Professional Documents
Culture Documents
Disclaimer
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<1>
Table of Contents
I.
Executive Summary
II.
Business Opportunities
<2>
I. Executive Summary
<3>
Executive Summary
1. BNY Mellon has a good franchise in what has been a good business
2. But the world has changed...
i.
ii.
<4>
Executive Summary
New Leadership Will Have Numerous Opportunities For Improvement:
1. Reconsider Value Proposition to Core Investment Servicing Customers
2. Raise IT Effectiveness to Top Company Priority
3. Reduce Headcount Aggressively
4. Reposition Asset Management
5. Establish Culture of Effectiveness, Urgency, and Accountability
6. Upgrade Regulatory Sophistication and Outreach
7. Refresh the Bank of New York Brand
Successful execution against this plan will produce a more powerful franchise with
higher growth, a more efficient expense base, higher returns on capital, and a
market value that is more than double the current price
<5>
<6>
BNY Mellon,
19%
State Street,
22%
Other, 30%
Other, 37%
State Street,
14%
JP Morgan,
22%
IFDS, 6%
BNP Paribas,
6%
Citi, 10%
JP Morgan,
14%
HSBC, 9%
BNY Mellon,
11%
~$30 trillion market
Source: Company filings, Marcato estimates, Wall Street and third-party research
Note: Estimated as of March 31, 2014
<7>
Large providers can leverage economies of scale to deliver custody services at significantly
lower costs than small competitors
Custody involves large fixed costs to build out each processing service for the first customer
of that service
Preference to centralize back office with a single custody bank provider to maintain
centralized oversight of operations
Customers build their back-office infrastructure around the custodian
Significant time and resources required to establish a custodial service relationship (3 month
on-boarding process)
Low customer attrition with average asset servicing relationships greater than a decade
Legally enforceable multiyear service contracts
Mission critical services at a small price in relation to the assets of its clients (.01% of assets)
<8>
Traditional
Business Process
Outsourcer
Asset Custodian
Specialization In Non-core
Processes
Yes
Yes
Fixed-to-Variable Cost
Conversion
Yes
Yes
Yes
Yes
Technology-Based
Solutions
Yes
Yes
Differentiation Through
Service Quality
Yes
Yes
Multi-year Contracts
Yes
Yes
<9>
$13,000
$12,342
Net interest
revenue
19%
Other
3%
$11,897
Asset
management
fees
26%
-8%
+62%
$10,000
FX volatility
-10%
$7,000
Investment
servicing
fees
52%
+6%
Securities
lending spreads
and volumes
$4,000
2007
2008
Securities servicing
Other
< 10 >
+5%
+4%
+5%
+3%
+8%
+9%
$900
$800
$730
$700
$600
$600
$494
$500
$393
$400
$300
$273
$221
$200
$100
$0
1990
1995
2000
2005
Developing
2010
2015
2020
Advanced
Source: Bain & Company: A World Awash in Money: Capital Trends Through 2020
< 11 >
37%
23%
21%
32%
34%
1%
2%
44%
44%
2009
2010
18%
17%
18%
18%
32%
38%
37%
35%
2%
2%
2%
43%
43%
45%
2012
2013
2014
31%
70%
60%
30%
50%
40%
30%
1%
32%
1%
2%
20%
38%
48%
29%
10%
0%
2007
2008
2011
Securities
Loans
< 12 >
2008
2009
2010
2011
BK
BAC
WFC
2012
JPM
2013
2014
8%
5%
11%
3%
11%
2%
6%
5%
5%
6%
6%
5%
6%
4%
87%
86%
87%
89%
89%
89%
90%
2008
2009
2010
2012
2013
2014
80%
60%
40%
20%
0%
AAA / AA-
2011
A+ / A-
Other
< 13 >
90%
82%
79%
81%
81%
77%
77%
$350
80%
70%
$300
60%
Total Deposits
60%
$250
$222
$234
50%
$192
$200
$160
$150
$100
$132
$88
$92
$34
$141
$66
