Good morning, and welcome to the Fourth Quarter Earnings Conference Call hosted by BNY Mellon. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. 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. Scott Freidenrich. You may begin.

Thank you. Good morning and welcome to the BNY Mellon's fourth quarter 2018 earnings conference call. This morning BNY Mellon released its results for the fourth quarter of 2018. The earnings press release and a financial highlights presentation to accompany this teleconference are both available on our website at bnymellon.com. Charlie Scharf, BNY Mellon's Chairman and Chief Executive Officer will lead this morning's conference call. Also making prepared remarks on the call this morning is Mike Santomassimo, BNY Mellon's Chief Financial Officer. Following Mike's prepared remarks, there will be a Q&A session. Before we begin, please note that our remarks today may include forward-looking statements. Actual results may differ materially from those indicated or implied by our forward-looking statements as a result of various factors, including those identified in the cautionary statement in the earnings press release, the financial highlights presentation and in our documents filed with the SEC available on our website. Forward-looking statements made on this call speak only as of today, January 16, 2019 and will not be updated. Now, I will turn the call over to Charlie.

Thank you, Scott. Good morning, everyone. Thanks for joining us. As usual, I'll make some comments and then turn it over to Mike. You can see that we reported earnings per share of $0.84, down 22% from last year's fourth quarter. Both this quarter and last year's fourth quarter included a number of notable items that made comparisons difficult, but we will do our best to explain what's included, so you could perform your own analysis of the quarter. Notable items in the fourth quarter of 2018 reduced earnings by $0.16. This includes cost related to the relocation of our corporate headquarters, severance charges, and litigation expenses. Those costs were partially offset by some tax adjustments. As a reminder, our fourth quarter results in 2017 included notable items that increased earnings by $0.17 per share, these items were related to the estimated benefit of U.S. tax legislation, partially offset by some actions we took. On a GAAP basis, our revenues grew 7%, expenses decreased 1%, pretax earnings grew 40% and after-tax earnings decreased 26%. If you were to exclude these notable items in both periods, which you can see in the reconciliation table on the second page of the earnings release. Revenue declined 1%, expenses were essentially flat, pretax earnings decreased 3%, after-tax earnings increased 4%, and earnings per share increased 9%. Mike’s comments will refer to our results, excluding notable items in both periods. Let me run through a few things about the overall results. First, while we aren't happy with the revenue decline of 1%, it's important to note that we saw growth in many of our Investment Services business. In total, Investment Services revenue grew 3% and Investment Management revenue declined by 8%, due to the combination of outflows, currency, and the impact of lower equity markets.…

Thanks, Charlie. Let me run through the details of our results for the quarter and the full year and then provide some further thoughts on 2019. Note that all comparisons will be on a year-over-year basis unless otherwise specified. Beginning on page three of the financial highlights document, in the final quarter of 2018, we had earnings of $832 million and EPS of $0.84, down 22%. But, as Charlie mentioned, both the current and prior year reporters included a number of notable items that made comparisons difficult. As a reminder, our fourth quarter 2017 results included $0.17 per share net benefit related to the new U.S. tax legislation and charges related to severance litigation and asset impairment and losses on sales with certain securities in our investment portfolio. Our results in the fourth quarter of 2018 included $0.16 per share related to severance charges, expenses associated with the real estate consolidation, and litigation charges, partially offset by a positive adjustment to provisional estimates for U.S. tax legislation and other changes. The severance expenses, which are a little more than half of the charge, are related to actions we are taking to drive more efficiency across the firm. Many of the actions are already completed, and we expect to see the payback in 2019. As I have noted throughout the year, the remaining $16 million of the costs associated with relocating our corporate headquarters was recorded in the fourth quarter and is included in the notable items. Excluding the notable items, we had earnings of $987 million and EPS of $0.99, up 9%. In terms of shareholder capital return, as Charlie mentioned, we received approval to buy back $830 million of additional common shares and completed it all in the fourth quarter. In total for the quarter, we repurchased approximately 29…

[Operator Instructions] Our first question comes from Ken Usdin with Jefferies. Please go ahead.

