Good morning, ladies and gentlemen, and welcome to the Third Quarter 2013 Earnings Conference Call hosted by BNY Mellon. [Operator Instructions] Please note that this conference call webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY Mellon's consent. I will now turn the call over to Mr. Andy Clark. Mr. Clark, you may begin.

Thanks, Shirley, and welcome, everyone. With us today are Gerald Hassell, our Chairman and CEO; Todd Gibbons, our CFO, as well as our executive management team. Before we begin, let me remind you that our remarks today may include forward-looking statements. Actual results may differ materially from those indicated or implied by the forward-looking statements as a result of various factors. These factors include those identified in the cautionary statement in the press release and those identified in our documents filed with the SEC that are available on our website. Forward-looking statements in this call speak only as of today, October 16, 2013, and we will not update forward-looking statements. Our press release and earnings review are available on our website, and we will be using the earnings review to discuss our results. Now I'd like to turn the call over to Gerald. Gerald?

Thanks, Andy. Good morning, everyone, and thanks for joining us. As you saw from our release, for the third quarter, we reported earnings of $0.82 per share. Now this includes the benefit related to our recent favorable tax ruling, and after netting out this benefit, we had earnings of $0.60 per share. Now looking at how our business model performed, we believe we earned about $0.58 per share on a core operating basis. And Todd will take you through those numbers and how we get there. For the quarter, I see 3 key takeaways. First, we had strong year-over-year core fee revenue growth, reflecting our focus on driving organic growth, our ability to deliver enhanced solutions sets across our entire company and improved market conditions for most of our businesses. Second, we continue to exceed the goals of our operational excellence initiatives while making targeted investments to drive future growth. And finally, our businesses continue to be a strong generator of capital. And in fact, we generated more than $1 billion of capital this quarter. For the quarter, we had total revenues of $3.8 billion, which is up 3% over the third quarter of 2012. Investment Management business performance continues to be strong and resulted in the 16th consecutive quarter of net long-term inflows. Net long-term inflows were $32 billion in the quarter, for a total in excess of $100 billion over the last 12 months. We continue to have particular strength in the liability-driven investments, but we also enjoyed nice flows into more active asset classes which have a higher fee realization. Our success in attracting new assets helped drive our -- drive a 13% increase in assets under management year-over-year to a record $1.53 trillion. This organic growth, along with higher equity values, helped mitigate the pressure from…

Thanks, Gerald, and good morning, everyone. My comments will follow the quarterly earnings review and will start on Page 2. As Gerald noted, EPS was $0.82. That's $0.60 after excluding the benefit of that recent tax court decision. The $0.60 include the benefit of approximately $0.02 related to the sale of a property at one of our equity investments, so we see it as a $0.58 quarter. Looking at the numbers on a year-over-year basis, total revenue was $3.8 billion. That's up 3%. In our Investment Services businesses, we enjoyed growth in asset servicing, issuer and clearing. Investment management and performance fees continued their upward momentum. FX revenues, again, up strongly year-over-year. NIR increased, and expenses were up 4% on a non-GAAP basis. Turning to Page 4, where we call out some business metrics that help explain our underlying performance. You can see that AUM of $1.53 trillion was up 13% year-over-year and 7% sequentially. That was driven by net new business as well as the higher market values. During the quarter, we had net long-term inflows of $32 billion, benefiting from -- as Gerald said, from the strength in our liability-driven investments, but we also saw some movement into alternative investments, as well as active equity and index funds. Short-term inflows were $13 billion. Assets under custody and administration were up 4% year-over-year to $27.4 trillion, primarily reflecting the impact of improved market values and net new business. Linked-quarter, AUC/A was up 5% due to improved market values and also the impact of currency rates. Many of our key metrics showed good growth on a year-over-year basis. Most clearing metrics were up. Our estimated DARTS volume and average long-term mutual fund assets continued the recent strong growth trend. Average loans and deposits in wealth management and investment services were…

Great. Thanks, Todd, and I think we can now open it up for questions.

