Pershing Q2 revenue rises on lower money-market waivers

Pershing launches ‘self-directed’ service for big government client

July 19, 2022 3:10 PM

Investors poured fewer dollars into Pershing amid falling stocks and rising interest rates, but the giant custodian launched a new retirement tool for a major government client.

BNY Mellon’s Pershing and its Asset Servicing unit started “what is essentially a self-directed vehicle” enabling up to six million retirement plan participants to choose among some 5,000 funds, incoming BNY CEO Robin Vince said in a July 15 earnings call with analysts about its second-quarter earnings. Vince, leading his first earnings call ahead of retiring CEO Todd Gibbons’ exit at the end of next month, described the client as “a large government agency.”

Representatives for the firm declined to state the name of the agency or whether the government entity is a new or existing relationship with Pershing at the local, state or federal level. The new service opened on June 1.

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Net new assets for the quarter came in $2 billion below the first quarter's amount and behind their record pace of a year ago, when strong stock returns and a change in the firm’s calculation formula boosted flows. Vince cited the new retirement tool as an example of the firm’s strong pipeline and two units of BNY working in tandem.

“Although the revenue, hopefully, will be interesting, the really interesting thing there is how they came together,” Vince told analysts, according to a transcript from Seeking Alpha. “And I think it is different than maybe the way it would have been a few years ago.”

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. To see where the firm stood at the end of 2021, 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.

M&A and personnel shakeups

The firm is navigating through a series of C-suite changes and other transitions. After naming Vince the CEO-elect in a succession plan announced in March, BNY Mellon agreed in May to sell European credit and private debt manager BNY Alcentra Group Holdings to Franklin Templeton for $350 million in cash and up to $350 million more in performance contingencies. Earlier this month, the firm appointed Goldman Sachs executive Dermot McDonogh as chief financial officer. Current CFO Emily Portney will shift to running BNY’s Treasury Services, Credit Services and Clearance & Collateral Management divisions at the end of next January.

Pershing assets

Losses to stock values and the exits of major clients due to M&A deals last year combined to push down the custodian’s assets under custody or administration. That’s despite Pershing having a larger number of active clearing accounts than the same time a year ago. Assets under custody or administration tumbled by 21% to $2.2 trillion, while the amount of accounts ticked up by 2% to 7.4 million. Pershing added $16 billion in net new assets for the quarter.

Pershing revenue

The custodian’s investment services fees climbed 9% year over year to $479 million in the second quarter, helping to push up Pershing’s quarterly revenue by 8% to $636 million. Lost business from client departures last year only partially offset the impact of larger transaction volumes and much lower levels of money-market fee waivers tied to rising interest rates. Since Pershing won’t have to reimburse clients as much for low rates, the custodian saved $70 million off the cost of the waivers in the second quarter of the previous year.

Wealth and asset management assets

Falling stock values tore a hole in client assets managed by BNY Mellon’s wealth and asset management unit as well. Wealth management client assets dropped 13% to $264 billion, while the segment’s total client assets fell 17% to $1.9 trillion. The unit sustained a net outflow of $12 billion for the quarter, compared to an in-flow of $25 billion in the year-ago period.

Wealth and asset management earnings

The unit’s income before taxes declined by 36% to $208 million, with investment management revenue slipping 14% to $603 million and wealth management business decreasing by 1% to $296 million. A stronger U.S. dollar hurt the unit’s results as well. Higher net interest revenue and lower money market fee waivers offset some of the losses, though.

Remark

Despite the economic turmoil, capital markets “continue to function in an orderly fashion,” Vince said in prepared remarks on the call. “What we're seeing across our platforms is that investors are clearly rebalancing and de-risking,” he added. “We're seeing asset reallocation from growth to value, higher than expected cash balances, and relatively shallow market liquidity, making it harder for investors to move risk.”