管理層發言
Good morning and welcome to the 26 Second Quarter Earnings Conference Call hosted by BNY. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. 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's consent. I will now turn the call over to Marius Merz, BNY Head of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone. Welcome to our second quarter earnings call. I am here with Robin Vince, our CEO, and Dermot William McDonogh, our CFO. As always, we will reference the quarterly update presentation, which can be found on the Investor Relations page of our website at bny.com. I will 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 is available in the earnings press release, financial supplement, and quarterly update presentation, all of which can be found on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, July 15, 2026, and will not be updated. With that, I will turn it over to Robin.
Thanks, Marius. Good morning, everyone, and thank you for joining us. I will begin with a few comments on our performance in the second quarter and our progress over the first half of the year before Dermot takes you through our financials in greater detail and provides you with our updated financial outlook. Referring to Page 2 of the quarterly update presentation, BNY delivered another strong performance in the second quarter. Earnings per share of $2.45 increased by 27% year over year. We grew total revenue by 13% year over year to a record $5.7 billion, reflecting broad-based growth across our businesses, and we generated approximately 600 basis points of positive operating leverage. Taken together, we expanded pre-tax margin to 40% and return on tangible common equity to 31%. Reflecting on the operating environment, the second quarter presented a dynamic backdrop for global markets. Amid geopolitical tensions, elevated energy prices, and continued uncertainty around inflation, interest rates, and fiscal policy, the fundamental drivers of capital markets remained broadly constructive. Corporate earnings were resilient. Investment in AI infrastructure continued at a significant pace, and labor markets held up despite some signs of moderation. BNY is built for this type of environment. Our diversified set of businesses operate across the breadth of capital markets, benefiting from the higher levels of market activity and strong client engagement. Taking a step back, our work over the past several years was about laying the foundation for the multi-year reimagination of our company: to create a more diverse, durable, and growthier set of businesses that serve our clients in more innovative ways. At the beginning of our transformation, we set out to do three things which I will briefly recap. Starting with the most important, culture. Revitalizing our leadership team, breaking down silos, and encouraging our people to act as owners has resulted in our teams working more effectively together with a common purpose of making BNY better every day. Second, we fundamentally reimagined how we operate inside the company. No more silos and islands of isolation, but a re-architecting that realigns BNY across client and enterprise platforms. This led to our new operating model, which is now fully activated. And lastly, we said we had to go to market in a new way: to make it easier for our clients to do more with us, a powerful value proposition for them and a meaningful revenue opportunity for us. This led to our new commercial model, now in place for two years and driving good momentum. As we get properly underway in phase two of our work, we have clear signals that our strategy is working. Now we need to capitalize on this foundational work, increasing our focus on innovation both in new technologies like artificial intelligence and digital assets, and in continued product innovation across our businesses. In short, we have a lot to do. But as I visit our teams around the world and hear from our clients, I am energized by the feedback and the opportunity. With this in mind, we wanted to share some more specifics on our progress in our mid-year business update on Page 3. First, on the commercial side, momentum matters. Deepening relationships and partnering more closely with our clients remains one of our greatest opportunities. With our commercial model in place, we now have a clearer view of the white-space opportunity ahead of us. As we sharpen our go-to-market strategy, we are starting to see the benefits: broader relationships, larger mandates, and more integrated solutions built on capabilities that BNY is uniquely positioned to deliver as a seamless package. The second quarter was our 14th consecutive quarter of year-over-year sales growth. So far this year, we have had two consecutive record sales quarters. The average deal size is up by more than 20% year over year, and approximately 10% of deals are with clients that are entirely new to BNY. Our wins in the second quarter demonstrate, for example, how BNY is helping market participants prepare for expanded clearing for U.S. Treasuries, supporting the growth of ETFs in Europe, delivering integrated solutions for asset owners, and enabling digital asset capabilities for asset managers. The common thread is not any one product or solution. It is that by bringing together BNY's platforms, we can more effectively solve challenges for our clients and drive higher and