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F500-2021-180-Bank of New York Mellon

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BNY is the world’s largest custodian bank and securities services company, holding over $55 trillion in assets. It’s also one of the biggest asset managers in the world with roughly $2.1 trillion in funds. BNY serves over 90% of Fortune 500 companies, as well as central banks and sovereign wealth funds, family offices, and other financial institutions. Founded in 1784 by Alexander Hamilton, the Bank of New York merged with Mellon Financial Corp. in 2007 to create the current company.

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Bank of New York (BNY) (BNY): Company Profile, Stock Price, News, Rankings

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Bank of New York (BNY)

bank of new york (bny)

Good morning and welcome to the twenty twenty five Second Quarter Earnings Conference Call hosted by BNY. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY's consent.

I will now turn the call over to Marius Mers, BNY Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. Welcome to our second quarter earnings call. I'm here with Robin Vince, our Chief Executive Officer and Dermot McDonough, our Chief Financial Officer. We will reference the quarterly update presentation, which can be found on the Investor Relations page of our website at bny.com.

And I'll note that our remarks will contain forward looking statements and non GAAP measures. Actual results may differ materially from those projected in the forward looking statements. Information about these statements and non GAAP measures is available in the earnings press release, financial supplement and quarterly update presentation, all of which can be found on the Investor Relations page of our website. Forward looking statements made on this call speak only as of today, 07/15/2025 and would not be updated. With that, I will turn it over to Robin.

Thanks, Marius. Good morning, everyone. Thank you for joining us. Before Dermot takes you through the financials in greater detail, I'll start with a few summary remarks on our strong performance in the second quarter and a couple of reflections on the first half of the year. Stepping back for a moment to look at the operating environment, we began the quarter in April with elevated market volatility, record U.

S. Equity trading activity and increased treasury market volumes. Through the quarter, we saw shifts in global policy with elevated risk from geopolitical tensions and conflicts as well as uncertainty around trade, fiscal and other policies. Periods of volatility and active markets give BNY the opportunity to deepen the connection with our clients, helping them grow while navigating an evolving business landscape. Our unique position as a financial services platforms company at the heart of the world's capital markets, combined with our diversified business model allowed us to once again demonstrate our resilience and commercial strength against this backdrop.

Turning to the results of the second quarter and referring to Page two of the quarterly update presentation, BNY delivered a strong performance. Earnings per share of $1.93 were up 27% year over year on a reported basis and up 28% excluding notable items. Total revenue was up 9% year over year and for the first time exceeded $5,000,000,000 in a quarter. In combination with expense growth of 4%, BNY generated another quarter of significant positive operating leverage, roughly 500 basis points on both the reported and operating basis. And in what is seasonally our strongest quarter, our pre tax margin improved to 37% and our return on tangible common equity improved to 28%.

These are clear outputs from our multiyear transformation and robust indicators of BNY's potential. Turning to Page three. Over the past few years, we have been laying the foundations for our future. In our January update, we outlined how BNY is well positioned to capture market beta and capitalize on evolving market trends as we work hard to generate alpha through the continued transformation of our company. We entered 2025 with good momentum.

Midway through the year, we are seeing results from our consistent execution and continuous delivery that add to our confidence for the medium to long term. Our strategy is simple, but powerful to be more for our clients by running our company better, all powered by our culture. I'll briefly touch on each. First, our commercial model enables BNY to be more for our clients, helping them achieve their goals using the full breadth and depth of our platforms. As we mark the model's one year anniversary, early signs point to the growing effectiveness of our commercial organization with significant runway ahead.

We achieved a second consecutive quarter of record sales. The number of multi product relationships continues to grow and we continue to broaden and deepen our engagement with clients. For example, in June, we expanded our relationship with specialist active UK asset manager, Lion Trust. In addition to utilizing our Data Vault and middle office operating capabilities, Lion Trust is fully outsourcing its trading to our buy side trading solutions team, which delivers twenty four hour global trade execution and reaches 100 markets globally across all major asset classes. Another important way for us to be more for our clients is to deliver innovative solutions to the market that come from the powerful combination of capabilities we have at BNY.

