BNY Mellon (BK) Earnings Call Signals Higher Ambitions

Bank of New York Mellon Corporation ((BK)) has held its Q4 earnings call. Read on for the main highlights of the call.

BNY Mellon Delivers Record Earnings Amid Strategic Shift and Select Headwinds

The earnings call for Bank of New York Mellon Corporation struck a notably upbeat tone, underscored by record revenue, net income, and robust returns on capital. Management emphasized strong execution, widening margins, and clear commercial momentum in core franchises like Securities Services and Markets & Wealth Services. While they acknowledged pockets of weakness—particularly in Investment & Wealth Management flows, some fee pressures at Pershing, and deposit margin compression—the overall narrative was one of confidence, discipline, and rising ambitions, highlighted by higher medium‑term financial targets and visible progress on AI and platform initiatives.

Record Financial Results Underpin Confidence

BNY Mellon reported record full‑year 2025 net income of $5.3 billion on record revenue of $20.1 billion, up 8% year over year, showcasing the earnings power of its fee‑driven model leveraged by higher rates. Return on tangible common equity reached a standout 26% for the year, a level more associated with top‑tier capital‑light franchises than a traditional bank. Net interest income grew a robust 15% for the full year, while expenses rose only 3%, delivering positive operating leverage and margin expansion. This combination of revenue growth and disciplined cost control formed the backbone of management’s upbeat message.

Q4 Momentum: EPS Surges on Strong Top Line

Fourth‑quarter performance reinforced the full‑year story, with total revenue of $5.2 billion up 7% year over year and fee revenue rising 5%. Net interest income grew 13% in the quarter, indicating that rate benefits and balance sheet positioning still support earnings. Reported Q4 EPS jumped 31% to $2.02, while full‑year EPS climbed 28% to $7.40 ($7.50 excluding notable items, up 24%), showing that growth is translating effectively to the bottom line. Credit quality remained a support, with a $26 million benefit to the provision for credit losses in Q4, underscoring the low‑risk profile of BNY Mellon’s balance sheet.

Operating Leverage and Margins Move to New Highs

BNY Mellon delivered substantial operating leverage in 2025, generating 507 basis points of positive leverage on a reported basis (411 bps excluding notable items). Full‑year pretax margin improved to 35% (36% ex‑notables), while Q4 pretax margin was around 36% and quarterly ROTCE reached 27%. This margin profile reflects both revenue scale and efficiency gains, positioning the bank more like a high‑quality financial utility than a traditional spread‑dependent bank. Management framed these results as evidence that its business mix and operating model can consistently generate attractive, capital‑efficient returns even amid pockets of macro uncertainty.

Securities Services Posts Strong Growth and Beats Targets

The Securities Services franchise, a core pillar of BNY Mellon’s identity, showed clear momentum. Q4 revenue in the segment rose 7% year over year to $2.5 billion, with investment services fees up a strong 11%, reflecting deeper client penetration and higher activity. Assets under custody and/or administration for ETFs reached $3.8 trillion, up 34%, with more than 2,500 funds serviced, a 22% increase—highlighting BNY Mellon’s position at the center of ETF infrastructure. Segment pretax income surged 30% to $838 million, and pretax margin reached roughly 34%, surpassing the prior medium‑term target of at least 30% and giving management confidence to raise its ambitions.

Markets & Wealth Services Extends Its Lead

Markets & Wealth Services also delivered another strong quarter, with Q4 revenue of $1.8 billion, up 8% year over year. Clearance and Collateral Management investment services fees grew 15%, supported by average collateral balances of $7.5 trillion, also up 15%, underscoring BNY Mellon’s central role in global market plumbing. Pershing, the clearing and wealth platform, posted $51 billion of net new assets in Q4, reinforcing its competitive positioning even as fees face some pressure. Segment net interest income increased 20% year over year, and pretax margin of around 49% highlighted the capital‑light, high‑return nature of the franchise.

Capital Returns and Balance Sheet Remain a Key Shareholder Theme

BNY Mellon continued to return substantial capital to shareholders, with $5 billion distributed in 2025 through dividends and buybacks. In Q4 alone, capital returned totaled $1.4 billion, equating to a 100% payout ratio for the year, signaling management’s confidence in the sustainability of earnings and capital strength. The CET1 ratio ended Q4 at 11.9%, up 17 basis points sequentially, while liquidity remained robust with a liquidity coverage ratio of 112% and a net stable funding ratio of 130%. These metrics give the bank flexibility to maintain high capital returns while investing in growth, even under evolving regulatory and market conditions.

Platform Operating Model and AI Start to Scale

Management highlighted significant progress on its platform operating model and AI strategy, which are central to its long‑term efficiency and service ambitions. During 2025, roughly half of the workforce was transitioned into the platform operating model, bringing more than 70% of employees into the structure overall, aimed at standardizing processes and scaling capabilities across businesses. The bank deployed over 130 digital employees and scaled its enterprise AI platform “Eliza,” supported by collaborations with major technology partners. These efforts are designed to unlock capacity, reduce manual work, and improve client outcomes, providing a structural underpinning for improved margins over time.