more durable growth for our company. Next, on our platform operating model. This was more than a reorganization. It is a better way of working, one that allows us to move faster, collaborate better, innovate more consistently, and ultimately deliver more for our clients. In the second quarter, we completed the transition and have now shifted our focus from implementation to realizing the benefits of this new operating model over the next several years. We are already seeing some early progress. We are now able to move more nimbly, bringing product, technology, operations, and commercial teams together to build more integrated solutions and respond more quickly and comprehensively as client needs evolve. Given the breadth of our businesses, and supported by our operating and commercial models, BNY has an incredible advantage in innovating new ways to solve emerging client needs across our platforms. A good example of this from the second quarter is our work with the U.S. Treasury Department, as the financial agent for TRU-M accounts, which we are supporting with capabilities from across BNY. We can also see that several innovative products launched over the past few years, for example buy-side trading solutions, Collateral One, and Borrow+, have become compelling contributors to revenue today. Another component of innovation is linked to the shift toward an always-on financial ecosystem. Payments, liquidity, collateral, digital assets, and securities markets are becoming more interconnected, creating demand for infrastructure that operates with greater speed, certainty, and resilience. We believe this represents one of the defining opportunities for services over the next decade, and it is an area where BNY is well-positioned to lead. In the second quarter, we announced our expanded relationship with Circle, bringing together institutional digital asset custody with mint-and-burn capabilities for USDC within a single operating model. This builds on our role as custodian of USDC reserves and enables clients to move more seamlessly between traditional cash and blockchain-based networks through infrastructure that combines institutional-grade governance, operational resilience, and scale. We expect this will be a recurring theme as we continue to invest in the infrastructure that we believe will support the future of financial markets. Whether through real-time payments, tokenized assets, collateral mobility, or digital cash, our objective is the same: to help clients connect traditional and digital financial ecosystems in ways that improve efficiency, expand optionality, and support growth through trust and resiliency. Which brings me to AI. Over the past six months, the conversation around AI has reflected a wide range of sentiment: excitement about what the technology can unlock, urgency as companies move to deploy it, and skepticism about whether the level of investment will translate into real outcomes. Business leaders are looking at how to measure returns, manage risk, and turn AI from experimentation into durable value. At BNY, we continue to view AI as one of the most important long-term opportunities for our company and for society more broadly. Over the past few years, we have invested in the enterprise capabilities, governance, and talent to allow us to embed AI across the company in ways that strengthen how we innovate, how we operate, and ultimately how we deliver for clients. We are now starting to see AI create value across three dimensions. First, AI is helping us to run the company better by embedding new capabilities into our end-to-end workflows and enabling our people to work more productively. This creates capacity. It would be a mistake to think about this as just an efficiency creator. We also see it as an enabler for growth and for our broader strategy. Second, AI is helping us build better products and deliver better experiences for our clients. And third, we believe AI can expand the perimeter for BNY by allowing us to bring new capabilities to market through our platforms, our data, and our expertise. It is early days across all three dimensions, but we are starting to see AI create a tangible and measurable impact across the entire client life cycle. Some examples of which we shared with you in our presentation last quarter. As these capabilities continue to evolve, we believe AI can become an increasingly important source of differentiation and long-term value creation for our clients, our people, and our shareholders. Looking back on the first half of the year, we are encouraged by our progress. Across the company, we are seeing the capabilities we are building translate into better outcomes for our clients and stronger performance for our shareholders, with our people at the heart of this progress. The way BNY works today is fundamentally different than it was just a few years ago, and our stronger culture of collaboration, ownership, and innovation is helping us to deliver faster and more consistently for our clients and more effectively as one company. To conclude, we are entering the second half of the year with strong momentum. The trends that are reshaping financial markets—greater activity, increasing complexity, new technologies, and demand for trusted partners—play to BNY's strengths and give us confidence that our strategy is the right one. With that, over to you, Dermot.
