Bank of New York Mellon on Wednesday posted a 2% year-over-year increase in total revenue for the second quarter, seeing gains that executives attributed in part to a strategic focus on digital operations despite challenging economic conditions brought on by the pandemic.
BNY Mellon’s Q2 results, which saw revenues rise to $4 billion, were largely boosted by an increase in fee revenue, driven primarily in the bank’s Pershing and asset-servicing divisions. But many potential gains were offset for the quarter due to money market fee waivers, lower investment management fees and the unfavorable impact of a stronger U.S. dollar.
The world’s largest custodian bank said that its assets under management increased by 6%, to $2 trillion, a reflection of higher client inflows and new business. Asset servicing provided “nice pockets of growth” for the bank, according to BNY Mellon CEO Todd Gibbons. The second quarter also saw overall strong deposit inflows and associated growth in the bank’s securities portfolio.
Custodian banks have been seen as a safer bet during the pandemic, as the way they tend to generate most of their income through fees helps to insulate them from the heavy expected credit losses that other large banks must build up significant reserves to combat.
However, during the bank’s second-quarter earnings call, Gibbons acknowledged low interest rates as a “significant headwind for us that is unlikely to change in the near term.” He further noted that volumes and volatility normalized across bank businesses from the extremes seen earlier in the year caused by the pandemic.
And although overall revenues were up, the bank reported a drop in net revenue from interest of 3% from last year’s level, to $780 million. This was largely due to the lower interest rates on interest-earning assets, following the Federal Reserve’s lowering of key interest rates to near zero as it attempts to mitigate the economic impact of the pandemic.
BNY Mellon Chief Financial Officer Michael P. Santomassimo said on the earnings call that he expects net interest income to decline by 8% to 11% before stabilizing over the course of the third quarter of 2020, but that the bank will be working to refocus its portfolios to counter this.
Nonetheless, Gibbons said Wednesday that the bank has been generally positioned well to handle the crisis due to its pre-existing focus on building out its digital capabilities.
BNY Mellon recently launched a new cloud-based product, Data Vault, developed in conjunction with Microsoft’s Azure platform, that supports a rapid onboarding of data and greater flexibility for clients. It has also created a new environmental, social and governance application that supports the creation of customized investment portfolios to cater to client preferences.
The bank has also pivoted toward accepting digital signatures on many tax-related documents that will help reduce the usage of physical documents by millions, Gibbons said.
“Much of this is the outcome of consistently investing in technology and talent,” Gibbons said on the earnings call.
“There’s been an acceleration this year in the adoption of digital solutions by our clients, who continue to review opportunities to automate,” Gibbons said. “The progress we’re making in digitizing our business positions us well on this front, and we’re increasing our investment spent on technology-driven automation initiatives in 2020. In March through June alone we migrated over 100 clients to digital solutions, and are accelerating our plans to do the same across all of our asset servicing clients.”