$73
40%
$58
$35
30%
$36
$22
$50
$70
$92
$98
$104
2008
2009
2010
$125
$134
$152
$161
20%
72%
10%
2007
Interest-bearing deposits
2011
Noninterest-bearing deposits
2012
2013
2014
< 14 >
$250
$223
$199
$200
$208
$207
$218
$192
$169
$140 $145
$150
$120
$132
$100
$54
$53
$61
$57
$50
< 15 >
Consolidation of
certain investment
management
funds(1)
10.5%
8.5%
6.5%
4.5%
2.5%
0.5%
1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14
(1) Reflects methodology revision implemented in June 30, 2014 that consolidates assets of certain investment management funds in risk-weighted assets. Basel III capital ratios are
shown from 1Q14 onwards
< 16 >
< 17 >
< 18 >
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
0.50%
< 19 >
$5,000
$3,950
$4,000
$3,000
$2,904
$2,000
$1,000
NIM %
Average Fed Funds Rate %
Incremental EPS @ 27% tax rate
(x) P/E
Incremental Value Per Share
LQA
2017E
(1)
FFER +25bps/qtr (2Q15 - 2017)
91 bps
9 bps
138 bps
213 bps
$0.74
15.0x
$11.07
2017E
(2)
"Fed Dots" Average
170 bps
302 bps
$1.40
15.0x
$20.95
Note: Assumes $55bn of excess deposits (midpoint of $40 - $70bn Company guidance) and 3.5% CAGR on normalized interest-earning assets
(1)
Assumes midpoint of 2014 Investor Day NIM guidance(125bps 150bps)
(2)
September 17, 2014 FOMC projection materials. Assumes ~1.7% NIM rate at 3% FFER
< 20 >
Impact on current net interest revenue over the next 12 months based on a quarterly 25 bps
increase in global interest rates over the next four quarters (Company internal estimates)
$149
$2,433
6.1%
$326
$2,942
11.1%
< 21 >
FX Volatility
25
350
TED Spread
250
200
150
Averages:
2001 Present: 42
2001 2007: 36
2009 Present: 30
100
~25
50
0
300
20
15
10
< 22 >
Source: 4/8/14 Analyst Day, 9/4/14 Barclays Global Financial Services Conference
< 23 >
Past
Present
Future
< 24 >
Key Implications
Supplementary Leverage
Ratio (SLR)
Basel III
Higher capital ratios, more onerous capital definitions and riskweightings, less leverage, capital penalties for size, complexity
and interconnectedness
Resolution Plans
Higher Compliance
Expenses
< 25 >
SLR
15.0%
LCR
8.0%
150%
125%
12.0%
6.0%
6.0%
9.8%
9.0%
8.5%
6.0%
0.5%
US G-SIB(1)
1.0%
B3 G-SIB
Surcharge(2)
2.5%
Capital
Cons.
Buffer
109%
1.0%
Well-Capitalized
Buffer
2.0%
Enhanced SLR
Buffer
100%
100%
4.4%
4.0%
75%
50%
2.0%
3.0%
4.5%
BK @ 4Q14
3.0%
B3
Minimum
Projected
Regulatory
SLR
Minimum
25%
BK @ 4Q14
Projected
Regulatory
BK
(3)
Projected
Regulatory
< 26 >
Business Lines
Geographical Mix
Asset Mix
Labor Mix
< 27 >
< 28 >
< 29 >
< 30 >
Core
(1)
Revenues
Actual
Results
Without
Alleged
Synergies(3)
4%
6%
Core
(2)
Expenses
10%
4%
Core
(1)
Revenues
2%
8%
12%
16%
20%
24%
15%
Core
(2)
Expenses
17%
4%
8%
12%
16%
20%
24%
< 31 >
93%
92%
91%
90%
89%
88%
87%
85%
80%
77%
75%
70%
2008A
2009A
2010A
2011A
2012A
2013A
2014A
< 32 >
55,000
50,300
50,000
$15.0
45,000
$14.0
$14.6
$14.0
41,200
40,000
$13.0
35,000
$12.0
30,000
$11.0
25,000
$10.0
2007
2014
2007
(1)
2014
< 33 >
Two Custody
Platforms
Five Accounting
Platforms
Major Redundancies
- Back office headcount
- Systems maintenance
- Application development
- Reporting costs
One of the things that is really setting us apart [from our competitors] post-transformation is the
fact that we do have one global platform...When we spend dollars to build the future
functionality, we do it once. And then we leverage it across the world. If you have six accounting