[Operator Instructions] And our first question comes from Betsy Graseck from Morgan Stanley.

Okay, so 2 questions. One is on the outlook for NII. Todd, you mentioned during this quarter that you were shortening the duration of the portfolio. And it's -- obviously, it didn't come through in the NIM, in part given the premium amortization reduction. But could you help us understand kind of pace or rate of change we should expect in the NIM given the actions you've taken on the portfolio?

Yes. I think, in the fourth quarter, you're likely to see NIR, given those actions and the rate of the amortization premium -- premium of the -- amortization of the premium. I would expect it to be somewhere in the range of what we saw in the second quarter, Betsy.

And so what's the duration of the securities portfolio right now? And what's the targeted duration? Maybe you could speak to the entire portfolio, not just the AFS or the HTM bucket separately.

Yes. The -- it's a little over 2. And we target the duration of the AFS to be in the 2 range. So we're pretty close to where we want to be.

Okay. And was it higher last quarter? Because I know you were trying to shorten duration.

Yes, it had gotten a bit higher when we saw the extension that came late in the second quarter, so we did sell out some securities. And then we just let some -- we didn't add aggressively to the portfolio in the third quarter, and that's why it's down, so we just let some securities burn off, a natural duration burn off.

Okay. And that's the AFS book, not the HTM book?

It includes both, but more directed to the AFS book.

Got it. Okay. Helpful. And then just second thing is on the buybacks. So I know you indicated that given market conditions, you'd be more likely to buy back more this quarter. I mean, obviously, your capital ratio is up significantly with earnings and the benefit of the court decision. But I guess I'm just honing in on your comment that market conditions may get more -- probably going to buy back stock this quarter. Are you just talking about seasonal weakness in the third quarter is what kept you from doing more buyback in 3Q?

Well, we're a little defensive around the AOCI issue, too, Betsy. And so until we got the portfolio better positioned so we had less volatility to our capital account, that made us a bit defensive, and then we had the good things at the end of the quarter play themselves out. And we're just in a much stronger position.

Next question comes from Alex Blostein with Goldman Sachs.

So just picking up on the last question. As you guys approach this year's CCAR exam, it feels like there's a lot more elements that you have to balance around and weigh in on. So maybe you can just talk broadly about how do you expect to approach this year's stress tests, and when it comes to the capital returns, should we still expect you guys to return more capital next year versus this year, either from the amount basis or as a percentage of earnings?

Well, Alex, we don't know what the stress test is yet. We -- our understanding is we'll get the instructions around November 1, what the actual environment would look like. But obviously, we've grown our capital, our ratios have improved, so we are well positioned to approach the stress test. But I think it's too early to say, and obviously, I wouldn't -- I can't -- there's no way I can talk about what our future actions would be, but we're certainly in as good a position as we were last year.

Yes, just to add to that, Alex. I think we feel very good about the strength of our capital and liquidity going into the stress test. We think the earnings are very solid. So we feel pretty good about our position. We'll wait to see what the parameters are at the stress test and then layer into it what capital actions we think are appropriate.

Great. And then on the core kind of asset services side of the business, I know that you mentioned there are some seasonal changes 2Q to 3Q. But I guess, if you look at it broadly, pretty good growth in assets under custody. And if you look at the servicing fees, even excluding securities lending, they were down sequentially, and the fee rate is also kind of down. So just -- can you help us just flesh out a little bit more, and is there any changes you see on the pricing front or is it just a seasonally slower activity quarter for you guys? I think that would be helpful.

Okay. Lots of questions in there, Alex. Maybe I can start and then turn it over to Tim. On a year-over-year basis, you can see that our assets under custody and administration are up about 4%, and our fees are also up about 4%. The third quarter was a bit of an anomaly, both in our AUM, and Curtis can talk to that, and AUC, because we saw a quarter where the dollar was stronger for most of the quarter and then weaker at quarter end. We saw fixed income prices down for most of the quarter, but then strengthening at quarter end, and, as you know, we're largely a fixed income shop. So I don't think -- I think you'll, from time to time, see these kind of anomalies on a quarter-to-quarter basis, so it's not necessarily reflective of the -- of what you might see in the fees. And -- well, Tim, why don't you do a little more -- do a deeper dive on the fees.