As I've said before, we're not just in the product sales business, we're in the solutions delivery business. BNY enjoys a suite of highly adjacent platforms that when delivered together create powerful solutions for clients. Our commercial model combined with our platforms operating model are intentionally designed to encourage more of this type of innovation. An example of this solutions mindset is our work to build the financial infrastructure of the future by bridging traditional and digital financial ecosystems to enable clients to unlock new capabilities securely and at scale. Early and continuous investments in our digital assets platform have positioned us to meet increasing institutional interest and adoption.

Last month, Societe Generale selected BNY to act as reserve custodian for their first USD stablecoin in Europe. And last week, Ripple announced that BNY will act as primary custodian of Ripple's USD stablecoin reserves. Today, BNY is a leader in servicing the growing stablecoin market, enabling companies to create and use stablecoins by providing wide ranging services from issuance to ongoing operations. Our advancements in the digital assets ecosystem are just one example of continual innovation, but there are many others. Flexible financing and Global Clearing, the integration of CollateralOne into Liquidity Direct, FX Hedge Direct for private markets, agency lending in Saudi Arabia, depository receipts in Canada, to name just a few.

This is an important theme for us, not just periodic higher profile product launches, but product level micro innovations week by week, month by month that drive our organic growth. Next, on running our company better with purpose. 2025 will be a milestone year for BNY's transition into our platforms operating model, which realigns how we work and organize ourselves across the entire company. As a reminder, running our company better is not just about expenses, it's about better. Yes, we are driving efficiency, but we're also enabling commercial opportunities, enhancing client journeys and accelerating speed to market.

With more than half of our people at BNY working in the model today, we remain on track to complete our phased transition into the platform's operating model by this time next year. Already, we are starting to see the impact of this new way of working, enabling our people to launch more new solutions, deploy more code releases and come together better than ever before to support our clients. Finally, on culture. Culture is about generating a collective will to make our company achieve its full potential, harnessing the breadth of our talent to be there for clients and to help the company This includes so many things, but one part of that enablement is our embrace of AI. It's an exciting moment for AI at BNY.

Nearly all of our employees are using our multi agentic enterprise AI platform, ELISA, and we have started to introduce digital employees into our workforce. It's early days, but we are beginning to see the benefit of some of these agents and digital employees, and we expect that to accelerate in the quarters and years ahead. To wrap up, against the backdrop of a busy operating environment, our priorities are clear and we remain relentlessly focused on execution. BNY is showing strong momentum and we are determined to deliver further value for our clients, our shareholders and our people. At this midpoint of the year, we are pleased to see the initial work of our multiyear transformation bearing fruit.

I'd like to thank our teams around the world for delivering strong results and for their continued commitment to the work ahead. We have a lot of opportunity in front of us, but the strategy to unlock it is working. And with that, over to you, Dermot.

Thank you, Robin, and good morning, everyone. I'm starting with our consolidated financial results for the second quarter on Page four of the presentation. Total revenue of $5,000,000,000 was up 9% year over year. Fee revenue was up 7%. That included 9% growth in investment services fees from our Security Services and Marketing and Wealth Services segments, driven by net new business, client activity and higher market values.

Investment management and performance fees were flat. Growth from higher market values and the impact of a weaker U. S. Dollar was offset by the mix of AUM flows and the adjustment for certain rebates that we discussed on our last earnings call. While not on the page, I will note that firm wide AUCA of $55,800,000,000,000 were up 13% year over year, reflecting client inflows, higher market values and the impact of the weaker dollar.

Assets under management of $2,100,000,000,000 were up 3% year over year, reflecting higher market values and the impact of the weaker dollar, partially offset by cumulative net outflows. Foreign exchange revenue was up 16% year over year on the back of elevated volatility and higher volumes, partially offset by the impact of corporate treasury activity. Investment and other revenue was $184,000,000 including $35,000,000 of net losses from investment security sales, partially offset by favorable seed capital and other investments results. Net interest income was up 17 year over year, driven by continued reinvestment of maturing investment securities at higher yields as well as balance sheet growth, partially offset by changes in deposit mix. Provision for credit losses was a benefit of $17,000,000 in the quarter, driven by property specific reserve releases in our commercial real estate portfolio.