platforms and you were doing a regulatory change six times, thats 1/6 the IT efficiency
- Gunjan Kedia, State Street EVP, 2/25/15
And I think Ive mentioned about the challenges with the merger & acquisitions is we have so
many different fragmented technology in various businesses and various products...I think the
nature of the acquisitions have resulted in lots of fragmentation of technology
- Suresh Kumar, BNY Mellon CTO, 3/13/13
The traditional approach for any of these acquisitions is steeped in the thesis that youll see
more synergies the more simplified your back end, and the more common systems you share,
especially those that benefit from scale. Thats been time-tested in the trust banking business
- Tim Keaney, Former BNY Mellon CEO Investment Services, 2010(1)
Source: Company filings, Company transcript, HBS Case Study
(1) Harvard Business School Case Study: Merger of Equals: The Integration of Mellon Financial and The Bank of New York
< 34 >
2007
2008
2009
Portsmouth
Financial Systems
2010
2011
BHF Asset
Servicing
Broker-Dealer
2012
2013
2014
Mellon Financial has not been fully integrated seven years after the acquisition
Source: Company filings, CapitalIQ
Note: Cutwater Asset Management acquisition announced in October 2014 and closed in January 2015
< 35 >
< 36 >
$2.96
$3.00
$2.52
$2.50
$2.42
$2.49
$2.00
'14A
$2.56
'14A
$2.56
2014 (@7%)
2014 (@11%)
$1.50
$1.00
Source: BNY Mellon Investor Day 11/14/11
2011A
2012A
2013A
< 37 >
ROE
Gap
9.0%
9.0%
8.8%
8.5%
8.3%
8.1%
8.0%
7.5%
7.0%
2011
2012
2013
2014
< 38 >
Return on Equity(2)
150
12.0%
132
11.0%
125
118
104 105
100 100
103
10.3%
10.5%
10.0%
106
9.8%
10.0%
100
9.0%
8.8%
9.0%
8.3%
75
8.1%
8.0%
7.0%
50
2011
2012
2013
(1)
(2)
2014
BK
2011
STT
2012
2013
2014
Adjusted for amortization of intangibles, acquisition and restructuring costs and other one-time items
Reflects State Street ROE adjusted for extraordinary losses and BK non-GAAP ROE %
< 39 >
150
140
134
130
120
118
110
107
106
100
90
2011
2012
S&P 500 Index
FTSE 100 Index
BNY Mellon LTM EPS
2013
2014
< 40 >
< 41 >
15%
12%
11%
7%
5%
3%
(1%)
2%
Revenue (1)
Expenses, net
(2)
(3)
Expenses, gross
< 42 >
60,000
Investment Managers
Implied Headcount (Asset Manager + Asset Servicer)
Asset Managers
50,300
50,000
Vanguard
30,000
27,470
Asset
Servicers
Total Employees
40,000
~27,000
JPM
(1)
(TSS)
BLK
Capital
JPM
BEN
Group
GIM (2)
PIMCO
41,200
39,200
36,266
34,000
32,700
29,490
STT
(IS)
41,670
39,670
36,736
34,470
33,170
29,960
6,264
5,870
5,700
3,100
~2,500
2,490
1,435
STT
(Inv. Mgmt.)
PIMCO
FII
$2,480
$1,680
20,000
~14,200
12,200
9,266
10,000
~7,000
BK
AUC/A ($tn)
AUM ($bn)
$29
$1,710
STT
(Inv. Serv.)
JPM
(1)
(TSS)
$28
$21
Vanguard
BLK
BEN
Capital Group
IVZ
TROW
$3,100
$4,652
$898
$1,147
$792
$747
JPM
LM
(Global Inv. Mgmt.)
$1,744
$709
$363
< 43 >
Employee Inefficiency
BKs ever-deepening gap of core revenues / average employee in comparison to State
Street show significant increasing employee inefficiency
Core Revenue / Average Employee(1)
$0.400
$0.370
$0.340
$0.310
$0.280
$0.250
2009
2010
2011
2012
BK
2013
2014
STT
< 44 >
104%
105%
103%
Indexed Headcount
100%
96%
95%
94%
93%
90%
85%
80%
78%
75%
1Q11
2Q11
BNY Mellon
3Q11
4Q11
1Q12
State Street
2Q12
3Q12
4Q12
1Q13
(1)
2Q13
3Q13
Bank of America
4Q13
1Q14
Goldman Sachs
2Q14
3Q14
4Q14
Citigroup
< 45 >
4.3%
4.0%
2.9%
3.0%
2.6%
2.0%
1.1%
1.0%
BK
JPM
STT
BAC
GS
BLK
< 46 >
33.0%
31.0%
+2%
-5%
-3%
29.0%
27.0%
25.0%