Yes, Alex, it's Tim. There are 3 things I'd point to worth mentioning on this call. One is we saw a pretty significant drop from second quarter to third quarter in out of pockets. These are the things that would come from our subcustody network and CSDs largely to support growth in handling corporate action activity in our network. The second thing, which we expected to see a seasonal drop in overall activity, I would say, across the board, whether you look at middle-office outsourcing, transfer agency or accounting, we saw an across-the-board drop in activity, a bit more, frankly, than I would have expected to see. And then we also saw redemptions. I didn't quite expect to see the level of redemptions that we saw third quarter over second quarter. I think if you would put all those things aside, I would have expected to see us flat to maybe up just slightly. And on your pricing question, it's still way hot at the high end, which is why we keep repricing the low end of our book. But the story I would maybe draw your attention to is around expenses. Both Gerald and Todd talked about this. You see expenses down for the quarter 3%. If you adjusted for the seasonality of DRs, you would have seen that our coverage ratio, so fees to expenses, actually improved by 0.5 points, despite increased fee waivers and soft sec lending. And then year-on-year, you see the expense story is, well, we continue to be very, very disciplined, and our operational expense initiatives are paying off. So a bit of an anomaly on the quarter-to-quarter drop, but we're razor-focused on operational excellence initiatives, and they're showing up in these results.

Got it. That's very helpful. And then could you just clarify the seasonal benefit in DR business this quarter, like how much was in that $322 million number?

Todd, you want to have it?

Yes. It's about -- sequentially, it's about $70 million. And the -- and just to give you a heads-up into the fourth quarter, that fourth quarter tends to be our weakest, so it can be even larger than that.

Our next question comes from Howard Chen with Crédit Suisse. Howard Chen - Crédit Suisse AG, Research Division: First, with the government shutdown and looming default, I was just hoping you could discuss 2 aspects of it: one, recent client behavior across the businesses; and two, what have you all been doing operationally prepare, maybe including from a balance sheet management perspective, or is it an important part of the tri-party repo market?

Sure. Howard, it's Gerald. Obviously, we're taking this very seriously, and we have a variety of contingency plans in place with a variety of different scenarios because we're not quite sure what may come out of Washington. And that being said, I think we're as well prepared as anyone going into this. Client activity, not surprisingly, we've seen some various money market funds and various clients get more defensive and put more into cash, so our balance sheet's up about $10 billion since quarter end. We are prepared to handle that. We've talked to clients about utilizing our balance sheet, at least on a short-term basis, to accommodate their needs. And so we're sort of acting business as usual as it relates to clients -- client activity. As every day goes by, more people are getting more defensive and liquefying more. No real impact on tri-party, per se. The market has been deleveraging for quite a period of time, and you're seeing what's happening in our tri-party balances. They've come down a little bit, but generally, holding pretty steady. So that's about it. Howard Chen - Crédit Suisse AG, Research Division: Great. And my follow-up is in the core Investment Management franchise. Flows have been excellent. You had another strong quarter of equity market tailwind. I guess we would have thought you might see a little bit more revenue growth in the core management fees from last quarter. I was hoping you could -- as you look deeper into the data, was that -- what do you see? And then could we get sort of a check on what investment performance is like for those strategy that generate year-end incentive fees?

