Our clients drive and guide us. We are fortunate to have a client base that is the envy of the industry, including many of the world’s financial leaders who help make the markets function and global economies prosper. Our clients rightly expect us to be the very best. It is an enormous responsibility that energizes us every day and that we take extremely seriously.
We were early among our industry peers to commit to a profound cultural, structural and operational transformation designed to navigate regulatory change and transform our company into a more digital, data-driven, global financial services powerhouse that delivers top performance for our clients and shareholders through all environments.
Our journey began by analyzing the forces reshaping the world of investments. We looked at our financial services industry peers but we also looked beyond them to learn what digital native companies were doing and how we could benefit. We cultivated business leaders with technology knowledge and technology leaders with business knowledge to create a blueprint for the future of our systems architecture. We welcomed fresh perspectives and aggressively challenged conventional thinking and ways of doing business across our company. BNY Mellon is today a very different company than we were just a few years ago. And we are still evolving and growing.
Our goal is to deliver better insights and solutions to our clients while consistently attaining the highest levels of investment performance, service, expertise, resiliency and reliability. Our current performance in some of these areas is best in class while, in others, such as the reliability of certain applications and the consistency of the client experience, there is more work to be done. We are redoubling our efforts to reach the high standards expected of us. Clients have told us they have seen changes in how we think, operate and approach our work – with improved agility, innovation, collaboration and a laser focus on clients’ needs.
Our success in incorporating new solutions for our clients’ benefit and in evolving our culture for the new marketplace has placed us at the leading edge of technological innovation. The investments we have made to digitize our company are reducing our operating costs, funding regulatory initiatives and, most importantly, strengthening the client experience and our overall value proposition. With many of the consequential benefits of our investments still to come, the Investments Company for the World is just beginning to redefine what is possible.
INCREASED EARNINGS PER SHARE:
On a GAAP basis, we earned $3.15 per share in 2016, up 16 percent compared to 2015. On an adjusted basis, we earned $3.17 per share, up 11 percent from last year’s adjusted EPS.i
On a GAAP basis, we reduced expenses by 3 percent compared to 2015. On an adjusted basis, expenses were 2 percent lower.i Our business improvement process and cost discipline more than offset continued strategic investments to improve the client experience, digitize our company, enhance our resolvability and strengthen our risk management, compliance and control functions.
INCREASED PRE-TAX OPERATING MARGIN:
On a GAAP basis, our pre-tax operating margin was 31 percent. Our adjusted pre-tax operating margin was 33 percent, up 180 basis points versus 2015, and we generated 274 basis points of positive operating leverage.i
INCREASED RETURN ON TANGIBLE COMMON EQUITY (TCE):
We achieved an adjusted ROTCE of 21.4 percent, up from 20.7 percent in 2015.i ROTCE is a good measure of the value we are creating from the investments we are making.
Our efforts have already helped improve our financial performance. Since we shared our three-year strategic plan in October 2014, we have delivered eight quarters of solid performance against these goals despite the relative lack of industry and market catalysts. The revenue environment in 2016 remained challenging across our industry, though post the U.S. election, markets have strengthened. Our financial performance reflects the benefits of our well-diversified, lower-risk business model and our ability to manage through all environments. Our strategy is working and our aspiration to become best in class across the investment lifecycle spectrum remains intact.
INVESTOR DAY GOALS
OUR 3-YEAR GOALS
|Operating Basis: 2015 - 2017|
|2015 - 2016
|Adjusted Revenue Growth||3.5-4.5%||6-8%||2%|
|Operating EPS Growth||7-9%||12-15%||15%|
|Adjusted Return on Tangible Common Equity||17-19%||20-22%||21%|
Note: Please refer to the assumptions included on pages 107 and 109 in our October 28, 2014 Investor Day presentation (PDF - 2.3 MB).
We are executing on a clear set of strategic priorities essential to sustain long-term growth and value creation for our clients and shareholders.
DRIVING PROFITABLE REVENUE GROWTH AND ENHANCING THE CLIENT EXPERIENCE
We are creating new sources of value for our clients, and revenue opportunities for us, by anticipating and capitalizing on the emerging trends within the financial sector.
To position us to be our clients’ partner of the future, we have many growth initiatives at different stages of maturity that leverage our scale and expertise. Executed well, they should benefit clients and shareholders. Here are some examples of where we are making strategic investments:
The quality of the client experience we deliver will continue to improve – everything from the ease and sophistication of the technology tools our clients use to the knowledge and responsiveness of our investments professionals. We proactively seek client feedback and, as a result, we are implementing numerous enhancements to our service delivery, which are becoming increasingly visible to our clients.
EXECUTING ON OUR BUSINESS IMPROVEMENT PROCESS
Our success in meeting or exceeding our business improvement process goals has been paying off. It is creating efficiency and quality benefits for our clients and reducing technology, operations and structural costs for us. These savings have helped us meet or, in some quarters, exceed our operating margini goals while reducing risk and enabling us to fund our growth, new client solutions, and important risk and regulatory compliance initiatives.