Thanks. Good morning, guys. Hey, good morning. Just one clarification that I know will come up. When you guys are talking about reasonable EPS growth this year, can you just level set us on your starting point? Is that off of a GAAP basis or is that off of your adjusted basis?

It's often adjusted basis.

So, off of the 421 basis, you'd expect EPS growth?

Well, again, I mean that is what we're shooting for. Obviously, it depends on what the market is but that is absolutely true.

Okay. And secondly, then to your point also about not increasing expenses by much, is the thought that you have on 1% to 2% year-over-year in the first quarter that generically we should be thinking about expenses over the course or does something change with the trajectory as the severance benefit -- the benefits from the severance you took starts to layer in against future investments?

Yes. I think, I don't think we want to give you a number for the full year, otherwise we would have. But I think the way you're thinking about it is right, which is the benefits that we will get on the severance actions that we’ve taken this quarter will really start second quarter and then in the second half of the year. And so, there will be more benefits in that period of time. So, overall, again, I think the words are the words that we intended to use. It's obviously early, but I think the point we want to make sure you understand is number one is we're highly, highly focused on driving efficiency inside the Company. We think that and I've described this before that when we -- when you take actions, the next set of actions become even clearer. And so, that is something that in our business we're going to continue to do. And we're going to do it at the same time that we are going to increase the spend where we need to expend it. So, all-in-all, we feel very good about our ability to really control expenses, while investing where we think we need for next year.

Okay. And then just to clarify, when you -- do you expect like the GAAP between your -- GAAP expenses and adjusted expenses to narrow, like do you expect, as many of these non-core notable items as you go forward? Are we going to see, like these big severance things every quarter? I guess, that’s the question.

No. Listen, certainly we hope not. I mean, it's something -- these things at some point have to become a -- just part of what we do is we right size the employee base. I mentioned on the last quarter call that we were taking a step back and really thinking about how the Company was organized. I talked about the spends and the layers and the managers that have very few direct reports. That was a very specific initiative that we looked at across the entire Company. I think, what we would hope is as we go forward, it becomes more ordinary course as managers manage based upon attrition and things like that. And hopefully these things do go away.

Our next question comes from the line of Michael Carrier with Bank of America.

First question, some of the investments that you have been making, and both your comments just on the focus on organic growth, I just wanted to get an update on maybe where you're seeing some of the earlier traction and what we should be focused on as we move through ‘19 and ‘20 to see some of the kind of realizations.

This is Charlie. Thanks for the question. Why don’t I start and then Mike will comment along the way. I guess, as we said, we've talked about the fact that given the nature of what our business is, it does take time. Having said that, there are some businesses that are further along and we see a clear path towards increasing the rate of revenue growth; others is still evolving. Let me start with Pershing as an example. In the world in which Pershing operates, we've talked about the opportunity to expand our offerings and grow in the RIA category. Historically, we've been very, very strong in the broker- dealer category. So, that’s still a significant opportunity that we see. And just more generically, there are more banks and broker dealers that are looking at us for outsourcing. And I just -- when you just think about the increasing technology needs, the increasing complexity of what's required, other priorities they have, they're looking to us to figure out how to help them, both wind up as with the better product but also allow them to focus on what they can actually create value in. Today, we mentioned that in our remarks that Pershing revenue declined 2% year-over-year, even though it was flat year-to-year. Big portion of that is driven downward by these two clients that we have mentioned. Excluding that, we were up 4%. And I think the most important thing beyond that which we've mentioned is, we have a very significant pipeline of signed business within Pershing where we're actually spending the money today to onboard those clients. As I mentioned in my remarks, that will start to happen in the second quarter of ‘19 and into 2022. But, the pipeline as we see it, I asked the question…