4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
BK
STT
< 47 >
< 48 >
$1,720
$1,500
$1,300
$1,100
$1,294
$1,138
$1,219
$1,415
$1,176
$1,348
$1,125
$1,167
$1,479
$1,226
$1,201
$1,231
$1,216
$1,284
$1,118
$1,273
$900
$700
$706
$1,016
$639
$982
$524
$595
$500
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
BK
2Q13
STT
3Q13
$1,133 $1,141
$1,031
4Q13
1Q14
$529
2Q14
3Q14
$536
4Q14
$100
$80
$76
$89
$83
$60
$59
$53
$58
$95
$84
$76
$56
$48
$42
$40
$23
$20
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
< 49 >
17%
16%
14%
12%
11%
10%
8%
6%
4%
2%
(1) LTM 3Q11 FY14 total growth. Reflects BKs reported asset servicing fees less securities lending revenues within Investment Services segment. Reflects STTs reported servicing fee
revenues which excludes securities finance revenues
< 50 >
131%
130%
130%
126%
120%
115%
110%
100%
90%
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
BK
1Q13
STT
2Q13
NTRS
3Q13
JPM
4Q13
1Q14
2Q14
3Q14
4Q14
< 51 >
160%
152%
152%
150%
148%
144%
140%
130%
120%
110%
100%
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
BK
STT
2Q13
NTRS
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
JPM
< 52 >
139%
140%
130%
120%
113%
110%
105%
103%
100%
90%
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
BK
STT
2Q13
NTRS
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
JPM
< 53 >
1.16%
1.15%
1.08%
1.10%
1.05%
1.00%
0.97%
0.95%
0.90%
1
45.0%
40.0%
33.6%
28.4%
30.0%
20.0%
10.0%
< 54 >
3.00%
2.97%
2.82%
2.88%
2.44%
2.50%
2.22%
2.00%
1.70%
2.20%
1.82%
1.79%
1.69%
1.14%
1.33%
1.26%
1.00%
1.83%
1.79%
1.59%
1.52%
1.50%
1.91%
1.45%
1.42%
1.42%
0.84%
0.50%
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
BK
4Q13
1Q14
2Q14
3Q14
4Q14
STT
< 55 >
< 56 >
12/11/13 GS Conference
3 5%
3 5%
3.5% 4.5%
Expense
CAGR
2 3%
~3 4 %
~4%(1)
EPS
CAGR
7 11%
7 9%
Despite rhetoric about moving faster and with a greater sense of speed
and urgency, new targets imply business as usual
Source: 11/14/11 Investor Day, 12/11/13 GS Conference, 10/28/14 Investor Day
(1) Per Marcato estimates, see slide 62
< 57 >
No New Ideas
25%
25%
22%
20 - 22%
20%
20%
18%
18%
17 -19%
15%
10%
2011
2012
2013
9/30/14
2014
2017
Flat
2017
Normalized
< 58 >
Indexed Expense $
120
118
114
115
110
110
105
102
100 100
100
95
90
85
80
2012
2013
2014
Software
Professional, Legal and Other Purchased Services
Source: 10/28/14 Investor Day, Company filings
< 59 >
3Q14
2014
Earnings
Earnings
Investor Day
GAAP revenue
(-/+) Gain (loss) on assets / investments
(-) Investment and other income
(-/+) Net securities gains (losses)
(-) Minority interest of cons. inv. mgmt. funds
(-) Accretable discount
(+) Fully-taxed equivalent adjustment
Adj. Revenue
GAAP Expenses
(-) M&I, restructuring
(-) Amortization
(-) Charge related to i-mgmt funds
Adj. Expenses
Source: Company transcripts, 2Q14 Earnings Release, 3Q14 Earnings Release, 10/28/14 Investor Day
< 60 >
Commentary
3.00%
2.50%
245 bps
1.20%
176 bps
0.80%
1.50%
0.60%
1.00%
0.40%
0.50%
As presented
107 bps
1.00%
2.00%
Results
14 bps
78 bps
77 bps
58 bps
0.20%
10 bps
Operating Leverage
Operating Leverage
Margin Expansion
Method 1
Margin Expansion
Method 2
< 61 >
2015E
$15,450
4%
2016E
$16,068
4%
'14A - '17E
2017E CAGR
4%
$16,711
4%
(163)
(91)
62
(84)
$14,580
(145)
(91)
62
(70)
$15,206
4%
(120)
(91)
62
(70)
$15,849
4%
(100)
(91)
62
(70)
$16,512
4%
($10,645)
($10,991)
3%
($11,451)
4%
($11,924)
4%
4%
$3,935
163
91
$4,215
145