Thank you, Robin, and good morning, everyone. I am starting with our consolidated financials for the second quarter on Page 4 of the presentation. Total revenue of $5.7 billion was up 13% year over year. Fee revenue was up 11%. That included 13% growth in investment services fees, reflecting net new business, higher client activity, and higher market values. Investment management and performance fees were up 5%, primarily driven by higher market values, partially offset by the mix of AUM flows. Firm-wide AUC/A of $62.6 trillion was up 12% year over year. This increase was primarily driven by higher market values and net client inflows, partially offset by the unfavorable impact of a stronger U.S. dollar. Assets under management of $2.2 trillion were up 6% year over year, primarily driven by higher market values, partially offset by the impact of the stronger dollar and cumulative net outflows. Foreign exchange revenue was up 8% year over year on the back of higher client volumes, partially offset by the impact of corporate treasury activity. Investment and other revenue was $216 million in the quarter. Net interest income was up 20% year over year, primarily driven by reinvestment of investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Provision for credit losses was a benefit of $8 million in the quarter, reflecting improvements in commercial real estate exposure where we now have zero non-performing assets. Expenses of $3.4 billion were up 7% year over year, both on a reported basis and excluding notable items. Three quarters of the increase represents revenue-related expenses. The remaining one quarter reflects higher investments and employee salary increases, partially offset by efficiency savings. Taken together, reported earnings per share of $2.45, up 27% year over year. Excluding the impact of notable items, earnings per share were essentially the same at $2.46, also up 27%. And on the back of approximately 600 basis points of positive operating leverage, we reported a pre-tax margin of 40% and a return on tangible common equity of 31%. Turning to capital and liquidity on Page 5. We continue to operate from a position of strong capital and liquidity supporting our clients with a resilient balance sheet. Our Tier 1 leverage ratio was 5.9%, down seven basis points sequentially. Tier 1 capital decreased by $133 million, primarily driven by a redemption of preferred stock, partially offset by capital generated through earnings net of capital returned to our common shareholders. Average assets increased by 1% sequentially. Our CET1 ratio at the end of the quarter was 11%, essentially unchanged from the prior quarter. CET1 capital increased by $447 million, primarily driven by capital generated through earnings, partially offset by capital returns through common stock repurchases and dividends. Risk-weighted assets increased by 2% sequentially. Over the course of the second quarter, we returned approximately $1.5 billion of capital to our common shareholders, which brings us to $2.8 billion of capital return for the first half of the year, representing an 87% total payout ratio year to date. And as previously announced, we increased our quarterly common stock dividend by 19% to $0.63 per share effective this quarter. Our balance sheet remains high quality and highly liquid. The consolidated liquidity coverage ratio was 111%, and the net stable funding ratio was 130%. Next, net interest income and balance sheet trends on Page 6. Net interest income of $1.4 billion was up 20% year over year and up 6% quarter over quarter. I talked about the drivers for the year-over-year increase earlier. Sequentially, growth primarily reflects the reinvestment of investment securities at higher yields and changes in balance sheet size and mix. Average deposit balances moderated by 1% sequentially. Non-interest-bearing deposits remained flat and interest-bearing deposits decreased by 2%. Average interest-earning assets were flat sequentially. Underneath, cash and reverse repo balances decreased by 3%. Investment securities balances increased by 2% and loans increased by 6%, primarily driven by growth in securities finance. Turning to our business segments starting on Page 7. Security Services reported total revenue of $2.8 billion, up 15% year over year. Total investment services fees were also up 15%. In Asset Servicing, investment services fees grew by 12% reflecting higher client activity and market values. ETF AUC/A reached $4.4 trillion, up 35% year over year. And in alternatives, AUC/A grew by 17% year over year. The number of fund launches accelerated in the quarter, and we saw an uptick in new business wins. In Asset Servicing overall, once again, more than half of the clients that awarded asset servicing new business in the quarter also awarded new business to at least one of our other lines of business, demonstrating the efficacy of our commercial model in action. In Issuer Services, investment services fees were up 23% primarily driven by higher corporate trust fees. This reflects the public sector mandate Robin mentioned earlier as well as broad-based growth. Amid active CLO markets, we maintained our No. 2 position while growing our market share by 200 basis points year over year. And in conventional debt servicing, we maintained our No. 1 position, growing our market share by 400 basis points year over year. It is worth noting that the sequential increase in Issuer Services investment services fees reflects seasonal depository receipts client activity as well as net new business across corporate trust and depository receipts. For the segment overall, foreign exchange revenue was up 16% year over year, reflecting higher client volumes. And net interest income was up 16% year over year. Segment expenses of $1.7 billion were up 7% year over year, primarily driven by higher revenue-related expenses and investments as well as salary increases, partially