Expenses of $3,200,000,000 were up 4% year over year, both on a reported basis and excluding notable items. The variance excluding notable items reflects higher investments, employee merit increases, higher revenue related expenses and the unfavorable impact of the weaker dollar, partially offset by efficiency savings. Taken together, we reported earnings per share of $1.93 on a reported basis, up 27% year over year. Excluding the impact of notable items, earnings per share were $1.94 up 28% year over year. Our pretax margin was 37%, and our return on tangible common equity was 28% in the quarter.

Turning to capital and liquidity on Page five. At the June, the Federal Reserve released the results of its 2025 bank stress test, which once again underscored BNY's resilient business model and our strong balance sheet. The results also confirmed that our stress capital buffer remains unchanged at the regulatory floor of 2.5%. With regards to our second quarter results, our Tier one leverage ratio was 6.1%, down 17 basis points sequentially. Tier one capital increased by $689,000,000 primarily reflecting capital generated through earnings and a net increase in accumulated other comprehensive income, partially offset by capital returns through common stock repurchases and dividends.

Average assets increased primarily driven by deposit growth. Our CET1 ratio at the end of the quarter was 11.5%, unchanged from the prior quarter. Over the course of the second quarter, we returned approximately $1,200,000,000 of capital to our common shareholders, resulting in a 92% total payout ratio year to date. With regards to liquidity, the consolidated liquidity coverage ratio was 112%, down four percentage points sequentially, reflecting elevated deposit balances, which were largely nonoperational in early parts of the quarter. The consolidated net stable funding ratio was 131%, down one percentage point sequentially.

Next, net interest income and balance sheet trends on Page six. Consistent with the backdrop of elevated volatility and active trading in capital markets, we saw clients seek the strength of BNY's balance sheet and leverage our platforms for execution and settlement. Net interest income of 1,200,000,000 was up 17% year over year and up 4% quarter over quarter. Both the year over year and sequential increase primarily reflect continued reinvestment of maturing investment securities at higher yields as well as balance sheet growth, partially offset by changes in deposit mix. Average deposit balances grew by 6% sequentially.

Non interest bearing deposits grew by 3% in the quarter and interest bearing deposits grew by 7%. Accordingly, average interest earning assets increased by 6% sequentially. Cash and reverse repo balances increased by 9%. Investment securities balances increased by 4% and loans increased by 2%. Turning to our business segments starting on Page seven.

Security Services reported total revenue of $2,500,000,000 up 10% year over year. Total Investment Services fees were up 10% year over year. In asset servicing, investment services fees grew by 7%, reflecting higher market values and client activity. And in issuer services, investment services fees were up 17%, driven by exceptionally strong client activity in our Depository Receipts business. In this segment, foreign exchange revenue was up 22% year over year on the back of elevated volatility and higher volumes.

Net interest income for the segment was up 13% year over year. Segment expenses of $1,600,000,000 were up 4% year over year, driven by higher investments, employee merit increases, revenue related expenses and the unfavorable impact of the weaker dollar, partially offset by efficiency savings. Security Services reported pretax income of $867,000,000 up 26% year over year and a pretax margin of 35%. On to Marks and Well Services on Page eight. In our Marks and Wealth Services segment, we reported total revenue of $1,700,000,000 up 13% year over year.

Total investment services fees were up 9% year over year. In Pershing, investment services fees were up 8%, reflecting client activity and higher market values. Net new assets were a negative 10,000,000,000 in the quarter, reflecting the deconversion of a client that was acquired by a self clearing competitor. In Clearance and Collateral Management, investment services fees were up 14%, driven by broad based growth in collateral balances and clearance volumes. And in treasury services, investment services fees were up 3%, reflecting net new business.

Net interest income for the segment was up 21% year over year. Segment expenses of $897,000,000 were up 8% year over year, driven by higher investments and litigation reserves, employee merit increases and higher revenue related expenses, partially offset by efficiency savings. Taken together, our Marks and Well Services segment reported pretax income of $851,000,000 up 21% year over year and a pretax margin of 49%. Turning to Investment and Wealth Management on Page nine. Our Investment and Wealth Management segment reported total revenue of $8.00 $1,000,000 down 2% year over year.

