The Bank of New York Mellon Corporation (BK) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary indicates strong financial performance with a 15% increase in net interest income and stable expense management. Positive guidance for 2026, including a 5% revenue growth target and improved pretax margins, suggests optimism. Despite a slight decline in investment and wealth management revenue, the company's strategic focus on AI and tokenized deposits indicates future growth potential. The Q&A session reinforced resilience and strategic agility, while planned capital returns of 95%-105% are favorable. Overall, the sentiment is positive, likely leading to a stock price increase of 2% to 8%.

Key Financial Performance

Net Income Record net income of $5.3 billion, an increase year-over-year. Reasons for the increase include strong financial performance and strategic execution.

Revenue Record revenue of $20.1 billion, up 8% year-over-year. Growth driven by net new business, higher market values, and client activity.

Return on Tangible Common Equity 26%, an improvement year-over-year. This was driven by positive operating leverage and improved profitability.

Operating Leverage 507 basis points of positive operating leverage on a reported basis and 411 basis points excluding notable items. This was achieved through revenue growth and controlled expense growth.

Earnings Per Share (EPS) $7.40, up 28% year-over-year. Growth attributed to strong revenue performance and capital returns to shareholders.

Capital Returned to Shareholders $5 billion through common dividends and share repurchases, reflecting strong financial performance.

Total Revenue (Q4) $5.2 billion, up 7% year-over-year. Growth driven by fee revenue and net interest income.

Fee Revenue (Q4) Up 5% year-over-year, driven by investment services fees and higher client activity.

Net Interest Income (Q4) Increased by 13% year-over-year, driven by reinvestment of maturing securities at higher yields and balance sheet growth.

Expenses (Q4) $3.4 billion, flat year-over-year on a reported basis. Excluding notable items, expenses were up 4% due to investments, employee merit increases, and the weaker dollar.

Assets Under Custody/Administration (AUC/A) $59.3 trillion, up 14% year-over-year. Growth driven by client inflows, higher market values, and a weaker U.S. dollar.

Assets Under Management (AUM) $2.2 trillion, up 7% year-over-year. Growth driven by higher market values and a weaker dollar, partially offset by net outflows.

Pretax Margin (Q4) 36% on a reported basis and 37% excluding notable items, reflecting improved profitability.

Earnings Per Share (Q4) $2.02, up 31% year-over-year. Excluding notable items, EPS was $2.08, up 21%.

Net Interest Income (Full Year) Up 15% year-over-year, driven by reinvestment of maturing securities at higher yields and balance sheet growth.

Expenses (Full Year) $13.1 billion, up 3% year-over-year. Increase due to investments, employee merit increases, and the weaker dollar, partially offset by efficiency savings.

Pretax Margin (Full Year) 35% on a reported basis and 36% excluding notable items, reflecting strong financial performance.

Tier 1 Leverage Ratio 6%, down 9 basis points sequentially due to deposit growth and capital returns.

Common Equity Tier 1 (CET1) Ratio 11.9%, up 17 basis points sequentially, driven by earnings and accumulated other comprehensive income.

Security Services Revenue $2.5 billion, up 7% year-over-year. Growth driven by higher client activity and market values.

Market and Wealth Services Revenue $1.8 billion, up 8% year-over-year. Growth driven by investment services fees and net interest income.

Investment and Wealth Management Revenue $854 million, down 2% year-over-year. Decline due to mix of AUM flows and lower performance fees.

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Operating Highlights

Digital Asset Custody: BNY became the first U.S. G-SIB to offer digital asset custody, showcasing its focus on connecting traditional and digital asset worlds.

Dreyfus Stablecoin Reserves Fund: Launched a government money market fund to support stablecoin issuers and institutional participants in managing eligible reserve assets.

Tokenized AAA CLO Strategy: Introduced a strategy in partnership with Securitize to bring high-rated structured credit products onto the blockchain.

On-chain Mirrored Deposits: Enabled on-chain mirrored representation of client deposit balances on its digital assets platform.

WisdomTree Partnership: Selected as the banking-as-a-service provider for WisdomTree Prime platform, integrating banking, payments, custody, and digital assets.

Jupiter Partnership: Chosen by Jupiter for a suite of capabilities from investment operations to custody, streamlining their operating platform.

Japan's Government Pension Investment Fund: Selected BNY to deliver integrated data and analytics for private markets, enhancing transparency and decision-making.

AI Adoption: Significant advances in AI with the enterprise AI platform, Eliza, and collaborations with Google Cloud and OpenAI to enhance workflows and research capabilities.

Platform Operating Model: Transitioned 70% of workforce into the platform's operating model, improving agility and client delivery.

Efficiency Improvements: Investments in digitization and automation reduced costs for processes like NAV striking and trade settlement.

Commercial Model: Implemented a new commercial model to deepen client relationships and increase cross-selling, resulting in record sales performance.

Strategic Roadmap: Shifted to the next phase of its multiyear transformation, focusing on scaling and growth opportunities.

Cultural Transformation: Fostered a culture of ownership, teamwork, and accountability to drive operational and strategic success.

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Risk or Challenges

Market Conditions: The company faces challenges from deposit margin compression and sensitivity to interest rates, which could impact revenue growth in varying macroeconomic environments.

Competitive Pressures: The company is under pressure to maintain its market-leading positions in areas like custody, collateral management, and issuer services, while also competing in the growing digital asset and AI-driven financial services markets.

