Bank of New York Mellon Corp

NYSE:BK

Earnings Call Analysis

BNY Mellon sees 11% EPS growth, guided stable for 2024

BNY Mellon reported a strong start to 2024, with EPS rising 11% year-over-year to $1.25. Excluding notable items, EPS was $1.29, up 14%. Total revenue increased by 3% to $4.5 billion, driven by 8% growth in investment services fees. Expenses rose by 2%, and pretax margin was 29%. The firm emphasized resilience in a fluctuating market and announced a $6 billion share repurchase program. Despite facing some revenue headwinds in FX and interest income, BNY Mellon remains confident in delivering positive operating leverage for the year and achieving stable expense growth, as previously guided.

Positive Start to the Year

BNY Mellon kicked off the year with strong financial performance. The company achieved double-digit growth in earnings per share, which reached $1.25, up 11% year-over-year. Excluding notable items, EPS was $1.29, marking a 14% increase. This strong start has set a positive tone for the rest of the year and highlights the firm's resilience and effective strategies despite a challenging market environment.

Revenue Growth and Market Dynamics

Total revenue for the first quarter was $4.5 billion, a 3% increase compared to the previous year. This growth was driven primarily by an 8% rise in investment services fees, particularly in Asset Servicing, Issuer Services, and Clearance and Collateral Management. However, the growth was partially offset by an 8% decline in net interest income due to changes in deposit composition and lower market volatility impacting foreign exchange revenue.

Expense Management and Efficiency Gains

The company reported total expenses of $3.2 billion, up 2% year-over-year. Excluding severance expenses and other notable items, expenses rose by just 1%. This increase was largely due to investments and employee merit increases, which were offset by efficiency savings. BNY Mellon's focus on streamlining operations and leveraging technological advancements has begun to yield positive results, contributing to overall expense management.

Investment Services and Wealth Management

BNY Mellon's Securities Services reported total revenue of $2.1 billion, up 1% year-over-year, with significant contributions from investment services fees. The Marks & Wealth Services segment also showed promising results with a 3% increase in total revenue, driven by higher market values, client activity, and net new business. The firm's emphasis on expanding its market and wealth services platform is beginning to bear fruit.

Strong Balance Sheet and Capital Return

BNY Mellon's balance sheet remains solid, with capital and liquidity ratios well within management targets. The firm reported a Tier 1 leverage ratio of 5.9% and a Common Equity Tier 1 (CET1) ratio of 10.8%. The company returned $1.3 billion of capital to shareholders in the first quarter through dividends and share buybacks, representing a total payout ratio of 138%. Additionally, a new $6 billion share repurchase program has been authorized by the Board of Directors.

Guidance and Future Outlook

For the full year 2024, BNY Mellon expects net interest income to decline by approximately 10% year-over-year, assuming current market interest rates persist. The firm aims to keep expenses flat when excluding notable items. They remain committed to delivering positive operating leverage throughout the year by focusing on cost efficiencies and driving revenue growth. The anticipated effective tax rate for 2024 is between 23% and 24%. Overall, the company remains optimistic about achieving its financial targets and continuing to provide value to shareholders.

Strategic Initiatives and Technological Innovation

BNY Mellon emphasized its ongoing transformation efforts, particularly the ONE BNY Mellon initiative, which aims to integrate various business lines to provide holistic solutions to clients. Technological advancements, such as the deployment of NVIDIA's DGX Superpod to accelerate AI capabilities, are positioning the firm to enhance operational efficiency and client service quality. These initiatives are crucial as the company adapts to the evolving financial landscape and client needs.

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, and welcome to the 2024 first quarter earnings conference call hosted by BNY Mellon. [Operator Instructions] Please note that this conference call and 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 Marius Merz, BNY Mellon, Head of Investor Relations. Please go ahead.

[Marius Merz, executive]

Thank you, operator. Good morning, everyone, and thanks for joining us. I'm here with Robin Vince, President and Chief Executive Officer; and Dermot McDonogh, our Chief Financial Officer.

As always, we will reference our financial highlights presentation, which can be found on the Investor Relations page of our website at bnymellon.com. And I'll note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures are available in the earnings press release, financial supplement and financial highlights presentation, all available on the Investor Relations page of our website.

Forward-looking statements made on this call speak only as of today, April 16, 2024 and will not be updated.

With that, I will turn it over to Robin.

[Robin Vince, executive]

Thanks, Marius, and thank you, everyone, for joining us this morning. Dermot will talk you through the financials in a moment. But in summary, BNY Mellon is off to an encouraging start for the year. The firm delivered solid financial performance while we continued to take important steps in the deliberate transformation of our company, and we're seeing early signs of progress that give us confidence as we work toward the opportunity ahead.

Looking beyond BNY Mallon, the first 3 months of the year provided a mostly constructive operating environment with global markets signaling expectations for continued growth. Equity and credit markets rallied even as rate cut expectations partially unwound and bond yields rose. Foreign exchange markets, on the other hand, saw a continuation of the relatively low volumes and muted volatility that we've now seen for the past several quarters. And of course, there are many tail risks, including a variety of different market scenarios, the possibility of escalation in one of the ongoing geopolitical conflicts or an unexpected result in the many elections taking place worldwide this year.

As I've said many times before, being resilient matters, and this represents a commercial strength for our business. We are constantly preparing and positioning for a wide range of potential scenarios to support our clients and deliver compelling outcomes for our shareholders.

Now referring to Page 2 of the financial highlights presentation. BNY Mellon delivered double-digit EPS growth as well as pretax margin and ROTCE expansion on the back of positive operating leverage in the first quarter. We reported earnings per share of $1.25, up 11% year-over-year. And excluding notable items, earnings per share of $1.29 were up 14%. Total revenue of $4.5 billion was up 3% year-over-year. That included 8% growth in investment services fees led by strength in Asset Servicing, Issuer Services and Clearance and Collateral Management, which more than offset revenue headwinds from muted volatility in FX markets and lower net interest income. Expenses of $3.2 billion were up 2% year-over-year and up 1% excluding notable items. Consistent with our goal to generate at least some operating leverage this year, in the first quarter, we did deliver positive operating leverage, both on a reported basis and excluding notable items. Our reported pretax margin was 29% or 30%, excluding notable items, and we generated a 21% return on tangible common equity.

Our balance sheet remains strong with capital and liquidity ratios in line with our management targets and deposit balances were up both year-over-year and sequentially. Year-to-date, we returned close to 140% of earnings to common shareholders through dividends and buybacks. And our Board of Directors has authorized a new $6 billion share repurchase program.

