Pershing takes in $45B in net new assets as BNY wealth management client assets plummet in Q3

October 17, 2022 6:49 PM

Bank Of New York Mellon Corp. Branches Ahead Of Earnings Figures

BNY Mellon's Pershing won plaudits Monday for thriving in the difficult market that was the third quarter of 2022, and its Pershing X business unit emerged as a core component of the company's future growth.

Resilience aside, the tough economic environment meant a rough road for BNY's wealth management unit, where total revenue and client assets dropped for another consecutive quarter.

"Our performance benefited from higher interest rates and continued strength in client volumes and balances across our securities services and market and wealth services segments," BNY CEO Robin Vince said in earnings statements released on Oct. 17. "While investment and wealth management was naturally more affected by the continued decline in global market values, in particular in investment management, the business delivered positive net inflows in the quarter and continued to deliver solid investment performance for our clients."

Pershing’s new ETF platform is only available to its clients.

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Monday's earnings call was also an opportunity for BNY Mellon leaders to celebrate last week's launch of a digital asset custody platform that gives select clients the ability to transfer bitcoin and ether. The firm has plans to eventually launch the industry's first multi-asset platform that bridges digital and traditional asset custody.

"Touching more than 20% of the world's investable assets, BNY Mellon has the scale to reimagine financial markets through blockchain technology and digital assets," Vince said in a statement.

Scroll down the slideshow for other key takeaways for financial advisors and other wealth management professionals. For coverage of the prior quarter's earnings, click here.

Note: The results include BNY Mellon-owned Pershing, which is the largest part of the firm's Market and Wealth Services segment, and those of the megabank's Investment and Wealth Management unit.

Pershing performance

Vince said Pershing had a "solid and resilient quarter" and benefited from a revenue mix of market-based fees, transaction fees, balance base fees, subscription fees and net interest revenue that played well in the current environment. As a result, Pershing took in $45 billion in net new assets in the quarter.

Clearing accounts grew at a 3% annualized growth rate. Revenue was up 16% year-over-year to $658 million with officials saying the results lower money market fee waivers and higher client activity, partially offset by the impact of prior-year lost business.

Pershing X

Vince called Pershing X a major growth and innovation opportunity, and one that requires continued investment. Launched one year ago, Pershing X is a business unit that aims to accelerate the development of a single suite to provide RIAs, broker-dealers and trust companies with everything they need from software to investment products.

In the second quarter of 2022, Vince said Pershing X reached a milestone through an equity investment and partnership with Conquest Planning, a Canadian fintech startup that uses AI and analytics tools to help advisors improve their efficiency and create customizable financial plans for their clients.

"X's minimum viable product remains on track to launch in the fourth quarter," Vince said. "Our client engagement, together with the product design input … is helping us to accelerate and enhance the delivery of an exciting end-to-end digital experience for advisors."

Falling revenue and assets

Investment and wealth management reported total revenue of $862 million in Q3, down 16% year over year. Fee revenue was also down 16% and net interest revenue was up 21%, reflecting higher interest rates and higher loan balances.

Wealth management client assets plummeted 17% to $256 billion marking two consecutive quarters of loss, while the segment's total client assets fell 23% to $1.78 trillion. BNY Chief Financial Officer Emily Portney said the decrease primarily reflects lower market values and the unfavorable impact of the stronger U.S. dollar as about 40% of the firm's AUM are denominated in foreign currencies, partially offset by cumulative net inflows.

"As it relates to flows in the quarter, we saw $23 billion of net inflows into long-term products and $2 billion of net outflows from cash. In investment management, revenue was down 20%," Portney said. "In wealth management, revenue was down 7% as the decline in fee revenue resulting from lower market values was partially offset by higher net interest revenue, reflecting higher interest rates."

Progress on digital assets

Following the formation of a digital assets unit in 2021, Vince said BNY's digital asset custody platform is now live in the U.S. He said the firm continues to see significant institutional demand for financial infrastructure built to accommodate both traditional and digital assets.

"And we see digital asset custody as an important foundational capability for the future of financial markets as blockchain technology allows for tokenization of all kinds of assets and currencies," Vince said during the earning's call. "But just to be clear, we did not invest in this space just for the purpose of custodying crypto. We see this as the beginning of a much broader journey."

From CEO-elect to just CEO

A series of C suite changes and transitions the firm was still working through during the previous quarter are now complete. Chief among them are Vince making the transition from CEO-elect to CEO just over a month ago, taking over for retiring CEO Todd Gibbons. The change was part of a succession plan announced in March.

"Now as a new CEO, and considering the current environment and it being the time of year when budgets and strategic plans are helpfully debated and brought together, naturally I'm using this opportunity to take a particularly close look at our priorities," Vince said during Monday's earnings call, according to a Seeking Alpha transcript. "While I'm still reviewing everything, it's apparent to me that while we've made good progress in a number of areas over the last couple of years, there are also clearly opportunities to further enhance BNY Mellon's performance for our clients and shareholders alike."