EX-99.1 2 d424385dex991.htm QUARTERLY EARNINGS REVIEW FOR THIRD QUARTER 2012 Quarterly Earnings Review for third quarter 2012

Exhibit 99.1

 

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Quarterly Earnings Review

October 17, 2012

Table of Contents

 

Third Quarter 2012 Financial Highlights

      2   

Financial Summary/Key Metrics

      3   

Business Metrics

      4   

Fee and Other Revenue

      6   

Net Interest Revenue

      8   

Noninterest Expense

      9   

Operational Excellence Initiatives Update

      10   

Capital

      11   

Investment Securities Portfolio

      12   

Nonperforming Assets

      13   

Allowance for Credit Losses, Provision and Net Charge-offs

      13   

Review of Businesses

   

•      Investment Management

      14   

•      Investment Services

      16   

•      Other

      18   

Supplemental Information – Explanation of Non-GAAP Financial Measures

      19   

Cautionary Statement

      24   

BNY Mellon 3Q12 Quarterly Earnings Review

 

THIRD QUARTER 2012 FINANCIAL HIGHLIGHTS

(comparisons are unannualized 3Q12 vs. 2Q12 unless otherwise stated)

 

•  

Earnings

 

  •  

Earnings per common share was $0.61 in 3Q12 and benefited $0.04 from a lower than expected effective tax rate, compared with $0.39 in 2Q12, which included litigation charges of $0.18.

 

  •  

Net income applicable to common shareholders was $720 million, compared with $466 million, which included litigation charges of $212 million.

 

  •  

Total revenue of $3.7 billion, up 2%.

 

  •  

Fee and other revenue up 2%.

 

  •  

Investment services fees increased 1% primarily due to seasonally higher Depositary Receipts revenue, which was partially offset by lower Clearing Services revenue, a seasonal decrease in securities lending revenue and lower Corporate Trust fees.

 

  •  

Investment management fees increased 3% driven by higher market values and net new business.

 

  •  

Foreign exchange revenue decreased 23% as a result of lower volatility and volumes.

 

  •  

Investment and other income increased $76 million primarily as a result of seed capital gains and higher equity investment revenue.

 

  •  

Net interest revenue increased 2% reflecting the impact of higher net interest-earning assets driven by higher deposit levels, partially offset by the elimination of interest on European Central Bank deposits.

 

  •  

Provision for credit losses was a credit of $5 million primarily resulting from loan sales and repayments.

 

  •  

Noninterest expense decreased 11% on a GAAP basis, and was flat excluding amortization of intangible assets, M&I, litigation and restructuring charges and direct expenses related to the Shareowner Services business.

 

  •  

The effective tax rate was 23.1% in the third quarter of 2012, which primarily reflects the benefit from completing various tax audits.

 

•  

Assets under custody/administration and Assets under management

 

  •  

AUC/A of a record $27.9 trillion, an increase of 3% reflecting higher market values and net new business.

 

  •  

New business wins of $522 billion.

 

  •  

AUM of a record $1.4 trillion, an increase of 5% driven by higher market values and net inflows.

 

  •  

Long-term inflows totaled $9 billion.

 

  •  

Short-term inflows totaled $9 billion.

 

•  

Capital

 

  •  

Return on tangible common equity – Non-GAAP 22%. (a)

 

  •  

Repurchased 13.4 million common shares for $288 million.

 

  •  

Estimated Basel III Tier 1 common equity ratio – Non-GAAP 9.3%. (a)

 

(a) See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19 for GAAP to Non-GAAP reconciliations.

Certain immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. Unless otherwise noted, the results for all periods in 2011 include the impact of Shareowner Services. Sequential growth rates are unannualized.

 

 

Page - 2

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

FINANCIAL SUMMARY

 

                                   3Q12 vs.  

(dollars in millions, common shares in thousands)

    3Q11     4Q11     1Q12     2Q12     3Q12       3Q11       2Q12  

Revenue:

               

Fee and other revenue

    $ 2,887      $ 2,765      $ 2,838      $ 2,826      $ 2,879        —   %      2 % 

Income (loss) from consolidated investment management funds

      32        (5 )      43        57        47       

Net interest revenue

      775        780        765        734        749       
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total revenue – GAAP

      3,694        3,540        3,646        3,617        3,675        (1 )      2   

Less:

  

Net income (loss) attributable to noncontrolling interests related to consolidated investment management funds

      13        (28 )      11        29        25       
 

Fee and other revenue related to Shareowner Services (a)

      44        142        —          (3 )      —         

Total revenue – Non-GAAP

      3,637        3,426        3,635        3,591        3,650        —          2   

Provision for credit losses

      (22 )      23        5        (19 )      (5 )     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Expense:

               

Noninterest expense – GAAP

      2,771        2,828        2,756        3,047        2,705        (2 )      (11 ) 

Less:

  

Amortization of intangible assets

      106        106        96        97        95       
 

M&I, litigation and restructuring charges

      92        176        109        378        26       
 

Direct expense related to Shareowner Services

      37        46        —          —          —         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Total noninterest expense – Non-GAAP

      2,536        2,500        2,551        2,572        2,584        2 %      —   % 
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income:

               

Income before income taxes

      945        689        885        589        975       

Provision for income taxes

      281        211        254        93        225       
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Net income

    $ 664      $ 478      $ 631      $ 496      $ 750       

Net (income) loss attributable to noncontrolling interests (b)

      (13 )      27        (12 )      (30 )      (25 )     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Net income applicable to shareholders of The Bank of New York Mellon Corporation

      651        505        619        466        725       

Preferred dividends

      —          —          —          —          (5 )     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Net income applicable to common shareholders of The Bank of New York Mellon Corporation

    $ 651      $ 505      $ 619      $ 466      $ 720       
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Key Metrics:

               

Pre-tax operating margin (c)

      26 %      19 %      24 %      16 %      27 %     

Non-GAAP adjusted (c)

      31 %      28 %      30 %      29 %      29 %     

Return on common equity (annualized) (c)

      7.6 %      5.9 %      7.4 %      5.5 %      8.3 %     

Non-GAAP (c)

      9.0 %      8.0 %      8.9 %      8.9 %      9.2 %     

Return on tangible common equity (annualized)

               

Non-GAAP (c)

      22.1 %      17.7 %      21.0 %      15.7 %      22.1 %     

Non-GAAP adjusted (c)

      23.8 %      21.1 %      23.0 %      22.4 %      22.5 %     

Fee revenue as a percentage of total revenue excluding net securities gains (losses)

      78 %      78 %      78 %      78 %      78 %     

Percentage of non-U.S. total revenue (d)

      39 %      34 %      37 %      37 %      37 %     

Period end:

               

Full-time employees

      49,600        48,700        47,800        48,200        48,700       

Market capitalization

    $ 22,543      $ 24,085      $ 28,780      $ 25,929      $ 26,434       

Common shares outstanding

      1,212,632        1,209,675        1,192,716        1,181,298        1,168,607       
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

(a) Results in the fourth quarter of 2011 include a $98 million pre-tax gain on the sale.
(b) Includes net income of $13 million in the third quarter of 2011, a net loss of $28 million in the fourth quarter of 2011, net income of $11 million in the first quarter of 2012, net income of $29 million in the second quarter of 2012 and income of $25 million in the third quarter of 2012, respectively, attributable to noncontrolling interests related to consolidated investment management funds.
(c) See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19 for GAAP to Non-GAAP reconciliations.
(d) Includes fee revenue, net interest revenue and income (loss) from consolidated investment management funds, net of net income (loss) attributable to noncontrolling interests.

 

 

Page - 3

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

BUSINESS METRICS

 

Investment Management metrics                                  3Q12 vs.  
     3Q11     4Q11     1Q12     2Q12     3Q12     3Q11     2Q12  

Changes in market value of assets under management (in billions) (a):

               

Beginning balance

    $ 1,274      $ 1,198      $ 1,260      $ 1,308      $ 1,299       

Net inflows (outflows):

               

Long-term

      4        16        7        26        9       

Money market

      (15 )      7        (9 )      (14 )      9       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Total net inflows (outflows)

      (11 )      23        (2 )      12        18       

Net market/currency impact

      (65 )      39        50        (21 )      42       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Ending balance

    $ 1,198      $ 1,260      $ 1,308      $ 1,299      $ 1,359  (b)      13 %      5 % 

Composition of assets under management at period end (a):

               

Equity securities

      30 %      31 %      33 %      32 %      33 %     

Fixed income securities

      35        35        35        37        37       

Money market

      27        26        24        23        23       

Alternative investments and overlay

      8        8        8        8        7       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Total

      100 %      100 %      100 %      100 %      100 %     

Wealth management:

               

Average loans (in millions)

    $ 6,958      $ 7,209      $ 7,430      $ 7,763      $ 8,122        17 %      5 % 

Average deposits (in millions)

    $ 10,392      $ 11,761      $ 11,491      $ 11,259      $ 11,372        9 %      1 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(a) Excludes securities lending cash management assets.
(b) Preliminary.