Commercial Model Delivers Record Sales and Deeper Relationships

BNY Mellon’s refined commercial approach translated into record sales performance for the year, with a pronounced focus on cross‑selling and deepening client relationships. The number of clients purchasing three or more services increased by about 64% over two years, indicating success in bundling offerings across custody, collateral, treasury, and data solutions. Management called out notable wins in Q4, including a banking‑as‑a‑service mandate for digital assets with WisdomTree, a front‑to‑back win with an active asset manager, and a significant private markets data and analytics mandate with Japan’s Government Pension Investment Fund. Approximately 10% of 2025 sales came from new logos, showing the franchise is still expanding its addressable client base.

Investment & Wealth Management Remains a Soft Spot

Despite strong group results, Investment & Wealth Management underperformed and remains an area of concern. Segment revenue declined 2% year over year to $854 million, while pretax income fell 14% to $148 million, leaving pretax margin at a modest 17%. Q4 saw net outflows of $3 billion, including a significant $23 billion of outflows from long‑term strategies, only partially offset by $20 billion into cash products. This mix suggests ongoing pressure on higher‑fee long‑term assets under management and highlights competitive and market challenges facing the active and traditional wealth businesses. Management will likely need to show tangible improvement here to sustain the group’s upward earnings trajectory.

Pershing Fee Mix and Revenue Composition Under Pressure

Within Markets & Wealth Services, Pershing’s fee performance showed some strain even as underlying activity remained healthy. Investment services fees at Pershing declined 2% year over year, in part due to prior‑year de‑conversion activity. Management indicated that looking ahead, fee growth at Pershing is likely to be more muted relative to net interest income in 2026 and may not fully offset other sources of revenue variability. For investors, this signals that while the platform remains a growth engine in terms of assets, the mix of revenue between fees and spread income is shifting, potentially increasing sensitivity to rate dynamics over time.

Deposit Margin Compression and NII Sustainability Risks

Although net interest income grew strongly in 2025—up 15% for the year and 13% in Q4—management acknowledged some pressure beneath the surface. Deposit margin compression weighed on results in the quarter, and the bank cautioned that December was an unusually strong month for NII that may not fully annualize into 2026. With average balances expected to be roughly flat in 2026, future NII growth will rely more heavily on reinvesting maturing securities into higher‑yielding assets rather than balance sheet expansion. This introduces some execution and market‑rate risk into what has been a key earnings tailwind.

Expense Growth and Reinvestment Could Cap Margin Upside

Cost control remains generally solid, but reinvestment is pushing expenses higher and could constrain incremental margin upside if revenue underperforms expectations. Full‑year expenses rose 3% on a reported basis, while Q4 expenses were flat year over year but up 4% excluding notable items, reflecting higher investments, employee merit increases, and the impact of a weaker U.S. dollar. For 2026, management is guiding to expense growth of 3%–4% (ex‑notable items), aligning investment in technology, people, and platforms with its strategy. However, this sets a bar for revenue growth; should the environment soften, maintaining the desired level of positive operating leverage could become more challenging.

Market‑Sensitive Revenue Streams Highlight Volatility Risk

The call also highlighted that some parts of BNY Mellon’s revenue base remain sensitive to market conditions, especially volatility and foreign exchange. In Q4, foreign exchange revenue in Securities Services was down 3% year over year, driven by lower spreads amid reduced FX volatility. While this is not a major earnings swing factor in the context of the overall franchise, it serves as a reminder that certain fee lines are cyclical. For investors, this means that periods of subdued market activity can dampen growth in otherwise stable businesses.

Digital Asset and Tokenization Bets Still in Early Innings

BNY Mellon continued to expand its footprint in digital assets and tokenization, announcing initiatives such as tokenized deposits capabilities and a Dreyfus Stablecoin Reserves Fund. These efforts signal a strategic bet on the future of financial infrastructure, where tokenization and digital rails could reshape settlement, liquidity, and investment products. However, management was clear that these initiatives remain in early stages, with monetization and large‑scale adoption still uncertain. For now, they represent optionality and strategic positioning rather than a near‑term earnings driver.

Guidance and Elevated Medium-Term Ambitions

Looking ahead to 2026, BNY Mellon guided to about 5% year‑over‑year growth in total revenue (excluding notable items), acknowledging that performance will be partly market‑dependent. Expenses are expected to rise roughly 3%–4%, with a target of at least 100 basis points of positive operating leverage, implying continued efficiency gains. Management expects net interest income to grow slightly faster than 5%, supported by reinvesting maturing securities at an estimated 100–150 basis point yield pickup, while fee growth may come in a bit below 5%. Average balances are projected to be roughly flat, and the bank anticipates a quarterly tax rate near 23%, with some first‑quarter noise from vesting‑related benefits and higher staff expense. Over the medium term, BNY Mellon raised its pretax margin target by 500 basis points to 38% and its ROTCE target by 500 basis points to 28%, while maintaining a Tier 1 leverage target of 5.5%–6% and continuing robust capital returns supported by strong liquidity and capital metrics.

In summary, BNY Mellon’s latest earnings call painted a picture of a franchise firing on most cylinders, with record earnings, rising margins, and visible benefits from platform and AI investments. While weaknesses in Investment & Wealth Management, fee pressures at Pershing, NII composition risk, and market‑sensitive revenue lines present real challenges, management’s raised targets, disciplined capital returns, and strong core businesses offer a compelling story for investors. The key watchpoints over the next year will be execution on cost discipline and technology, stabilization of long‑term asset flows, and the bank’s ability to sustain profitable growth in a more normalized rate and volatility environment.