Yes. Mike, maybe I'll start with Clearance and Collateral first. So, when you look at that business, obviously one of the big drivers of it is that business we're bringing in from the other competitor around the government clearing business. And when you look at the tri-party balance growth of 22%, about two thirds of it is from those clients coming in from JPMorgan. About third of it is actually other new activity happening, both new clients and activity from our existing clients. And you're seeing good traction in products like our margin segregation product where market participants now need to hold segregated margin balances with providers like us. And that was a business that was zero just couple of years ago and we're seeing good traction, and that's contributing to sort of the growth in the collateral balances you see there. And there is a whole set of other initiatives that sort of underlie that business. And as we sort of bring in these government clearing clients, I think they're finding that our capabilities are bit differentiated in the collateral space and then what they saw, and the conversations are happening -- are getting better and better and sort of happening real time here. And more people are interested in our collateral optimization service and a whole series of things that we've been trying to do there. On Treasury Services, again, this is another business where we brought in a new CEO just in the summer. And what Paul Camp has been working on is helping reposition sort of the way people think about us. Historically, we've positioned ourselves as more of a receivables bank, i.e. we’ll collect your payments, a collections bank versus a payments bank. And when you start focusing more on the payments piece, that's what…

Yes. Maybe I'll just -- I know this is a long answer but obviously this is extraordinarily important. Asset Servicing is hugely important part of the business. Our belief is we have real differentiation here. We have a data platform; we are willing to work openly with front-end providers; and we're working towards more tight integration to the benefit of our clients; and we're continuing to improve infrastructure and the quality of what we do, which isn't a sexy thing to talk about but in what we do, it really does matter. And so, this is more of a long-term build because of the nature of what these relationships are, how long the sales cycle is. But, there's progress in what we're doing. This quarter, we brought in a $100 billion of fund administration from just one client specifically $400 billion [ph] of new custody, ETFs and mutual funds from a provider. So, we have plenty of examples of places they're winning. But this will be a slower build because of where we're starting from and what we've seen in Pershing and some of these other businesses. So, why don’t I stop there?

Okay. No, thanks for all that. And then, Mike, just a quick one on capital. Just given the decline in the ratios with the buybacks and then what you mentioned on the balance sheet. Just how should we be thinking about managing that going forward, just through the regulatory process and then just some of the opportunities that you're seeing?

Yes. I mean, obviously Mike, between now and the second quarter of 2019, our remaining buybacks are already sort of defined based on what got approved in CCAR last year. So, that should be pretty easy to sort of think about for the first half of the year. And as we look to CCAR 2018 -- or 2019, sorry, a lot of the work that we put into getting the incremental $800 million -- $830 million approved, sort of flows right into sort of the modeling that we'll do as part of that process. That process kicks off sort of as we speak. And so over the next couple of weeks I think we'll all have a better sense of sort of the inputs that go into that.

Okay. Thanks a lot.

Our next question comes from the line of Brian Bedell with Deutsche Bank.

Great. Thanks very much. Maybe just to follow-on on the organic growth. Thanks guys, you covered a lot of that, a couple of additional questions. In terms of the market conditions, obviously, they're challenging right now. But, how would you expect volatility to help your overall revenue, including on the organic growth side? If we have a situation in 2019 where we have choppy markets, maybe flat but much more volatile. Can you talk about the potential benefit for both the collateral management business that you referred to Mike, and FX and other trading? And then, also just quickly on the lag between expenses of the onboarding for Pershing versus clocking that revenue in?