 

Investment Services metrics                                       3Q12 vs.  
     3Q11      4Q11      1Q12      2Q12      3Q12      3Q11     2Q12  

Market value of assets under custody and administration at period-end (in trillions)

    $ 25.9       $ 25.8       $ 26.6       $ 27.1       $ 27.9         8 %      3 % 

Market value of securities on loan at period-end (in billions) (a)

    $ 250       $ 269       $ 265       $ 275       $ 259         4 %      (6 )% 

Average loans (in millions)

    $ 22,879       $ 26,804       $ 25,902       $ 24,981       $ 24,361         6 %      (2 )% 

Average deposits (in millions)

    $ 181,848       $ 188,539       $ 175,055       $ 172,435       $ 188,036         3 %      9 % 

Asset servicing:

                    

New business wins (AUC) (in billions)

    $ 96       $ 431       $ 453       $ 314       $ 522        

Corporate Trust:

                    

Total debt serviced (in trillions)

    $ 11.9       $ 11.8       $ 11.9       $ 11.5       $ 11.6         (3 )%      1 % 

Number of deals administered

      134,843         133,850         133,319         133,301         131,754         (2 )%      (1 )% 

Depositary Receipts:

                    

Number of sponsored programs

      1,384         1,389         1,391         1,393         1,393         1 %      —   % 

Clearing services:

                    

DARTS volume (in thousands)

      207.7         178.7         196.6         189.8         172.7         (17 )%      (9 )% 

Average active clearing accounts U.S. (in thousands)

      5,503         5,429         5,413         5,427         5,452         (1 )%      —   % 

Average long-term mutual fund assets (U.S. platform) (in millions)

    $ 287,573       $ 287,562       $ 306,212       $ 306,973       $ 323,289         12 %      5 % 

Average margin loans (in millions)

    $ 7,351       $ 7,548       $ 7,900       $ 8,231       $ 7,922         8 %      (4 )% 

Broker-Dealer:

                    

Average collateral management balances (in billions)

    $ 1,872       $ 1,866       $ 1,929       $ 1,997       $ 2,009         7 %      1 % 

Treasury services:

                    

Global payments transaction volume (in thousands)

      11,088         10,856         10,838         11,117         11,289         2 %      2 % 

 

(a) Represents the securities on loan managed by the Investment Services business.

 

 

Page - 4

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

Market indices                                       3Q12 vs.  
     3Q11      4Q11      1Q12      2Q12      3Q12      3Q11     2Q12  

S&P 500 Index (a)

      1131         1258         1408         1362         1441         27 %      6 % 

S&P 500 Index – daily average

      1227         1224         1347         1351         1400         14        4   

FTSE 100 Index (a)

      5128         5572         5768         5571         5742         12        3   

FTSE 100 Index – daily average

      5470         5424         5818         5555         5742         5        3   

MSCI World Index (a)

      1104         1183         1312         1236         1312         19        6   

MSCI World Index – daily average

      1217         1169         1268         1235         1273         5        3   

Barclays Capital Aggregate BondSM Index (a)

      346         347         351         353         368         6        4   

NYSE and NASDAQ share volume (in billions)

      250         206         186         192         173         (31 )      (10 ) 

JPMorgan G7 Volatility Index – daily average (b)

      12.60         12.95         10.39         10.30         8.70         (31 )      (16 ) 

 

(a) Period end.
(b) The JPMorgan G7 Volatility Index is based on the implied volatility in 3-month currency options.

 

 

Page - 5

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

FEE AND OTHER REVENUE

 

Fee and other revenue (a)                                  3Q12 vs.  

(dollars in millions)

    3Q11     4Q11     1Q12     2Q12     3Q12     3Q11     2Q12  

Investment services fees:

               

Asset servicing (b)

    $ 922      $ 885      $ 943      $ 950      $ 942        2 %      (1 )% 

Issuer services

      442        287        251        275        311        N/M        13   

Memo: Issuer services excluding Shareowner Services

      400        245        251        275        311        (22 )      13   

Clearing services

      297        278        303        309        287        (3 )      (7 ) 

Treasury services

      133        134        136        134        138        4        3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total investment services fees

      1,794        1,584        1,633        1,668        1,678        (6 )      1   

Investment management and performance fees

      729        730        745        797        779        7        (2 ) 

Foreign exchange and other trading revenue

      200        228        191        180        182        (9 )      1   

Distribution and servicing

      43        42        46        46        48        12        4   

Financing-related fees

      40        38        44        37        46        15        24   

Investment and other income

      83        146        139        48        124        N/M        N/M   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fee revenue

      2,889        2,768        2,798        2,776        2,857        (1 )      3   

Net securities gains (losses)

      (2 )      (3 )      40        50        22        N/M        N/M   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fee and other revenue – GAAP

      2,887        2,765        2,838        2,826        2,879        —          2   

Less:

  

Fee and other revenue related to Shareowner Services (c)

      44        142        —          (3 )      —         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fee and other revenue excluding Shareowner Services – Non-GAAP

    $ 2,843      $ 2,623      $ 2,838      $ 2,829      $ 2,879        1 %      2 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Fee revenue as a percentage of total revenue excluding net securities gains (losses)

      78 %      78 %      78 %      78 %      78 %     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

(a) See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19 for fee and other revenue excluding Shareowner Services – Non-GAAP.
(b) Asset servicing fees include securities lending revenue of $41 million in the third quarter of 2011, $43 million in the fourth quarter of 2011, $49 million in the first quarter of 2012, $59 million in the second quarter of 2012, $49 million in the third quarter of 2012.
(c) The Shareowner Services business was sold on Dec. 31, 2011. Results in the fourth quarter of 2011 include a $98 million pre-tax gain on the sale.

N/M – Not meaningful.

KEY POINTS

 

•  

Asset servicing fees were $942 million, an increase of 2% year-over-year and a decrease of 1% sequentially. The year-over year increase primarily reflects net new business and higher market values and securities lending revenue. The sequential decrease was primarily driven by a seasonal decrease in securities lending revenue, partially offset by net new business and higher market values.

 

•  

Issuer services fees excluding Shareowner Services were $311 million, a decrease of 22% year-over-year and an increase of 13% sequentially. The year-over-year decrease primarily resulted from lower Depositary Receipts revenue driven by lower volumes, and lower Corporate Trust fees reflecting the continued net run-off of structured debt securitizations. The sequential increase resulted from seasonally higher Depositary Receipts revenue, partially offset by lower Corporate Trust fees.

 

•  

Clearing services fees were $287 million, a decrease of 3% year-over-year and 7% sequentially. Both decreases were primarily driven by lower DARTS volume.

 

•  

Investment management and performance fees were $779 million, an increase of 7% year-over-year and a decrease of 2% sequentially. Excluding performance fees, investment management fees increased 7% year-over-year and 3% sequentially. Both increases were driven by higher market values and net new business.

 

 

Page - 6

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

•  

Foreign exchange and other trading revenue

 

                                                 

(dollars in millions)

    3Q11     4Q11     1Q12     2Q12      3Q12  

Foreign exchange

    $ 221      $ 183      $ 136      $ 157       $ 121   

Fixed income

      (21 )      41        47        16         54   

Credit derivatives (Used as economic hedges of loans)

      1        (2 )      (2 )      1         (1 ) 

Other

      (1 )      6        10        6         8   
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

Total

    $ 200      $ 228      $ 191      $ 180       $ 182   
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

Foreign exchange and other trading revenue totaled $182 million compared with $200 million in the third quarter of 2011 and $180 million in the second quarter of 2012. In the third quarter of 2012, foreign exchange revenue totaled $121 million, a decrease of 45% year-over-year and 23% sequentially. Both decreases reflect lower volatility and volumes. Other trading revenue was $61 million in the third quarter of 2012 compared with a loss of $21 million in the third quarter of 2011 and revenue of $23 million in the second quarter of 2012. The increases compared with both prior periods reflect improved fixed income trading.