On our last earnings call in January, we communicated medium-term financial targets and presented our plan to improve BNY Mellon's financial performance. We frame this work for our people through 3 strategic pillars: be more for our clients, run our company better and power our culture. Throughout the first quarter, we've made progress to be more for our clients, including both product innovation and greater intensity around better delivering our platforms to the market so we can truly help clients achieve their ambitions. As a global financial services company, our unique portfolio of market-leading and complementary businesses presents a tremendous additional value for our clients and shareholders. As you know, we are maturing our ONE BNY Mellon initiative by implementing this mentality into the nuts and bolts processes across the company. For example, we recently announced that Ashton Thomas Securities, an independent broker-dealer and registered investment adviser will use clearing and custody services from Pershing and BNY Mellon precision direct indexing capabilities from investment management. This is a great example of multiple lines of business working together to provide holistic solutions for clients. As we continue to grow our client roster, we also know that delivering more to our existing clients represents a significant opportunity. As another example, last month, we expanded on a long-standing relationship with CIFC, an alternative credit specialist and existing client of ours in Asset Servicing and Corporate Trust to bring their U.S. direct lending strategy onto our global distribution platform. This also speaks to the incremental value that asset servicing can bring to our asset manager clients by allowing them to tap into BNY Mellon's global distribution platform to extend the reach of their capabilities. Consistent with our previously communicated intention to grow the revenue contribution of our Market and Wealth Services segment. We're starting to see our investments to accelerate revenue growth in this high-margin segment begin to bear fruit. For example, we continue to be encouraged by the level of interest from both new and existing clients in our wealth advisory platform. We have several clients live on the platform today we closed a number of deals in the first quarter, and the sales pipeline continues to be strong. Across market and wealth services, we also continue to bring new solutions to the market. For example, Treasury Services successfully launched virtual account-based solutions, a set of cash management solutions to meet our clients' demands for more flexibility and transparency into their payment flows.

Next, we are taking important steps to run our company better by simplifying processes, powering our platforms and embracing new technologies. Over the past several months, we've been working to realign several similar products and services across our lines of business. The largest of these changes was moving institutional solutions from Persing to our Clearance and Collateral Management business. This is also part of making progress toward adopting a platform's operating model. By uniting related capabilities, we can do things in 1 place, do them well and elevate overall execution to better serve our clients and drive growth. Last month, we went live with the first step on the transition into our new model. What it has taken and will continue to take a lot of hard work as we transform our operating model over time, we are confident this new way of working will create better outcomes for our clients, and it will also create more efficiency and enhanced risk management. Around 15% of our people around the world are now working in our new operating model, allowing them to feel more connected to what we're doing and empowered to make change. I'd like to thank our teams who are part of this exciting change for pushing us forward as we mark this important milestone. We also see meaningful opportunity over the coming years from continued digitization and reengineering initiatives as well as from embracing new technologies. To support this effort, we are making deliberate investments, enabling us to scale AI technologies across the organization through our enterprise AI hub. Last month, NVIDIA announced that BNY Mellon became the first major bank to deploy a DGX Superpod, which will accelerate our processing capacity to innovate, reduce risk and launch AI-enabled capabilities. Our people have identified hundreds of use cases across BNY Mellon, and we already have several in production today. Across the company, it's our people who continue to power our culture. If you were to walk the halls of BNY Mellon, you'd feel the energy and sense of purpose, our leadership team feels when we visit our teams around the world. To that end, we're investing in our people. Over the past several months, we launched new learning and feedback platforms powered by AI, expanded employee benefits, launched a new well-being support program improved and accelerated our year-end feedback and compensation processes and more. And we're delighted to welcome Shannon Hobbs, who will join us as our new Chief People Officer in June. As we continue to power our culture forward, we adopted the following 5 core principles to guide how our teams work and collaborate as we drive our success as a company. The client obsessed, spark progress, own it, stay curious and thrive together.

To wrap up, our performance in the first quarter provides a glimpse of BNY Mellon's potential. Running our company better, inclusive of our focus on platforms is enabling us to improve profitability and invest in our future. While we are pleased to see early signs of progress, we remain focused on the significant work ahead of us as we become more for our clients and deliver higher performance for our shareholders.

As I have said before, the transformation of our company is a multiyear endeavor, but we've started 2024, the year of our 240th anniversary with a sense of excitement and determination around what's possible. Now over to you, Dermot.

[Dermot McDonogh, executive]

Thank you, Robin, and good morning, everyone.

Referring to Page 3 of the presentation. I'll start with our consolidated financial results for the quarter. Total revenue of $4.5 billion was up 3% year-over-year. Fee revenue was up 5%. This reflects 8% growth in investment services fees on the back of higher market values, increased client activity and net new business, partially offset by a 14% decline in foreign exchange revenue as a result of lower market volatility. Firm-wide assets under custody and our administration of $48.8 trillion were up 5% year-over-year, and assets under management of $2 trillion were up 6% year-over-year, both largely reflecting higher market values.

Investment and other revenue was $182 million in the quarter. Effective January 1, we adopted new accounting guidance for our investments in renewable energy projects, resulting in an approximately $50 million increase to investment and other revenue. We have restated prior periods in our earnings materials to provide you with like-for-like year-over-year and sequential comparisons. The adoption of this new accounting guidance is largely neutral to net income and earnings per share as the increase in provision for income taxes roughly equals the increase in investment and other revenue.

Net interest income decreased by 8% year-over-year, primarily reflecting changes in the composition of deposits, partially offset by the impact of higher interest rates.

Expenses were up 2% year-over-year on a reported basis and up 1% excluding notable items, primarily severance expense. Growth was from incremental investments and employee merit increases offset by efficiency savings. Provision for credit losses was $27 million in the quarter, primarily driven by reserve increases related to commercial real estate exposure. As Robin mentioned earlier, we reported earnings per share of $1.25, up 11% year-over-year, a pretax margin of 29% and a return on tangible common equity of 20.7%. Excluding notable items, earnings per share were $1.29, up 14% year-over-year. Pretax margin was 30%, and our return on tangible common equity was 21.3%.

Turning to capital and liquidity on Page 4. Our Tier 1 leverage ratio for the quarter was 5.9%. Average assets increased by 1% sequentially as deposit balances grew, and Tier 1 capital decreased by 1% sequentially, primarily reflecting capital return to common shareholders, partially offset by capital generated through earnings. Our CET1 ratio at the end of the quarter was 10.8%. The quarter-over-quarter decline reflects a temporary increase in risk-weighted assets at the end of the quarter, which was driven by discrete overdrafts in our custody and securities clearing businesses as well as strong demand for our agency securities lending program. Consistent with Tier 1 capital, CET1 capital decreased by 1% sequentially. Over the course of the quarter, we returned $1.3 billion of capital to our shareholders representing a total payout ratio of 138%.

Turning to liquidity. Our regulatory ratios remained strong. The consolidated liquidity coverage ratio was 117%, flat sequentially. And our consolidated net stable funding ratio was 136%, up 1 percentage point sequentially.

Moving on to net interest income and the underlying balance sheet trends on Page 5. Net interest income of over $1 billion was down 8% year-over-year and down 6% quarter-over-quarter. The sequential decrease was primarily driven by changes in the composition of deposits, partially offset by the benefit of reinvesting maturing fixed rate securities and higher-yielding alternatives. Against typical seasonal patterns, average deposit balances increased by 2% sequentially. Solid 4% growth in interest-bearing deposits was partially offset by a 5% decline in noninterest-bearing deposits, which was in line with our expectations. Average interest-earning assets were up 1% quarter-over-quarter. We reduced our cash and reverse repo balances by 2% and and increased our investment securities portfolio by 5%. Average loan balances remained flat.

Turning to our business segments, starting on Page 6. Please remember that in the first quarter, we made certain realignments of similar products and services across our lines of business, consistent with our work to operate as a more unified company. As Robin mentioned earlier, the largest change was the movement of institutional solutions from Pershing to Clearance and Collateral Management, both in the market and Wealth Services segment. And we made other smaller changes across our business segments. We have restated prior periods for consistency. Please refer to the revised financial supplement that we filed on March 26 for detailed reconciliations to previous disclosures.

