BNY Mellon's Pershing business rose in 2022 with interest rates

Pershing adds State Farm, BNY Mellon stays bullish on crypto tech

January 18, 2023 2:22 PM

Count megabank BNY Mellon among the incumbents staying the course in cryptocurrency technology despite the collapse of the FTX exchange and plunging digital asset values.

In prepared remarks on a on Jan. 13 call with analysts after giant custodian Pershing and its parent company released their fourth-quarter earnings, BNY Mellon CEO Robin Vince identified "real-time payments" and "the reimagining of custody and collateral and digital assets" as two longer-term growth initiatives showing promise.

Vince also praised Pershing for "two very exciting wins" announced in the fourth quarter, in the form of new custodial relationships with insurance firm State Farm and a fintech startup called Arta Finance. That incoming business contrasted with the reports last week that BNY will cut 1,500 jobs this year, or about 3% of its employee ranks. It's not clear whether any of those roles will come from Pershing, and the company didn't immediately respond to requests for comment.

The megabank remains bullish on the tech underlying Bitcoin, Ethereum and other cryptocurrency, Vince said in his remarks. He noted that its U.S. digital asset custody platform launched in October and cited his comments in a recent op-ed in the Financial Times.

"This will continue to be a focus for us, not so much for crypto but really the broader opportunity that exists across digital assets and distributed ledger technology," Vince said, according to a transcript by Insider Monkey Transcripts. "If anything, the recent events in the crypto market only further highlight the need for trusted, regulated providers in the digital asset space."

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Wealth management

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

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To see the most interesting takeaways for financial advisors from Pershing and parent company BNY Mellon's earnings in the fourth quarter, scroll down the slideshow. For coverage of the firms' third-quarter earnings, click here. And to see where the companies stood halfway through 2022, follow this link.

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.

New Pershing clients

Representatives for Pershing and State Farm didn't immediately respond to a request for any additional specific metrics relating to the size of the firms' clearing and custody relationship. While known as a major provider of auto and home insurance, State Farm Insurance has a brokerage and a registered investment advisor that listed more than $10.8 billion in client assets in its latest SEC Form ADV disclosure. In his remarks, Vince cited State Farm's "thousands of agents across the country serving tens of millions of households."

As for Arta Finance, Pershing will act as the clearing broker and custodian to the fintech startup, as well as offering credit lines to the firm's clients, Reuters reported in November.

Arta was "founded by a team of former Google executives who are now leading a global digital family office that uses advanced technologies to empower investors with tools to invest intelligently," Vince said. "This win is an important proof point of our proven set of APIs and digital capabilities and demonstrates our ability to win with tech-forward clients."

Pershing assets under custody or administration

Slumping stocks and bonds pushed down the value of the assets under Pershing's care, with a dropoff of 12% to $2.3 trillion of holdings under custody or administration by the end of 2022. For the year, Pershing added $121 billion in net new assets, which was still $40 billion below the amount it picked up in 2021. Average active clearing accounts rose 3% to 7,483.

Investment and Wealth Management client assets

Falling stock and bond values cut the amount of assets in BNY's asset and wealth management arm as well. Assets under management for the unit tumbled by 25% year over year to $1.84 trillion, while client assets in the firm's wealth division slipped 16% to $269 billion. A cumulative inflow of $18 billion for the year came in $84 billion below the level of incoming assets to BNY's Investment and Wealth Management segment in 2021.

Despite the challenges of "a difficult environment for the wealth market" in 2022, BNY's wealth arm acquired more ultrahigh net worth and family office clients and deepened existing customer relationships, Vince said. The share of advisory clients who also bank with BNY increased by 5 percentage points during the year.

Pershing revenue

BNY doesn't break out Pershing's specific profit, but the custodian's revenue jumped by double digits thanks to the impact of rising interest rates. Pershing's expenses from fee waivers compensating clients for the previously low rates dropped to zero in the fourth quarter and $116 million for the year, which is $227 million below what it paid in 2021.

Additional incoming fees from client cash sweep accounts and net interest revenue tied to the rates more than offset the losses from stock values and the departure of some custodial relationships, according to the firm. Pershing's revenue surged 10% year over year to $2.54 billion in 2022. For the entire Market and Wealth Services segment at BNY Mellon, pretax income grew by 10% as well to reach $2.34 billion.

Investment and Wealth Management profits

The asset and wealth management arms sustained a significant decline in business last year, reflecting the lower stock and bond values compared to the end of 2021. For the year, the unit earned pretax income of $48 million on revenue of $3.55 billion, for a margin of 1%. Profits sank 96%, revenue plunged 12% and the margin plummeted by 29 percentage points.

1,500 efficiency ideas

BNY is focusing on its goals of finding efficiencies and "reinvigorating profitable growth" across its businesses, Vince said. He cited Pershing as one unit already marked by "particularly healthy growth," but the company seeks to find more expansion and expense cuts with the help of some 1,500 "high-quality ideas" that Vince said his team solicited from senior leaders and employees around the world. He noted that he's in the fifth month of his tenure since taking the reins from Todd Gibbons last year.

Out of the crop of ideas, BNY has implemented 200 and expects to complete another 500 by the end of the year. The megabank expects to double its efficiency savings from previous years through the program, which Vince noted is "requiring little upfront investment" from the firm.

"No one knows the ins and outs of our products, services and processes better than our people," he said, according to the transcript by Insider Monkey Transcripts. "And so all of our staff have had the opportunity to take an active role in this initiative by submitting ideas for how we can run the company in a better way for all our stakeholders."