Investment management fees were down 1% year over year, driven by the mix of AUM flows and the adjustment for certain rebates, partially offset by higher market values and the favorable impact of the weaker dollar. Segment expenses of $653,000,000 were down 2% year over year, driven by lower revenue related expenses and efficiency savings, partially offset by higher severance expense and the unfavorable impact of the weaker dollar. Investment and Wealth Management reported pretax income of $148,000,000 down 1% year over year and a pretax margin of 19%. As I described earlier, assets under management of $2,100,000,000,000 were up 3% year over year. In the second quarter, we saw $17,000,000,000 of net outflows driven by index, multi asset and equity strategies, partially offset by net inflows into cash and fixed income strategies.

Wealth Management client assets of $339,000,000,000 increased by 10% year over year, largely driven by higher market values. Page 10 shows the results of the Other segment. For this segment, I'll just note that the sequential decrease in revenue primarily reflects the net losses from investment securities activity I mentioned earlier, while the sequential decrease in expenses reflects lower litigation reserves and severance. Turning to Page 11. I'll close with a midyear update of the financial outlook for 2025 that we provided on our earnings call in January.

As you can see on the slide, BNY is entering the second half of the year with great momentum, while we remain cognizant of the economic outlook amid elevated geopolitical and policy uncertainty. Based on where we sit today, looking out to the balance of the year, we now expect full year 2025 net interest income to be up high single digit percentage points year over year. And we continue to expect solid fee revenue growth in 2025, of course, market dependent. We now expect expenses excluding notable items for the year to be up approximately 3% year over year. We continue to expect our effective tax rate for the full year to be in the 22% to 23% range.

Considering our twenty one percent tax rate in the first half, that means approximately 23% for the second half of the year. And we continue to expect to return roughly 100% plus or minus of 2025 earnings through common dividends and buybacks over the course of the year. Following the release of the Federal Reserve's annual bank stress test, our Board of Directors declared a 13% increase of our quarterly common stock dividend, and we plan to continue repurchasing common shares under our existing share repurchase program. As always, we consider macroeconomic and interest rate environments, balance sheet growth and many other factors with a conservative bias in managing the pace of our buybacks. To wrap up, BNY posted very strong results in the second quarter, demonstrating the impact of consistent execution and delivery amid a complex, but yet for BNY constructive operating environment.

The momentum of our multiyear transformation continues to build and progress to date gives us incremental confidence in BNY's great potential for the medium and long term. With that, operator, can you please open the line for Q and A?

We'll take our first question from Ebrahim Poonawala with Bank of America. Please go ahead.

Maybe Robin for you, so the call in terms of the transformation efforts, digital assets, AI just sounds like significant runway on all things organic. But address for us how you're thinking about capital deployment relative to where the stock is trading at today? And I'm sure this is not news to you in terms of news around BNY pursuing a merger with a competitor, your interview in Barron. So give us a sense of when we think about capital deployment as shareholders, how should we think what the priority is outside of funding the business, be it buybacks versus M and A? Thanks.

Sure. So look, the beginning point of what you said is actually the most important thing. We have got strong momentum. We really see the pathway to be able to generate value over the medium and long term. Obviously, you're seeing some of the early signs of that and we're pleased with it.

And that is our biggest focus because at the end of the day, at the top of the capital waterfall is that ability to invest in the business. Now look, the good news is that we're a pretty capital light business. You can see it in the 28% ROTCE that we generated in the quarter. We're pleased with that. That's another sign of the transition and transformation of the company towards this more platforms orientation because that is the sort of feature that you'd expect of a company, in terms of the direction of travel that we've got going.

Now in terms of the sort of the inorganic stuff, look our broad approach hasn't changed, which is M and A done well can be a powerful tool in the toolkit. It's not our custom to comment on any specific rumor or speculation. But I think we demonstrated last year with the Archer acquisition that we've got the ability to make M and A work for us in a sensible way. Having said that, I just really want to underscore this point. It's a very high bar for us for M and A, especially a larger transaction.

It would have to make a ton of sense. We'd need to have a lot of conviction and execution. We're focused on ongoing alignment with our strategic priorities, strong cultural fit matters and of course the financials really have to work. And our M and A story is a two sided story as well because you saw that last year, we bought Archer, but we sold our Corporate Trust Canada business. So the punch line I'll leave you with is we are focused on our organic growth.