offset by efficiency savings. Security Services reported pre-tax income of $1.1 billion, up 28% year over year, and a pre-tax margin of 39%. On to Market and Wealth Services on Page 8. In our Market and Wealth Services segment, we reported total revenue of $2 billion, up 12% year over year. Total investment services fees were up 10%. In Wealth Solutions, investment services fees were up 5% reflecting higher market values and client activity. Net new assets were $25 billion in the quarter, representing an annualized growth rate of 4%. In the second quarter, Wealth Solutions signed a multiyear contract renewal with Cetera, one of the largest wealth management firms in the U.S. and a long-standing partner. We are pleased to continue supporting them as they innovate, grow, and capitalize on evolving market opportunities. In Clearance and Collateral Management, investment services fees were up 18%, reflecting broad-based growth in collateral balances and clearance volumes. In this business, we continue to see very strong momentum with our average collateral balances of $8.2 trillion, up 16% year over year, and double-digit year-over-year growth in average daily clearing volumes. Amid a supportive market backdrop, including strong money market fund flows, growing dealer balance sheets, and higher equity market values, we have been successful in developing innovative solutions that bring together capabilities from across BNY to support our clients' growth. In Payments and Trade, investment services fees were up 7%, reflecting net new business. We are seeing solid growth in international payments and continue innovating new capabilities for our clients. For example, last month we introduced 24/7 U.S. dollar book transfers, which allow clients to access U.S. dollar payments on weekends and U.S. holidays. And over the last three months, we tripled the number of currencies available for same-day FX wire settlement coverage. In Market and Wealth Services overall, net interest income was up 21% year over year. Segment expenses of $948 million were up 4% year over year, primarily driven by higher investments and revenue-related expenses as well as salary increases, partially offset by efficiency savings and the absence of prior-year litigation reserves. Taken together, our Market and Wealth Services segment reported pre-tax income of $1 billion, up 21% year over year, and a pre-tax margin of 52%. Turning to Investment and Wealth Management on Page 9. Our Investment and Wealth Management segment reported total revenue of $863 million, up 8% year over year. Investment management fees were up 6% primarily driven by higher market values, partially offset by the mix of AUM flows. Segment expenses of $686 million were up 5% year over year, primarily driven by higher revenue-related expenses and investments as well as salary increases, partially offset by efficiency savings. Investment and Wealth Management reported pre-tax income of $182 million, up 23% year over year, and a pre-tax margin of 21%. As I described earlier, assets under management of $2.2 trillion were up 6% year over year. In the second quarter, we saw $3 billion of net inflows, primarily driven by cash and fixed income strategies, partially offset by net outflows in LDI, index, and equity strategies. Wealth management client assets of $348 billion increased by 3% year over year, primarily driven by higher market values, partially offset by cumulative net outflows. Page 10 shows the results of the other segment. Turning to Page 11, I will close with a mid-year update of the financial outlook for 2026 that we first provided on our earnings call in January. Our strong performance over the past six months and the underlying momentum with which we entered the second half of the year gives us confidence to significantly increase our outlook for growth and operating leverage in 2026. While we remain mindful of the environment and constantly prepare for a wide range of scenarios, our central case for the balance of the year assumes current market-implied forward interest rates and that the operating environment remains broadly constructive while we anticipate historically observed seasonal patterns in client activity. With that, we are increasing our outlook for total revenue excluding notable items in 2026 to up 10% to 11% year over year, of course market dependent. And that includes our current expectation for full-year 2026 net interest income to be up 12% to 13% year over year. Accordingly, we now expect expenses excluding notable items for the year to be up 6% to 7% year over year, primarily reflecting higher revenue-related expenses. Taken together, that means we now expect to deliver approximately 400 basis points of positive operating leverage in 2026. And for the sake of completeness, we continue to expect a quarterly tax rate of approximately 23% for the remaining two quarters this year. To wrap up, BNY delivered strong financial results in the second quarter, but more importantly, our underlying business flywheel is gathering momentum. Our investments and execution are yielding increasingly scalable platforms, better client experiences, and more innovative solutions that are allowing us to deepen existing relationships and attract more new clients to BNY. With that, operator, can you please open the line for questions?
分析師問答
Thank you. Our first question comes from Ken Usdin with Autonomous Research.
Hi, good morning, guys. Thanks. Hey, just a question about the outlook. You mentioned continuing to expect a constructive backdrop, but some of the first-half results are already decently above growth rates that you are even giving us in our updated second half. So I just wanted to ask: are there any pieces that you think have tougher comps as we look forward from the second quarter sequentially? Whether it is deposit levels or issuer services that would not just continue an ongoing growth path from here. Thanks.