91
$4,398
120
91
$4,588
100
91
5%
(-) FTE
(+) Minority interest
(+/-) Provision for credit losses
(-) Intangible amortization
Pretax Income
(-) Taxes @ 27%
Net Income
(-) Minority interest
(-) Preferred dividends
(-) Participating securities
Net Income to common
(/) FD shares outstanding
Diluted EPS
% growth
(62)
84
48
(298)
$3,961
(1,038)
$2,923
(84)
(73)
(43)
$2,723
1,137
$2.39
(62)
70
(10)
(268)
$4,181
(1,129)
$3,052
(70)
(73)
(43)
$2,866
1,109
$2.59
8%
(62)
70
(10)
(240)
$4,367
(1,179)
$3,188
(70)
(73)
(43)
$3,002
1,075
$2.79
8%
(62)
70
(10)
(216)
$4,561
(1,231)
$3,329
(70)
(73)
(43)
$3,143
1,042
$3.02
8%
Revenue
% growth
(-) Accretable discount
(-) Net securities gains
(+) FTE
(-) Minority interest
Core Revenue
% growth
Core Expense (implied)
% growth
4%
(10%)
5%
4%
5%
(3%)
8%
< 62 >
2014A
2015E
2016E
2017E
CAGR
"FLAT SCENARIO":
Revenue
11,153
3,546
7,398 $
7,607
Revenue
11,645
4,189
7,455
6,996 $
7,195 $
3.5%
5.0%
2.8%
"NORMALIZED SCENARIO":
6,996 $
7,162 $
7,316 $
5.0%
11.0%
2.1%
< 63 >
2014A
$3,961
(1,130)
(104)
779
298
$3,804
($1,116)
($2,794)
($106)
2015E
$4,167
(450)
268
$3,985
($1,216)
9%
($2,934)
5%
($165)
55%
2016E
$4,353
(450)
240
$4,143
($1,326)
9%
($3,080)
5%
($264)
60%
'14E - '17E
2017E CAGR
5%
$4,546
(450)
216
4%
$4,312
($1,445)
9%
Segment guidance
9%
($3,234)
5%
Segment guidance
5%
51%
($368)
40%
Source: 10/28/14 Investor Day, Bloomberg consensus estimates, Marcato estimates, Management guidance
(1)
See page 62 for implied PTI at 8% EPS CAGR
< 64 >
Investment Servicing
< 65 >
2014
($74)
(111)
($185)
2015
($39)
(135)
($175)
2016
(11)
($11)
2017
$44
145
$189
2018
$94
150
$244
2019
$99
155
$255
2013
2014
2015
2016
2017
2018
2019
($100)
($200)
($300)
($400)
($500)
($600)
Source: 10/28/14 Investor Day, 1/17/14 4Q13 Earnings Day Transcript, Marcato estimates
Note: 2013 total investment based on management commentary that 1 2% of 2013 expense growth was due to reinvestment in growth initiatives
< 66 >
2.
BK derives a greater mix of revenue from faster-growing asset management business lines
3.
BK has greater breadth of capabilities that should drive superior growth from cross-selling
(State Street targets 4 5% revenue CAGR from cross-selling(1))
Long-term Guidance: Normalized Organic Revenue Growth
12%
9%
7% - 10%
6% - 8%
6%
3%
0%
BK
STT
< 67 >
$5,500
$431
$5,000
$374
$82
At least $500mm
Pg. 66 2014 Investor Day
$4,561
$500
$4,500
($787)
$4,000
$3,961
$3,500
$3,000
2014 PTI
"Transformation
"Initiatives",
Process"
"Strategic Platform"
Incremental
amortization of
intangibles
Organic growth @
3.5% CAGR,
constant margin
[Gap]
< 68 >
Conclusion
< 69 >
< 70 >
Treasury Services
1
1
1
1
1
1
Indexed to 2012
2012
Treasury Services(1)
Revenue
2013
Asset Servicing(1)
Indexed to 2012
+ 5%
2014
+ 8%
Revenue
1
1
1
2012
2013
2014
Indexed to 2012
Adjusted(2)
Actual
+ 7%
+ 2%
1
1
1
2012
2013
2014
< 71 >
Noninterest Expense(1)
UNLIKELY
$2,573 $12,177
$385
$10,170
$10,379
($123) ($120)
($176)
$104
($636)
2010
2010A 2014A
Shareowner
Services sale
GIS, BHF
M&A
(2)
PF 2010
Amort.
Intangible
Cost
Synergies
(3)
2014
(4)
$ Net Expense
~$400mm
~$1.8bn
% Net Expense
~2%
~17%
(5)
(5)
< 72 >
(1)
2014A 2017E
$ Net Expense
-$2.8bn
+$1.3bn
% Net Expense
-12%
+12%
< 73 >
No Secret Playbook: better results come down to Managements intent and capacity to EXECUTE
Source: 2/24/15 JP Morgan Investor Day, Company filings
< 74 >
Medium-term Targets
CAGR(2)
J.P.