That is working. We are beginning the process of a multiyear journey on that. And we're going to be open because we should be open to sensible things inorganically if they make sense. But I'll underline again if they make sense.

That's very clear. Thank you. And I guess maybe just following up on that, you referenced the 27% ROTC this quarter. I get it's a seasonally strong quarter. But as we think about again relative to new investors trying to put money to work in the stock, is structurally based on all the work you've done so far over the last few years and where things are going, is it safe for investors, shareholders, the street to assume that this is becoming a high 20s, not C institution, which should then support a very different multiple than we've been used to for the last several years? Thanks.

So look, I'll blend sort of two things together here. One is the broader medium term targets as we think about them. We have not put a ceiling on any of our medium term targets. We viewed them as milestones on a longer journey. At the time that we first communicated them, people understandably thought about them as ambitious based on where we had been in the past.

But we are on a journey here and we are making important steps forward. And so, on ROTCE specifically, we don't see a ceiling on that number, because as a more platforms oriented company, remember, NII is only 25% of our revenues view that as broadly a proxy for the balance sheet, which means three quarters of our business is largely a pretty capital light business that's driving forward in terms of fee growth. And so I would just look generally at our medium term targets and I would throw ROTCE your question into that as well and say we have a lot of ambition. We think we're relatively early in our journey and we're absolutely going to be moving the bar higher on ourselves, which frankly we do every single day in terms of how we run the company.

We'll move to our next question from Ken Usdin with Autonomous Research. Your line is now open.

Hey, good morning everyone. I wanted to ask about just the evolution of as the year goes on of just overall top of the house performance. Because obviously you're taking up your NII guide, but NII is only 25% of revenues. And while the cost guide is up, I think maybe misses the point that on the fee side, your guide is only just for year over year and here we are plus 6% in the second quarter and plus 7% for the year to date. So I'm just wondering on the fee side, are fees better than your original expectations too?

And is that informing as much as the NII upside the slight drip up on the overall cost guide as the total is coming in better?

Hey, Ken, I'll start with that. Look, the way I kind of think about the firm is I start with overall positive operating leverage. And I guess a key message I would leave you there, both on operating and reported basis, I think it was roughly 500 basis points of operating leverage. And so since Robin took over as CEO, we've kind of made the positive operating leverage our North Star. And so consistently delivering that to the market has been our kind of the core strategy around how we think about the financials.

So you have three components to that. You've got fees, you've got NII and you've got expenses. And you'll see from the financials, yes, revenue up 9%, expenses up 4%, delivering that positive operating leverage. Within the revenue, you've got fees, you've got NII, really solid performance on NII, which gives us comfort around for the balance of the year, giving a higher guide to kind of high single digits. And on the revenue side, I think the strength in fees really underscores the commercial model that we launched about a year ago, two consecutive quarters of kind of record sales.

Notwithstanding that, the second quarter is a seasonally strong quarter, so we would expect strong sales. But that was on the back of a Q1. And we see going into Q3, although it is a kind of seasonally slower quarter for us given the vacations, etcetera, we see kind of strong momentum continuing. So you see a picture on Page three of the midyear update where we kind of show you a little pictorial about how we think about organic growth, and we have high conviction around that beginning to build and grow.

And Ken, let me just build on a couple of things that Dermot said. So first of all, yes, it was a constructive environment in the second quarter. But I'll bring you back to our comments in January when we talked about the various different things that drive our business. We've intentionally been repositioning the company gradually to be able to take advantage of more different types of environments. So I think the punchline is, well, there are always amazing environments that you could have for a business or potentially environments which just don't have any element of being particularly constructive.

We think we're broadening out the probabilities of any given environment actually working reasonably well for us because equity markets up, fixed income markets up, equity volumes up, fixed income volumes up, transaction volumes and GDP up, issuance up, asset management activity, wealth management activity. There are a lot of cylinders in this particular engine. And so the second quarter was constructive, but we have been positioning the company to be able to take advantage of more and more environment as constructive. And I think that plus the point that Dermot made around our commercial model is allowing us to grind organic growth higher. So we want to take advantage of the beta.