I mean, look, the expenses as we -- I'll start the last piece first. So in Pershing, as we said, most of the expenses that we're incurring to onboard that business are being spent as we speak. And so, the profile of the Pershing expense base isn’t unexpected to change substantially in 2019. And as Charlie mentioned, that revenue will start to kick in, in the second half of ‘19, and more substantially in the first part of 2020. So, you'll sort of see come in that trajectory. As you sort of think about volatility for us and sort of --- if I sort of tick through each of the businesses, just to give you a sense of where we see it. So, in Pershing, we do see increased transaction volumes at times during periods of volatility. Having said that, much of the accounts that sort of that are underpinned are book of business, are managed accounts. So, we're not in a -- we're not necessarily supporting sort of retail, self directed retail brokerage type clients. And so, you won't necessarily see the peaks and valleys of transaction activity as sort of volatility spikes up and down, but you will see that sort of positively impacted. And as you look back over the last few months, transaction volumes were up a little but they weren't outsized in sort of any way in that business. And then in Asset Servicing is where you'll -- you may see some of it as well. And so that -- we give you disclosures around our foreign exchange revenue. So, obviously, if volatility picks up in foreign exchange, you'll see that come through the revenue line. And then the volumes that we see will be dependent upon underlying client activity. And then, in the core asset servicing business, think of that revenue as probably about a third of it is sort of transaction-driven revenue. And so that piece of it will move up and down based on what you see in the market. But, keep in mind that as I said in my remarks, about a third of our assets in our custody are equities. So, just because you see big spikes and valleys in sort of the equity markets and volatility there, doesn't necessarily mean that's going to translate into huge upticks in sort of transaction-related revenue.

This is Charlie. I want to add one quick thing, which is, all that's very -- that’s kind of what should drive some of the steps more mathematically, but to state the obvious, which is the reasons behind the volatility really matter to us. There's good volatility and there's less good volatility. What we've seen this quarter is that kind of volatility which drives assets away from the businesses that we benefit from. And so, the why will really matter to us as we look out over the next year.

Right. That makes sense. Maybe just a follow-on on the expenses. Charlie, if you can talk a little bit about -- a little bit more about the nature of some of the investments that are now in the run rate and maybe just highlight of a couple 2 or 3 of the most major ones. And then, just from that, your discussion of the expense rate, not -- expense base not significantly going up, is that an assumption on the markets remaining flat and say to set on hold or the markets improving? And then maybe just which management layer areas were most restructured in terms of the businesses?

So, let me try and remember all three of them. I’ll do backwards. On the third one, it was across the entire Company. As I said before, we really looked at spans, layers and the series of things like that across the entire entity from the staff areas to investment services to our investment management businesses. And so, I think it's very consistent. In addition, ongoing efficiencies through our operations areas on top of that are things that we've seen, and then, just tactically, some spots in different places. But overall, I would say, it was pretty consistent. On the second question about expenses relative to the environment, I would characterize it as, we're thinking about what the right level for us to invest in. And so, I think with a cautious eye towards next year, that's where we plan for. To the extent that the environment gets even worse, we always have levers we could pull if we thought things were going to really get bad and actually stay there for a period of time, and maybe spend a little bit more, if all of a sudden the world changed very dramatically. But, I don't want to overstate either of those two cases up or down. I think where we're planning for is where we feel the right level of spend for us is within a reasonable range of outcomes for next year. And I'm sorry, the first…

The first one was just the -- maybe a couple examples of the investments that you made most recently and in which areas? I am sorry, technology investments. I’m sorry.

Sure. So, first of all, Mike's referenced and I, both referenced the work that's ongoing in Pershing to onboard these clients. A lot of the work to bring on these clients isn't just bringing -- I mean, it takes a long time, because you have to build a set of capabilities. And you build a set of capabilities that you can then scale and provide to others. So, there's a significant amount of technology work that has to go into bringing on those Pershing clients. And that's embedded in the overall spend numbers that we talked about. We've talked about in the corporate trust business how we continue to build out our technology platform for things other than just pure traditional products. That’s embedded in the spend. As we think about asset servicing, we're highly focused on automation; we're highly focused on figuring out how to continue to build our data infrastructure. So, I think those are just some examples.