Yes, absolutely. I think what Todd talked about earlier around assets under custody and some of the dynamics actually played out for us as well. So AUM, quarter-over-quarter, up 7%. Almost 3% of that came from the movement in FX. So a weaker dollar means our non-U.S. revenues -- non-U.S. AUM, I should say, were boosted by weak dollar, really, right at the end of the quarter. So we didn't -- we charge management fees primarily on an average FX rate. And the 7% number is actually a spot AUM comparison. So we didn't get, in this quarter, the benefit of the weaker dollar and what it does to the AUM or nondollar assets. Just to remind you, about 46% of our revenues are non-U.S. So it's pretty meaningful to know what's happening on the FX front. And then the remaining portion of the story really is about the AUM growth that we had in short-term assets and, more importantly, the overall impact from fee waivers. So this is the second-worst quarter we've had in terms of fee waivers. Very low fed funds rates and short-term market rates significantly depressed the management fee revenues in our business there. And so, I think that is really the -- those 2 really tell the story. I would tell you that the -- sort of the organic activities are pretty promising. We have, as you've pointed out, we've had good AUM growth. Todd and Gerald mentioned that, that has come from some of the lower-fee LDI-oriented products over the past several quarters. But in the third quarter, we actually began to see some of the confidence that I think the market was feeling earlier in the third quarter show up in our growth. We had good growth in active equity. We actually have…

Our next question comes from Luke Montgomery with Sanford Bernstein. Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division: So thinking about top line growth AUC, AUM -- actually, AUC. I was wondering if you might comment on the decision of one of your clients to appoint a shadow servicer, whether you think that could be an increasing trend going forward? And if so, what underpins that demand, and do you think there's a meaningful opportunity in it for BNY Mellon?

Yes, Tim, why don't you take that one.

Luke, Tim Keaney. Yes, we're watching the situation very carefully. This is a large hedge fund that's appointed us for their middle office. The reason why this is an interesting space for us, Luke, which we're watching very carefully, is the regulators are putting more and more pressure on clients that outsource activity to make sure that they lower the risk of their operations. That's happening in Europe first. It's also gaining traction here. And there are some companies that will look to provide or have shadow providers for contingency purposes. So that's what's happening. This is the first major hedge fund to do that. I think there's a lot of interest, and people are watching to see how this plays out between now and next May, June. I suspect we'll keep that on our radar screen. So it's unique. But I think it's a function of risk management and risk tolerances and the fact that the regulators are putting a lot of pressure on those that outsource activities to make sure that they've got good risk management plans. Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division: Great. And then just switching gears a little bit, a question on your philosophy for managing the securities portfolio. I think we often focus on top line revenue and yield, but I think there's an argument that the fixed income markets are relatively efficient and that the higher yields in the credit product are simply compensation for risk. And it also seems like most of the value in your balance sheet comes from the deposits. So I know these securities are mostly A-rated, but given what happened in 2008 and 2009, what's the justification for continuing to hold private-label MBS, CLOs, et cetera. I'm not making a judgment, but I would like to understand the philosophy better. It's something you guys debate internally or not?

Yes, Luke, we don't buy private label. Well, it's -- there's no production of it anymore. But we don't buy private-label MBS, and these are remnants from what we owned back in 2008. So if you look at the quality of our securities portfolio, it's primarily agencies, treasuries and other top-rated sovereigns. So it's extremely low risk. The legacy assets that we've chosen to continue to hold, we actually like their interest rate characteristics a lot because as rates have moved up, those things have performed very nicely, and they've held their value. So they were so depressed back in 2008 and '09. We elected -- we reviewed the portfolio very carefully. We sold about 30% of the portfolio, we retained the other securities and we're letting them burn off and act as a very nice interest rate hedge, and they've performed exactly as we hoped they would.

I would just add to it. It is our philosophy to run a very conservative investment portfolio. Our clients entrust their most precious assets with us as a custodian or as a trust organization or as an investment manager. We don't want to do anything that has the appearance that we don't have the capital strength and liquidity to be able to manage through any crisis or any cycle. And so our posture is to run a very conservative investment portfolio, short duration, high quality.

And that spills over into our loan book as well. So it's a very clean, high-quality loan book. Our philosophy is not a lot different than what you just said, to be a buyer of securities, we don't think it's creating too [indiscernible]. And perhaps if we were an originator, we might think of it otherwise.