Now starting with Securities Services on Page 6. Securities Services reported total revenue of $2.1 billion, up 1% year-over-year. Investment Services fees were up 8% year-over-year. In Asset Servicing, investment services fees were up 8%, driven by higher market values, net new business and higher client activity. We've remained focused on deal margins, and as a result, the year-over-year impact of repricing on fee growth was de minimis.

Consistent with past quarters, we continue to see particular success with our ETF offering. ETF assets under custody under administration surpassed $2 trillion this quarter, up over 40% year-over-year on the back of higher market values, net new business and client flows and the number of funds serviced was up 16% year-over-year. While the pace of alternative fund launches was slower than in the prior year quarter, investment services fees for alternatives were up over 10% on a year-over-year basis. Throughout the quarter, we saw broad-based strength across client segments, products and regions. In Issuer Services, Investment Services fees were up 11%, reflecting net new business across both depository receipt and Corporate Trust as well as higher cancellation fees in depository receipts. Foreign exchange revenue was down 11% year-over-year and net interest income was down 12%. Expenses of $1.5 billion were flat year-over-year, reflecting incremental investments as well as the impact of employee merit increases offset by efficiency savings. Pretax income was $591 million, a 4% increase year-over-year, and pretax margin expanded to 28%.

Next, Marks & Wealth Services on Page 7. Marks & Wealth Services reported total revenue of $1.5 billion, up 3% year-over-year. Total Investment Services fees were up 7% year-over-year. In Pershing, Investment Services fees were up 3%, reflecting higher market values and client activity, partially offset by the impact of business lost in the prior year. Net new assets were negative $2 billion for the quarter, reflecting the ongoing deconversion of the before-mentioned lost business. Client demand for our Wealth Advisor platform, Wove, continues to be strong. In the first quarter, we signed 9 additional client agreements, including our first direct indexing clients, and we onboarded 4 clients onto the platform.

In Treasury Services, Investment Services fees increased by 5%, driven by net new business. We continue to invest in our sales and service teams, new products and technology, and so we are pleased with this solid growth and momentum continues to build.

Last but not least, strength in Clearance and Collateral Management continued with investment services fees up 13% on the back of broad-based growth both in the U.S. and internationally. Net interest income for the segment overall was down 7% year-over-year. Expenses of $834 million were up 7% year-over-year, reflecting incremental investments, revenue-related expenses and employee merit increases, partially offset by efficiency savings. Pretax income was down 2% year-over-year at $678 million, representing a 45% pretax margin.

Moving on to Investment and Wealth Management on Page 8. Investment in Wealth Management reported total revenue of $846 million, up 2% year-over-year. In Investment Management, revenue was up 2%, driven by higher market values, partially offset by the mix of AUM flows and lower performance fees. In our Wealth Management business, revenue also increased by 2%, driven by higher market values partially offset by changes in product mix and lower net interest income. Expenses of $740 million were flat year-over-year, primarily reflecting the impact of incremental investments and employee merit increases, which is offset by efficiency savings. Pretax income was $107 million, up 15% year-over-year, representing a pretax margin of 13%. As I mentioned earlier, assets under management of $2 trillion increased by 6% year-over-year. In the quarter, we saw $16 billion of net inflows into our long-term active strategies with strength in LDI and fixed income. And we saw $15 billion of net outflows from index strategies. Strength in our short-term cash strategies continued with $16 billion of net inflows on the back of differentiated investment performance in our drivers money market fund complex. Wealth Management client assets of $309 billion increased by 11% year-over-year, reflecting higher equity market values and cumulative net inflows.

Page 9 shows the results of the Other segment. I will close by reiterating our existing outlook for the full year 2024. As I've said before, we have positioned our balance sheet for a range of interest rate scenarios, and we're managing both sides of it proactively. And so despite the repricing of the curve since the beginning of the year, we continue to expect net interest income for the full year to be down 10% year-over-year, assuming current market implied interest rates for the remainder of 2024. Similarly, on expenses, our goal continues to be for full year 2024, expenses, excluding notable items, to be flat. We are off to a good start, but we have more work ahead of us to realize further efficiency savings and drive year-over-year expense growth rates lower over the coming quarters, while we continue to make room for additional investments across our businesses.

Overall, we remain determined to deliver some positive operating leverage this year. While we don't manage the firm to operating leverage on a quarterly basis, our performance in the first quarter with positive operating leverage on both a reported and an operating basis gives us confidence that we're on track. In light of the adoption of the new accounting guidance for our investments in renewable energy projects, which, as I discussed earlier, increases both our investment and other revenue and the provision for income taxes, I'll note that we expect our effective tax rate for the full year 2024 to be between 23% and 24%.

And finally, we continue to expect returning 100% or more of 2024 earnings to our shareholders through dividends and buybacks over the course of the year. As always, we will manage share repurchases cognizant of the macroeconomic environment, balance sheet size and many other factors. And so for the foreseeable future, we will calibrate the pace of buybacks to maintain our Tier 1 leverage ratio close to the top end of our 5.5% to 6% medium-term target range.

To wrap up, over the past 3 months, we've made good progress towards achieving our targets for 2024, and we're encouraged by the drive we're seeing in all corners of the firm as our people embrace being more for our clients running our company better and powering our culture.

With that, operator, can you please open the line for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of Alex Bolstein with Goldman Sachs.

[Alexander Blostein, analyst]

So Robin, really nice progress, I guess, on organic growth initiatives across a handful of businesses underneath BNY Mellon as some of the things you talked about are starting to kind of take hold. Can you maybe frame what the firm's organic growth rate aspirations are for the next couple of years? How are you thinking about that for '24 as well? And then as a side question, I guess, to that, we've seen quite significant amount of activity in sort of clearance and collateral management. Can you maybe help size what is sort of transitory versus more of a recurrent baseline to think about from here?

[Robin Vince, executive]

Sure, Alex. So let me start with the growth question. As you point out, we are quite -- feeling quite good about the early momentum that we have in growth. As you know, we set it out last year to really get our house in order, generate positive operating leverage and really think about the various different investments to drive sort of shorter, medium and longer-term growth. And that's really what we've been focused on, and we're pleased that we've got a good start to the year on it. Clearly, we're trying to control the things that we can control. As I mentioned in my prepared remarks and as Dermot touched on as well, our focus here is really being wrapped around being more for our clients, our commercial model. We hired our first Chief Commercial Officer. We're operationalizing on BNY Mellon as I called it the nuts and bolts kind of getting into building that into our client coverage organization, our coverage practice starting to deliver integrated solutions. I gave a couple of examples of those in my prepared remarks. And we've got a whole bunch more things that really cut across all of the different segments that are related to that. So look, it's early in the journey. I would have said maybe last year, we were working the problem. I think now I would say we're working the opportunity. Could you just remind me the second part of your question?

[Alexander Blostein, analyst]

Yes, sure. Really nice results out of clearance and collateral management for the firm, and it's been a pretty active market in Q1 related to treasury issuance and activity there broadly. I'm just trying to get a sense for a better baseline to think about from here? Was there anything kind of transitory in the first quarter that helped the numbers, or this is a good baseline to think about going forward?

