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APRIL 2015
THE BANK OF NEW YORK MELLON
Q1 2010 Investor Presentation
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Q1 2010 Investor Presentation
<1>
Understanding Total Shareholder Returns
BNY Mellon’s track record of “total shareholder return” under Gerald Hassell’s tenure as CEO has
been driven almost entirely by multiple expansion, not earnings growth or dividends
8/31/11 - 3/31/15
Total Shareholder
Return
SCHW
158%
BLK
144%
WFC
129%
STT
121%
MS
112%
BK
109%
USB
105%
PNC
103%
NTRS
98%
S&P 500
83%
PRU
80%
JPM
78%
BEN
40%
EPS Growth +
Dividend
Return (1)
MS
87%
BLK
84%
WFC
65%
PRU
64%
STT
50%
SCHW
48%
JPM
45%
BEN
43%
USB
43%
NTRS
41%
PNC
35%
S&P 500
28%
BK
23%
Multiple
Expansion
SCHW
81%
BK
79%
PNC
56%
STT
52%
USB
49%
NTRS
45%
WFC
44%
S&P 500
48%
BLK
37%
JPM
25%
MS
13%
PRU
11%
BEN
(2%)
Source: Bloomberg, 8/31/11 (Gerald Hassell appointment) – 3/31/15
Note: 2014 Proxy Peers
(1) Based on Adj. GAAP EPS
Q1 2010 Investor Presentation
<2>
Missed Proxy Targets
Management has persistently missed on virtually every annual EPS and Return on Capital budget
provided to the Board
■ Annual budgets themselves represent a significant shortfall to 2011 Investor Day targets
Actual Results vs. Proxy Budgets
Actual EPS (Adj. for Compensation Purposes for NEOs)
Target EPS
$ Variance
% Variance
Actual Return on Economic Capital
Target Return on Economic Capital
bps Variance
% Variance
2011
$2.03
$2.35
($0.32)
(13.6%)
2012
$2.03
$2.27
($0.24)
(10.6%)
2013
$2.23
$2.10
$0.13
6.2%
25.8%
28.0%
(220)
(7.9%)
17.9%
19.9%
(200)
(10.1%)
14.1%
15.7%
(160)
(10.2%)
2014
$2.28
$2.43
($0.15)
(6.2%)
Actual ROE (Adj. for Compensation Purposes)
Target ROE
bps Variance
% Variance
8.1%
8.8%
(70)
(8.0%)
Actual ROTE (Adj. for Compensation Purposes)
Target ROTE
bps Variance
% Variance
17.6%
19.0%
(140)
(7.4%)
Source: Company proxy
Q1 2010 Investor Presentation
<3>
Bloated Employee Base
Headcount disproportionate to that of comparable companies
■ Combinations of similar sized investment managers and investment servicers would imply
meaningfully lower headcount levels
■ Headcount discrepancy not bridgeable by BK’s Corporate Trust or Pershing business units
Total Employees
Investment
Servicers
60,000
Investment Managers
50,300
Implied Headcount (Asset Manager + Asset Servicer)
Asset Managers
50,000
Vanguard
30,000
27,470
Asset
Servicers
Total Employees
40,000
~27,000
JPM
(1)
(TSS)
BLK
Capital
JPM
BEN
Group
GIM (2)
PIMCO
41,200
39,200
36,266
34,000
32,700
29,490
STT
(IS)
41,670
39,670
36,736
34,470
33,170
29,960
6,264
5,870
5,700
3,100
~2,500
2,490
1,435
STT
(Inv. Mgmt.)
PIMCO
FII
$2,480
$1,680
20,000
~14,200
12,200
9,266
10,000
~7,000
–
BK
AUC/A ($tn)
AUM ($bn)
$29
$1,710
STT
(Inv. Serv.)
JPM
(1)
(TSS)
$28
$21
Vanguard
BLK
BEN
Capital Group
IVZ
TROW
$3,100
$4,652
$898
$1,147
$792
$747
JPM
LM
(Global Inv. Mgmt.)
$1,744
$709
$363
Source: Company filings, Marcato estimates
(1)
JPM’s Treasury & Securities Services division
(2)
JPM’s Global Investment Management division
Q1 2010 Investor Presentation
<4>
Does Management Understand?
“Under Gerald Hassell’s leadership, BNY Mellon has continued to
increase shareholder value, reduce costs, improve margins and
streamline the organization, which our results clearly demonstrate”
─ Bank of New York Mellon spokesman, 3/10/15
If Management believes this to be true, then Shareholders have a problem
Q1 2010 Investor Presentation
<5>
Does Management Understand?
INCREASE SHAREHOLDER VALUE? (1)
REDUCE COSTS?
$10.6
Sources of Total Shareholder Return
Earnings Per Share Growth
9%
(x) Multiple Expansion
79%
(=) Share Price Return
95%
(+) Dividends
15%
(=) Total Shareholder Return
109%
Adj. Noninterest Expense(2)
$10.7
$10.6
+5%
$10.5
$10.4
$10.3
$10.2
$10.2
$10.1
$10.0
$9.9
2011
IMPROVE MARGINS?