Regulatory Hurdles: The company must navigate evolving regulatory requirements, particularly in areas like digital assets and financial market infrastructure, which could increase compliance costs and operational complexity.

Supply Chain Disruptions: Not explicitly mentioned in the transcript.

Economic Uncertainties: The company is exposed to macroeconomic factors such as market volatility, currency fluctuations, and changes in interest rates, which could affect client activity and revenue.

Strategic Execution Risks: The company faces risks in executing its multiyear transformation strategy, including the adoption of AI and the integration of new technologies like blockchain, which require significant investment and operational changes.

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Guidance & Outlook

Revenue Growth: Total revenue is expected to grow by approximately 5% year-over-year in 2026, market dependent.

Expense Growth: Expenses are planned to grow by approximately 3% to 4% year-over-year in 2026, excluding notable items.

Positive Operating Leverage: The company aims for more than 100 basis points of positive operating leverage in 2026.

Tax Rate: The quarterly tax rate is expected to be approximately 23% in 2026, with a tax benefit anticipated in the first quarter due to the annual vesting of stock awards.

Medium-Term Financial Targets: The pretax margin target has been increased to 38%, and the return on tangible common equity target has been raised to 28%.

Capital Management: The Tier 1 leverage ratio management target remains at 5.5% to 6%, with a conservative approach to the upper end of the range for the foreseeable future.

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Shareholder Return Plan

Total capital returned to shareholders: $5 billion through common dividends and share repurchases in 2025

Common dividends: Part of the $5 billion returned to shareholders

Dividend payout ratio: Not explicitly mentioned, but dividends were part of the $5 billion returned

Share repurchases: Part of the $5 billion returned to shareholders in 2025

Total payout ratio: 100% in the fourth quarter of 2025, including share repurchases and dividends

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Key Q&A

Q:What are the assumptions underpinning the revenue growth outlook and fees for 2026?

A:The guidance for 2026 is a 5% year-on-year top-line revenue growth. Net interest income (NII) is expected to grow slightly ahead of 5%, while fees may grow slightly below 5%. December was a particularly strong month for NII, which serves as a good jumping-off point.

Q:How does BNY plan to defend margins and ROTCE targets if the revenue growth environment worsens?

A:BNY has created agility in its expense base, allowing adjustments in business development expenses, compensation, and investment work. The company has positioned its platforms to reduce macro sensitivity and has diversified revenue streams across equity market values, fixed income, payments, and other areas to ensure resilience.

Q:How does AI and digital employees factor into BNY's new hire targets and cost savings?

A:BNY views AI as a transformational technology and has launched an AI Hub and enterprise AI platform, Eliza. While AI is expected to unlock capacity and increase revenues, it is not yet a significant factor in headcount reduction. The focus is on growing with clients and optimizing employee potential rather than immediate cost savings.

Q:What is the outlook for pretax margin improvement across BNY's business lines?

A:BNY has increased its medium-term targets for pretax margin from 33% to 38% and ROTCE from 23% to 28%. Securities Services and Asset Servicing have shown significant improvement, while Investment and Wealth Management is expected to see the most opportunity for growth in 2026 and beyond.

Q:What is the outlook for NII growth and deposit balances in 2026?

A:NII is expected to grow slightly above 5%, with balances remaining roughly flat throughout 2026. The growth will come from assets rolling off into higher-yielding securities, while Q4 is typically the strongest quarter for balances.

Q:What is the demand and monetization approach for BNY's tokenized deposit capabilities?

A:BNY sees tokenized deposits as part of the broader digital asset opportunity, improving cash utilization and enabling programmable money. The focus is on serving both digital-native and traditional clients, with potential for increased client activity and efficiency gains.

Q:What is the growth outlook for the Clearance and Collateral Management business?

A:The growth rate is expected to be more modest compared to previous years, with opportunities in international markets and new products. Treasury clearing mandates and stable U.S. treasury issuance will influence growth.

Q:What is the organic fee revenue growth outlook for 2026 and beyond?

A:BNY expects organic fee growth to accelerate, supported by deeper client relationships and new product development. The company has seen a 64% increase in clients buying from three or more lines of business over the last three years.

Q:What are BNY's capital return plans for 2026?

A:BNY plans to maintain a Tier 1 leverage ratio in the 6% range and return 95%-105% of earnings to shareholders. The buyback percentage will depend on overall financial performance and market conditions.

Q:What is the outlook for inorganic growth and acquisitions?

A:BNY is open to acquisitions that align with strategic priorities and offer strong financial returns. However, the company is focused on organic growth and does not feel pressured to pursue M&A.

Q:Review of Unclear Management Responses

A:Management avoided providing specific numerical details on the expected number of AI digital employees in the next 3-5 years and the associated cost savings. Additionally, they did not provide a precise breakdown of the percentage of clients using three or more lines of business or specific targets for this metric in the medium term.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

BK Transcript

The Bank of New York Mellon Corporation (BK) Q4 2025 Earnings Call Transcript

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The earnings call shows mixed signals. Strong revenue growth in Securities Services and Market and Wealth Services is positive, but a decline in Investment and Wealth Management revenue is concerning. Management's optimistic guidance on new client wins and digital assets is offset by vague responses and a lack of clear metrics. The commitment to shareholder returns is positive, but the uncertain impact of market conditions and expenses tempers enthusiasm. Overall, the sentiment is neutral due to balanced positives and negatives, with no clear catalyst for a strong stock price movement.

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