[Robin Vince, executive]

Look, I would say in terms of transitory, not really, but let me just go through a few of the drivers. So remember that it's a business that, like several of the businesses we have respond to volumes, and it was an active quarter when it comes to trading volumes in the U.S. treasury market. Now for better or for worse, U.S. treasuries is kind of a growth business. And so that's probably a bit more of a secular tailwind as opposed to something cyclical. And then remember, under the hood in Clearance and Collateral Management, we've also been investing in the operating model of that business, as we talked about in our prepared remarks and took something that was very, very adjacent to our clearing business from Pershing institutional clearing and aligned it with the rest of our clearing bigger clearing business in clearance and collateral management. And what we're finding now in those conversations with customers, it's a much cleaner conversation because we've got the ability to deliver all the solutions in our clearing business, whether it's U.S. treasuries whether it's international, whether it's the different models of clearing that we offer, we're able to deliver that in 1 conversation with the client and clients are responding to that. So I would call that secular as well.

[Operator]

And our next question comes from the line of Steven Chubak from Wolfe Research.

[Steven Chubak, analyst]

So I wanted to start with a question on capital. A bit of a 2-parter, if you will. I was hoping you could just speak to the drivers of RWA growth in which was fairly robust, where you're seeing attractive opportunities to deploy that excess capital? And just how we should be thinking about the cadence of the buyback? You alluded to this somewhat Dermot, but I was hoping we could drill down into -- you noted the 6% target or that upper bound on Tier 1 leverage is how should we be thinking about the cadence of buyback in light of planned balance sheet actions and growth potential?

[Dermot McDonogh, executive]

Okay. I'll take that one, Steven. So some of the capital increase, there are 2 parts to the RWA increase. One was a kind of temporary increase around quarter end as it relates to discrete overdrafts in custody and securities clearing businesses. So that's kind of come and gone. And then there's also -- there was strong demand for our Agency securities lending program throughout the quarter and particularly leading up to quarter end, and that's continued into this quarter. So that's -- so I would say half of it was that, and half of it was temporary. As it relates to the buyback, I guess there's a little bit of a groundhog day here in terms of how we thought about Q1 of last year versus how we're thinking about Q1 of this year. Both quarters, we got off to a strong start. Look, there's a lot of rate volatility out there in the market. You've seen the backup in rates last week with the hot inflation report. Last year, it was the war in Ukraine. This year, it's the geopolitics in the Middle East. And so we kind of gave a guidance in January where we said we were going to be 100% more of earnings throughout the year. we don't give quarter-by-quarter guidance. I would reiterate the guidance of 100% or more, notwithstanding the fact Q1 was very good at 138%. I wouldn't expect that pace to continue, but we'll take it quarter-by-quarter.

[Steven Chubak, analyst]

Understood. And for my follow-up, maybe just drilling down into the investment and wealth margins, in particular, since across the other segments, we're seeing continued progress towards the longer-term targets. That's [Indiscernible] the segment with the biggest shortfall. I know in the prepared remarks, Dermot, you noted that you're making investments in the business. And just wanted to better understand, one, where are those dollars getting deployed? And maybe if you could just speak to the primary drivers underpinning that glide path to 25%. How much is contingent on revenue growth versus expense optimization?

[Dermot McDonogh, executive]

Okay. So the first point would be pretax margin for the Q1 there was around 13%. If you normalize that for typical seasonal volatility in terms of retirement-eligible stock and such like if you back that out and adjusted the margin would have been somewhere in the 16% ZIP code. So we feel pretty good about that, still a ton of work to do, and I would say, it's not one thing over the other. It depends on which part of the business you're talking about. In some of our asset managers, we're investing. We're launching new products. Clients, in some places, continue to derisk and move from more risk on equity to passive fixed income, but in other cases, we see clients coming in and AUM growing. We saw -- we were very pleased with the performance of our drive with Cash Management business in Q1, where we saw strong inflows and the performance of the business in terms of returns was first quartile. So we feel very good about that. So we are investing the business to give our clients good products to invest in. The flip side is we still believe as it relates to running the company better and desiloing the firm and connecting asset management to the broader enterprise, as a lot of opportunity there. And at the same time, as the opportunity, it allows us to take cost out and become a lot more efficient. So I would say we're working both sides of us. We see more opportunity on the revenue side, and we're working the problem on the efficiency side.

[Operator]

Our next question comes from the line of Betsy Graseck with Morgan Stanley.

[Betsy Graseck, analyst]

I had 2 questions. One was just on the AI commentary that you were leading with in the prepared remarks. And I wanted to understand how you're thinking about the benefits to the expense ratio and the time frame with which this is going to flow through because there's clearly revenue-enhancing opportunities and expense reducing or flattening. And how much of this AI investment is -- how important is it to your 2024 expense outlook? And yes, if you could give us the medium-term outlook, that would be helpful.

[Robin Vince, executive]

Sure. Betsy, first of all, it's great to have you on the call. Really glad to have you back and to know that you're doing well.

[Betsy Graseck, analyst]

Thanks so much.

[Robin Vince, executive]

So on the AI, I'll start with the sort of the latter part of your question, which is I really don't think this is a 2024 story. Of course, we're doing things in 2024. But if you ask me to try to put a pin in where the real benefits and sort of tailwinds kick in. I'm actually going to say it's not even necessarily a '25 story, although maybe we'll see a little bit in '25. I think this is a '26 and on out benefit on the expense line. But let me go back to the sort of the premise of your question and just sort of briefly mention how we're embracing it. So I'll put it actually through the pillars that we've laid out in terms that are guiding so much of what we're doing in the company. So first, being more for our clients. We think there are solutions out there, 4 clients that are going to help them make better decisions, see risks, be able to be more efficient themselves. We've got software in market today doing that with predictive trade analytics around fails and settlements, allowing clients to be able to look out to see and take evasive action essentially on potential fails. And by the way, some of those actions involve using other parts of the BNY Mellon platforms in order to be able to improve their businesses. And so that's an interesting example, and there are going to be a lot more of those. Under the heading of running our company better, this is going to be about streamlining business processes, productivity, figuring out and seeing anomalies that we can see a code assistant as so many people talk about for our developers. I was walking around one of our buildings the other day, talking to one of our developers. They've been out of school for a year and change. And already, they think they're 25% more productive as a developer. And that's in the very early days. of using GitHub copilot. So that's going to be -- there's going to be more there, and that ultimately is going to create efficiencies for us. And then under the culture heading, which is very important, we want AI to empower our people to be able to go out and be able to be more efficient in terms of what they're doing. And there are any number of different examples of things over time that we think AI is going to be able to help with us. Now importantly, in this is the way in which we're doing it. Both Dermot and I talked about platforms -- and another concept in our platform strategy is to create these hubs, these centers of excellence -- and in AI, that's particularly important. We do not want to repeat the problems we've had in the past of having everyone go off in their own direction. And actually, in AI, it's particularly important because problem statements that sound different can, in fact, have very common root causes. So you might want to be able to respond to an RFP. You might want to generate summaries of documents. You might want to be able to get a head start on a research report. But actually, when you look under the heading, those 3 things sound different, but the AI that's actually powering them, some of the sort of mini platforms that are required are very, very similar. So we're using our AI hub to collect these different use cases and then be able to sort of deliver solutions and many AI platforms that can then be used in multiple places around the company. So we're excited about this. We think it's going to be very significant over time, but it's not a '24 story.