Morgan
Chase
Revenue
~12%
Pretax
Income
~20%
CAGR(3)
BNY
Mellon
2014 momentum
LT AUM
+11%
(-1%)
+13%
(-1%)
Revenue
+1%
(-4%)
+5%
(-3%)
Pretax Income(1)
-1%
(-6%)
+6%
(-2%)
Pretax margin(1)
28%
(-1%)
28%
(-1%)
Revenue
8% - 10%
Pretax
Income
12% - 14%
Source: 2/24/15 JP Morgan Investor Day, 10/28/14 BNY Mellon Investor Day, Company filings
(1) Adjusted for amortization of intangibles
(2) Based on 2015 Investor Day targets of $15bn of revenue and $5bn of pretax income by 2016
(3) Based on 2015-2017 financial goals under normalized rates
< 75 >
< 76 >
< 77 >
< 78 >
The principles that will rejuvenate BNY Mellon are common sense:
Vision
Competitive
Advantage
Clear Metrics
First Class
Management
Execution
< 79 >
Vision
1. BNY Mellon will be the bank for the worlds asset managers
Custody
Investment Services
Financing
Risk Management
2. BNY Mellon will be a leader in Wealth Management
Intermediate between the best active managers in the world and high net
worth clients
Provide the best, low cost beta investment products for clients
3. BNY Mellon will excel in managing the most efficient balance sheet in the industry
Balancing return, with risk, with regulatory requirements
Far more complex in the post-crises world
4. BNY Mellon must win the technology race in finance
Creativity, innovation, and production per technologist must be the best in
the industry
Use technology to capitalize on scale
5. BNY Mellon must be the markets safe harbor
< 80 >
BNY Mellon must deliver the lowest cost platform for the
asset management business
Integrated
Solutions
Global
Presence
< 81 >
Clear Metrics
Returns on
Equity
Headcount
< 82 >
Execution
Clear Targets
Systematic
Measurement
Continuous
Review
Rewards &
Consequences
< 83 >
B. Business Opportunities
< 84 >
Full-Service
Back
Office
Middle
Office
Risk management
Performance analytics
Valuation
Trade and settlement activity
Real-time, detailed data analytics
Front
Office
Risk platforms
Clearing platforms
Compliance platforms
< 85 >
35%
30%
30%
25%
20%
15%
8.6%
15.0%
17.5%
20.0%
22.5%
25.0%
27.5%
30.0%
8.0%
6.9%
6.8%
6.7%
6.6%
6.5%
6.5%
6.4%
8.5%
7.4%
7.3%
7.2%
7.1%
7.0%
6.9%
6.9%
9.0%
8.0%
7.8%
7.6%
7.5%
7.4%
7.4%
7.3%
9.5%
8.5%
8.3%
8.1%
8.0%
7.9%
7.8%
7.8%
10.0%
9.0%
8.8%
8.6%
8.5%
8.4%
8.3%
8.2%
9%
10%
5%
< 86 >
20%
15%
15-20%
15-20%
Global ETFs
Asia-Pacific
10%
8-9%
5-6%
5%
4-5%
5%
5%
3-4%
0%
BK 2017 Targets
US Insurance
US Endowments US Foundations
US Retirement
Market
Global Market
US Alternatives
(HF / PE)
< 87 >
< 88 >
< 89 >
Employees
Clients
Competitors(1)
Five Accounting
Platforms
Major Redundancies
- Back office headcount
- Systems maintenance
- Application development
- Reporting costs
Upgrade your tech and bring your business processes and products into the 21st century.
The competition is selling cars while BNY is proud of the fact that it sells the cheapest and
fastest horse drawn buggy in town. Banking is not a labor intensive business yet BNY has
managed to turn it into one via underinvestment in tech and revenue generating
professionals
Bank of New York Mellon are letting themselves down with the continuing lack of merger
in their systems
BNYM continue to struggle with service differentials driven by their multiple platforms
custody and accounting
Theyre going to get to a point when it becomes hard to catch up with us just because
our future functionality is just 6x faster
< 90 >
Labor
Technology
Inflationary
Deflationary
Medium
High
Scalability
Not Scalable
Scalable
Operational Risk
High
(Human Error)
Medium
(Straight-Through Processing)
< 91 >
9.4x
9.0x
8.0x
1x reduction = ~0.40 of
potential incremental EPS(1)
7.0x
6.0x
5.0x
4.2x
4.0x
3.0x
2.0x
1.0x
< 92 >
BUSINESS IMPACT
Compensation Expense
Headcount
Cloud-Enabled Apps
Data Centers
Software Expense
Purchased Services
Shared Services
Returns
ERP Systems
Custody Platforms
Operational Risk
< 93 >
60,000
Investment Managers
Implied Headcount (Asset Manager + Asset Servicer)
Asset Managers
50,300
50,000
Total Employees
40,000
30,000
27,470
~27,000
BLK
Capital
JPM
BEN
Group
GIM (2)
PIMCO
Asset
Servicers
Vanguard
JPM
(TSS)
41,200
39,200
36,266
34,000
32,700
29,490
STT
(IS)
41,670
39,670
36,736
34,470
33,170
29,960
~7,000
6,264
5,870
5,700
3,100
~2,500
2,490
1,435
STT
(Inv. Mgmt.)
PIMCO
FII
$2,480
$1,680
20,000
~14,200
12,200
9,266
10,000
BK
AUC/A ($tn)
AUM ($bn)
$29
$1,710
STT
(Inv. Serv.)
JPM
(1)
(TSS)
$28
$21
Vanguard
BLK
BEN
Capital Group
IVZ
TROW
$3,100
$4,652
$898
$1,147
$792
$747
JPM
LM
(Global Inv. Mgmt.)