Here are some examples of our business improvement process at work:
STRONG, SAFE, TRUSTED COUNTERPARTY
Our reputation as a strong, safe, trusted counterparty reflects our success in building a solid balance sheet and robust risk culture. Our strategy is one of not incurring outsized risk to reach for returns. We have maintained among the highest credit ratings in the industry and our capital and liquidity positions remain strong.
Actions to increase our safety and soundness:
GENERATING EXCESS CAPITAL AND DEPLOYING IT EFFECTIVELY
We remain focused on maintaining a great balance sheet, including strong capital and liquidity positions, while at the same time returning significant value to our shareholders. In 2016, we returned nearly $3.2 billion to shareholders in the form of share repurchases and dividends while increasing our capital to meet new higher regulatory requirements. Our payout ratio in 2016 was 92 percent on an adjusted basisi. Over the last five years, on a gross basis, we have repurchased approximately $8.6 billion or 20 percent of our shares outstanding.
At year-end, we either met or exceeded all minimum regulatory capital requirements, including the Liquidity Coverage Ratio and the fully phased-in Supplementary Leverage Ratio required as a U.S. G-SIB.
ATTRACTING, DEVELOPING AND RETAINING TOP TALENT
People are our ultimate competitive advantage, and we are invested in attracting, developing and retaining truly outstanding talent. During 2016, we continued to strengthen our team by adding new talent with valuable experience and outside perspectives while providing more opportunities to stretch and grow our existing professionals. Our holistic people strategy aims to provide outstanding opportunities for the diverse talent across our company to grow personally and professionally.
The fact that the Anita Borg Institute once again named BNY Mellon to its Top Companies for Women Technologists Leadership Index is one of many indicators that we are on the right path. Our employees are more engaged than ever in supporting our mission and delivering for our clients.
Corporate Social Responsibility (CSR) supports our vision of improving lives through investing. As an engine for the financial markets, we help drive global growth and prosperity. And we’re committed to creating an inclusive, sustainable world that encourages people to succeed and economies to thrive.
We focus on three CSR strategic pillars:
We collectively touch so many lives in positive ways. This year, our total employee, foundation and company contribution to charities in communities around the world reached approximately $37 million. Employees volunteered more than 100,000 hours of their personal time again this year. Approximately 30 percent of the hours are considered skills-based, where our employees use their business skills and expertise to deliver an even greater impact.
Further demonstrating our track record of excellence in CSR, our company is the only U.S. diversified financial firm named to the Dow Jones Sustainability World Index (DJSI World), one of the most highly regarded global sustainability indices, for the past three years running.
We are committed to delivering increasing and compelling value to our clients and shareholders.
While we continue to execute on the financial goals we outlined in 2014, we are refreshing our strategic plan with updated financial priorities and goals that will extend until 2020. We plan to share our updated plan at our Investor Day in the fall.
As we look ahead, we are encouraged by the optimism we see for a growing economy. Many investors are anticipating a more favorable interest rate, regulatory and tax environment, which has been fueling the equity markets. Should any or all of these materialize, we stand to benefit. We are investing for the future in our core areas of strength – technology platforms and applications, innovative solutions to help our clients be successful, improving our business processes and ensuring we have the talent it takes to execute our agenda. We are confident in our strategy and optimistic about our future.
I am grateful to our extended BNY Mellon team for sharing my passion for excellence and to my Executive Committee partners for accepting the challenge to remake our company for the new era.
Allow me to also thank our Board of Directors for keeping the bar high and offering the strategic counsel we need to reach it. My special thanks to Catherine A. Rein, who will not stand for re-election after serving on our board for more than 35 years, and Karen B. Peetz, who has retired as President after nearly two decades with our company. Both have served with distinction and passion and kept our focus squarely on our clients. We welcome to our board Linda Z. Cook, Jennifer B. Morgan and Elizabeth E. Robinson, whose combined leadership experience and business and technology expertise will benefit our company immensely going forward.
Finally, thank you to my fellow shareholders for recognizing our unique value proposition and entrusting our global team to execute. We have never been stronger and we stand ready to deliver even more value to our clients and shareholders.
Gerald L. Hassell
Chairman and Chief Executive Officer
i For a reconciliation and explanation of these non-GAAP measures, see pages 121-126 in our 2016 Annual Report.
At BNY Mellon, Corporate Social Responsibility is at the core of our business strategy. As an engine for the financial markets, we help drive global growth and prosperity, improving lives through investing.Learn More About CSR
At BNY Mellon, we're invested in our people. You may know us as the investment services and investment management company that cares for much of the world's assets.Invested In Our People
Since our founding more than 230 years ago, innovation has always been at the heart of who we are. As the Investments Company for the World, we are an engine for the global financial markets.Learn About Our Future
From day one, we’ve consistently moved the industry forward. And with Alexander Hamilton’s spirit as our inspiration, we continue to improve lives through investing.Explore Our Founder
BNY Mellon is a global leader in providing a comprehensive array of services that enable institutions and individuals to manage and service their financial assets in more than 100 markets worldwide.Explore Investor Relations
Vision. Value. Results. We executed against our strategic priorities, and the results came through in our financial performance.BNY Mellon's 2015 Annual Report