[Betsy Graseck, analyst]

Okay. Super helpful with the color. I appreciate that. And then just a follow-up on the tax rate guidance. This is part of the accounting change, I believe, is that right? And can you tell us where in the PPOP the offsets are?

[Robin Vince, executive]

Sorry, I missed the last part of it, Betsy, were they up?

[Betsy Graseck, analyst]

There's offsets, right, to the tax. The tax is impacted by the accounting change. Is that right?

[Robin Vince, executive]

Yes. So it's -- economically, it's net neutral for the firm. It's just a gross up in revenue, which will show up in the interest and other revenue line. And then the offset to that is in the tax line. And we filed an 8-K a couple of weeks ago where we restated all the prior periods for comparison so that people will see it on a consistent basis going forward.

[Betsy Graseck, analyst]

Sure. I just wanted to highlight that your tax rate guide is -- has the offsets in the revenue.

[Operator]

Our next question comes from the line of Ebrahim Poonawala with Bank of America.

[Ebrahim Poonawala, analyst]

I guess, not sure Dermot if this was addressed here but give us in terms of your outlook on deposits, I think the period end saw a pretty big uptick to $309 billion. Just give us a sense of within your NII guidance. One, what are you assuming in terms of deposit balances? And secondly, if we -- if the forward curve holds, is the next inflection on NII and margin higher or lower, yes?

[Dermot McDonogh, executive]

Yes. So as of the quarter end, Ebrahim, I think the spot number was around $310 billion of deposits, and that was largely -- you may recall that quarter end this year fell on a good Friday, where markets were closed. So we've got a lot of clients putting cash in so that they could make certain payments. And so we saw kind of a surge in deposits over the last few days of the quarter, and they've largely left the system now, and we've returned to more normal levels, which is in the kind of high 270 range. So that's kind of really the explanation for the spot deposit balance versus the average trend. So sequentially, we're down 6% in the deposits or NII, an 8% year-over-year and 2% -- we saw a 2% growth in the deposit balance generally speaking, our guide at the beginning of the year was down 10%. And given the rate volatility, and what's going on with the inflation report last week and the backup in rates, et cetera, et cetera, we don't see -- there's nothing that's causing us to think that we should change our guidance between now and the balance of the year. We're very neutrally positioned as to whether rates go up a little bit from here are down a little bit from here, and we feel very good about the overall guidance that we gave in January, which was approximately down 10%.

[Ebrahim Poonawala, analyst]

Got it. And I guess 1 just follow-up in terms of some of the actions you took in moving businesses in Pershing. As we think about the strategic review, I guess, Robin, maybe it began a year ago longer than that, give us a sense of in terms of the franchise positioning, how the businesses are talking to each other. And they're in the right place within the enterprise. Is all of that done? How close are you to getting the franchise synced up in terms of what is coming along with regards to what you want to achieve in terms of client synergies.

[Robin Vince, executive]

So the punchline is, we're making good progress, but you're essentially asking a cultural question. And we're not done on that. So when we did go back to your point, when we did our original strategy reviews, which is 18 months or so ago now, and it took us a few months to go through. We were really focused on answering the questions of what are we doing? Are we doing the right things? How are we doing them? Are we doing them in the right way? Do we have the right people doing them. And so we looked at that, and we certainly found bits of the company that were just in the wrong place. And so we've lifted those bits up, and we have put them in what we now think are the right place. So that's what both Dermot and I talked about in our prepared remarks, and that was what some of the restatement of prior periods so that you could make the easier comparisons there was about. That was basic blocking and tackling, but the bigger opportunity for sure is how the businesses work together not only to be more for clients by saying, hey, that client over there is a client, but they're not my client in my business, can we work together to basically make them a client of both businesses? That's very significant. That's where we talk about maturing ONE BNY Mellon into the real heart of a new commercial coverage model, and that's being driven by our Chief Commercial Officer. Another part of this is saying, there are things that we used to think of as stand-alone capabilities. Some might call them products. We think about them as client platforms. And in fact, what the client is asking for, and we really heard this when we did our Voice of Client survey, they don't want these individual products. They want us to take them and weave them together to create solutions for them that are on point to their needs. And so we've also started to do that, and I mentioned some examples of that, and that's a very powerful thing because that takes the breadth of our company and rather than it being siloed, which is getting in the way of solutions, it's now actually ending up being the opportunity for us to deliver from the breadth of our platforms to our clients with solutions that, frankly, some other people aren't going to be able to do. So that's, we think, very exciting. And in those journeys, we're still relatively early, and that is cultural. And we've been doing a lot of things internally in the firm to make sure that our people are lined up behind that. It's early days, but we're quite excited about the direction of travel.

[Operator]

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

[Brennan Hawken, analyst]

I'd like to start, Dermot, when you were walking through Pershing, I believe, you talked about the offboarding and the impact of how that was weighing on the net new assets. Could you give us an update on how far we are along in that offboarding process, and how much we should continue to expect for the rest of the year? And then also, recently announced the acquisition of Atria, which I understand was a Pershing client, and they're planning to consolidate those operations in 2025. So is that going to extend maybe some of the headwinds that we're seeing from some of these idiosyncratic off-boarding?

[Dermot McDonogh, executive]

Okay. Thanks for the question. So -- the first thing I would say about purging in the context of the overall kind of the segment. With respect to Pershing, we continue to invest in Pershing. Pershing continues to grow. And as we've said since the deconversion was announced, we're going to earn our way out of this situation, and that's what's happening. So we still, as a business, feel very good about Pershing and our ability. It's a market that's growing in mid-single digits on an annual basis. And we're a big player in that market. So we're going to win our share. So while the deconversion was unfortunate, we continue to march on and we learn our way out. Specifically, I would say, would be largely done with the deconversion by Q3 of this year. And as it relates to the second part, I would say, look, we're in a competitive market. People are going to do things, the LPL Atria thing. It's not a particular headwind. It's not been highlighted to me. It's not hit my radar in terms of, "Oh my gosh, we need to worry about that." And so I think we're winning more than we're losing, and we're investing, and that's really going well. And when you take it in the context of what's going on with Wove, we're building a strong pipeline there. The backlog is looking good. We've added 9 clients to the platform in Q1 of this year, and we made a commitment to the market that we would kind of add $30 million to $40 million of revenue this year and we still feel very good about that guidance and that commitment that we made to you back in January.

[Robin Vince, executive]

And Brandon, I'd just add on the business front, so that which is, remember, when we look the deconversion, for sure, those happen and the one that you're referring to, the original one was a larger one. We're also growing with our clients. Our clients are growing with us, and we also are on the receiving end of roll-ups as well. Our clients are quite acquisitive, and we have a couple of clients who've been doing acquisitions, and we have some of our largest clients who are growing very significantly and very healthfully. So it's always unfortunate when there's a roll-up that goes against us, when there are roll-ups that go with our clients, those things balance out to some extent, which is why Dermot makes the point about overall, we still feel quite enthusiastic about the net new assets growth over time.

[Brennan Hawken, analyst]

Great. And then when we think about the deposits, I'm trying to think about really, Dermot, the fact that here we are 1 quarter in, I get it, you maybe don't want to update expectations. But it seems like based on what we've seen so far, deposit trends seem to be doing better than expected. We saw a pickup in the deposit balances at year-end? Are they sustained, which is a little unusual. And even though they've come down from EOP at 331, they're still in a similar ballpark to where you were on the average. Are you guys, is there something specific that's driving the expectation for deposit decline, or is it just a component of conservatism?