 

•  

Investment and other income

 

                                                 

(dollars in millions)

    3Q11     4Q11     1Q12     2Q12     3Q12  

Corporate/bank-owned life insurance

    $ 40      $ 35      $ 34      $ 32      $ 41   

Lease residual gains

      14        20        34        3        —     

Seed capital gains (losses)

      (8 )      3        24        —          28   

Expense reimbursements from joint ventures

      11        10        10        9        10   

Equity investment revenue (loss)

      12        8        6        (5 )      16   

Private equity gains (losses)

      (7 )      3        4        1        (1 ) 

Asset-related gains (losses)

      28        69        (2 )      —          17   

Other income (loss)

      (7 )      (2 )      29        8        13   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    $ 83      $ 146      $ 139      $ 48      $ 124   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Investment and other income totaled $124 million compared with $83 million in the third quarter of 2011 and $48 million in the second quarter of 2012. The year-over-year increase primarily resulted from higher seed capital gains. Sequentially, the increase primarily resulted from seed capital gains, higher equity investment revenue and higher asset-related gains.

 

 

Page - 7

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

NET INTEREST REVENUE

 

Net interest revenue                                  3Q12 vs.  

(dollars in millions)

    3Q11     4Q11     1Q12     2Q12     3Q12     3Q11     2Q12  

Net interest revenue (non-FTE)

    $ 775      $ 780      $ 765      $ 734      $ 749        (3 )%      2 % 

Net interest revenue (FTE)

      782        790        776        747        765        (2 )      2   

Net interest margin (FTE)

      1.30 %      1.27 %      1.32 %      1.25 %      1.20 %      (10 ) bps      (5 ) bps 

Selected average balances:

               

Cash/interbank investments

    $ 126,392      $ 121,017      $ 103,795      $ 101,871      $ 108,365        (14 )%      6 % 

Trading account securities

      2,509        2,490        2,519        3,033        4,431        77        46   

Securities

      70,863        79,981        86,808        91,859        100,004        41        9   

Loans

      40,489        44,236        43,209        42,992        42,428        5        (1 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Interest-earning assets

      240,253        247,724        236,331        239,755        255,228        6        6   

Interest-bearing deposits

      125,795        130,343        125,438        130,482        138,260        10        6   

Noninterest-bearing deposits

      73,389        76,309        66,613        62,860        70,230        (4 )      12   

Selected average yields/rates:

               

Cash/interbank investments

      0.66 %      0.61 %      0.64 %      0.56 %      0.51 %     

Trading account securities

      2.62        2.94        2.78        2.57        2.40       

Securities

      2.87        2.60        2.44        2.25        2.06       

Loans

      1.96        1.87        1.95        1.98        1.96       

Interest-earning assets

      1.55        1.50        1.56        1.48        1.40       

Interest-bearing deposits

      0.21        0.18        0.14        0.13        0.10       

Average cash/interbank investments as a percentage of average interest-earning assets

      53 %      49 %      44 %      42 %      42 %     

Average noninterest-bearing deposits as a percentage of average interest-earning assets

      31 %      31 %      28 %      26 %      28 %     

bps – basis points.

FTE – fully taxable equivalent.

KEY POINTS

 

•  

Net interest revenue totaled $749 million in 3Q12, a decrease of $26 million compared with 3Q11 and an increase of $15 million sequentially. The year-over-year decrease in net interest revenue was primarily driven by lower accretion and the elimination of interest on European Central Bank deposits, partially offset by increased investment in high-quality investment securities. The increase compared with the second quarter of 2012 primarily reflects higher interest-earning assets driven by higher deposit levels, partially offset by the elimination of interest on European Central Bank deposits.

 

•  

The net interest margin (FTE) was 1.20% in 3Q12 compared with 1.30% in 3Q11 and 1.25% in 2Q12. The decreases in net interest margin (FTE) compared with both prior periods primarily reflect lower reinvestment yields, the elimination of interest on European Central Bank deposits, lower accretion and growth in customer deposits.

 

 

Page - 8

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

NONINTEREST EXPENSE

 

Noninterest expense (a)                                  3Q12 vs.  

(dollars in millions)

    3Q11     4Q11     1Q12     2Q12     3Q12     3Q11     2Q12  

Staff:

               

Compensation

    $ 903      $ 885      $ 861      $ 866      $ 893        (1 )%      3 % 

Incentives

      328        281        352        311        306        (7 )      (2 ) 

Employee benefits

      226        216        240        238        237        5        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total staff

      1,457        1,382        1,453        1,415        1,436        (1 )      1   

Professional, legal and other purchased services

      311        322        299        309        292        (6 )      (6 ) 

Software and equipment

      193        213        205        209        208        8        —     

Net occupancy

      151        159        147        141        149        (1 )      6   

Distribution and servicing

      100        96        101        103        109        9        6   

Sub-custodian

      80        62        70        70        65        (19 )      (7 ) 

Business development

      57        75        56        71        60        5        (15 ) 

Other

      224        237        220        254        265        18        4   

Amortization of intangible assets

      106        106        96        97        95        (10 )      (2 ) 

M&I, litigation and restructuring charges

      92        176        109        378        26        N/M        N/M   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total noninterest expense – GAAP

    $ 2,771      $ 2,828      $ 2,756      $ 3,047      $ 2,705        (2 )%      (11 )% 

Total staff expense as a percentage of total revenue

      39 %      39 %      40 %      39 %      39 %     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Memo:

               

Total noninterest expense excluding amortization of intangible assets, M&I, litigation and restructuring charges and direct expense related to Shareowner Services – Non-GAAP

    $ 2,536      $ 2,500      $ 2,551      $ 2,572      $ 2,584        2 %      — % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

(a) See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19 for noninterest expense excluding the direct expense related to Shareowner Services – Non-GAAP.

N/M – Not meaningful.

KEY POINTS

 

•  

Total noninterest expense increased 2% excluding amortization of intangible assets, M&I, litigation and restructuring charges and direct expenses related to Shareowner Services (Non-GAAP) compared with the prior year period and was flat sequentially.

 

  •  

The year-over-year increase reflects the cost of generating certain tax credits in 3Q12 and the benefit of state investment tax credits recorded in 3Q11.

 

  •  

Sequentially, decreases in professional, legal and other purchased services and business development expenses were offset by the annual employee merit increase and support agreement charges.

 

 

Page - 9

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

OPERATIONAL EXCELLENCE INITIATIVES UPDATE

 

Expense initiatives (pre-tax)                                Annualized
     Program savings      targeted savings
(dollar amounts in millions)    1Q12      2Q12      3Q12      through 3Q12     

by the end of 2012

Business operations

    $ 45       $ 55       $ 63       $ 163       $ 225 - $ 240

Technology

      16         21         21         58       $ 75 - $ 85

Corporate services

      14         18         21         53       $ 60 - $ 65
  

 

 

     

 

 

     

 

 

     

 

 

     

 

Gross savings (a)

      75         94         105         274       $ 360 - $ 390

Less: Incremental program costs (b)

      5         23         23         51       $ 120 - $ 130
  

 

 

     

 

 

     

 

 

     

 

 

     

 

Net savings (c)

    $ 70       $ 71       $ 82       $ 223       $ 240 - $ 260
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

(a) Represents the estimated annual pre-tax run rate expense savings since program inception in 2011. Total Company actual operating expense may increase or decrease due to other factors.
(b) Represents incremental program costs incurred to implement the operational excellence initiatives. These costs will fluctuate by quarter.
(c) Net savings cannot be annualized due to the variability of program costs.

Accomplishments

Through Sept. 30, 2012, we accomplished the following operational excellence initiatives:

Business Operations

 

•  

Consolidated Treasury Services functions (e.g., check processing and lockbox operations) in our Pittsburgh Service Center.

 

•  

Continued global footprint positions migration. Lowered operating costs as we began to ramp up the Eastern European Global Delivery Center.

 

•  

Reengineered Dreyfus and Global Fund Accounting operations to reduce headcount.

 

•  

Realized synergies in custody operations and clearing related to the Global Investment Servicing (“GIS”) acquisition.

 

•  

Completed client conversions related to our BHF Asset Servicing GmbH acquisition.

Technology

 

•  

Migrated GIS systems to BNY Mellon platforms – over 95% of the production applications have been successfully migrated as of Sept. 30, 2012.