The next question comes from Cynthia Mayer with Bank of America.

Apologies if you covered this, but it looks like in terms of the AUC, in the earnings release, you mentioned the increase attributed to higher market values and FX. And I'm just wondering, does this mean you didn't have net wins in the quarter? And just in general, how's your win-loss trend?

Tim, why don't you take that.

Okay. Pardon me. Yes, Cynthia, we had 3 things happen. We've -- obviously, currency and the market helped a lot in the 5% linked. We did have some new business convert during the quarter, about $145 billion. It didn't all convert in the beginning of the quarter, but I -- one point I made to an earlier question was around redemptions. We did see an awful lot of redemptions in the market that basically ate away what we did convert during the quarter. But just more broadly, to your point, it is a competitive environment. Pipeline in asset servicing year-on-year has grown substantially. It's up about a 30%. We pay very close attention to our win rate. That's been pretty steady on the last 4 quarters, a little over 50%. So I don't know if that directly answers your questions, but that's what I'd -- the way I'd describe it.

Yes, it does. And then you mentioned -- I think you mentioned core EPS at about $0.58. So I'm just wondering if you could just go through the -- what you exclude there and how you think about that versus the adjusted.

Yes, there's really only -- it's a pretty clean quarter. We had a little bit of unusual gains on the asset gains, and one of them was related to equity accounting. One of our minority interest sold a building, and the gain on that sales -- our percentage of that, our pro rata portion of that is in the P&L. That was about $0.02. The rest of it is pretty straightforward.

The next question comes from Ken Usdin with Jefferies.

First, just a couple of quick clean-up things. Can you tell us either what the premium amortization amount was or, at minimum, what the delta was sequentially?

Yes, the delta was about $25 million, Ken.

Is that a substantial reduction of what the overall carry is of it?

Yes, I mean, the way I look at it, that was probably a little more than 20% reduction in the amortization that we had seen in the previous quarter.

All right, that's helpful. And the accounting accretion was 55?

That's right, and that was about flat.

That was flat. Okay. And then my bigger-picture question is, you guys are doing a really good job on the cost containment and are obviously well ahead of the original plan that you guys had laid out. But I just wanted to ask you guys, just conceptually and structurally, where are we from here in terms of incremental cost reduction? And what initiatives are going on, given that we're still in this kind of so-so revenue environment, to either reduce or control the rate of expense growth from here, given that you're already kind of a low of your original plan, so to speak?

Yes, Ken, it's Gerald. Obviously, we have a philosophy of continuous improvement in our operations and technology areas. We talked, in terms of the opening comments, that we are working very diligently and very focused on simplifying our operating platforms and models. We think there's more upside to be had from that. We're finishing out sort of what I call the lifted shift in terms of labor movements. We're pretty -- we're towards the end of that. But we do see a lot of upside still to be had in continuous improvement in the operating and technology areas. So you'll hear more about that as time goes on.

Your next question comes from Glenn Schorr with ISI.

So I heard your comments loud and clear on leverage ratio before. But I'm curious, is it about 1/3 of the balance sheet is sitting in deposits with banks or deposits with the Fed? Is that one of the big primary sources of your confidence that if and when you need to adjust, you can adjust? And then just a follow-on to that is, is how else did the leverage ratio focus make its way -- impact from a business standpoint? Because from a balance sheet standpoint, it looks like you have the flexibility.