[Dermot McDonogh, executive]

If I'm honest, I would say it's a little bit of both, but I would expect, like everybody expected deposits to decline this year and it hasn't necessarily happened yet. And I kind of think -- I make that statement in the context of QT. And so if you look at the RRP in Q1, the drain largely came from there. And if QT continues and rates stay higher for longer on balance, I would expect deposits to decline from here. And so I don't see anything that tells me that I should update the guidance from down 10% NII year-over-year. And then underneath the hood in terms of the composition of the deposits themselves, you have the mix between interest-bearing and noninterest-bearing. And as rates stay higher for longer, I would expect NIBs to grind a little bit lower. So the overall balance may be higher, but you have the mix underneath, which will kind of feed into that overall NII guidance. So it's not just the absolute level, it's also the composition of it.

[Operator]

Our next question comes from the line of Mike Mayo with Wells Fargo Securities.

[Michael Mayo, analyst]

Can you hear me? Yes. So I guess, noninterest-bearing deposits inched down again. And I'm just wondering where that floor is. I guess it's 18% versus 19% last quarter and 26% year-over-year. And so on the other hand, your servicing fees were up 8% year-over-year. So I'm not sure if I should draw a link or not, maybe what you're not getting in noninterest-bearing deposits you're getting and servicing fees. So I guess the question is, how are you getting such strong servicing fee growth year-over-year of 8%? How much of that is due to market? How much of that is sustainable? And is any of that simply a substitution effect from the noninterest-bearing deposits to servicing fees.

[Dermot McDonogh, executive]

Thanks for the question, Mike. So let's go with the fee component first. Q1 is kind of one of those quarters where we came into the year, I guess, both in deposits and in pipeline and sales activity in very good shape. As it relates to kind of asset servicing in particular, the pipeline was strong. We felt good coming into the year. Markets rallied nicely, and so clients were in risk-on mode, doing more with us, flows were stronger, balances are higher, and we're winning our share of mandates, little factoid for like of all the deals that we completed for in Q1, we won north of 50%. So we're competitive. We're pricing well. We're very focused on client profitability and deal margin, and it goes back to the point that we made in several quarters prior to this, where we're very focused on the cost to serve. And so by improving margin, focusing on cost to serve, being more for clients, we can be more competitive in the pricing point. And I made that remark -- I made the point in my prepared remarks that we saw repricing being de minimis. So it was a good quarter all around, and we feel very good about the backlog and the pipeline going forward. As it relates to the mix between fees and deposits, we don't lead with deposits as an institution. Clients do multiple things with us across the enterprise. And as a consequence of that, they leave deposits with us. It's an important point, but 2/3 of our deposits are operational in nature and therefore, very sticky. But with a higher for longer rate environment, it's only natural to expect that people with NIBs are going to, over time, move out of that and look for a higher yield. It's inevitable, and it's a fact of life, and we're ready to deal with that. But I'm very proud of what our Global Liquidity Solutions team is doing in terms of winning their share of the business in terms of the deposits and how we price them. And so sequentially, we've seen the balances go up because of that competitive pricing. So all in all, when you take the ecosystem together, we feel very good about where we're at.

[Robin Vince, executive]

And Mike, there was nothing idiosyncratic about trade-offs to the other part of your question. I don't see the quarter built around that at all.

[Michael Mayo, analyst]

Okay. And so a separate question for all the growth in servicing fees, asset management, what can you do to reverse the trend for sustainable growth? I mean, would it ever be an option to consider selling that the synergies, when you think about 1 ONE BNY Mellon, I kind of get the rest of the firm being all 1 cohesive unit over time. But how does asset management fit into that?

[Robin Vince, executive]

Sure. So this is a question that we talked a little bit about last year. And I said at the time that we think and I'll underline the word think that the business really can complement the strategy of the firm, but we had more work to do and that, that was a thesis, and we needed to put in place the various different steps to really be able to operationalize and make the most of that. And that's what we've been working on over the course of the past few months. The basic thesis is we think there's a strong industrial logic to have $2 trillion worth of manufacturing platform aligned to BNY Mellon's $3 trillion worth of retail distribution capacity if you look across Wealth and Pershing together, Pershing alone having $2.5 trillion plus of client assets on the platform. And so if you only operated in a silo in investment management, where it was manufacturing and only its own distribution, there's a legitimate question there about whether or not it would have the scale and the capacity to be able to truly compete. But when you put it together with the rest of the company, we think there's a pretty compelling thesis there. And so we've properly capitalized on those benefits in the past. And so our strategy is, let's let investment management stretch its legs in that new approach. And we see some early signs of progress on that. We've been joining some dots. I mentioned a couple of things in my prepared remarks, both in terms of us having a broader distribution platform that actually can attract other investment managers who maybe don't have the benefit of our distribution, and they want to come join our platform, rounding out our offerings and essentially making our distribution platform more complete, but also being attractive to them so they don't have to build their own, if you will, they're building their business on one of our platforms. And so we've given you our targets. We want to be able to expand the pretax margin in the business to over 25%. It's not for nothing that we didn't grow expenses in that segment or in security services for that matter because we're really focused on the margin in those businesses, and we have had some growth. And so this is about really working that set of opportunities, and we'll see over the coming quarters how we do. But this quarter was one where we felt we took an important step forward.

[Operator]

Our next question comes from the line of Glenn Schorr with Evercore ISI.

[Glenn Schorr, analyst]

Robin mentioned it, so maybe it wasn't that big of a deal, but T+1 starts at the end of May. I'm curious if it was a big expense lift that we get some relief on going forward? And then related to that, are there any headwinds on NII and any benefits on capital that we have to think about as a result of moving towards a more Q1 world?

[Robin Vince, executive]

So T+1, sure, we had for sure, spend money in different parts of the company in order to be able to ready ourselves for this. We view that as frankly, ordinary course of business. There's always some market structure change going on in the world that we have to respond to. So while they may be individually lumpy, there's always something. So we just think about that as part of the expense of running the company and not something that will yield a particular benefit when we happen to have finished the work. Now I do think that T+1 overall provides benefits to the financial system, improvements in efficiency, some risk reduction. I would say to the second part of your question, more of that probably accrues to our clients because we're not as big a principal player there. It can improve liquidity and capital requirements in the fullness of time. The industry has come a long way. It wasn't that long ago that we were at T+5, T+3 sort of moving down the curve. And I will also say from an opportunity point of view, not only do clients look to us to help them navigate these types of things because they're complicated and detailed and they want us to essentially help them in executing this type of change, and that's exactly what we've been doing. But we also think that there are just opportunities associated with these sorts of inflections because clients look at us and it does sometimes cause the question to be raised of another big change in the post-trade landscape life's too short, I'm an investment manager, or I'm a broker dealer. I want to go about the core of my business. I don't want to have to worry about that stuff as much as I currently do. BNY Mellon, can you help us. Can you help us and maybe there's a platform sale opportunity there for a little bit more outsourcing? And because as the world makes these changes, speeds up, gets more complicated, more change management of course, have the benefit of scale. We get to change once, and we get to take some of those problems off their hands. And so I'd call that out when it comes to real-time payments, I'd call it out in T+1, I'd call it out in clearing each time these things happen, we look at it through a lens of opportunity as well as a lens of client service. But overall, also just good for the market. Nothing good happens between trading and settlement, as is often said.