We want to be able to participate in whatever the quarter happens to bring. But this constant focus on alpha generation in terms of how we're running the company and positioning the company is an important part of the story. And we do think that this is a quarter where you're starting to see that. But again, the early innings point that Dermot and I have made many times before, there's a lot of runway here in our estimation.

Understood. That's great color. And I do like that upper right chart on Page three. Just one thing on the environment then, can you you've talked previously about just the stickiness of deposits and obviously that's informing the better than expected NII outlook. Does anything change in the environment to that point?

Because I think Robin will bring back in your point about like tools in the kit and arsenal to just continue to add deposits. But maybe you could just help us understand the environmental side a little bit. Thank you.

So I think point number one here that I would make, Ken, is as a matter of strategy, we don't really lead with deposits. So when you see deposits being a little bit higher, the mix of IBNIB a little bit higher, it really speaks to the breadth and the depth of the franchise and doing more with clients. And doing more with clients kind of attracts deposits. And specifically around second quarter in our Corporate Trust business, we had higher levels of activity and we were able to kind of help clients with unique specific situations that attracted deposits into the system, particularly on the NIB side. And that was able for us to kind of have a good NII print this quarter.

And when we look out for the balance of the year and run our various scenarios, we really have reduced the tails with respect to interest rate sensitivity and that was really on the back of a ton of work done towards the back end of last year when the Fed made the pivot after Jackson Hole around the forward rate curve. And so that gives us now a lot of confidence to be able to kind of provide that higher NII growth against what is a constructive backdrop for us.

Our next question comes from Glenn Schorr with Evercore ISI. Your line is now open.

Hi, thanks very much. So much going well, forgive me, I'm going to pick on the one area that wasn't as good as everything else in Investment Management. So fees down a little bit, flows out, margins down in that $20.19 range, so despite the good market. So the question is, if we step back a little bit and we talk about can we talk a little bit about what investments you're making to improve the business? And like what's high on your to do list to help drive better performance as we move forward in Investment Management? Thanks.

Thanks for the question, Glenn. I would say investment number one was Robin appointing Jose as the leader of that business and he started last September. And you can see between the first quarter where we had a margin of 8% to this quarter where we're about 19%, you can see that step up in margin. And you can see Jose is beginning to work the opportunity and making some decisions to right size it from an efficiency standpoint. And I'm very pleased with what Jose has done.

What I also think he's doing very, very effectively, and look, both Robin and myself will have talked about this on prior quarters, the one BNY approach in terms of de siloing the firm, you kind of have to go that extra mile as it relates to our investment in wealth management strategy and bringing the boutiques closer to the firm. And I think Jose sees a lot of opportunity for us to cross sell within the firm, both within our asset servicing business and within our purging business. So bringing the strength of our manufacturing capabilities to our Pershing clients and our asset servicing clients is a kind of a key forward strategy that we can see we can do well at and also bringing in leadership and product development. So I think you're going to see more positive stories coming from this particular segment. But as with all transformations, it takes a little bit time and Jose is getting that time to make the decisions that he needs to.

And Glenn, let me just build on one particular point that Dermot just made. One of Jose's early observations about the business was we have a terrific to use Dermot's term manufacturing base. If you look under the hood of our $2,100,000,000,000 of AUM, you have some real market leading franchises. We have Insight, which is number one in its market. That's $1,000,000,000,000 of it right there.

You have Walter Scott, which is terrific long only, long dated equity manager. You have a terrific business in the form of Dreyfus' money markets. And we have in Mellon, a direct indexer that's capable of being able to create product that our asset servicing clients are very interested in. Obviously, it also has a lot of relevance for the $3,000,000,000,000 of wealth distribution that we have in Pershing. So if you think about the manufacturing base, let's give ourselves a check that we have a pretty good set of businesses that are actually performing pretty well.

On the distribution, if we didn't have BNY, then you could look at asset management and you could say there are a lot of parallels with other mid sized to large asset managers and the question of distribution would be on everybody's lips. But one of Jose's observations was, wow, this investment manager at BNY is one of the reasons why I joined BNY because there's all of this distribution potential, but we just haven't fully unlocked it. Okay. So then what sits in the middle? And that's the word that Dermot used product, where if you take a metaphor for this for a second, imagine that you were a Coke or a Pepsi and you were making a beverage and you had the concentrate and you have all of this terrific distribution because you can sell in restaurants, you can sell in grocery stores, you can sell in a corner store as well.