 

•  

Insourced software engineers to Global Delivery Centers.

 

•  

Standardized infrastructure through server elimination and software rationalization.

Corporate Services

 

•  

Consolidated offices in Los Angeles, New York and EMEA region.

 

•  

Benefited from the enhanced global procurement program.

 

 

Page - 10

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

CAPITAL

The following table presents our Basel I Tier 1 common equity generated.

 

Basel I Tier 1 common equity generation                            

(dollars in millions)

   

3Q11

      4Q11     1Q12      2Q12     3Q12  

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP

      $651       $ 505      $ 619       $ 466      $ 720   

Add: Amortization of intangible assets, net of tax

      67         66        61         61        60   
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Gross Basel I Tier 1 common equity generated

      718         571        680         527        780   
     

 

 

    

 

 

     

 

 

    

 

 

  

Less capital deployed:

  

          

Common stock dividends

      160         159        158         156        155   

Common stock repurchased

      462         69        371         286        288   

Goodwill and intangible assets related to acquisitions/dispositions

      16         (241 )      —           —          —     
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Total capital deployed

      638         (13 )      529         442        443   

Add: Other

      (43)         (114 )      146         (53 )      181   
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Net Basel I Tier 1 common equity generated

      $37       $ 470      $ 297       $ 32      $ 518   
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

We generated $780 million of gross Basel I Tier 1 common equity in the third quarter of 2012.

The following table presents our capital ratios.

 

Capital ratios

    Sept. 30,
2011		     June 30,
2012		     Sept. 30,
2012 (a)		  

Estimated Basel III Tier 1 common equity ratio (b)(c)

      N/A        8.7 %      9.3 % 

Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP (c)

      12.5 %      13.2        13.2   

Basel I Tier 1 capital ratio

      14.0        14.7        15.3   

Basel I Total (Tier 1 plus Tier 2) capital ratio

      16.1        16.4        16.8   

Basel I leverage capital ratio

      5.1        5.5        5.6   

BNY Mellon shareholders’ equity to total assets ratio (c)

      10.5        10.5        10.7   

BNY Mellon common shareholders’ equity to total assets ratio (c)

      10.5        10.3        10.3   

Tangible BNY Mellon common shareholders’ equity to tangible assets of operations ratio – Non-GAAP (c)

      5.9        6.1        6.3   

 

(a) Preliminary.
(b) The estimated Basel III Tier 1 common equity ratios at June 30, 2012 and Sept. 30, 2012 was based on the Notices of Proposed Rulemaking (“NPRs”) and final market risk rule initially released on June 7, 2012 and published in the Federal Register on Aug. 30, 2012. The estimated Basel III Tier 1 common equity ratio of 6.5% at Sept. 30, 2011 was based on prior Basel III guidance and the proposed market risk rule.
(c) See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19 for a calculation of these ratios.

Our estimated Basel III Tier 1 common equity ratio – Non-GAAP was 9.3% at Sept. 30, 2012 compared with 8.7% at June 30, 2012. The increase was primarily due to earnings retention and an increase in the value of the investment portfolio, partially offset by higher risk-weighted assets.

 

 

Page - 11

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

INVESTMENT SECURITIES PORTFOLIO

At Sept. 30, 2012, the fair value of our investment securities portfolio totaled $103.6 billion. The unrealized pre-tax net gain on our total securities portfolio was $2.5 billion at Sept. 30, 2012 compared with $1.4 billion at June 30, 2012. During the third quarter of 2012, we received $215 million of paydowns and sold approximately $46 million of sub-investment grade securities.

The following table shows the distribution of our investment securities portfolio.

 

Investment securities portfolio                                      
          3Q12                 Fair value                                      
    June 30,     change in     Sept. 30, 2012     as a % of           Ratings  
    2012     unrealized     Amortized     Fair     amortized     Unrealized     AAA/     A+/     BBB+/     BB+ and     Not  

(dollars in millions)

   Fair value     gain/(loss)     cost     value     cost(a)     gain/(loss)     AA-     A—       BBB-     lower     rated  

Agency RMBS

   $ 39,441      $ 321      $ 40,298      $ 41,462        103 %    $ 1,164        100 %      —   %      —   %      —   %      —   % 

U.S. Treasury securities

     15,073        36        20,024        20,356        102        332        100        —          —          —          —     

Sovereign debt/sovereign guaranteed (b)

     8,935        16        9,529        9,698        102        169        100        —          —          —          —     

Non-agency RMBS (c)

     3,037        285        2,623        3,200        74        577        1        —          2        97        —     

Non-agency RMBS

     1,692        119        1,813        1,724        88        (89 )      13        16        10        61        —     

European floating rate notes (d)

     3,896        96        4,419        4,231        95        (188 )      75        20        2        3        —     

Commercial MBS

     3,012        44        2,780        2,931        105        151        81        17        2        —          —     

State and political subdivisions

     5,684        55        6,111        6,210        102        99        84        14        1        —          1   

Foreign covered bonds (e)

     3,928        58        3,760        3,876        103        116        100        —          —          —          —     

Corporate bonds

     1,785        20        1,786        1,863        104        77        25        65        9        1        —     

CLO

     1,013        8        1,111        1,107        100        (4 )      100        —          —          —          —     

U.S. Government agency debt

     1,097        —          1,055        1,086        103        31        100        —          —          —          —     

Consumer ABS

     1,060        1        1,745        1,755        101        10        88        12        —          —          —     

Other (f)

     3,339        (11 )      4,092        4,135        101        43        42        54        —          1        3   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total investment securities

   $ 92,992  (g)    $ 1,048      $ 101,146        $103,634 (g)        101 %    $ 2,488        89 %      6 %      1 %      4 %      —   % 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(a) Amortized cost before impairments.
(b) Primarily comprised of exposure to UK, France, Germany and Netherlands.
(c) These RMBS were included in the former Grantor Trust and were marked-to-market in 2009. We believe these RMBS would receive higher credit ratings if these ratings incorporated, as additional credit enhancement, the difference between the written-down amortized cost and the current face amount of each of these securities.
(d) Includes RMBS, commercial MBS and other securities. Primarily comprised of exposure to UK and Netherlands.
(e) Primarily comprised of exposure to Germany, Canada and UK.
(f) Includes commercial paper of $2.0 billion and $2.2 billion, fair value, and money market funds of $918 million and $1.6 billion, fair value, at June 30, 2012 and Sept. 30, 2012, respectively.
(g) Includes net unrealized losses on derivatives hedging securities available-for-sale of $417 million at June 30, 2012 and $407 million at Sept. 30, 2012.

 

 

Page - 12

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

NONPERFORMING ASSETS

 

                                      
Nonperforming assets    Sept. 30,     June 30,     Sept. 30,  

(dollars in millions)

    2011     2012     2012  

Nonperforming loans:

       

Other residential mortgages

    $ 228      $ 177      $ 166   

Wealth management

      32        35        33   

Commercial

      21        31        29   

Commercial real estate

      28        30        29   

Foreign

      13        9        9   

Financial institutions

      12        3        3   
  

 

 

    

 

 

    

 

 

  

Total nonperforming loans

      334        285        269   

Other assets owned

      10        9        5   
  

 

 

    

 

 

    

 

 

  

Total nonperforming assets (a)

    $ 344      $ 294      $ 274   
  

 

 

    

 

 

    

 

 

  

Nonperforming assets ratio

      0.76 %      0.65 %      0.60 % 

Allowance for loan losses/nonperforming loans

      117.4        127.0        126.0   

Total allowance for credit losses/nonperforming loans

      149.1        163.9        169.5   
  

 

 

    

 

 

    

 

 

  

 

(a) Loans of consolidated investment management funds are not part of BNY Mellon’s loan portfolio. Included in these loans are nonperforming loans of $265 million at Sept. 30, 2011, $155 million at June 30, 2012 and $153 million at Sept. 30, 2012. These loans are recorded at fair value and therefore do not impact the provision for credit losses and allowance for loan losses, and accordingly are excluded from the nonperforming assets table above.

Nonperforming other residential mortgage loans decreased $62 million from Sept. 30, 2011 to $166 million at Sept. 30, 2012. The decrease primarily resulted from paydowns, sales, returns to accrual status and charge-offs.

ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

 

                                      
Allowance for credit losses, provision and net charge-offs                   

(dollars in millions)

    3Q11     2Q12     3Q12  

Allowance for credit losses – beginning of period

    $ 535      $ 494      $ 467   

Provision for credit losses

      (22 )      (19 )      (5 ) 

Net (charge-offs) recoveries:

       

Other residential mortgages

      (14 )      (5 )      (1 ) 

Financial institutions

      —          (4 )      (4 ) 

Commercial

      (1 )      1        (1 ) 
  

 

 

    

 

 

    

 

 

  

Net (charge-offs) recoveries

      (15 )      (8 )      (6 ) 
  

 

 

    

 

 

    

 

 

  

Allowance for credit losses – end of period

    $ 498      $ 467      $ 456   
  

 

 

    

 

 

    

 

 

  

Allowance for loan losses

    $ 392      $ 362      $ 339   

Allowance for lending-related commitments

      106        105        117   
  

 

 

    

 

 

    

 

 

  

The provision for credit losses was a credit of $5 million in 3Q12 primarily resulting from loan sales and repayments. The provision for credit losses was a credit of $22 million in 3Q11 and a credit of $19 million in 2Q12.

 

 

Page - 13

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

REVIEW OF BUSINESSES

INVESTMENT MANAGEMENT provides investment management services to institutional and retail investors, as well as investment management, wealth and estate planning and private banking solutions to high net worth individuals and families, and foundations and endowments.

 

                                   3Q12 vs.  

(dollars in millions, unless otherwise noted)

    3Q11     4Q11     1Q12     2Q12     3Q12     3Q11     2Q12  

Revenue:

               

Investment management fees:

               

Mutual funds

    $ 263      $ 237      $ 260      $ 270      $ 283        8 %      5 % 

Institutional clients

      311        299        322        321        334        7        4   

Wealth management

      157        154        157        158        158        1        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Investment management fees

      731        690        739        749        775        6        3   

Performance fees

      11        47        16        54        10        (9 )      (81 ) 

Distribution and servicing

      41        41        45        45        47        15        4   

Other (a)

      (26 )      (11 )      52        13        40        N/M        N/M   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fee and other revenue (a)

      757        767        852        861        872        15        1   

Net interest revenue

      51        55        55        52        52        2        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total revenue

      808        822        907        913        924        14        1   

Provision for credit losses

      —          —          —          —          —          —          —     

Noninterest expense (ex. amortization of intangible assets)

      622        632        619        642        644        4        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income before taxes (ex. amortization of intangible assets)

      186        190        288        271        280        51        3   

Amortization of intangible assets

      53        53        48        48        48        (9 )      —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income before taxes

    $ 133      $ 137      $ 240      $ 223      $ 232        74 %      4 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Pre-tax operating margin

      16 %      17 %      26 %      24 %      25 %     

Pre-tax operating margin (ex. amortization of intangible assets and net of distribution and servicing expense) (b)

      26 %      26 %      36 %      34 %      34 %     

Metrics:

               

Changes in market value of assets under management (in billions) (c):

               

Beginning balance

    $ 1,274      $ 1,198      $ 1,260      $ 1,308      $ 1,299       

Net inflows (outflows):

               

Long-term

      4        16        7        26        9       

Money market

      (15 )      7        (9 )      (14 )      9       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Total net inflows (outflows)

      (11 )      23        (2 )      12        18       

Net market/currency impact

      (65 )      39        50        (21 )      42       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Ending balance

    $ 1,198      $ 1,260      $ 1,308      $ 1,299      $ 1,359 (d)      13 %      5 % 

Composition of assets under management at period end (c):

               

Equity securities

      30 %      31 %      33 %      32 %      33 %     

Fixed income securities

      35        35        35        37        37       

Money market

      27        26        24        23        23       

Alternative investments and overlay

      8        8        8        8        7       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Total

      100 %      100 %      100 %      100 %      100 %     

Wealth management:

               

Average loans

    $ 6,958      $ 7,209      $ 7,430      $ 7,763      $ 8,122        17 %      5 % 

Average deposits

    $ 10,392      $ 11,761      $ 11,491      $ 11,259      $ 11,372        9 %      1 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(a) Total fee and other revenue includes the impact of the consolidated investment management funds. See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19. Additionally, other revenue includes asset servicing and treasury services revenue.
(b) Distribution and servicing expense is netted with distribution and servicing revenue for the purpose of this calculation of pre-tax operating margin. Distribution and servicing expense totaled $99 million, $95 million, $100 million, $102 million and $107 million, respectively.
(c) Excludes securities lending cash management assets.
(d) Preliminary.

N/M – Not meaningful.

 

 

Page - 14

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

INVESTMENT MANAGEMENT KEY POINTS

 

•  

Assets under management were a record of $1.4 trillion at Sept. 30, 2012, an increase of 13% year-over-year and 5% sequentially. Both increases resulted from higher market values and net inflows.

 

  •  

Net long-term inflows were $9 billion and short-term inflows were $9 billion in 3Q12. Long-term inflows benefited from fixed income and active equities.

 

•  

Year-over-year, positive operating leverage of 1,000 basis points, or 500 basis points excluding the net impact of seed capital gains.

 

•  

Total revenue was $924 million, an increase of 14% year-over-year and 1% sequentially. Both increases were driven by higher seed capital gains, higher market values and net new business. The sequential increase was partially offset by lower performance fees.

 

•  

Investment management fees were $775 million, an increase of 6% year-over-year and 3% sequentially. Both increases were driven by higher market values and net new business.

 

•  

Other revenue was $40 million in 3Q12 compared with a loss of $26 million in 3Q11 and revenue of $13 million in 2Q12. Both increases primarily reflect higher seed capital gains.

 

•  

Net interest revenue increased 2% year-over-year was unchanged sequentially. The year-over-year increase primarily resulted from higher average loans and deposits partially offset by tighter spreads.

 

  •  

Average loans increased 17% year-over-year and 5% sequentially; average deposits increased 9% year-over-year and 1% sequentially.

 

•  

Total noninterest expense (ex. amortization of intangible assets) increased 4% year-over-year and was unchanged sequentially. The year-over-year increase primarily resulted from higher distribution and servicing expense and the annual employee merit increase effective in the third quarter of 2012.

 

•  

44% non-U.S. revenue in 3Q12 vs. 42% in 3Q11.

 

•  

3Q12 actions:

 

  •  

Announced that the High Yield bond team of Standish Mellon Asset Management Company LLC will become part of Alcentra NY, LLC, effective Jan. 1, 2013, creating a leading investment manager of credit strategies.

 

  •  

Acquired the remaining 50% interest in the West LB Mellon Asset Management joint venture, strengthening our presence in Germany.

 

•  

BNY Mellon Emerging Market Debt Fund awarded Emerging Market Debt Fund of the year at Investment Europe – Fund Manager of the Year Awards 2012-13 (10/11/12)

 

•  

Insight awarded Fixed Income firm of the Year and LDI firm of the year at Financial News Awards for Excellence in Institutional Asset Management (10/10/12)

 

•  

ARX awarded Active Equity Manager of the Year for third year running by Exame, Brazilian business periodical (published 09/30/12)

 

 

Page - 15

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

INVESTMENT SERVICES provides global custody and related services, broker-dealer services, alternative investment services, corporate trust, depositary receipt and clearing services as well as global payment/working capital solutions to global financial institutions.

 

                                   3Q12 vs.  