Hi, good morning, Ken. Thanks for the question. A few points. First, typically the second quarter is our strongest quarter. This particular quarter had a unique set of circumstances around it in terms of the constructive backdrop, the flows in the markets, etcetera. And Q3 is seasonally the slowest quarter. So you have got the best quarter followed by the seasonally slowest. We feel like going into the quarter within the firm the momentum is strong. The words I use internally are the firm is humming. And so we feel very good about the client dialogue, the engagement, and the backlog. But in my comments and how I talked about it, we assume the rate curve stays where it is as of June 30. We know that will change for whatever reason. We assume market levels stay where they were at June 30. We know that will change. And so in our updated guides, we have given a range and we have taken a conservative bias to it because that is how we set up and run the company through the year, through the cycle, with durable revenues. I think Q3 specifically relates to NII and deposits; year over year it will be a tough comp because we expect a seasonally slow quarter due to the seasonal slowdown. Last year that did not happen due to several idiosyncratic events. So I think the setup for Q3 in terms of NII is pretty good, but last year's quarter is tough to beat.
And one quick follow-up on issuer. You did mention that was strong, especially in Corporate Trust. Was that just due to the super amount of issuance we saw? And is that business collectively on a better trajectory than you would have thought given the strength of the environment? Thanks.
I would say there are three things at play there, Ken. One is corporate trust. You see in my prepared remarks that we have expanded market share, which is basically the result of multi-year investments that are beginning to bear fruit, which also have helped contribute to the margin. So we are very pleased about that. Depository receipts: second quarter is seasonally the strongest quarter, and we saw new client activity come into the platform, so outperformance there in what is a strong quarter. And then last but not least, the public mandate that we secured and went live on July 4, otherwise known as TRU-M accounts, also shows up in that segment as it relates to top-line revenue and expenses.
Thanks a lot. We will move next to Alex Blostein with Goldman Sachs.
Hey, Robin and Dermot. Good morning, guys. Lots to like on multiple fronts here. I wanted to talk about operating leverage for a minute. I think not too long ago you provided updated targets calling for about a 38% pre-tax margin. You're already above that, not just for the first half, but even just taking your full-year guide. So as you think about what the destination for profitability could be in the business as a whole over the next couple years—what could that look like, especially considering AI initiatives are still probably on the earlier side? I appreciate you don't want to put an exact number on that, but as we think about the jumping-off point and the trajectory for operating leverage across the business, acknowledging that you are already at your target, it would be helpful to understand. Thanks.
Okay. There is lots to unpack in that question, Alex. When I go back to January when we initially laid out the targets, we believe we improved them meaningfully—pre-tax margin and ROTCE—by 500 basis points from where they were. So it was a big step change for us as a management team to put that guidance out there. We view these medium-term targets as three to five years, through the cycle, and as milestones and not endpoints; they are not really the limit of our ambition. Internally, as a management team, we are always looking to outperform, and we believe the way Robin described in his prepared remarks, we are built for a wide range of scenarios and to be durable through them. Q2 was a strong point in time. You want to sustain that sustainably for a period of time before you would revisit the targets again. But just remember, it is not the limit of our ambition. The level of client engagement and all the things around client activity in Q2 give us optimism that through the cycle we will get to those medium-term targets.
So on the nuance question on the rates trajectory, I understand you are assuming rates will stay at current levels across central banks. But as you think about the probability of rate hikes, whether in the U.S. or outside the U.S., how do you think deposit betas will perform both in the U.S. and outside the U.S. given a delayed potential rate-hiking cycle? I just want a better understanding of the NII and NIM sensitivity in case we get some rate hikes. Thanks.
At the start of the year, the environment was calling for rate cuts; now it is calling for rate hikes—one in the U.S. at the end of '26, two in Europe, and two in the U.K., according to market pricing. As we have consistently said, in terms of our risk management philosophy related to rates, we are focused on narrowing the cone of outcomes, and so we are willing to give up upside so that we limit downside, and we can give you reasonably accurate predictions as it relates to interest-rate sensitivity to the overall book. As it relates to deposits, we do not lead with deposit pricing. Deposits come as a result of all the client activity, and that is why we feel like deposits have held in—particularly non-interest-bearing deposits—as a result of all the franchise activity that is happening across many of our platform businesses. As it relates to betas, we think it will be largely in line with the last cycle: about 80% for dollars and 60% to 70% for euros and sterling. Just remember we are predominantly a dollar book, roughly 75% dollars and the rest split between euros and sterling, with some yen as well but small.
We will go next to Ebrahim Poonawala with Bank of America.
Hey, good morning. I wanted to start with something Robin said in his prepared remarks tied to investments—AI and digital assets. If you don't mind revisiting both the AI piece and digital assets in terms of how we should think about them with regard to moving the needle on the bottom line, either productivity-wise or in terms of new opportunities maybe tied to digital assets. Also, it often comes up in terms of the risks to the custody business model because of on-chain migration and tokenization. Can you address that in terms of how you think about it? And is that truly a risk when we think about some of the revenue streams? Thank you.