But in the middle of that is a critical point of product, which is are you taking the manufacturing base that you have and making cans when you want to sell it in the corner store. Because if you put bottles of concentrate in a corner store, it's not going to help you. But when you're delivering to a large fast food outlet, there you want to be able to deliver the concentrate, cans not as useful. So this piece in the middle, this product shaping that leverages the manufacturing base with an eye to the distribution channels that you have available to you is critical. And I think we haven't done as good a job on that as we could.

And so that's a very big focus for us. And we think that when you take all of those things together, we think there's an interesting pathway here.

Thanks for all that. Maybe I could do a tiny follow-up on previous question. Forgive me if you said it, but the fee revenue were up 5% for the first half and the guide is still up on the year. Markets are higher. Despite this conversation we just had on investment management, feels like deliberately conservative, which I'm cool with.

I'm just curious on how we square the up five for the first half. Markets are trending well. Your momentum is good. Why wouldn't the fee outlook be better? I know I asked you that last quarter and you outperformed.

So the way I would answer it is, it's like there are a lot of factors that go into the fee, a lot of external factors that we don't necessarily control, very market dependent. We kind of go back to the foundational building blocks of the platform operating model and the commercial model, which is it's still only a year old, but it is working. You can see it. We have higher conviction about our ability to drive organic fee growth from here. But and we've changed a lot over the last three years, Glenn, about the transparency of our numbers and how we give you a lot more than we did three years ago.

So I think as we get more conviction and as we get more kind of sales telemetry around us, we'll give you more guidance as we feel comfortable. But for now, I think the momentum is there, the upward trajectory is there, but we're not ready to yet guide on specifics around fees. And third quarter is usually a seasonally slower quarter and Q2 is a seasonally strong quarter. So it's important to be balanced in that as well.

We'll move to our next question from Betsy Graseck with Morgan Stanley. Please go ahead.

Hi. Good morning, Robin. Good morning, Dermot.

I wanted dig in a little bit on the AI commentary that you had Robin. And starting off, the operating leverage is just so strong, almost double what consensus had baked in for you and really terrific results here. I wanted to understand your comments on AI as it relates to the forward look because you indicated that nearly all your employees are using the Eliza AI platform and you're starting to you're beginning to see the benefit of this. I mean, is it the benefit from AI at a level that we can see in these operating leverage results? Maybe you could help us understand is this more revenues or expenses?

Sure. Well, thanks for your comments about positive operating leverage. As Dermot and I both said over time Betsy that is a great North Star. And going back to Glenn's question at the end there, one of the reasons why we've been always a little reluctant to guide on all of the elements underneath the hood of positive operating leverage is we recognize the composition in any quarter or any year could be a little different. And we don't want to create ceilings for ourselves.

We are extremely hungry for positive operating leverage and we see a ton of pathway. And when you go under the hood, one of the reasons why over the past three years, we've really focused on showing you all the inputs to what we're doing is because we recognize that the timing of exactly when each of these strategies starts to really hit, varies a little bit. And so we've got several things driving the positive operating leverage. We've got a commercial engine, which is starting to now make a meaningful contribution. Output evidence, you can see it in the record sales quarters that we had in the first and second quarter.

The platform's operating model, we knew there would be a longer lead times that. We started work on it three years ago and now it's starting to come into its own, but it's still very early days because only less than 10% of our people have been in the model for at least a year. And as we indicated in our prepared remarks, we see the actual value really starting to shine through in Platform's operating model after we've had people in the model for about that period of time. So that is still to come, a little bit of it now, most of it '26, '27, '28 and beyond. The next layer is the heart of your question, which is AI.

We view AI as a top line story and an expense story in because what we're really doing is we're unlocking capacity in the company. And we want to then be able to use that capacity to do other higher value things. That's why we've been encouraging all of our people to participate in AI because we view our AI solutions, which we put on the page three, again demonstrating the inputs today and then we'll show you the outputs over time. We see those as being able to be very helpful as too will be our digital employees, as essentially companions and leverage for our people to be able to go faster and create capacity for themselves that they can reinvest in doing new things, pushing forward with clients, more time in the day, all of the above. So our excitement about AI is a very medium to long term excitement, but we've invested heavily early on in the psychology of it in the company so that we have AI for everyone, everywhere, for everything.