(dollars in millions, unless otherwise noted)

    3Q11     4Q11     1Q12     2Q12     3Q12     3Q11     2Q12  

Revenue:

               

Investment services fees:

               

Asset servicing

    $ 894      $ 858      $ 915      $ 920      $ 912        2 %      (1 )% 

Issuer services

      401        245        251        275        310        (23 )      13   

Clearing services

      297        278        303        309        287        (3 )      (7 ) 

Treasury services

      132        133        136        132        135        2        2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total investment services fees

      1,724        1,514        1,605        1,636        1,644        (5 )      —     

Foreign exchange and other trading revenue

      236        196        176        179        158        (33 )      (12 ) 

Other (a)

      68        71        71        66        77        13        17   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fee and other revenue (a)

      2,028        1,781        1,852        1,881        1,879        (7 )      —     

Net interest revenue

      661        634        642        607        608        (8 )      —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total revenue

      2,689        2,415        2,494        2,488        2,487        (8 )      —     

Provision for credit losses

      —          —          16        (14 )      (4 )      N/M        N/M   

Noninterest expense (ex. amortization of intangible assets)

      1,849        1,706        1,779        2,097        1,735        (6 )      (17 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income before taxes (ex. amortization of intangible assets)

      840        709        699        405        756        (10 )      87   

Amortization of intangible assets

      49        50        48        49        47        (4 )      (4 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income before taxes

    $ 791      $ 659      $ 651      $ 356      $ 709        (10 )%      99 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Pre-tax operating margin

      29 %      27 %      26 %      14 %      29 %     

Pre-tax operating margin (ex. amortization of intangible assets)

      31 %      29 %      28 %      16 %      30 %     

Investment services fees as a percentage of noninterest expense (b)

      98 %      90 %      94 %      94 %      96 %     

Securities lending revenue

    $ 32      $ 35      $ 39      $ 48      $ 37        16 %      (23 )% 

Metrics:

               

Market value of assets under custody and administration at period-end (in trillions)

    $ 25.9      $ 25.8      $ 26.6      $ 27.1      $ 27.9        8 %      3 % 

Market value of securities on loan at period-end (in billions) (c)

    $ 250      $ 269      $ 265      $ 275      $ 259        4 %      (6 )% 

Average loans

    $ 22,879      $ 26,804      $ 25,902      $ 24,981      $ 24,361        6 %      (2 )% 

Average deposits

    $ 181,848      $ 188,539      $ 175,055      $ 172,435      $ 188,036        3 %      9 % 

Asset servicing:

               

New business wins (AUC) (in billions)

    $ 96      $ 431      $ 453      $ 314      $ 522       

Corporate Trust:

               

Total debt serviced (in trillions)

    $ 11.9      $ 11.8      $ 11.9      $ 11.5      $ 11.6        (3 )%      1 % 

Number of deals administered

      134,843        133,850        133,319        133,301        131,754        (2 )%      (1 )% 

Depositary Receipts:

               

Number of sponsored programs

      1,384        1,389        1,391        1,393        1,393        1 %      —   % 

Clearing services:

               

DARTS volume (in thousands)

      207.7        178.7        196.6        189.8        172.7        (17 )%      (9 )% 

Average active clearing accounts U.S. (in thousands)

      5,503        5,429        5,413        5,427        5,452        (1 )%      —   % 

Average long-term mutual fund assets (U.S. platform)

    $ 287,573      $ 287,562      $ 306,212      $ 306,973      $ 323,289        12 %      5 % 

Average margin loans

    $ 7,351      $ 7,548      $ 7,900      $ 8,231      $ 7,922        8 %      (4 )% 

Broker-Dealer:

               

Average collateral management balances (in billions)

    $ 1,872      $ 1,866      $ 1,929      $ 1,997      $ 2,009        7 %      1 % 

Treasury services:

               

Global payments transaction volume (in thousands)

      11,088        10,856        10,838        11,117        11,289        2 %      2 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(a) Total fee and other revenue includes investment management fees and distribution and servicing revenue.
(b) Noninterest expense excludes amortization of intangible assets, support agreement charges and litigation expense.
(c) Represents the securities on loan managed by the Investment Services business.

 

 

Page - 16

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

INVESTMENT SERVICES KEY POINTS

 

•  

Investment services fees totaled $1.6 billion, a decrease of 5% year-over-year and unchanged sequentially.

 

  •  

Asset servicing fees (global custody, broker-dealer services and alternative investment services) were $912 million in 3Q12 compared with $894 million in 3Q11 and $920 million in 2Q12. The year-over-year increase primarily reflects net new business and higher market values and securities lending revenue. The sequential decrease was primarily driven by a seasonal decrease in securities lending revenue, partially offset by net new business and higher market values.

 

  •  

New business wins (AUC) of $522 billion in 3Q12.

 

  •  

Issuer services fees (Corporate Trust and Depositary Receipts) were $310 million in 3Q12 compared with $401 million in 3Q11 and $275 million in 2Q12. The year-over-year decrease primarily resulted from lower Depositary Receipts revenue driven by lower volumes, and lower Corporate Trust fees reflecting the continued net run-off of structured debt securitizations. The increase sequentially resulted from seasonally higher Depositary Receipts revenue, partially offset by lower Corporate Trust fees.

 

  •  

Clearing services fees (Pershing) were $287 million in 3Q12 compared with $297 million in 3Q11 and $309 million in 2Q12. Both decreases were primarily driven by lower DARTS volume.

 

•  

Foreign exchange and other trading revenue was $158 million in 3Q12 compared with $236 million in 3Q11 and $179 million in 2Q12. Both decreases reflect lower volatility and volumes.

 

•  

Net interest revenue was $608 million in 3Q12 compared with $661 million in 3Q11 and $607 million in 2Q12. The year-over-year decrease reflects lower yields, partially offset by higher average deposits.

 

•  

The provision for credit losses was a credit of $4 million in 3Q12 primarily resulting from loan sales.

 

•  

Noninterest expense (excluding amortization of intangible assets) was $1.7 billion in 3Q12 compared with $1.8 billion in 3Q11 and $2.1 billion in 2Q12. Both decreases primarily reflect lower litigation expense and continued expense control.

 

•  

37% non-U.S. revenue in 3Q12 vs. 40% in 3Q11.

 

 

Page - 17

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

OTHER SEGMENT primarily includes credit-related services, the leasing portfolio, corporate treasury activities, business exits, M&I expenses and other corporate revenue and expense items. Results in 2011 include the Shareowner Services business.

 

(dollars in millions)

    3Q11     4Q11     1Q12     2Q12     3Q12  

Revenue:

           

Fee and other revenue

    $ 121      $ 240      $ 166      $ 112      $ 150   

Net interest revenue

      63        91        68        75        89   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total revenue

      184        331        234        187        239   

Provision for credit losses

      (22 )      23        (11 )      (5 )      (1 ) 

Noninterest expense (ex. amortization of intangible assets, M&I and restructuring charges)

      182        245        253        189        218   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) before taxes (ex. amortization of intangible assets, M&I and restructuring charges)

      24        63        (8 )      3        22   

Amortization of intangible assets

      4        3        —          —          —     

M&I and restructuring charges

      12        139        9        22        13   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) before taxes

    $ 8      $ (79 )    $ (17 )    $ (19 )    $ 9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average loans and leases

    $ 10,652      $ 10,223      $ 9,877      $ 10,248      $ 9,945   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

KEY POINTS

 

•  

Total fee and other revenue increased $29 million compared with 3Q11 and $38 million compared with 2Q12. The year-over year increase reflects improved fixed income trading and higher net securities gains, partially offset by the impact of the sale of the Shareowner Service business in 4Q11. The sequential increase was driven by higher equity investment revenue, improved fixed income trading and higher asset-related gains, partially offset by lower net securities gains.

 

•  

Noninterest expense (excluding amortization of intangible assets and M&I and restructuring charges) increased $36 million compared with 3Q11 and $29 million compared with 2Q12. The increase compared with 3Q11 resulted from the cost of generating certain tax credits in 3Q12 and the benefit of state investment tax credits recorded in 3Q11 and higher equipment and software expense, partially offset by the impact of the sale of the Shareowner Services business. The increase compared with 2Q12 primarily reflects higher staff expense.

 

 

Page - 18

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

SUPPLEMENTAL INFORMATION – EXPLANATION OF NON-GAAP FINANCIAL MEASURES

BNY Mellon has included in this Earnings Review certain Non-GAAP financial measures based upon tangible common shareholders’ equity. BNY Mellon believes that the ratio of Tier 1 common equity to risk-weighted assets and the ratio of tangible common shareholders’ equity to tangible assets of operations are measures of capital strength that provide additional useful information to investors, supplementing the Tier 1 and Total capital ratios which are utilized by regulatory authorities. The ratio of Basel I Tier 1 common equity to risk-weighted assets excludes preferred stock, as well as the trust preferred securities which will be phased out of Basel I Tier 1 regulatory capital beginning in 2013. Unlike the Basel I Tier 1 and Total capital ratios, the tangible common shareholders’ equity ratio fully incorporates those changes in investment securities valuations which are reflected in total shareholders’ equity. In addition, this ratio is expressed as a percentage of the actual book value of assets, as opposed to a percentage of a risk-based reduced value established in accordance with regulatory requirements, although BNY Mellon in its calculation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes. Further, BNY Mellon believes that the return on tangible common equity measure, which excludes goodwill and intangible assets net of deferred tax liabilities, is a useful additional measure for investors because it presents a measure of BNY Mellon’s performance in reference to those assets which are productive in generating income. BNY Mellon has presented its estimated Basel III Tier 1 common equity ratio on a basis that is representative of how it currently understands the Basel III rules. Management views the Basel III Tier 1 common equity ratio as a key measure in monitoring BNY Mellon’s capital position. The presentation of the Basel III Tier 1 common equity ratio allows investors to compare BNY Mellon’s Basel III Tier 1 common equity ratio with estimates presented by other companies. Additionally, BNY Mellon has provided a measure of tangible book value per share, which it believes provides additional useful information as to the level of such assets in relation to shares of common stock outstanding.