$1,744
$709
$363
< 94 >
51,100
50,300
50,000
50,300
49,500
50,000
48,700
48,000
48,000
~10,000
45,000
46,000
~40,000
40,000
44,000
42,500
42,200
35,000
42,000
40,000
2008
2009
2010
2011
2012
2013
2014
30,000
BK
Benchmarking Target
< 95 >
Company
%
Reduction
Period
(Yrs.)
Date
Historical Restructurings
Apple
Xerox
Credit Suisse First Boston
IBM
Merck
Starbucks
Heinz
Legg Mason
Lockheed Martin
10,896
94,600
27,547
301,542
100,000
176,000
41,000
3,550
140,000
4,238
33,500
8,959
81,703
24,000
39,000
8,000
571
17,000
38.9%
35.4%
32.5%
27.1%
24.0%
22.2%
19.5%
16.1%
12.1%
~
~
~
~
~
~
~
~
~
2
4
2
2
4
2
2
2
2
1997 - 1998
2000 - 2003
2002 - 2003
1993 - 1994
2010 - 2013
2008 - 2010
2006 - 2007
2011 - 2012
2010 - 2011
Current Restructurings
Canadian Pacific
Barclays (Investment Bank)
Bank of America
Microsoft
UBS
Hewlett Packard
Valeant
Royal Bank of Scotland
19,500
26,000
284,000
128,000
62,628
331,800
18,000
141,000
6,000
7,000
46,000
18,000
8,628
41,000
2,250
14,000
30.8%
26.9%
16.2%
14.1%
13.8%
12.4%
12.5%
9.9%
N/A
N/A
N/A
N/A
~3
~3
N/A
~4
2012 - 2016E
2014E - TBU
2010 - TBU
2014E - TBU
2013 - 2015E
2012 - 2014E
2013 - TBU
2015 - 2019
< 96 >
BUSINESS IMPACT
< 97 >
< 98 >
$10.0
$5.0
$4.9
$3.8 $4.3
$3.3
$2.6 $3.0
$5.5
$6.3
$7.1
$8.0
$8.9
$12.5
$11.1
$10.0
'12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25
Index Mutual Funds
ETFs
Source: Bernstein Asset Managers: Manic About Organic Blackbook 1/27/14, Blackrock 6/17/14 Analyst Day, WisdomTree Investments 11/20/14 Analyst Presentation
< 99 >
$993
$800
$600
$417
$400
$389
$104
$200
$54
$49
$41
$35
$27
$27
ProShares
First Trust
iShares
State Street
Vanguard
PowerShares db x-trackers
Lyxor
Unit Economics
Index / ETF products carry the highest contribution margins of nearly all investment strategy
Source: Bernstein Asset Managers: Manic About Organic Blackbook 1/27/14, Blackrock 6/17/14 Analyst Day
BK Competencies
BK Competencies
Product Development
Portfolio Management
Index Calculation
Broker-Dealer Functions
Strong: Orientation
$200
$186
$180
$160
$140
$120
$100
$80
Weak: Orientation
$62
$60
$40
$24
$11
$20
LDI
Index
Active
Alternatives
ALIGNED INCENTIVES
+ Zero-based budgeting
BELIEF SYSTEMS
LOW-COST OPERATIONS
Final
SLR
SLR
SLR
LCR
LCR
LCR
LCR
Source: Company transcripts, 1/31/14 Liquidity Coverage Ratio Memo, 6/13/14 Regulatory Capital Rules Memo
Capabilities
Risk analytics platform
Operations outsourcing
End-to-end investment system
Financial
Markets
Advisory
BNY
$28.5
Source: bnymellon.com
2
$1.7
trillion assets
under management
100
markets across
the globe
7:1
6:1
1:1
Source: Google trend report compiling news articles and public search of each company name in Jan 2015
3
Source: Google trend report compiling news articles and public search of each term over the last 9 years.
4
Source: Google trend report compiling news articles and public search of each term over the last 9 years.
5
Source: Google trend report compiling news articles and public search of each term over the last 9 years.
6
Source: bnymellon.com
7
big
custodian
traditional rational old
confused venerable
boring unchanging
stale Hamilton
Source: Most common words used by our sample to describe BNY Mellon today. Bigger words were
mentioned more frequently.
10
JP Morgan Chase
Citigroup
BNY Mellon
12
13
14
In order to succeed,
BNY must immediately
reconsider its
marketing and services
offering in order to
build a brand for the
future.
Digital technology is
transforming the financialservices industry, and
banks face the challenge of
fully digitizing their
businesses.
Source: McKinsey and Associates, How winning banks refocus their IT budgets for digital
CMO Council Marketing Spend Factsheet 2013
16
OUR SOLUTION:
BNY has remained traditional as
other banks embraced calculated
risks to move forward.
17
COMBAT CURRENT
PRECONCEPTIONS OF
THE BRAND THROUGH
BRAND ACTIONS.