[Dermot McDonogh, executive]

And Glenn, on the specific point about headwinds as it relates to NII. I kind of -- I look at the last 2 quarters together in terms of the strength of what we've done on NII. And I feel, overall, we're in a good place. The balance sheet is very clean. Our CIO book is well positioned and kind of short duration. And the CIO is doing a really good job at optimizing yield. And so when you see our securities that are maturing at the moment, they're rolling off at a kind of 2% to 3% rate and then are being deployed at current market yields. So based on what I see today with the backup in rates that happened last week as a result of the hot inflation report, we feel pretty good about where things are for the balance of the year, just using that forward curve. As I said earlier, rates up a little, down a little, don't materially impact us. And so we feel like our base case is -- we feel pretty good about it.

[Operator]

Next question comes from Gerard Cassidy with RBC.

[Gerard Cassidy, analyst]

Dermot, can you give us some color? I noticed you said in your prepared remarks, the average loan balances were essentially flat in Q1 versus Q4. But I noticed the spot number, the year-end -- or quarter end number for loans was actually quite a bit higher, around $73 billion versus the spot number in the fourth quarter. Was it something at the end of the quarter that caused that to increase?

[Dermot McDonogh, executive]

Again, it was a little bit of what I call the "Good Friday effect," where clients use our overdraft facility mechanisms going into that weekend. And so that really caused the spot balances to go up, and that's kind of largely cleaned out, so it has reverted more to the average numbers that you're familiar with.

[Gerard Cassidy, analyst]

Okay. Good. And I know this is not a big area for you guys. So maybe you could give us better insights since it's not as big as it is for a traditional bank. But can you maybe give us some color on the commercial real estate? I know you pointed out you've built up the allowances there. What are you guys seeing? Is it similar to what we're reading about and hearing from others, or is it something different?

[Dermot McDonogh, executive]

So I would say, look, we're prudently marked in the commercial real estate portfolio. Overall, our CRE portfolio in the context of our overall balance sheet is quite small, 3% of total loans, $2 billion. And the reserve build that we took in Q1 was really just kind of being prudent on a couple of specific situations that are coming up for restructuring. But I would let you know that they're all still paying and everything is working and their Class A office buildings, and we feel good about the occupancy. So I would say overall, very, very clean and nothing that really has me unduly concerned. And look, there has been a lot of chatter in the market in the press over the last quarter about what's going to happen. I'm sure the backup in rates hasn't really helped that chatter. But like surveying other banks' results so far this quarter. I haven't really noticed any specific CRE bills on the back of what's been going on over the last couple of quarters. So it does feel like as a sentiment matter to be quite muted at the moment on the back of others earnings release. That's at least what I've observed.

[Robin Vince, executive]

And Gerard, I'd just add to that for the more general view which is I think the answer to what happens in corporate real estate. Clearly, it depends which markets you're involved in. There are some markets around the country that are more distressed than others. It continues to be focused on office, as you know, although there are certainly some questions on multifamily, but the fact that we're sort of still short housing in the U.S. as a general matter is probably ultimately going to be helpful to that story. The most -- single most important driver of it, as we sit here today, is where our longer-term rates. And so there's so much chatter about what's going to happen in Fed funds, is the Fed going to cut? Are they going to stay? Are they going to hike a little bit? But what really matters is where is the curve from 5 to 10 years and as that backs up and to the extent that we cross 5%, you get very different outcomes on commercial real estate than you do at 10 years or at 4%. And if they ended up for some reason, not our base case, but it's possible. You've got to plan for it. If they end up at 6%, then for some folks in the market, that's going to be a much more painful outcome. So I think you watch -- so goes the 10-year to some extent, so goes the commercial real estate market because this is a '24 a little bit, but really '25 refinancing story.

[Operator]

Our next question comes from the line of David Smith with Autonomous Research.

[Unknown Analyst]

Could you please help us think a little bit more about how far you are along you are in the efficiency opportunity journey? I know it's really never ending in some ways, but can think about when the pace of improvement start to decline as you get through more of the low-hanging fruit?

[Dermot McDonogh, executive]

So thanks for the question. I was wondering when it was going to come. It's a multiyear journey. And look, let's go back to last year and kind of go through it. And last year, we kind of ended up at 2.7% versus a guide of 4% versus the previous year of 8%. And this year, we've guided flat, and we started Q1 on an operating basis of 1%. You'll see that our headcount, we've got -- we've largely give or take, a few hundred people is largely flat. And so the headcount is flat. We feel like we have our arms wrapped around that. There's a lot going under the hood in terms of bringing in like growing our analyst class, high-value location growth, et cetera, et cetera. So we see a lot of opportunity to continue to improve the efficiency story Also, as we both said in our prepared remarks, the migration to a new way of working, the platform operating model over the next couple of years, we feel will not only help us grow top line, but it will also just help us run the company better. And I think it's quite important culturally that we don't really talk about efficiency internally. We talk about running our company better, which is very important strategically and also culturally. So I think you're going to see quarter-by-quarter proof points on how we're able to run the company better, which will result in efficiency, which will then in turn result in improved margin. So we feel very optimistic about what's coming.

[Unknown Analyst]

And lastly, just to confirm, the $1 billion or so of buyback in 1Q. Does that come out of the $6 billion new repurchase authorization, or is the $6 billion incremental to what you did in 1Q?

[Dermot McDonogh, executive]

So we did an authorization last year, which was $5 billion. We have a little bit left in that. And so it's just more of an administration thing that we decided to guess another authorization this year for $6 billion, that's largely open ended. So I wouldn't really dwell on the size of the authorization that much. It's just more of what we commit to you doing on an annual basis. And the key thing for you to take away is we're committing to north of 100% this year.

[Operator]

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

[Brian Bedell, analyst]

Maybe most of them have been asked and answered, but maybe just a couple of follow-ups. One, a little bit on that prior question, Dermot, I guess this could be for Robin as well. I think, Robin, you mentioned earlier in the call about 15% of staff are in the new operating model. Maybe if you could just talk about your migration plan over time. And going back to what you just answered, Dermot, about the efficiency improvement should we be thinking of this over the long term as maybe roughly even between expenses and revenue or still more geared towards expenses?