BNY Mellon has presented revenue measures which exclude the effect of noncontrolling interests related to consolidated investment management funds and other revenue related to the Shareowner Services business, which was sold on Dec. 31, 2011; and expense measures which exclude M&I expenses, litigation charges, restructuring charges, amortization of intangible assets and direct expenses related to the Shareowner Services business. Return on equity measures and operating margin measures, which exclude some or all of these items, are also presented. BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon’s control. The excluded items in general relate to certain ongoing charges as a result of prior transactions or where we have incurred charges. M&I expenses primarily relate to the acquisitions of Global Investment Servicing on July 1, 2010 and BHF Asset Servicing GmbH on Aug. 2, 2010. M&I expenses generally continue for approximately three years after the transaction and can vary on a year-to-year basis depending on the stage of the integration. BNY Mellon believes that the exclusion of M&I expenses provides investors with a focus on BNY Mellon’s business as it would appear on a consolidated going-forward basis, after such M&I expenses have ceased. Future periods will not reflect such M&I expenses, and thus may be more easily compared to our current results if M&I expenses are excluded. Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. Restructuring charges relate to our operational excellence initiatives and migrating positions to global delivery centers. Excluding these charges permits investors to view expenses on a basis consistent with how management views the business. BNY Mellon also presents revenue and noninterest expense results relating to the Shareowner Services business so that an investor may compare those results with other periods, which do not include the Shareowner Services business.

The presentation of income (loss) from consolidated investment management funds, net of net income (loss) attributable to noncontrolling interest related to the consolidation of certain investment management funds permits investors to view revenue on a basis consistent with prior periods. BNY Mellon believes that these presentations, as a supplement to GAAP information, give investors a clearer picture of the results of its primary businesses.

In this Earnings Review, the net interest margin is presented on an FTE basis. We believe that this presentation provides comparability of amounts arising from both taxable and tax-exempt sources, and is consistent with industry practice.

 

 

Page - 19

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and on a business-level basis.

The following table presents the calculation of the pre-tax operating margin ratio.

 

Pre-tax operating margin                               

(dollars in millions)

    3Q11     4Q11     1Q12     2Q12     3Q12  

Income before income taxes – GAAP

    $ 945      $ 689      $ 885      $ 589      $ 975   

Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds

      13        (28 )      11        29        25   

Add: Amortization of intangible assets

      106        106        96        97        95   

M&I, litigation and restructuring charges

      92        176        109        378        26   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income before income taxes excluding net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets, M&I, litigation and restructuring charges – Non-GAAP

    $ 1,130      $ 999      $ 1,079      $ 1,035      $ 1,071   

Fee and other revenue – GAAP

    $ 2,887      $ 2,765      $ 2,838      $ 2,826      $ 2,879   

Income (loss) from consolidated investment management funds – GAAP

      32        (5 )      43        57        47   

Net interest revenue – GAAP

      775        780        765        734        749   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total revenue – GAAP

      3,694        3,540        3,646        3,617        3,675   

Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds

      13        (28 )      11        29        25   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total revenue excluding net income (loss) attributable to noncontrolling interests of consolidated investment management funds – Non-GAAP

    $ 3,681      $ 3,568      $ 3,635      $ 3,588      $ 3,650   

Pre-tax operating margin (a)

      26 %      19 %      24 %      16 %      27 % 

Pre-tax operating margin excluding net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets, M&I, litigation and restructuring charges – Non-GAAP (a)

      31 %      28 %      30 %      29 %      29 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(a) Income before taxes divided by total revenue.

 

 

Page - 20

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

The following table presents the calculation of the return on common equity and the return on tangible common equity.

 

Return on common equity and tangible common equity                               
(dollars in millions)    3Q11     4Q11     1Q12     2Q12     3Q12  

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP

    $ 651      $ 505      $ 619      $ 466      $ 720   

Add: Amortization of intangible assets, net of tax

      67        66        61        61        60   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets – Non-GAAP

      718        571        680        527        780   

Add: M&I, litigation and restructuring charges

      55        110        65        225        18   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP

    $ 773      $ 681      $ 745      $ 752      $ 798   

Average common shareholders’ equity

    $ 34,008      $ 33,761      $ 33,718      $ 34,123      $ 34,522   

Less: Average goodwill

      18,156        18,044        17,962        17,941        17,918   

Average intangible assets

      5,453        5,333        5,121        5,024        4,926   

Add: Deferred tax liability – tax deductible goodwill

      915        967        972        982        1,057   

Deferred tax liability – non-tax deductible intangible assets

      1,604        1,459        1,428        1,400        1,339   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average tangible common shareholders’ equity – Non-GAAP

    $ 12,918      $ 12,810      $ 13,035      $ 13,540      $ 14,074   

Return on common equity– GAAP (a)

      7.6 %      5.9 %      7.4 %      5.5 %      8.3 % 

Return on common equity excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP (a)

      9.0 %      8.0 %      8.9 %      8.9 %      9.2 % 

Return on tangible common equity – Non-GAAP (a)

      22.1 %      17.7 %      21.0 %      15.7 %      22.1 % 

Return on tangible common equity excluding M&I, litigation and restructuring charges – Non-GAAP (a)

      23.8 %      21.1 %      23.0 %      22.4 %      22.5 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(a) Annualized.

 

 

Page - 21

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

The following table presents the calculation of the equity to assets ratio and book value per common share.

 

Equity to assets and book value per common share

(dollars in millions, unless otherwise noted)

    Sept. 30,
2011		     June 30,
2012		     Sept. 30,
2012		  

BNY Mellon shareholders’ equity at period end – GAAP

    $ 33,695      $ 34,533      $ 36,218   

Less: Preferred stock

      —          500        1,036   
  

 

 

    

 

 

    

 

 

  

BNY Mellon common shareholders’ equity at period-end – GAAP

      33,695        34,033        35,182   

Less: Goodwill

      18,045        17,909        17,984   

Intangible assets

      5,380        4,962        4,882   

Add: Deferred tax liability – tax deductible goodwill

      915        982        1,057   

Deferred tax liability – non-tax deductible intangible assets

      1,604        1,400        1,339   
  

 

 

    

 

 

    

 

 

  

Tangible BNY Mellon common shareholders’ equity at period end – Non-GAAP

    $ 12,789      $ 13,544      $ 14,712   

Total assets at period end – GAAP

    $ 322,187      $ 330,283      $ 339,944   

Less: Assets of consolidated investment management funds

      12,063        10,955        11,369   
  

 

 

    

 

 

    

 

 

  

Subtotal assets of operations – Non-GAAP

      310,124        319,328        328,575   

Less: Goodwill

      18,045        17,909        17,984   

Intangible assets

      5,380        4,962        4,882   

Cash on deposit with the Federal Reserve and other central banks (a)

      68,293        72,838        73,037   
  

 

 

    

 

 

    

 

 

  

Tangible total assets of operations at period end – Non-GAAP

    $ 218,406      $ 223,619      $ 232,672   

BNY Mellon shareholders’ equity to total assets – GAAP

      10.5 %      10.5 %      10.7 % 

BNY Mellon common shareholders’ equity to total assets – GAAP

      10.5 %      10.3 %      10.3 % 

Tangible BNY Mellon common shareholders’ equity to tangible assets of operations – Non-GAAP

      5.9 %      6.1 %      6.3 % 
  

 

 

    

 

 

    

 

 

  

 

(a) Assigned a zero percent risk-weighting by the regulators.

The following table presents income from consolidated investment management funds, net of noncontrolling interests.

