Pershing reports higher net new assets in third quarter

Pershing recovers from First Republic loss with $23B in new assets

October 18, 2023 4:28 PM

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Despite the loss of First Republic as a custodial client through that bank's sale to JPMorgan this spring, BNY Mellon's Pershing saw its asset total increase last quarter.

In an earnings call on Tuesday, Bank of New York Mellon Chief Financial Officer Dermot McDonogh acknowledged that the firm's Pershing custodial business is experiencing "continued headwind from the ongoing de-conversion" of a regional bank client. McDonogh named no names but the client he referred to is widely known to be First Republic, which was acquired by JPMorgan in May to prevent its collapse.

Despite the departure of the regional banking client, McDonogh said Pershing brought in $23 billion in net new assets in the quarter.

"We feel the underlying strength of the business, you're always going to take your lumps and things that happen that you wouldn't expect to happen," McDonogh said. "And we feel we have the ability and the confidence, and the people, and the strategy, and the products to earn our way out of that."

BNY Mellon CEO Robin Vince called attention to the introduction of a new wealth management system known as Wove under the Pershing X brand, the bank's internal technology provider. He noted that one of Pershing's long-standing clients, Lincoln Investment — a broker-dealer with more than $46 billion in assets under management — has chosen to move its self-clearing business onto Wove.

"As we onboard additional clients through the remainder of 2023, we are planning to start disclosing relevant financial information and leading indicators for you all to keep track of Wove's growth trajectory at the beginning of next year," Vince said in the earnings call.

For highlights from Pershing and parent company BNY Mellon's earnings in the third quarter, scroll down. To read about the firms' second quarter, click here. For the first quarter, follow this link. And for coverage of BNY Mellon from our sister publication American Banker, read this story.

Note: The quarterly results include BNY Mellon-owned Pershing, which is the largest part of the firm's Market and Wealth Services segment, and those of the megabank's Investment and Wealth Management unit.

Pershing assets under custody or administration

Pershing's assets showed a 14% year-over-year increase in the third quarter, rising to $2.4 trillion. Its $23 billion in net new assets, though, was down from $45 billion year over year. Meanwhile, its number of active clearing accounts rose by 7% to 7,979 accounts.

McDonogh referred on the earnings call to his previously stated expectation that the loss of First Republic will most likely continue to affect Pershing for several more quarters. But the worst of it, he said, appears to be over.

Again calling attention to the $23 billion in net new assets, he said, "The underlying strength of the business and our ability to provide solutions to our clients in that space is really, really terrific to see." The inflows were driven primarily by higher market values, new clients and benefits the weakening U.S. dollar confers on assets denominated in foreign currency.

BNY Mellon wealth management

For BNY Mellon's wealth management business, the firm reported a 3% year-over-year increase in assets under management to $1.82 trillion. Assets managed specifically for wealth management clients rose by 14% to $292 billion.

Higher market values and the weaker U.S. dollar again contributed. But the unit continued to be hindered by a spinoff of part of the megabank's European business last year in a deal with Franklin Templeton.

Pershing revenue

Pershing's revenue rose by 6% year over year to $699 million in the third quarter. Higher interest rates and rising earnings from clients' cash sweep accounts offset lower levels of client transactions in the period.

BNY Mellon said the results were driven by "higher net interest revenue and higher fees on sweep balances, partially offset by lost business."

Pershing's parent unit within the firm, Market and Wealth Services, reported net income of $631 million on revenue of $1.45 billion for a pretax operating margin of 44%. The income figure was up by 14% year over year and the revenue figure by 12%, while the operating margin was down 1 percentage point.

Remark

McDonogh said in the earnings call that Pershing remains the No. 1 custodian for broker-dealers.

"We're very important to the RIA community," he added. "We have a lot of excitement in the marketplace around our Wove product and so we have — that's attracting new clients to our system as well as existing clients who are excited about that product. And that gives us belief that by adding to our existing platform, new products, we'll be able to be a more meaningful player than we are today."

Pershing recovers from First Republic loss with $23B in new assets

Pershing assets under custody or administration

BNY Mellon wealth management

Pershing revenue

Investment and Wealth Management profits

Remark