And that's really how we think about AI. So it's early days. There's not a ton in the P and L right now to your point with net investment, but we are starting to see the early signs of what we think will be an acceleration twenty twenty six, twenty twenty seven, 2028, 2029 beyond.

Take our next question from Mike Mayo with Wells Fargo Securities.

Hi. No good deed goes unpunished. I know you talked about organic growth

You could make that one of your punch lines, Mike. You could I know you've trademarked the world's worst oligopoly, but that one you could put it you could put in trademark as well.

Look, I'm the first to say you've optimized much better than I had expected these last two years. And you have these very high returns, but the organic growth and you do it correctly, ex markets, ex currency, ex deals, whether it's 2% or 3%, is still not great in the scheme of the overall world. And I know you want that growth to be better. And I know you said you had record sales, but it's the growth is still the growth. It hasn't changed that much at an organic level.

And I know you guys have thought about this, but to the degree you sacrificed the high, very high returns to reinvest for better growth than what the company has had for the past five, ten, twenty years, right? And so where do you stand in that trade off of maybe having lower returns or maybe not raising your return targets and reinvesting more for growth? And where should that organic growth be in your perfect world the way you define it?

Sure. So several things here, Mike. So one of the reasons why we put that chart, the top right corner of Page three was to illustrate the fact that organic growth has been growing. I hear your point about three versus two, but three is still 50% more than two and significantly up from where it has been in the past. But a few other points to note.

Our growth in the past generally has been quite subject to markets. And so, we are very happy to take advantage of constructive backdrops. And as I answered in a prior question, we're trying to position the company to take advantage of more types of backdrops so that we can be less handed our results by the market conditions and more in charge of our own destiny. That's a very deliberate strategy and we feel like we're making some progress on that. So that's sort of the next observation.

The next thing under the hood is what are the prerequisites for the real type of organic growth that you're talking about? You've challenged us on understandably and rightly so over the course of the past two or three years. And this is where we really feel like we've set the table for the future. And to your point about how we think about investing versus harvesting, we've been very clear on this. We are taking a decade view of the transformation of BNY and we're pleased where we are close to three years in.

But we are far from done because much of what we have done has actually been investing for the future and we're in the very early stages of seeing that being harvested. We talked about the commercial model. We talked about the platforms operating model. We talked about AI, which is part of the growth story as well as it is on the expenses. But let me just come back to the key elements of what we've got.

We've got a diversified set of platforms that is yes, helping us to be more diversified in different environments, but it is also allowing us to better position to capitalize on these market trends and to generate alpha because it's less one business going to market by itself. It's more what's the synergy between the component parts. A client who custodies with us, who also does treasury clearing with us, who also does collateral management with us, is going to be able to get better outcomes over time because of the fact that all of those things can just be book entry for us within our ecosystem. That allows us to move to twenty four hour. That allows us to think and embrace digital assets maybe in a different way than somebody else can.

And you're starting to see the early signs of these platforms coming together to show something where the sum is more than the individual parts. And that's what our commercial model is actually about. So we're investing in these micro innovations, the bigger things, the synergies between the platforms. We've positioned people behind this. We've positioned culture behind this and we're organizing the company behind this.

And we think it is starting to show, but we absolutely agree with you that there should be more a lot more gas in the tank here.

Mike, I would add just a couple of more points as well. One is, you asked the question sometimes about negative pricing. We just we haven't seen it this quarter, which really kind of goes to the efficiency point about us being able to reduce our cost to serve, which is able to help us drive the organic growth because we're able to compete more effectively to win our share of business. So that would be point number one. Point number two, to Robin's point about the commercial model, now we're in the early stages of a product model, which is joining with the commercial model, and that's been led by Carolyn Weinberg, where she's able to see in between the scenes of our various businesses to create new products that clients want.

Bank of New York (BNY) (BNY) Q2 2025 Earnings Call Transcript

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