01—Abstract
Summary
Summary of the 10-K filed February 27, 2023. Cited figures are marked; the original filing is the authoritative source.
The Bank of New York Mellon Corporation (BK) reported a challenging 2022 in which headline earnings were depressed by notable items, although underlying franchise metrics held up.
GAAP net income applicable to common shareholders was $2.4 billiona, or $2.90 per diluted share, down from $3.6 billion ($4.14) in 2021. Excluding notable items, adjusted diluted EPS was $4.59 (Non-GAAP), up 8%. The main drags were a $680 million non-cash goodwill impairment in the Investment Management unit, a $449 million net loss from repositioning roughly $3 billion of securities, severance and litigation reserves, and the accelerated amortization of depositary receipts costs tied to Russia.
Total revenue rose 3% to $16.4 billionb, and net interest revenue jumped 34% to $3.5 billion on higher rates, while fee revenue was flat as lower market values and a stronger dollar offset gains. The business mix remains fee-driven, with fee revenue at 79% of total revenue. Securities Services and Market and Wealth Services grew revenue 11% each and posted pre-tax margins of 21% and 44%, respectively.
Investment and Wealth Management was the weak spot, with revenue down 12% and pre-tax margin of just 1% (24% adjusted), as AUM fell 25% to $1.8 trillionc, reflecting market declines, a stronger dollar and the Alcentra divestiture. Assets under custody and/or administration fell 5% to $44.3 trillion. Capital remained strong, with CET1 at 11.2% and a Tier 1 leverage ratio of 5.8%, and the company returned capital through $1.4 billion of dividends and a new $5.0 billion buyback authorization for 2023.
Management guided to higher net interest revenue and noninterest expense growth in 2023, at a slower pace than 2022. For investors, the key questions are whether fee revenue recovers with markets, whether the Investment Management unit's goodwill and earnings stabilize, and how durable the net interest revenue tailwind is as rates and deposit costs move. Deposits fell 13% to $279 billiond, a trend worth monitoring alongside the large unrealized securities losses that reduced AOCI to $(6.0) billion.
02—Key points
Key Highlights
- GAAP diluted EPS of $2.90 fell 30% from $4.14, while adjusted diluted EPS excluding notable items rose 8% to $4.59 (Non-GAAP).
- $680 million non-cash goodwill impairment in the Investment Management reporting unit, plus a $449 million net securities repositioning loss, weighed on results.
- Total revenue rose 3% to $16.4 billion; net interest revenue increased 34% to $3.5 billion on higher interest rates, while fee and other revenue fell 3% to $12.9 billion.
- Fee revenue is 79% of total revenue; Securities Services and Market and Wealth Services each grew revenue 11%, with pre-tax margins of 21% and 44%.
- Investment and Wealth Management revenue fell 12% and pre-tax margin dropped to 1% as AUM declined 25% to $1.8 trillion; AUC/A fell 5% to $44.3 trillion.
- Regulatory capital remained solid with a CET1 ratio of 11.2% and Tier 1 leverage of 5.8%; the company paid $1.4 billion in dividends and authorized a new $5.0 billion share repurchase program for 2023.
- Total deposits fell 13% to $279.0 billion and accumulated other comprehensive loss widened to $(6.0) billion, driven by higher rates on the available-for-sale securities portfolio.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 27, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $16.53B$15.93B | +3.8% |
| Interest Expense | $3.61B$227.00M | +1492.1% |
| Net Income | $2.56B$3.76B | −32.0% |
| EPS (Basic) | $2.89$4.17 | −30.7% |
| EPS (Diluted) | $2.88$4.14 | −30.4% |
| Shares Outstanding (Basic) | 811.07M851.90M | −4.8% |
| Shares Outstanding (Diluted) | 814.79M856.36M | −4.9% |
05—Questions
Frequently Asked Questions
Why did BNY Mellon's reported earnings fall sharply in 2022 despite higher revenue?
Reported net income applicable to common shareholders fell 34% to $2.4 billion ($2.90 per diluted share) mainly because of notable items: a $680 million goodwill impairment in Investment Management, a $449 million net loss from repositioning the securities portfolio, higher severance and litigation reserves, and accelerated amortization of depositary receipts costs related to Russia. Excluding these items, adjusted diluted EPS was $4.59, up 8% year over year (Non-GAAP).
What drove the growth in net interest revenue, and is it likely to continue?
Net interest revenue rose 34% to $3.5 billion, primarily from higher interest rates on interest-earning assets, partly offset by higher funding costs. Management expects net interest revenue in 2023 to increase versus 2022 based on market-implied forward rates. However, sensitivity disclosures show that deposit run-off or higher deposit pricing could reduce this benefit, and deposits fell 13% during 2022.
How healthy is the Investment and Wealth Management segment after the goodwill impairment?
The segment was the weakest performer, with revenue down 12% to $3.6 billion and pre-tax margin of 1% (about 24% adjusted, excluding notable items). AUM fell 25% to $1.8 trillion due to market declines, the stronger dollar and the sale of Alcentra. The company stated the impairment was non-cash and that the remaining Investment Management fair value exceeded carrying value by only about 3% at year-end, so further pressure on this unit's valuation is possible if markets stay weak.
Is BNY Mellon's capital position strong enough to support shareholder returns?
Yes. At December 31, 2022, the CET1 ratio was 11.2%, the Tier 1 capital ratio 14.1%, and the Tier 1 leverage ratio 5.8%, and BNY Mellon and its U.S. bank subsidiaries were well capitalized. The company paid $1.4 billion in common and preferred dividends, raised the quarterly common dividend 9% to $0.37 per share, and approved a new $5.0 billion buyback for 2023, though it repurchased only $124 million of stock in 2022.
What risks from the securities portfolio should investors watch?
The securities portfolio was $143 billion, about 35% of total assets, and carried a net unrealized loss of $9.4 billion including hedges at year-end, versus a small gain a year earlier. Rising rates reduced the value of available-for-sale holdings, lowering AOCI to $(6.0) billion and CET1 capital. About 39% of securities are classified as held-to-maturity, which limits flexibility to sell and realize losses. The portfolio is 99% rated AAA/AA-, so credit risk is low, but interest rate sensitivity is material.
06—Continue