Our next question comes from the line of Brennan Hawken with UBS.

Hey. Good morning. Thanks for taking the question. I'm sorry, Charlie, were you in the middle of saying something?

Yes. The only thing I just -- in my mind I'm just thinking, I think we -- one area that we haven't mentioned is our markets business. And as we think about where we would make the investments, we’ve talked about this in the past. We’ve talked about the progress that we've made. You’ve seen it in the numbers, you see -- we've talked about some of the new products that we've offered. And a lot of what's happening there is really based upon technology spend.

Okay. Bedell, you owe me one. I just gave you a little OT on your last question. Curious about deposit trends. So, I think, Mike, you had commented that you guys see them as consistent quarter-to-date with what you saw in the fourth quarter. But, deposit trends were a little mixed under the surface. And you excluded the wholesale or the CD prices from your deposit betas. So, I'm curious, when you comment on deposits, are you talking about the total interest-bearing deposit balance that on average was 161.7 or are you talking about the deposits excluding the CDs? And how should we think about that CD growth? It's really picked up -- the growth in CDs has picked up pretty substantially here the last few quarters. How are you thinking about that into next year?

Yes. My remarks were in total, Brennan. Thanks for the question and clarify that. And the reason why I think you sort of need to look through the -- look through into sort of what's happening with your client deposits. Obviously, wholesale funding is more index-based pricing for the most part. And so, you really want to try to understand what's happening with your clients in those conversations. So, that's why we’re trying to give you that color. I think as you sort of think about the wholesale funding, I don't see it moving in any substantial way from current levels.

Okay. All right, great. Thanks for clarifying that. And then, so the second question on issuer services. You guys provided some color in the commentary on the fact that there were some elevated activities, depository receipts, LatAm. Kind of curious about how sustainable you would see this activity level, was this corporate action activity impacted by maybe the volatile markets that we saw in the quarter, or it was also quite a quarter for M&A closing activity? Did that come into play into that line as well? Thanks.

Yes. So, M&A closing activity no; volatility, a little bit, I guess I would say. And I think relative to the question of sustainability, I guess, the way to think about it is -- and we've talked about this, which is within issuer services that's corporate trust and DR. Corporate trust, we are seeing revenue growth, it's not huge but it is growing. And based on the actions that we've taken, hopefully that will continue. That is deal by deal. And we feel better about our calling efforts, we feel better about the capabilities that we continue to build. So, hopefully that growth will continue. Within DRs, you know this and we've said this is -- it's quarter-by-quarter can be very volatile, be very, very seasonable. And if you look at our yearly performance from I think it’s ‘17 to ‘18, while the quarters matter a lot, overall, when you look at the full year, relatively -- I don't remember exactly but relatively flat. When we look at 2017 to 2018, same thing is true, albeit within the fourth quarter we had strong performance. And part of that by the way is driven by in the fourth quarter of the prior year, we actually had a very weak DR quarter. So, that's a long way of saying that as we look forward, we would think that the full-year performance is sustainable, albeit it's going to be volatile quarter-to-quarter.

That's really fair. Thank you. Just, I'm sorry, one follow-up in your comment on corporate trust. How much has CLO -- the CLO trustee business helped in some of that corporate trust growth recently? Could you walk through a little bit about how sustainable you think that growth might be?

Yes. Look, Brennan, underneath -- we don't disclose the components of corporate trust, as you know. But, the CLO business has been an area of strength for us this year where we have picked up market share. And so, it has been a contributor to that underlying growth. And we've been talking consistently now for the last year or so where we've been making some investments in some of the underlying technology for to better support that business. And we're seeing the benefits of that come through, through some of the market share that we've been picking up this year. And so that has been a contributor.

Great. Thanks for letting me sneak in one more.

Thank you. We’ll next go to the line of Alex Blostein with Goldman Sachs. Please go ahead.

