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Money Management

BNY absorbs severance costs as investment management, wealth assets drop 6%

Bank of New York Mellon (BK)'s investment management and wealth management businesses reported $1.722 trillion in assets under management as of Dec. 31, down 6% from three months earlier and down 9% compared to a year earlier, according to parent BNY Mellon's quarterly earnings release.

Meanwhile, the parent company has incurred severance charges related to employee separations as part of a longer-term cost savings plan, the company's chairman and CEO Charles Scharf said during an earnings call Wednesday.

Within the investment management business, net outflows totaled $18 billion during the fourth quarter, compared to net inflows of $15 billion during the previous quarter and net inflows of $12 billion during the fourth quarter of 2017.

Client redemptions largely came from index and cash strategies, which saw $11 billion and $10 billion, respectively, in net outflows in the fourth quarter. Index strategies saw $3 billion in net outflows in the third quarter, whereas cash strategies had zero net inflows during the same period.

Regarding staff cuts, Mr. Scharf said that, during the previous quarter's earnings call, he mentioned there was "a significant opportunity to reduce management layers and increase spans of control."

"This quarter's GAAP results include a severance charge related to these actions — many of which we have already completed. We anticipate that the payback on this severance will be less than one year. These savings — and other efficiencies we continue to drive towards — will allow us to continue to increase our investment in technology and infrastructure without significantly increasing our expense base," Mr. Scharf said.

"But as I also said on last quarter's earnings call — while these changes result in lower costs, they help advance our culture by improving decision-making, allowing us to move more quickly, and making sure we have our best people in roles which allow them to grow and contribute more significantly to our growth agenda," he added.

Non-interest expense for the overall parent company was down 1% year-over-over.

Of note, non-interest expense for BNY's “other” segment — which falls outside of its core investment services and investment management business segments and primarily includes leasing operations, certain corporate treasury activities, derivatives, business exits and other corporate revenue and expense items — increased year-over-year. The non-interest expense increase, to $160 million in the fourth quarter from $135 million the year prior, primarily reflected expenses associated with higher severance and the firm relocating its corporate headquarters to New York's Tribeca neighborhood from 225 Liberty St., which is also in lower Manhattan, said a fourth quarter financial highlights report issued Wednesday.

When asked how many jobs were cut, or if they impacted investment management staff, a company spokeswoman only provided a statement via email: "We continue to optimize our global business structure to increase efficiency, enable faster decision-making and better serve our clients. As a result of these strategic actions, periodic staff reductions may occur," the response said.

Regarding its remaining asset classes, BNY's investment management business reported $2 billion in net outflows across its multiasset and alternative investments strategies during the quarter ending Dec. 31, compared to $2 billion in net inflows the prior quarter and $2 billion in net inflows during the fourth quarter of 2017, the earnings release said.

Equity strategies saw $8 billion in net outflows during the fourth quarter, and $2 billion in net outflows the previous quarter and $6 billion in net outflows in the third quarter of 2017.

Fixed-income strategies had $1 billion in net outflows during the fourth quarter, $2 billion in net inflows in the third quarter and $2 billion in net outflows in the third quarter of 2017. Meanwhile, liability-driven investment strategies have seen steady inflows, with $14 billion in net inflows in the fourth quarter, $16 billion in net inflows in the third quarter and $23 billion in net inflows in the fourth quarter of 2017.

AUM in fixed-income strategies totaled $200 billion as of Dec. 31, down 1% from Sept. 30, and down 3% from Dec. 31, 2017. LDI assets were $659 billion as of Dec. 31, up 1% from Sept. 30 and down 1% from Dec. 31, 2017.

Cash strategies had $260 billion as of Dec. 31, down 4% from Sept. 30 and down 12% from Dec. 31, 2017. Index strategy AUM totaled $301 billion as of the end of the fourth quarter, down 14% for both Sept. 30 and Dec. 31, 2017.

Assets under management in equity strategies was $135 billion as of Dec. 31, noticeably down 19% from Sept. 30 and down 16% from Dec. 31, 2017; and AUM in multiasset and alternative investments was $167 billion as of Dec. 31, down 9% from Sept. 30 and down 22% from Dec. 31, 2017.

At parent BNY Mellon, assets under custody and administration were $33.1 trillion, down 4% from Sept. 30 and down 1% from Dec. 31, 2017.

Investment management and performance fees in the fourth quarter were $893 million for the fourth quarter, down 3% from the third quarter and down 7% from Dec. 31, 2017.

Parent company revenue totaled $4 billion, down 2% from Sept. 30 and up 7% from the fourth quarter of 2017. Asset management revenue in the fourth quarter was $660 million, down 6% from the quarter ending Sept. 30, and down 11% from the fourth quarter of 2017.

Net income for the parent company was $870 million for the quarter, a marked 22% drop from the quarter ending Sept. 30, and down 26% from the quarter ending Dec. 31, 2017.

The company no longer discloses the percentage of assets under management in specific investment strategies.