Mystery client helped spike Pershing's revenue

Pershing revenue 4/22/20
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The economic fallout from the coronavirus pandemic is hurting revenue and earnings across wealth management. But some firms — BNY Mellon Pershing, for one — have boosted business.

The clearinghouse and custodian is raking in much more ticket charges on the massive trading prompted by the volatility and uncertainty in equity values during the pandemic. And there’s another, much more mysterious, source of increased revenue.

A “one-time breakage fee related to a potential client” helped push up Pershing’s revenue by 16% year-over-year to $653 million from $561 million in the first quarter, BNY Mellon CFO Mike Santomassimo said April 16 on an earnings call with analysts.

A Pershing spokeswoman said the company wouldn’t provide any information regarding the fee, apart from what was stated on the earnings call.

While only warranting a brief mention on the call, this breakage fee (which one analyst described as a “client-termination fee”) made an impact on the top line.

The fee, trading revenue and new client assets and accounts resulted in revenue growth of $92 million above the year-ago period for Pershing, according to BNY Mellon’s quarterly earnings statement.

The identity of the potential client remains a mystery — as do the circumstances that prompted the breakup fee.

“To be honest — I’ve never heard of anything like this,“ says Larry Roth, the former CEO of advisor networks Cetera and Advisor Group who now runs a consulting agency. He added: “Clearing arrangements that are in effect contain penalties if the firm were to exit or change clearing firms prior to the end of the contract.…But this sounds like it was someone who wasn't yet a client.”

Roth suggested that Pershing could have been negotiating something that fell through, but said that there was really no way to know for sure. Since BNY Mellon doesn’t break out any of Pershing’s revenue metrics, the size of the breakage fee wasn’t immediately clear.

Six analysts who cover BNY Mellon either declined to comment or didn’t respond to a request for an interview. Deutsche Bank’s Brian Bedell and J.P. Morgan’s Vivek Juneja did mention the client termination fee in their research.

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The volume of trades is certainly rising for Pershing in the pandemic-triggered recession. The number of transactions soared from typical levels in the first quarter, BNY Mellon CEO Todd Gibbons said on the earnings call.

“Pershing did quite well through the crisis, so it was able to keep its technology up and running and accommodate the surge in the growth, which in some instances we point out was three times to four times,” he said.

Processing transactions drives much of Pershing’s revenue. The firm also introduced two new pricing models for clients in its RIA division in early March.

Pershing will lose a brokerage client in the second quarter when portfolio management software firm Motif shuts its doors. Motif is transferring its accounts to Folio, a self-clearing broker-dealer, according to a letter reviewed by RIAIntel.

Pershing has been serving as the clearing firm for Motif, its website states.

The firm has more than 1,300 client firms with $2 trillion in assets on its clearing platform, which services both broker-dealers and RIAs.

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Clearinghouses/custodians BNY Mellon Pershing RIAs Earnings Fee-based compensation Volatility Independent BDs