Yes. I mean, I think there's a number of things that we can do. We actually, on that big balance sheet right now, we've consolidated some asset management funds, which the accounting is likely to change, and we'd be able to deconsolidate that before these go into effect. The other thing, as you've pointed out as well, that a lot of those are central bank deposits and cash. And we would think, Glenn, just in the normal course, we are sitting on an awful lot of balance sheets -- awful lot of balances because of the very unusual interest rate scenario that we're in right now. And we would expect at least $50 billion or so of that to be reduced just in a more normalized interest rate world. And then we are -- even if we continue to pay out at the same levels that we pay out, we're also creating quite a bit of capital. And we can also manage the balance sheet more tightly in a number of places, including we make some loans out of the holding company. We don't need to do that. So there's tens and even twenties of billions of dollars of things that we can do outside of just the normalization. So we don't see any business model action that we need to take. We think that during the normal course, it will work through it. It's also -- and we don't know what the final rules are going to be, so there is some possibility they could change in our favor or not, and we will adjust to them as we need to.

Okay. I appreciate that. I agree with that. Last one is just on LDI. I mean, it seems like Insight is doing great, looking at $93 billion total inflows for the year-to-date so far. I'm just curious what percentage is LDI? What's the average fee rate? What are the type of clients that they're landing? Because those are pretty long-dated mandates, right?

Yes, they are. I mean, I think it's a very important trend to understand and -- in the big debate about the great rotation, that this -- in the top of everybody's mind, I think it really is important to understand the accounting changes that have happened in the pension industry, and that will start to also take place for public funds after June of next year, where volatility in pension plans is less welcome. And so there are a lot of pension plans globally, both corporate and public, that are focused on being able to manage against their liability stream. And Insight is the world leader in being able to help those plans with that. The fees as well as the mandates -- because the liability is fixed income in nature, a lot of the fees are oriented more towards fixed income-type fees that are lower fees in general on an absolute basis, but as you pointed out, the size of the mandates are very large. So as rates go up, actually, it becomes easier for pension plans to address their managing against their liability and as they become more funded. So again, I would tell you that we're very excited about the business. One of our initiatives is to -- we've actually invested in helping Insight grow its business in the U.S. and in Asia. They have been primarily focused in the U.K. and also growing in Europe. And so really excited about what they're doing there. And I would also say, is their products extend. When you have the ability to evaluate liability streams and hedge them very effectively and manage portfolio through assets that are outperforming liability, those are a lot of the same skills that are broadly needed by a larger group of clients in the absolute return space, where we think a lot of clients are growing, everyone from wealth clients to other institutions that are just simply looking for less volatility, but still trying to get some return on their investment portfolio. So very excited about it and think they have a great future, as many of our other investment firms do as well.

Shirley, we have time for one more question.

Your final question, then, comes from Gerard Cassidy with RBC.

Can you guys come back to the planning that you're doing with the government problems that we're having and tell us, do you guys own many short-term T-bills that may be maturing in the next 15 to 30 days?

Yes. Todd can talk to the -- our ownership.

Yes, we have very few, but we do have a little bit that mature within this year, probably in the $60 million range or so.

Okay. And then second, over the years, you guys have done a number of acquisitions. Obviously, you haven't done anything materially recently. Do you get the sense, aside from market conditions as maybe the reason nothing has happened in the custody world in terms of acquisitions, but do you get a sense that the regulators are more or less supportive of banks your size going out and making sizable acquisitions?

Well, let me put it this way, Gerard. I think we have so much opportunity internally to invest in our existing businesses that our operations and technology platforms is not a high priority. And we think we can get a much better return on investments in our own businesses and our own products and services, that we have so much on our plate right now and so much in motion right now that I think is a much better return to our shareholders, even considering what you're suggesting. So I don't want to comment on the regulatory part. It's really a matter of our choice to invest in ourselves.

So we have -- Gerard, we have done a couple of small things and we have done something at asset management, where we closed on our German JV, where we had a partial ownership of it, and then we owned all of it. And we took Pershing international a little bit more, too, in some of the -- in our strategy. So we've done some fill-in things, but I don't think we believe we need to do anything major, certainly not in the asset servicing space.

Thank you very much, everyone, for dialing in. We really appreciate it, and you can contact Andy Clark for further follow-ups.

Thank you. For any additional questions or comments, you may contact Mr. Andy Clark at (212) 635-1803. Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for your participation.