[Robin Vince, executive]

Okay. Let me just start with the platform's operating model. So ultimately, if you just go back to why are we doing what it is that we're doing, we've been pretty siloed as a company, as we've talked about before. We think that's a bad artifact. At least it's a bad artifact for a company like us which is inherently a scale platforms provider. It's kind of the nature of our business, diversified many different platforms, but largely at scale. And so to have the separation of all of these pieces that are in support of that and in some cases, duplication, it just, in our opinion, wasn't the right way to run the company. So what is platform's operating model going to do? It's going to simplify how we work. It's going to improve the client experience, and it's going to create more empowerment for our employees. It's an opportunity to do things in one place, do them well and elevate the quality of overall execution. And so with that said, it sort of hits on the expense line as a benefit and it hits on the revenue line as well. And we've done -- remember, we did a bunch of studies for this before we embarked on it because a pretty significant change. We also did some pilots, and to some extent, we've even built new businesses using this operating rhythm because we built Wove in that way, and that wasn't entirely by accident. So we've had some experience associated with all of that, and we feel pretty good, therefore, that we are going to get expense savings and revenue opportunities associated with it. We also think that from a cultural point of view, it's just an opportunity for our people because we think our people, and this is certainly what the data so far has shown, they just feel more empowered working in the model. They can see a problem. They can get on it more quickly. They're more empowered to pull the levers to create change and they no longer feel that maybe they're part of a long chain of bureaucracy to make change. On the efficiency opportunity thing, the thing I would add in answer to your question from what Dermot said earlier on, is just to reinforce that there are short, medium and long-term opportunities for efficiencies. And we've talked about it this way for a while now. As Dermot said, we had to bend the cost curve last year. We thought it was very important. So we took a bunch of slightly tactical, but nonetheless important and decisive changes. We also laid the groundwork for some medium-term saves. We talked about Project Catalyst, 1,500 ideas sourced from our employees, essentially delivering savings in '22 -- sorry, in '23 and '24 and '25. And then we've got things that are longer term, like the platform's operating model, which are fundamentally changing ways that people actually work. That's a longer-term opportunity, probably get a little bit of benefit from that from '24, but '25 and '26 places where we'll probably see a bit more of that. And then in answer to Betsy's question from earlier on, been investing in AI. Now that's definitely not a '24 story for benefits, maybe not even '25, but a '26 and beyond story. So we're layering in different opportunities, recognizing that we wanted to take swift action, but then we also feel that we're laying the seeds for future efficiencies over time.

[Dermot McDonogh, executive]

And I would just -- Brian, just to add on, I would just anchor you in a number. Like last year, when we grew expenses by 2.7%, we invested $0.5 billion in new initiatives within that 2.7%, and we're replicating that again this year. And so as somebody who's very close to the platform operating model strategy, the cultural point is when you walk the corridors of BNY Mellon now, you feel an energy and enthusiasm for our people, as Rob has said, from embracing the model that hasn't been seen before. And it is a very, very exciting strategy that's going on at the firm.

[Brian Bedell, analyst]

That's fantastic color. And maybe just 1 last one on the speaking of initiatives, the buy side trading solutions initiative. I know we've had a lot of other initiatives to talk about. So just maybe to get an update on how that's tracking.

[Robin Vince, executive]

Yes. This was -- I'll take this one. This was always going to be a medium-term thing. As we've told you, we sort of have this capability in-house. It was -- it's a great example of platform thinking. It was captive in one bit of the company only looking internally. We essentially made it fit for external use as well. We onboarded, as we told you last quarter, a large client onto that platform, and that's been going very well. I have a lot of conversations with clients about how they could consider part of their trading desks to be outsourced. Sometimes, it's all of it. Sometimes it's a region or a product that somebody wants to essentially say, "Hey, I'm not at scale, you're at scale, you're executing $1 trillion worth of volumes, can I rent that capability from you essentially." We think there's a large addressable market here, but it's going to be -- this is a longer sell process. The sales cycle of this takes longer. It's definitely a C-suite conversation, but we continue to be cautiously optimistic about this over time.

[Operator]

Our next question comes from the line of Ken Usdin with Jefferies.

[Kenneth Usdin, analyst]

I know we're getting on here. I'll try to ask just a couple of quick cleanups. First of all, this is the first quarter that the securities book has actually grown in absolute terms. And I'm just wondering is part of that an increased confidence in just where you do expect deposits to land, or was it more just opportunity cost of what your options were in the market?

[Robin Vince, executive]

Thanks, Ken. I would say very much the latter. And when you look at the overall portfolio, you think of cash and securities together, and it was really the CIO team just optimizing yield and deploying cash where they see the opportunities.

[Kenneth Usdin, analyst]

Yes. Okay. And then I know you said a little bit of this before, but I was wondering if you could tighten up. Last quarter, you said -- to Glenn's question, you talked about reinvesting at market rates. So last quarter, you put that together and said that you would expect that this year's reinvestments to be 150 to 200 basis points on your roll-on roll-off. And with higher rates, I'm just wondering if you kind of put that together for us, like what do you think that net benefit is now versus that 150 to 200?

[Dermot McDonogh, executive]

I think it's in the 200 zip code.

[Kenneth Usdin, analyst]

Okay. And then last one, just duration of the portfolio. Can you just give us an update on where that stands?

[Dermot McDonogh, executive]

Roughly 2 years give or take, yes. But yes, 2 years is the best number to give you on that one.

[Kenneth Usdin, analyst]

Okay. So to your point, like still keeping really short and opportunistic?

[Dermot McDonogh, executive]

Correct, yes.

[Kenneth Usdin, analyst]

Great, yes.

[Operator]

And our final question comes from the line of Mike Mayo with Wells Fargo Securities.

[Michael Mayo, analyst]

I just -- when you mentioned your comments about commercial real estate. I was just wondering, I don't think you have much exposure, but you highlighted that commercial real estate, I guess, for the industry, or are you talking office. You said it's really a 2025 refinancing story and ASCO the 10-year ASCO commercial real estate. It's just -- if you could provide any color. Why did you highlight that? And why do you have that sort of conclusion?

[Robin Vince, executive]

Well, the question, Mike, was more general in nature. It wasn't really applying to us. Dermot talked a little bit about us, in particular, on commercial real estate. But I think the question that was being asked was just using our vantage point, I think it was from Gerard just using our vantage point in the world because we're not particularly invested in the space, what do we see in the world, maybe as a slightly less conflicted observer. And so I was just giving my perspective on it.

[Michael Mayo, analyst]

Yes. From your perspective, what's -- I'm just curious, interested, ASCO to 10-year, it's a 2025 refinancing story. Any color behind that?

[Robin Vince, executive]

Sure. So at the end of the day, the -- as you look at the various different owners of commercial real estate who have refinancings and they're looking at their own occupancy level, they're looking at their own maturity of their own debt stack, and they need to go out and they need to find a refinancing, of course, as you know, better than anybody when they -- when their debt stack starts to come due, that isn't a Fed funds type of refinancing because they're not for funding of very short dates. And most of them for understandable reasons, like to lock in funding as well. So they're looking further out the curve. It's not precisely at the 10-year point. But my point really is the risk to refinancing in the commercial real estate space is very correlated to the shape of the treasury curve overall. Clearly, credit spreads matter as well. but it's a different proposition when you have the longer, call it, 10 years, but it's probably a little inside of that part of the curve at 4% versus 5% versus 6%. And that was the purpose of my observation.

[Operator]

And with that, that does conclude our question-and-answer session for today. I would now like to hand the call back over to Robin with any additional or closing remarks.

[Robin Vince, executive]

Thank you, operator. I'd just like to wrap up by thanking our employees for their hard work to unlock the tremendous opportunity inside of BNY Mellon. We started the year with great momentum, delivered very solid results in the first quarter, and the pace of change continues to pick up, and I want to thank our investors for their continued support. We appreciate your interest in BNY Mellon, and thank you for your time today. If you have any follow-up questions, please reach out to Marius and the IR team. Be well.

[Operator]

Thank you. And that does conclude today's conference and webcast. A replay of this conference call and webcast will be available on the BNY Mellon Investor Relations website at Eastern Standard Time today. Have a great day.