Pershing's net new assets dropped 82% in 2023

Pershing's net new assets dropped 82% in 2023 due to First Republic

January 16, 2024 6:27 PM

Despite client exits that tore a nearly $100 billion hole in Pershing's inflows last year, the profits of its unit of parent company BNY Mellon helped buoy the megabank's business.

In BNY Mellon's Jan. 12 earnings statement for the fourth quarter, the giant New York-based custodian disclosed substantial "lost business" that it offset by generating higher revenue across Pershing. However, the outgoing wealth management arm of the shuttered First Republic Bank after its takeover by JPMorgan Chase pushed Pershing's net new assets under custody or administration down into the negative for the last period of 2023 after the firm reeled in $23 billion in the third quarter. The company sustained even higher outflows in the second quarter after JPMorgan acquired the collapsed firm's wealth division.

Regardless, Pershing and the rest of the Market and Wealth Services business segment of BNY Mellon raked in pretax operating profit margins at a healthy 45% clip for 2023. BNY Mellon is investing in more capabilities for the unit such as Wove, an advisory software platform that the Pershing X technology wing of the custodian launched last year, noted Robin Vince, the megabank's CEO, in a call with analysts last week. The company expects to make $30 million to $40 million in additional revenue this year through the Wove platform.

"In our Market and Wealth Services business, which has a margin that, frankly, we're quite happy with and you haven't heard us talk about growing that margin. We really want to grow that business at that margin, and that's our focus there," Vince said, according to a transcript by investing website Seeking Alpha. "That's where we built Wove, is in that business."

To see the main takeaways for financial advisors from the fourth quarter for Pershing and BNY Mellon's Investment and Wealth Management segment, scroll down the slideshow. For coverage of those units in the third quarter, click here. For that of the second quarter, click here. And, to see analysis of the megabank's overall earnings from Financial Planning sister publication American Banker, follow this link.

Pershing assets under custody or administration

Pershing, which unveiled a renewal of its clearing and custody agreement with longtime client Northwestern Mutual last week, will keep moving First Republic accounts over to JPMorgan based on the buyer's preferred timeline.

"According to the firm, a regional banking client continues to deconvert and it expects this to be a headwind to net new assets over the next several quarters," spokesman Ryan Wells said in a statement.

Net new assets tumbled by $46 billion year over year to an outflow of $4 billion in the fourth quarter. For the year, incoming custodial client holdings fell by 82%, or $99 billion, compared to 2022. First Republic, M&A deals in which the seller moved to the vendors used by their new parent, and several recruiting wins by rivals providing outsourced services to the wealth management arms of big banks and insurers dealt blows to Pershing's business last year.

Still, the better year for stocks and bonds and client account activity in 2023 after a slump in the prior year helped Pershing regain some of the lost ground. Average active clearing accounts rose 6% for the year to 7.95 million and assets under custody or administration jumped 9% to $2.5 trillion.

Investment and Wealth Management profits

The higher asset values in 2023 sent the income for the wealth and fund unit of BNY Mellon soaring. The segment's pretax profit expanded by 694% from a year earlier to $381 million.

Even though the raw profit number increased significantly, BNY Mellon is eyeing much higher margins than the 12% for 2023, according to prepared remarks by Chief Financial Officer Dermot McDonogh.

"Our plan is to improve the segment margin to 25% or higher over the medium term on the back of a combination of growth and efficiency initiatives," he said, according to the Seeking Alpha transcript. "First, we're unlocking BNY Mellon's distribution power for the benefit of our investment firms and our clients. Most importantly, we're in the process of creating a firmwide distribution platform that combines enhanced products with offerings from select third-party managers to provide best-in-class solutions. Additionally, we're making enhancements to how we're offering Dreyfus Cash products across our enterprise-wide open architecture liquidity ecosystem to improve visibility and enhance platform share. Second, we're expanding our products and solutions with a focus on scaling our investment capabilities across Investment Management, Wealth Management and Pershing."

Remark

As the No. 1 clearing firm for broker-dealers and a top-three custodian for registered investment advisory firms, Pershing represents the second biggest business line across BNY Mellon's entire business, McDonogh noted.

The company is "capturing business from existing clients and new opportunities to deliver the platform, data and investment solutions" through Wove while benefiting "from a strong position in one of the fastest-growing segments in financial services, i.e., the U.S. wealth market," McDonogh said. "Notwithstanding near-term headwinds from the events of 2023, we are confident that our investments in the core platforms and client experience will drive further market-share gains in the attractive market segments up to growing $1 billion-plus RIAs and hybrid broker-dealers."

Pershing's net new assets dropped 82% in 2023 due to First Republic

Pershing assets under custody or administration

Investment and Wealth Management client assets

Pershing revenue

Investment and Wealth Management profits

Remark