Sure, Ebrahim. I will take that. First, on digital assets. The evolution is actually a click above digital assets; it is the transformation toward an always-on operating model. Digital assets are certainly one of the tools to enable that, but real-time payments and other innovations are also part of it. Take the macro view around the always-on operating model and then identify where digital assets are the best way of achieving that. We expect a long transition and a coexistence period between new capabilities and traditional capabilities. For a long period of time, we expect to be in that coexistence world. For us, it is about being a bridge between old and new, globally, across payments, moving, storing, managing—all of that. We view ourselves as well positioned to help clients manage those transitions. We are leaning into the new capabilities and participating fully; the way one gets disintermediated is by failing to invest or participate. We are participating, so we believe that risk is mitigated. In terms of AI, I talked about it as a capacity creator. It can create additional positive operating leverage over time, but that can come in different forms: doing new things with clients, improving how we serve clients, making products better with AI embedded, or freeing up capacity to deploy to higher-value activities. We expect less manual work in certain areas as AI replaces manual tooling, which allows capacity to be redeployed to serving clients in new ways. We see a lot of white space. Having more capacity is valuable because it allows us to put people and investment against that white space without growing expenses significantly.
As a follow-up: given the commercial model is in place and the operating model is fully implemented, should we expect a pickup in organic growth as you capture more of that white space beyond market-driven growth? Should we expect a decent acceleration from where you have already been on top-line growth?
Hi, Ebrahim. I would say the first thing is we do not expect a sudden jump on day three. If you look at the slide where we talk about our mid-year business update, organic fee growth has gone from flat in 2022 to about 4.5% in the first half of 2026. We are about to celebrate two years of our commercial model. You have seen 14 consecutive quarters of sales growth and 10% of new logos, which is consistent with last year. So more people like what they are seeing at BNY and want to come to our firm and do more with us. Momentum is strong within the firm and with new logos coming to hear how we can serve them in a differentiated way. As a consequence of that, our ambition is for higher organic growth. We do not know exactly when, but we believe it will come.
We will go next to Mike Mayo with Wells Fargo Securities.
Hi. You talk about AI for everyone, everywhere, and everything. I know that's a thematic approach for the five-year horizon. We do hear a lot of companies putting an AI wrap around things that have nothing to do with AI. Your headcount is down 7% year over year while revenues are up. How much has AI played a role in your increase in revenue per employee? Maybe it is more process-oriented or other technology. Can you give any financial benefits from AI—capacity, product, or new capabilities? Thank you.
Hi, Mike. The first thing I would say is BNY is operating in a fundamentally different way than just a few years ago—that is not just AI, it's the commercial model, the platform operating model, and workforce culture where people feel like owners. Our engineering budget is approximately $4 billion annually. We have been on this AI journey for about three and a half years since the rise of large generative models. Culturally, AI at an individual productivity level is being embedded. We are all using copilot tools. Within the context of the $4 billion engineering budget, our AI spend is de minimis and modest and appropriate for the strategy. In Q1 we disclosed some metrics around innovating, prospecting, onboarding, and streamlining: roughly 40% of the software written at BNY is now written using AI. It is broad and deep across the enterprise. As to headcount, the headcount is an output: it is down 7% year over year, but that reflects the overall business plan, how we manage operating leverage, and the investments we need to make. We continue to invest heavily in talent. Our early careers class is three times bigger today than it was three years ago. We are AI optimists and believe we can use AI to power growth.
The answer to the question is yes—we are getting returns from AI—and we feel comfortable with that. We don't break out very specific economic numbers, although we could. The rigor we apply to this is consistent with our broader approach to running the company. Adoption and embedding AI is the differentiator for many firms. The technology is ready, but embedding it in a large enterprise is a cultural and organizational question. We believe we have advantages because of investments in the platform operating model, the commercial model, and culture. That gives us an advantage in embedding AI throughout the firm, and we expect you to see outcomes over the coming years.
Do you have any numbers on expense savings or revenue gains specifically from AI? Only a couple of the largest banks have done so so far. Will you be able to quantify or is AI part of a larger package where benefits can't be isolated?