Thanks. Hey, good morning, guys. So, first question is just around the expense trends. I think in the beginning of the year, last year you guys talked about reinvesting the majority of the tax savings, which I think was in kind of the $250 million to $300 million range. Charlie, I think you mentioned 100 in tech spend this year. So, did the investment pace change or some of that is just kind of slipping into next year?

Alex, maybe just to correct that. So, I think what Charlie was referring to was the quarter. So, if you look at the spend on a full-year basis for ‘18, then we spent probably just over $300 million.

Got it. So, that's all in the run rate.

Yes.

Got it, understood. And then, just digging into the issuer services again for a second. If we look at just the fee components, not so excluding the NIR, I think the growth was quite substantial this year, I think 10% plus. Can you help me understand again kind of sustainability of that growth? Because to your point, I mean, it's a fairly mature business; it’s something we haven't seen that type of growth from there in quite some time.

Yes. As Charlie mentioned, if you sort of unpick both corporate trust and DR, Alex, I think the corporate trust fee line is a pretty consistent sort of story, right, where you've seen that sort of tick up sort of gradually over the over the last number of quarters. And given the trend we're seeing on a full-year basis, we would still expect that to sort of tick up a little bit in 2019. I think the DR revenue I think is the place where you've seen a little bit more volatility sort of year-to-year. So, in ‘17 to ‘18 it was up a little. And given some of the things that Charlie talked about in terms of some timing of corporate actions that happened, the volatility that we saw that drives transactional volume in some of the different quarters. And so, as we said, as we sort of as we sort of look to 2019 we think that the 2018 numbers plus or minus sort of a little look like a good way to think about the full-year story for next year.

Thank you. We'll next go to Mike Mayo with Wells Fargo.

Hi. It's Rob Rutschow for Mike. Just a follow-up on the expenses. You've mentioned I think previously that there are 11 layers of management between, Charlie, in the bottom of the organization. What's the right level and how long does that take to get there and then how should we think about that from an expense perspective?

We have eliminated, depending on where you are in the Company, call it 2 to 3, as part of this exercise. And the actions, as we said, a bunch of them have already happened in the month of January. And so, over the next couple of months is when we’ll actually see the impact get into our run rate.

And then, I understand that I guess severance is kind of a recurring or nonrecurring, but what was that in the quarter and how should we think about that going forward?

I answered the question earlier about how to think about it going forward.

Yes. And in my remarks, Rob, I mentioned that the severance charge is little over half of notable items -- expense notable items for the quarter.

Okay. Thank you.

Thank you.

[Operator Instructions] Our next question comes from the line of Vivek Juneja with JPMorgan. Please go ahead.

Hi. Thanks. Sorry, it's a day with overlapping calls. So, if I've missed some of the, sorry. Severance is over half just going to those noncore just so that we can have our numbers correct, as we look forward. Charlie, I missed your comment on how to think about it going forward. But I will go back and talk to IR. $16 million in real estate relocations. So, is the rest all from higher litigation?

Yes. The three components of the notable items, Vivek, this is Mike, obviously are the severance, the real estate charges, and litigation. Correct.

Okay. And when you are saying little over half, you're talking 50%, 60% kind of -- a little over that in that range, but not above that?

That's a good way to think about it.

Okay. Sorry, we’re just trying to…

Yes. We know it’s a busy morning. No worries.

It's an unfortunate morning. I'll just -- I'll let you go. And thanks for the clarification. We'll catch up with IR later.

All right. We're happy to talk later, Vivek if you want. Thanks everyone for -- I think that’s the last one. So thanks everyone for joining. We appreciate it.

Could we just double check with the operator that there are no more?

And that's correct. We have no further questions in the queue at this time.

Great. Thank you.

Thank you, everyone.

Thank you. This concludes today's conference call webcast. A replay of this conference call webcast will be available on the BNY Mellon Investor Relations website at 2 p.m. Eastern Standard time today. Have a good day.