsmaybebeingout-of-favorormainlyaperformanceissue?Iknowyou'vedonesomeworkondistributionandhowisthatcomingtofruition?

Yes,sothanksforthatquestion.It'sagoodone.Againmostoftheassetsundermanagementthatwehavearewithinstitutionalclientswhoareverydisciplinedaroundrebalancing.

Andsoasequitymarketshaveperformedwelltheclientbasethatwehaveisverythoughtfulaboutmanagingtheiroverallassetallocation.Andsorebalancinghasabsolutelybeenabigpartofthetrendsweseenotjustthisquarterbutinpreviousquarters.

Welookacrosstheindustryandsomeofwhatweseeinretirementchannelsandintheretailchannelstherehasbeenlessvolatility.Thereareabsolutelyinflowsintosomeequityproductsandalotoftheinvestmentwe'vebeenmakinginourwealthmanagementbusinessandinourU.S.retailintermediarybusinesshavebeenaroundbeingabletocapturethoseflows.AndjustyearoveryearIcantellyouU.S.retailacrossallproductshadaveryniceuptickabout60%increaseinsalesandourwealthmanagementbusinessesalsoshowingsomeverynicegrowth.

Inactiveequitywehaveseensomeimpactattheinstitutionallevelwhereclientshavemovedfromactivetopassive.I'dtellyouthataboutathirdofwhatwe'veseeninourbusinessthisquarterwasamovefromactivetopassivesothat'sadynamicatplayaswell.

That'sveryhelpful.Thankyoufortakingmyquestions.

Operator :

GeoffreyElliott,AutonomousResearch.

Geof f reyElliott (Analyst-AutonomousResearch):

Goodmorning,thankyoufortakingthequestion.AttheInvestorDayyoutalkedabout11%to12%rangefortheBaselIIITier1commonratio.

Clearlyevenwiththereversaloftheoperationalriskhereyou'regoingtobeabitbelowthat.Areyoustillthinkingaboutthat11%to12%rangeastherightnumberordoyouthinkitisshifteddown?

No,Geoff,IthinkasIhadmentionedinmypreparedremarkstheimpactoftheincreaseintheoperationalriskcapitalwillbeoffsetbythedeconsolidationofcertainassetsaswebelievewe'regoingtobeanearlyadopteroftheconsolidationstandard.Sothatwillbringusbackclosertothe10%rangeandthentherewillbesomenaturalaccretionofcapitalaswebothincreaseourSLRrequirement.

Andwe'dliketobeaboutIthinkbeingoptimalisbeingabout2Xsoifwehave5.5%ofSLRbasedcapital,leveragecapitalthatwouldprobablyputusataboutan11%orsoforourcommonequityTier1.SoI'dstillkeepitprettyclosetotherangeof11%to12%.

Andthenjustaquickquestiononthenumbers.Therewasabigincreaseinnon-controllinginterestto$90millionandtherewasalsoabigstepupintheincomefromconsolidatedinvestmentmanagementfunds.ItsoundedlikeyouweresayingtherewassomesortofhedgingeffectthatdrovethatbutIjustwantedtomakesureIunderstoodwhatwasgoingon.

Yes,thisrefersbacktotheconsolidationofthevariableinterestentitiesthatwewerejusttalkingaboutforthebalancesheet.Soeffectivelywhathappenswherewehaveasmallinterestinafundwehavetoconsolidatetheentirefund.Andasweconsolidatethatwerecognizetherevenuenotonlyofourownsmallinterestbutofourclients.

Thenwetakethat--sointhefirstquarteritdidverywellsoitwentupsubstantiallyandourclientssawmuchmoreintheformofrevenuethanwetypicallyseen.Andifyougothroughthebalancesheetyou'llseethereisadeductiononanafter-taxbasisofthatminorityinterest.

Sowhatitlookslikeiswehavealargepretaxincomeandthereforehaveaverylowtaxrateandthat'snot--ourincomedoesn'tgetincludedinthetaxratebutineffectit'sbestjusttotakethewaywereportournumbersonanadjustedbasis,that'swhywedidn'tsayourrevenuegrew6%whichiswhattheGAAPnumberwas.

Itactuallygrew4%becausewetooktheclientrevenueoutoftherevenueline.

Asweadoptthenewstandardwe'llgetalotlessnoisefromthatbecauseitwilleliminatemostofwhatyouseecomingthroughthere.

Great,thankyouverymuch.

Okay,thankyouverymucheveryoneandwereallyappreciateyoudialingin.Ifyouhavefurther

questionspleasegiveValerieHaertelacall.Andwelookforwardtocatchingupwithyousoon.

Operator :

Thankyou.IfthereareanyadditionalquestionsorcommentsyoumaycontactMs.ValerieHaertelat212-635-8529.Thankyou.

Ladiesandgentlemen,thisconcludestoday'sconferencecall.

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