18
Magazine
Televison
SEO
Public Relations
19
PRINT EXECUTIONS:
20
DIGITAL BILLBOARDS:
21
Magazine
Televison
Responsive Brand
Digital, Mobile & Tools
SEO
Public Relations
Brand Social
& CRM
22
DIGITAL TAKEOVERS:
23
MOBILE APPLICATION:
24
Magazine
Televison
Responsive Brand
Digital, Mobile & Tools
SEO
Public Relations
Brand Social
& CRM
25
New Tools
Develop
programs that
gives the press
& our target
audience the
proof that BNY
Mellon has
truly evolved.
26
DESIRED RESULT
Thank You
APPENDIX
29
RATIONAL
EMOTIONAL
30
RATIONAL
EMOTIONAL
31
RATIONAL
EMOTIONAL
32
RATIONAL
EMOTIONAL
Apple is a friendly
face in a cold
technology landscape.
33
SOCIAL
WE BELIEVE
actions like these,
communicated to the public, will
cause a reappraisal of BNY Mellon.
FROM
EXPERIENTIAL
CORE
BEHAVIOR
PRPR
CONSUMER
Consumer
ENGAGEMENT
engagement
PLATFORM
platfor m
COMMUNICATIONS
Ad
CAMPAIGN
Campaign
DIGITAL
TO
TRADITIONAL
ADVERTISING
ADVOCACY
34
Reflections on Change
And what's interesting, when you promote people into new jobs or bring in new
talent from outside, how you get increasingly different insights into how we operate
our business. Adding these people and promoting these people are making us a
better company. They're raising the bar in terms of the excellence that we expect of
ourselves and we expect of our staff. And it is in fact permeating the entire
organization. As new people come in with new ideas and raise the expectations, it's
helping us better perform as a company.
- Gerald Hassell, CEO
10/28/14 Investor Day
CEO
CFO
CTO
Consolidate mutant IT systems and platforms that have proliferated over time
Cull unproductive projects; manage, measure and prioritize technology initiatives
Drive automation initiatives that increase employee productivity
Leadership Tenure
Nearly the entire Senior Management team has worked at BNY Mellon for 25+ years
@ BNY Mellon
Executive
Gerald Hassell
Title
CEO
Start Year
1973
Tenure (yrs.)
42
Todd Gibbons
CFO
1986
29
Suresh Kumar
CTO
1986
29
Karen Peetz
President
1998
17
Brian Shea
1983
32
Kurt Woetzel
1985
30
Curtis Arledge
2010
Average
26 yrs
Median
29 yrs
Executive #2
Executive #3
Regulatory credibility
Emerging markets expertise
Shareholder credibility
~10,000
$5,845
$0.115
$1,148
$942
$1,339
$610
$1,031
$3,922
$196
EPS Impact
Excess Staff Expense Savings
Other OpEx Savings
Total Pre-Tax Savings
Incremental Net Income
Fully Diluted Shares Outstanding (FY15)
$1,148
196
$1,344
$981
1,107
EPS Benefit
Assumed P/E
Value Creation Per Share
$0.89
15.0 x
$13.30
LCR Ratio %
Target LCR Ratio %
Excess HQLA ($bn)
$164
$151
109%
100%
$13
HQLA Yield
Non-HQLA Yield
0.7%
1.4%
$182
$133
1,107
EPS Benefit
Assumed P/E
Value Creation Per Share
$0.12
15.0 x
$1.80
2015
$2,915
$736
(981)
(150)
133
2016
$3,450
$981
(200)
205
2017
$3,876
$981
(225)
267
($262)
$986
$1,023
$2,652
$3,633
75%
100%
$4,437
$4,437
100%
$4,899
$4,899
100%
SQ FDSO
(-) Incremental total shares repurchased(2)
PF FDSO
1,107
1,107
1,073
(18)
1,055
1,035
(33)
1,002
SQ Cash EPS
PF Cash EPS (ex. Restructuring)
$2.63
$3.28
$3.22
$4.21
$3.75
$4.89
EPS Benefit
$0.65
$0.99
$1.14
P/E Multiple
15.0x
15.0x
15.0x
$9.74
25%
$14.83
38%
$17.14
44%
2015
SQ Cash EPS (LTM)
(+) Expense efficiencies & NIM yields
(+) Improved growth profile(1)
PF Cash EPS (LTM)
P/E Multiple
Value Per Share
(+) Cumulative DPS
Adj. Value Per Share
% Premium to Current
$2.63
0.65
0.10
$3.39
15.0x
$50.78
$0.74
$51.52
32%
2016
$3.22
0.99
0.25
$4.45
15.0x
$66.82
$2.08
$68.90
76%
2017
$3.75
1.14
0.45
$5.34
15.0x
$80.05
$3.68
$83.73
114%