2014
STREAMLINE THE ORGANIZATION?
LTM Core Pretax Margins (3)
29%
More Efficient?
28%
More Effective?
FY11 vs. FY14 % Change
27%
26%
25%
Headcount(4)
Purchased
Services Expense
Asset Servicing:
New Business
Wins
+4%
+10%
-56%
Asset
Management:
Long-Term Net
Inflows
-42%
Source: Company filings, Marcato estimates, Bloomberg
(1)
8/31/11 (Gerald Hassell appointment) – 3/31/15
(2)
Adjusted for sale of Shareowner Services sale in 2011, amortization of intangible assets, M&I, litigation and restructuring charges and charges related to investment
management funds
(3)
Adjusts revenue for net securities gains, accretable discount, FTE adjustments, other gains/losses on asset sales, net income attributable to noncontrolling interests in
consolidated investment management funds. Adjusts expenses for amortization of intangible assets, M&I, litigation & restructuring charges, net charge related to investment
management funds, and other one-time charge. Also adjusted for sale of Shareowner Services and GIS / BHF acquisitions
(4)
Average headcount over trailing four quarters
Q1 2010 Investor Presentation
<6>
2014 Investor Day “New” Strategy – No New Ideas
11/14/11 Investor Day
12/11/13 GS Conference
10/28/14 Investor Day (“Flat”)
CEO Gerald Hassell: “It’s part of our
goals that if we get a 4%, 5% revenue
growth in a range, we should be able
to produce positive operating
leverage”
CFO Todd Gibbons: “Our core fee
business has been growing at about
the 3% to 5% range...on the lower end
of that, to generate positive
operating leverage...is going to be
challenging”
Revenue
CAGR
3 – 5%
3 – 5%
3.5% – 4.5%
Expense
CAGR
2 – 3%
~3 – 4 %
~4%(1)
EPS
CAGR
7 – 11%
7 – 9%
Despite rhetoric about “moving faster and with a greater sense of speed
and urgency”, new targets imply business as usual
Source: 11/14/11 Investor Day, 12/11/13 GS Conference, 10/28/14 Investor Day
(1) Per Marcato estimates
Q1 2010 Investor Presentation
<7>
2014 Investor Day Targets Disguise Lack of Fundamental Improvement
Share buybacks and scheduled declines in intangible amortization expense represent nearly
half of EPS growth in a “flat” interest rate scenario
“Flat” Interest Rate Scenario
2014 Investor Day Guidance
(-) Benefit from net buybacks
(-) Reduction in amortization of intangibles
Underlying Net Income Growth
Underlying "Cash" Net Income Growth(1)
'14A-'17E
CAGR
8.0%
(3.1%)
(0.6%)
4.2%
3.9%
“Normalized” Interest Rate Scenario
2014 Investor Day Guidance
(-) Benefit from net buybacks
(-) Reduction in amortization of intangibles
Underlying Net Income Growth
Underlying "Cash" Net Income Growth(1)
'14A-'17E
CAGR
13.5%
(3.5%)
(0.6%)
9.4%
8.9%
Source: Company filings, 10/28/14 Investor Day
(1) Adjusted net income + after-tax amortization of intangibles
Q1 2010 Investor Presentation
<8>
2014 Investor Day: Deja Vu All Over Again
Natural organic growth and announced “Transformation Process”, “Initiatives” and “Strategic
Platform” investments should imply higher EPS growth than guidance....
...unless the collective financial impact of actions (yet again) do not drop to the bottom line, just
as with Management’s “Operational Excellence” program launched in 2011
$6,000
$3,961 @ 3.5% CAGR(1)
$5,500
$431
2014 PTI drag of $185mm
2017 PTI benefit of $189mm
Pg. 25, 64 – 2014 Investor Day
$5,000
At least $500mm
Pg. 66 – 2014 Investor Day
$374
$82
$4,561
$500
$4,500
($787)
$4,000
$3,961
“Incremental regulatory costs”
vs. Buffer for poor Management
execution?