We think about it as a package and a set of initiatives. We can identify benefits and we do, but the full impact comes from how capacity is redeployed: toward client outcomes, product improvement, client experience improvements, or expense reduction. Our north star is positive operating leverage, and we are agile quarter to quarter in deciding which levers to lean on. We provided a number of specific inputs in our first-quarter earnings in April; those inputs are moving up and to the right since then. We will talk about more over time.
We will go next to Brennan Hawken with BMO Capital Markets.
Hi, Robin, Dermot. Thank you for taking my questions. I want to follow up on headcount and compensation. Headcount is down 7% year over year while comp per head is up 8% over the same period. If you go back to when headcount peaked, it is down 13% and comp per employee is up 17%. There is inflation, but can you talk about incentives and how you have changed compensation structures and incentives within the organization? How does that tie to culture and the commercial orientation? Any stats on incentives as a percentage of comp now versus previously would be helpful.
I will avoid specifics that would reveal individual employee compensation across tens of thousands of employees, but let me address the heart of the question. We showed metrics in Q1 about revenue per employee and pre-tax income per employee, which track our progress on pre-tax margin and ROTCE. You can see we are getting more from our platform and generating more revenue. We have been deliberate about workforce management, repositioning talent across the company, refreshing leadership, and driving innovation. We are investing in career growth and skills, and we are leaning into AI for everyone so our people can do higher-value work. That is allowing us to drive up compensation per employee, and we are comfortable doing that because we are managing the workforce better.
One other question on a broader point: historically within the custody and related services industry there has been persistent pricing pressure and efficiencies often get shared with clients in the form of lower prices instead of being captured by margins. What are you seeing in the market today as efficiency increases? Are you seeing pricing pressure, or are offerings differentiating enough that you can hold pricing better than historically?
When I joined the firm, pricing pressure was more of a common theme than it is today. Pricing pressure will always exist because our businesses are in competitive markets with big competitors. We welcome competition. Clients are willing to pay for differentiated service. Relative to two or three years ago, we do not see the same pricing pressure. As we have reduced our cost to serve, we can be more competitive in our pricing because of the platform and operating changes. When pricing pressure exists, it shows up in organic fee growth. Organic fee growth has gone from flat to 4.5% since 2022, which reflects our ability to attract clients and grow revenue through product, sales, and client engagement. We believe our strategy is working.
If you step back, the clients are recognizing the real value we add. Price is always important, but clients are coming to us because we bring different capabilities together across the firm to deliver solutions that are unique. If we were a single-line commodity player, price would be the only differentiator. But our ability to take product innovation, features, and combine multiple platforms into integrated solutions allows us to have a different conversation with clients and capture more durable revenue. Clients buying from three or more lines of business over the last three years is up more than 60%, which supports this point.
We will go next to David Smith with Truist Securities.
Hey, good morning. Can you give us an update on your capital philosophy? Your business is capital-light, but BNY's payout ratio is 87% year to date, which is higher than we might have expected. Is this a function of needing to retain capital for growth given the opportunities you see, organic or inorganic? Is it a reflection of buyback discipline? Or is it timing because of a preferred redemption this quarter and stronger earnings later in the quarter? Big picture, is a payout ratio around 100% still the guide for BNY over the medium term?
Thanks for the question. We stopped guiding on the buyback last year because it's not a daily decision. Buyback is an output, not an input. You will have noticed we returned $1.5 billion of capital this quarter and $2.8 billion year to date, we raised our dividend by 19%, and we have strong ROTCE. Our balance sheet grew in the quarter and we are using it to support clients, which contributed to NII growth. We will evaluate opportunities as they arise. While we are a capital-light business model, we will support clients with our balance sheet where appropriate. We want to maintain healthy capital and liquidity ratios given the geopolitical environment. All in all, we feel we are in a very good place on capital, and our outlook remains the same.
One small follow-up: on Issuer Services, the corporate trust contribution from the public sector mandate—do you expect that to be fairly consistent quarter to quarter? Were there any one-timers ahead of the launch or seasonality we should think about?
There are both revenues and expenses as a result of the launch. We expect growth of the program to be modest; in the near term it will largely go sideways, and the revenue and expenses are durable and will be there for the foreseeable future, albeit at a slightly lower level after the initial launch activity.
We will go next to Glenn Schorr with Evercore ISI.
Thanks. A quick follow-up on capital and loans: your average loans were up 20% year on year and solid double digits over the last three quarters. That's positive, but what are you seeing in client demand and what types of loans are you putting on? How does that fit into capital consumption and RWA growth?
