Executive Summary / Key Takeaways

• BNY is executing a multiyear transformation into a platforms-oriented financial services company, leveraging its market-leading positions in custody, collateral management, and clearing to drive organic growth and cross-selling.
• Strategic investments in technology, including a platform-based approach to AI and the Wove wealth advisor platform, are enhancing operational efficiency, scalability, and the ability to deliver integrated client solutions.
• Recent financial performance, particularly in Q1 2025, demonstrates solid execution with positive operating leverage driven by fee growth (up 3% YoY) and expense discipline (up 2% YoY), despite a challenging macro backdrop.
• The company maintains a strong, conservative balance sheet and robust capital position (CET1 11.5%, Tier 1 Leverage 6.2% in Q1 2025), providing resilience in an uncertain environment and supporting a commitment to return approximately 100% of 2025 earnings to shareholders.
• While facing macro uncertainties and competitive pressures, BNY's focus on integrated platforms and technological innovation positions it to capture market opportunities and sustain profitability, targeting mid-single-digit NII growth and 1-2% expense growth (ex-notable) in 2025.

The Bedrock of Global Finance: BNY's Enduring Role and Strategic Evolution

For over 240 years, The Bank of New York Mellon (BNY) has occupied a central, often unseen, role in the global financial ecosystem, acting as a trusted steward that helps make money work for the world – managing it, moving it, and keeping it safe. This deep history, marked by strategic acquisitions and adaptations, has culminated in BNY's current position as a global financial services powerhouse, overseeing a staggering $53.1 trillion in assets under custody and/or administration as of March 31, 2025.

Today, BNY is strategically transforming, aiming to better leverage its formidable scale and breadth by operating as a more integrated, platforms-oriented company. This strategic pivot is designed to enhance the client experience, enable greater agility, and unlock significant organic growth opportunities by delivering the full spectrum of BNY's capabilities across its three core business segments: Securities Services, Market and Wealth Services, and Investment and Wealth Management.

Platforms, Technology, and the Pursuit of Scalability

At the heart of BNY's transformation lies a deep commitment to technology and a platform-based operating model. The company is not merely a collection of disparate businesses; it is increasingly positioning itself as a provider of scaled, interconnected platforms that clients can build their own businesses upon. This includes world-leading positions in areas like global custody, collateral management (servicing an average of $6.6 trillion globally, including $5.1 trillion of the U.S. tri-party repo market in Q1 2025), U.S. government securities clearance, and depositary receipts.

Technological differentiation is a critical component of this strategy. BNY is investing heavily in digitizing workflows and building a strategic platforms operating model designed to unite related capabilities, elevate execution, and create more intuitive client journeys. This transition is well underway, with over half of BNY's employees expected to be working in this new model by the end of March 2025, with the goal of full adoption by this time next year. Early results from this transformation are promising, showing quantifiable benefits such as trade loan processing that is 60% faster, enterprise onboarding volume increasing by over 30%, and the number of payments currencies offered to bank clients tripling. These operational improvements underscore the potential for enhanced scalability and efficiency as the transformation matures.

Innovation is also a key focus, particularly in emerging areas like digital assets and artificial intelligence (AI). While digital assets are viewed as a long-term play rather than a significant near-term revenue driver, BNY is actively engaged in custody, tokenization, and leveraging the underlying technology for efficiency. The company provides fund services for the vast majority of digital asset exchange-traded products in the U.S. and Canada and is building out Digital Asset Custody and Funds Services platforms. Management sees stablecoins as a necessary component for efficient on-chain transactions and is actively participating in the evolving regulatory dialogue, viewing the potential market structure bill as an opportunity to innovate and define global standards.

In AI, BNY is taking a platform-based approach, building and deploying solutions at scale with responsible guardrails. The AI platform is designed to be large language model agnostic, leveraging multiple leading providers, which management sees as an important advantage. The company announced a multiyear agreement with OpenAI to access cutting-edge tools. Internal adoption is high, with over 80% of employees completing training for the internal AI platform, Eliza, and over 8,000 actively experimenting. Over 40 AI solutions are already in production, targeting productivity gains, improved risk management, and enhanced leverage for employees.

Beyond these foundational technology initiatives, BNY is developing specific client-facing platforms like Wove, its wealth advisor platform, which is seeing strong client demand and is expected to contribute $60 million to $70 million in incremental revenue in 2025. Wove is evolving into a delivery vehicle for various BNY capabilities, linking clearing, custody, data management, investment models, and other services into integrated solutions for wealth advisors. Similarly, Alts Bridge aims to streamline alternative investments for wealth advisors. Strategic acquisitions, such as Archer (expected to close soon), are viewed as capability buys to accelerate entry into fast-growing markets like managed accounts, augmenting existing platforms like Asset Servicing and Wove. The recent minority investment in EquiLend further strengthens BNY's position in securities finance technology.

Navigating the Competitive Currents

BNY operates in a highly competitive landscape, facing off against other large custodial banks, asset managers, and increasingly, specialized fintech firms. Key publicly traded competitors include Bank of America (BAC), State Street (STT), M&T Bank (MTB), and Northern Trust (NTRS).

BNY's competitive advantages stem primarily from its immense scale in core infrastructure services like custody and clearing, its global network spanning over 100 markets, and its deep expertise in complex areas like fiduciary services and collateral management. The platform-based approach and investments in technology aim to enhance these moats by improving efficiency and enabling the delivery of more integrated solutions. For instance, the focus on data analytics and automation in areas like foreign exchange and trade finance can lead to lower operational costs and faster processing compared to less specialized competitors. The breadth of BNY's offerings allows for cross-selling opportunities that competitors with narrower focuses may struggle to replicate.