$3,500
$3,000
2014 PTI
"Transformation
"Initiatives",
Process"
"Strategic Platform"
Incremental
amortization of
intangibles
Organic growth @
3.5% CAGR,
constant margin
[Gap]
2017 Implied PTI @
8% EPS CAGR
Source: 10/28/14 Investor Day, Marcato estimates
(1) Assumes low-end of consolidated revenue growth guidance of 3.5% - 4.5% in “flat scenario”
Q1 2010 Investor Presentation
<9>
Appendix
Q1 2010 Investor Presentation
< 10 >
2014 Investor Day Targets
“Flat” Interest Rate Scenario
“Normalized” Interest Rate Scenario
2014A
$14,856
2015E
$15,450
4%
2016E
$16,068
4%
'14A - '17E
2017E CAGR
$16,711
4%
4%
(163)
(91)
62
(84)
$14,580
(145)
(91)
62
(70)
$15,206
4%
(120)
(91)
62
(70)
$15,849
4%
(100)
(91)
62
(70)
$16,512
4%
($10,645)
($10,970)
3%
($11,397)
4%
($11,861)
4%
4%
Core Expense (implied)
% growth
Core Pretax Income
(+) Accretable discount
(+) Net securities gains
$3,935
163
91
$4,236
145
91
$4,453
120
91
$4,651
100
91
6%
Core Pretax Income
(+) Accretable discount
(+) Net securities gains
(-) FTE
(+) Minority interest
(+/-) Provision for credit losses
(-) Intangible amortization
Pretax Income
(-) Taxes @ 27%
Net Income
(-) Minority interest
(-) Preferred dividends
(-) Participating securities
Net Income to common
(/) FD shares outstanding
Diluted EPS
% growth
(62)
84
48
(298)
$3,961
(1,038)
$2,923
(84)
(73)
(43)
$2,723
1,137
$2.39
(62)
70
(10)
(268)
$4,202
(1,135)
$3,067
(70)
(98)
(43)
$2,856
1,105
$2.59
8%
(62)
70
(10)
(240)
$4,422
(1,194)
$3,228
(70)
(123)
(43)
$2,992
1,071
$2.79
8%
(62)
70
(10)
(216)
$4,624
(1,248)
$3,376
(70)
(123)
(43)
$3,140
1,041
$3.02
8%
70%
$2,856
(300)
350
$2,906
4%
$42.64
$600
70%
$2,992
(300)
350
$3,042
12%
$45.92
$612
70%
$3,140
(300)
–
$2,840
20%
$49.20
$624
1,122
(48)
14
1,088
1,105
1,088.0
(46)
13
1,055
1,071
1,055
(40)
13
1,027
1,041
Revenue
% growth
(-) Accretable discount
(-) Net securities gains
(+) FTE
(-) Minority interest
Core Revenue
% growth
Core Expense (implied)
% growth
Share Buyback
Buyback Ratio %
Net Income
Restructuring, M&I expense
Capacity from preferred stock issuance
Net buyback capacity
Average Repurchase Premium to Current
Repurchase Price (Avg.)
Equity-based compensation
Beginning Balance
(-) Shares Repurchased
(+) Shares Issued
Ending Balance
Average Shares
MEMO
AT Intangible Amortization
Cumulative Net Income Benefit
$194
$169
$25
$152
$42
4%
(10%)
5%
5%
5%
(3%)
8%
$136
$58
Revenue
% growth
(-) Accretable discount
(-) Net securities gains
(+) FTE
(-) Minority interest
Core Revenue
% growth
(-) FTE
(+) Minority interest
(+/-) Provision for credit losses
(-) Intangible amortization
Pretax Income
(-) Taxes @ 27%
Net Income
(-) Minority interest
(-) Preferred dividends
(-) Participating securities
Net Income to common
(/) FD shares outstanding
Diluted EPS
% growth
2014A
$14,856
(163)
(91)
62
(84)
$14,580
($10,645)
($11,219)
5%
($11,919)
6%
($12,683)
6%
6%
$3,935
$4,433
$4,870
$5,317
11%
163 Leverage
145(Core Revenue
120
100 - Core Expense Growth)
Operating
Growth
91
91
91
91
Revenue CAGR
%
(62)
84
48
(298)
$3,961
(1,038)
$2,923
(84)
(73)
(43)
$2,723
1,137
$2.39
Share Buyback
Buyback Ratio %
Net Income
Restructuring, M&I expense
Capacity from preferred stock issuance
Net buyback capacity
Average Repurchase Premium to Current
Repurchase Price (Avg.)
Equity-based compensation
Beginning Balance
(-) Shares Repurchased
(+) Shares Issued
Ending Balance
Average Shares
MEMO
AT Intangible Amortization
Cumulative Net Income Benefit
'14A - '17E
2015E
2016E
2017E CAGR
$15,896
$17,009
$18,199
7%
7% Implied
7%Expense 7%
CAGR
Revenue CAGR %
(145)
(120)
(100)
(91)
(91)
(91)
62
62
62
(70)
(70)
(70)
$15,652
$16,790
$18,000
7%
7%
7%
7%
$194
(62)
70
(10)
(268)
$4,399
(1,188)
$3,211
(70)
(98)
(43)
$3,000
1,104
$2.72
14%
(62)
70
(10)
(240)
$4,839
(1,307)
$3,533
(70)
(123)
(43)
$3,297
1,069
$3.08
14%
(62)
70
(10)
(216)
$5,290
(1,428)
$3,862
(70)
(123)
(43)
$3,626
1,036
$3.50
14%
70%
$3,000
(300)
350
$3,050
7%
$43.77
$600
70%
$3,297
(300)
350
$3,347
20%
$49.30
$612
70%
$3,626
(300)
–
$3,326
34%
$54.84
$624
1,122
(49)
14
1,087
1,104
1,086.6
(48)
12
1,051
1,069
1,051
(42)
11
1,020
1,036
$169
$25
$152
$42
(10%)
10%
10%
10%
(3%)
14%
$136
$58
Source: Company filings, Marcato estimates
Q1 2010 Investor Presentation
< 11 >