One important point: we have no non-performing assets on the balance sheet and we feel very good about the liquidity and strength of the balance sheet. Loans growth is mainly in the secured financing space, short-term in nature, collateralized, and low risk. We are seeing client demand in that product and have been leaning in there.
Okay, that's helpful. Also, going back to Slide 3 and the sales front—you spelled out a lot of what's been done on the sales side. For organic fee growth, what are the two or three biggest drivers of this acceleration and how do you define what goes into the category of organic fee growth?
Let me talk about organic fee growth overall. Dermot can give the exact formula, but when we think about the opportunity and the white space, we have been laser-focused on driving organic growth higher. New clients: about 10% of sales are new to the company. Deepening relationships with existing clients is another vector—clients are buying more products from us. New product innovation is also a driver: enhancing features and capabilities, and we have the scale—approximately $4 billion of technology investment annually—to make those investments. New solutions are important too: the TRU-M accounts are an example of a business we probably could not have executed two years ago, not because we lacked parts but because we had not operationalized the ability to pull those parts together. As we get better at knitting pieces together, we can provide more novel solutions. Culture, commercial model, and platform model are enablers. We are well positioned to benefit from market trends—scaling with trusted providers, wealth markets growing, private markets, capital markets transformation—in fixed income, equity trading, settlement, collateral, and liquidity. The elements we attach to are the size of the economy and the size of capital markets: equity and fixed income values, cash balances, interest-rate shape, issuance volume, transaction volumes, and volatility. We designed the business to be good in this constructive environment and more durable across other environments, and we believe that will drive organic growth.
We will go next to Manan Gosalia with Morgan Stanley.
Hi, good afternoon. As we've seen recent results from money center banks, it was a very strong market for issuance—equity, debt, and a record quarter for M&A announcements. How do you size the impacts to your businesses and the opportunity for Issuer Services overall? Does it translate to other businesses as well?
Good activity levels in capital markets are generally positive for us. We want to benefit from market activity, but we do not position our businesses to be dependent on peak market frothiness. Our diversification means we don't take the amplitude of the wave to extremes by design, so we won't get the full upside in a peak quarter but we won't take the full downside either. We do benefit across our clearing platform, issuer services, depository receipts, corporate trust, and capital markets functions. The income statement shows some benefit from all of that, but the durability comes from diversification.
An important stat: roughly 75% of our fees are recurring, so the durable recurring revenue stream of our platform operating model can weather many storms.
We will go next to Gerard Cassidy with RBC.
Hi, Robin. Hi, Dermot. Robin, you talked about the 14th consecutive quarter of year-over-year sales growth and that approximately 10% of the deals are with clients entirely new to BNY. Can you share what products these new clients are buying? Where are you having success in winning new clients—are these self-custody-type clients or are you taking them away from competitors?
It is really across the breadth of the franchise. There are certain products that can be starter products historically, but today we are seeing more variety in the pathways clients take. Once clients do more with us, the better they know and like us, and the more they do. That flywheel is not lost on us. New clients choose us for different reasons depending on the opportunity. For example, AGI in the German market was a landmark win driven by breadth of capabilities, modern solutions, and our ability to integrate across platforms. They chose us as a partner to help reimagine their operating model. In many wins, it's new products and features—Borrow+, Collateral One, buy-side trading—and the ability to combine capabilities across the firm and deliver excellent client service. Clients give us business when they feel we are earning it.
As a follow-up: with the TRU-M accounts public announcement and July 4 transition, is there a second derivative—other businesses or revenue growth opportunities—that come from winning that mandate?
I would frame it in two ways. One is the public policy vector: TRU-M is a bipartisan public policy and has parallels to successful programs in other countries such as Australia. Other governments are interested and we are happy to share our experience. Creating more attachment to capital markets and ownership is good for society and, frankly, good for BNY. The second vector is the solutions capability: TRU-M was a proof point that we can bring many capabilities together and deliver an integrated, operational solution quickly and effectively. That ability to knit together pieces and deliver outcomes is a powerful vector for future growth.
That was our final question. We will conclude the Q&A and hand the call back to Robin for any closing remarks.
Thank you, operator, and thanks, everyone, for your time today. I appreciate your interest in BNY. Please reach out to Marius and the IR team if you have any follow-up questions. Be well.
Thank you. This does conclude today's conference and webcast. A replay of this conference call and webcast will be available on the BNY Investor Relations site at 3:00 PM Eastern Time today. Have a great day.