However, BNY also faces competitive pressures. Some larger, more diversified banks like BAC may have advantages in cross-selling through extensive retail networks, while others like STT are also investing heavily in technology and have strong positions in areas like ETF distribution. Fintech firms and emerging digital asset platforms could offer lower-cost alternatives in specific niches, potentially eroding market share or pressuring margins if BNY cannot demonstrate superior value or integrate these capabilities effectively. While BNY's profitability metrics (e.g., net margins around 25% TTM) are solid, some competitors may exhibit higher growth rates or different operational efficiencies depending on their specific business mix and strategic focus.

BNY's strategy directly addresses these dynamics by focusing on operationalizing its breadth through the ONE BNY commercial model, investing in technology to improve efficiency and create differentiated solutions (like Wove and Alts Bridge), and leveraging its strong balance sheet to be a reliable partner in uncertain times. The goal is to move beyond competing solely on individual product features or price and instead offer bundled, integrated solutions that are difficult for competitors to replicate, thereby deepening client relationships and capturing a greater share of client wallet.

Financial Performance and Outlook

BNY's recent financial performance reflects the early impacts of its strategic execution and the prevailing market environment. In the first quarter of 2025, the company delivered solid results:

• Total Revenue: $4.8 billion, up 6% year-over-year.
• Fee Revenue: $3.6 billion, up 3% year-over-year, driven by investment services fees (+6%) and foreign exchange revenue (+3%), partially offset by lower investment management and performance fees (-5%).
• Net Interest Income: $1.2 billion, up 11% year-over-year, benefiting from the reinvestment of maturing securities at higher yields.
• Total Noninterest Expense: $3.3 billion, up 2% year-over-year, reflecting higher investments and employee merit increases, partially offset by efficiency savings.
• Income Before Income Taxes: $1.5 billion, resulting in a pre-tax operating margin of 32%.
• Net Income Applicable to Common Shareholders: $1.1 billion, or $1.58 per diluted common share (up 26% YoY reported, 22% ex-notable).
• Return on Tangible Common Equity (ROTCE): 24%.

This performance resulted in meaningful positive operating leverage in Q1 2025, a key objective for the company. The balance sheet remains robust, with total assets at $441 billion and deposits at $309 billion as of March 31, 2025. Capital ratios are strong, with a CET1 ratio of 11.5% and a Tier 1 Leverage ratio of 6.2%, well above regulatory minimums and management's target range for Tier 1 Leverage (5.5-6%). This strength allows BNY to return capital to shareholders, including $1.1 billion in Q1 2025, while maintaining flexibility for investments and potential opportunistic acquisitions.

Looking ahead, BNY's financial guidance for the full year 2025 remains unchanged despite the uncertain operating environment, underscoring management's confidence in their execution:

• Net Interest Income (NII): Expected to be up mid-single-digit percentage points year-over-year. Management feels confident in this outlook, citing actions taken to "immunize" the firm's NII against rate volatility for 2025 and expectations for deposit levels and mix.
• Fee Revenue: Expected to be up year-over-year, acknowledging market dependency. Organic growth initiatives, particularly cross-selling and new solutions, are expected to contribute.
• Expenses (excluding notable items): Expected to grow approximately 1% to 2% year-over-year. This reflects continued investments in strategic initiatives and employee compensation, offset by ongoing efficiency savings from running the company better and the maturing platforms operating model.
• Effective Tax Rate: Expected to be in the 22% to 23% range for the full year.
• Capital Return: Expect to return approximately 100% plus or minus of 2025 earnings to common shareholders.

Risks and Challenges

Despite the positive momentum and strategic focus, BNY faces several risks. The uncertain macroeconomic environment, exacerbated by potential shifts in trade and fiscal policies and persistent geopolitical tensions, could impact market volumes, asset values, and client activity, thereby affecting fee revenue. While BNY's balance sheet is conservative, changes in interest rates could still influence NII, and shifts in deposit mix or levels, though currently managed effectively, remain a factor.

Credit risk, while low compared to traditional banks, exists in lending portfolios, particularly commercial real estate, which drove reserve increases in Q1 2025. Legal and regulatory risks are ongoing, including investigations related to historical activities (cumex trading, off-channel communications) and compliance matters (Pershing Rule 15c3-3), which can result in significant penalties and costs. The transition to new operating models and the adoption of new technologies like AI also carry execution risks. Competition remains intense, requiring continuous investment and innovation to maintain market share and profitability.

Conclusion

BNY is executing a deliberate, multiyear transformation to harness the full potential of its market-leading platforms and extensive client franchise. By focusing on a platforms-oriented operating model, investing strategically in technology and innovation, and operationalizing cross-selling through a refined commercial model, the company is building a foundation for sustainable organic growth and enhanced scalability.

Recent financial results demonstrate tangible progress, with positive operating leverage and solid profitability metrics achieved even amidst macroeconomic uncertainty. The company's strong balance sheet and capital position provide a crucial layer of resilience and support attractive shareholder returns. While challenges and risks persist, particularly related to the external environment and the inherent complexity of a large-scale transformation, BNY's strategic clarity and commitment to disciplined execution position it to navigate these factors. For investors, the story of BNY is one of unlocking embedded value through strategic evolution, leveraging technological prowess, and maintaining financial strength in a dynamic global financial landscape. The success of the ongoing platform transition and the ability to translate technological investments into quantifiable competitive advantages and sustained revenue growth will be key indicators to monitor in the coming quarters.