 

Income from consolidated investment management funds, net of noncontrolling interests  
(dollars in millions)    3Q11      4Q11     1Q12      2Q12      3Q12  

Income (loss) from consolidated investment management funds

    $ 32       $ (5 )    $ 43       $ 57       $ 47   

Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds

      13         (28 )      11         29         25   
  

 

 

     

 

 

    

 

 

     

 

 

     

 

 

  

Income from consolidated investment management funds, net of noncontrolling interests

    $ 19       $ 23      $ 32       $ 28       $ 22   
  

 

 

     

 

 

    

 

 

     

 

 

     

 

 

  

The following table presents the line items in the Investment Management business impacted by the consolidated investment management funds.

 

Income from consolidated investment management funds, net of noncontrolling interests  
(dollars in millions)    3Q11     4Q11      1Q12      2Q12      3Q12  

Investment management and performance fees

    $ 27      $ 20       $ 22       $ 20       $ 20   

Other (Investment income)

      (8 )      3         10         8         2   
  

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

Income from consolidated investment management funds, net of noncontrolling interests

    $ 19      $ 23       $ 32       $ 28       $ 22   
  

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

The following table presents investment management fees net of performance fees.

 

Investment management and performance fees                                       3Q12 vs.  

(dollars in millions)

    3Q11      4Q11      1Q12      2Q12      3Q12      3Q11     2Q12  

Investment management and performance fees

    $ 729       $ 730       $ 745       $ 797       $ 779         7 %      (2 )% 

Less: Performance fees

      11         47         16         54         10         N/M        N/M   

Investment management fees

    $ 718       $ 683       $ 729       $ 743       $ 769         7 %      3 % 

N/M – Not meaningful.

 

 

Page - 22

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

The following tables present fee and other revenue and noninterest expense excluding Shareowner Services.

 

Fee and other revenue excluding Shareowner Services                                     3Q12 vs.  
(dollars in millions)    3Q11     4Q11     1Q12      2Q12      3Q12      3Q11     2Q12  

Investment services fees:

                  

Asset servicing

    $ 922      $ 885      $ 943       $ 950       $ 942         2 %      (1 )% 

Issuer services

      400        245        251         275         311         (22 )      13   

Clearing services

      297        278        303         309         287         (3 )      (7 ) 

Treasury services

      133        134        136         134         138         4        3   
  

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

Total investment services fees

      1,752        1,542        1,633         1,668         1,678         (4 )      1   

Investment management and performance fees

      729        730        745         797         779         7        (2 ) 

Foreign exchange and other trading revenue

      200        227        191         180         182         (9 )      1   

Distribution and servicing

      43        42        46         46         48         12        4   

Financing-related fees

      38        37        44         37         46         21        24   

Investment and other income

      83        48        139         51         124         N/M        N/M   
  

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

Total fee revenue

      2,845        2,626        2,798         2,779         2,857         —          3   

Net securities gains (losses)

      (2 )      (3 )      40         50         22         N/M        N/M   
  

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

Total fee and other revenue

    $ 2,843      $ 2,623      $ 2,838       $ 2,829       $ 2,879         1 %      2 % 
  

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

 

Noninterest expense excluding Shareowner Services                                       3Q12 vs.  
(dollars in millions)    3Q11      4Q11      1Q12      2Q12      3Q12      3Q11     2Q12  

Staff:

                    

Compensation

    $ 889       $ 871       $ 861       $ 866       $ 893         —   %      3 % 

Incentives

      327         278         352         311         306         (6 )      (2 ) 

Employee benefits

      222         213         240         238         237         7        —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

Total staff

      1,438         1,362         1,453         1,415         1,436         —          1   

Professional, legal and other purchased services

      300         310         299         309         292         (3 )      (6 ) 

Software and equipment

      189         208         205         209         208         10        —     

Net occupancy

      149         156         147         141         149         —          6   

Distribution and servicing

      100         96         101         103         109         9        6   

Sub-custodian

      80         62         70         70         65         (19 )      (7 ) 

Business development

      57         74         56         71         60         5        (15 ) 

Other

      223         232         220         254         265         19        4   

Amortization of intangible assets

      103         103         96         97         95         (8 )      (2 ) 

M&I, litigation and restructuring charges

      92         176         109         378         26         N/M        N/M   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

Total noninterest expense

    $ 2,731       $ 2,779       $ 2,756       $ 3,047       $ 2,705         (1 )%      (11 )% 
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

The following table presents the calculation of our Basel I Tier 1 common equity ratio – Non-GAAP.

 

Calculation of Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP    Sept. 30,     June 30,     Sept. 30,  

(dollars in millions)

    2011     2012     2012 (a)  

Total Tier 1 capital – Basel I

    $ 14,920      $ 15,722      $ 16,785   

Less: Trust preferred securities

      1,660        1,164        1,173   

Preferred stock

      —          500        1,036   
  

 

 

    

 

 

    

 

 

  

Total Tier 1 common equity

      13,260      $ 14,058      $ 14,576   

Total risk-weighted assets – Basel I

    $ 106,256      $ 106,764      $ 110,005   

Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP

      12.5 %      13.2 %      13.2 % 
  

 

 

    

 

 

    

 

 

  

(a) Preliminary.

 

 

Page - 23

BNY Mellon 3Q12 Quarterly Earnings Review

 

 

The following table presents the calculation of our estimated Basel III Tier 1 common equity ratio on a fully-phased-in basis.

 

Estimated Basel III Tier 1 common equity ratio – Non-GAAP (a)    Sept. 30,     June 30,     Sept. 30,  
(dollars in millions)    2011     2012     2012 (b)  

Total Tier 1 capital – Basel I

    $ 14,920      $ 15,722      $ 16,785   

Less: Trust preferred securities

      1,660        1,164        1,173   

Preferred stock

      —          500        1,036   

Adjustments related to available-for-sale securities and pension liabilities included in accumulated other comprehensive income (c)

      470        513        (136 ) 

Adjustments related to equity method investments (c)

      590        558        571   

Deferred tax assets

      —          46        46   

Net pensions fund assets (c)

      493        43        43   

Other

      26        2        3   
  

 

 

    

 

 

    

 

 

  

Total estimated Basel III Tier 1 common equity

    $ 11,681      $ 12,896      $ 14,049   

Total risk-weighted assets – Basel I

    $ 106,256      $ 106,764      $ 110,005   

Add: Adjustments (d)

      74,224        41,493        41,678   
  

 

 

    

 

 

    

 

 

  

Total estimated Basel III risk-weighted assets (e)

    $ 180,840      $ 148,257      $ 151,683   

Estimated Basel III Tier 1 common equity ratio – Non-GAAP

      6.5 %      8.7 %      9.3 % 
  

 

 

    

 

 

    

 

 

  

 

(a) The estimated Basel III Tier 1 common equity ratios at June 30, 2012 and Sept. 30, 2012 were based on the NPRs and final market risk rule initially released on June 7, 2012 and published in the Federal Register on Aug. 30, 2012. The estimated Basel III Tier 1 common equity ratio at Sept. 30, 2011 was based on prior Basel III guidance and the proposed market risk rule.
(b) Preliminary.
(c) The NPRs and prior Basel III guidance do not add back to capital the adjustment to other comprehensive income that Basel I makes for pension liabilities and available-for-sale securities. Also, under the NPRs and prior Basel III guidance, pension assets recorded on the balance sheet and adjustments related to equity method investments are a deduction from capital.
(d) Primary differences between risk-weighted assets determined under Basel I compared with the NPRs and prior Basel III guidance include: the determination of credit risk under Basel I uses predetermined risk weights and asset classes, while the NPRs use, in addition to the broader range of predetermined risk weights and asset classes, an investment grade standard. Securitization exposure receives a higher risk-weighting under the NPRs and prior Basel III guidance than Basel I; also, the NPRs and prior Basel III guidance includes additional adjustments for operational risk, market risk, counterparty credit risk and equity exposures.
(e) Calculated on an Advanced Approaches basis, as amended by Basel III.

Cautionary Statement

A number of statements (i) in this Quarterly Earnings Review, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 including statements made regarding our estimated capital ratios and our operational excellence initiatives, including targeted savings by the end of 2012. These statements may be expressed in a variety of ways, including the use of future or present tense language. These statements and other forward-looking statements contained in other public disclosures of The Bank of New York Mellon Corporation which make reference to the cautionary factors described in this Earnings Review, are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon’s control). Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties set forth in BNY Mellon’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, BNY Mellon’s Annual Report on Form 10-K for the year ended Dec. 31, 2011 and BNY Mellon’s other filings with the Securities and Exchange Commission. All forward-looking statements in this Earnings Review speak only as of Oct. 17, 2012, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

 

 

Page - 24