BNY Sees Cross-Selling and AI Investments Fueling Its Next Growth Phase

Key Points

• BNY’s next growth phase centers on cross-selling and organic expansion. Only one client currently uses all eight business lines, while clients using at least three lines have increased more than 60%; organic growth reached 4.5% in the first half of the year.
• The company is increasing investments in AI, data and technology while maintaining an expense-growth outlook of 6%–7%. BNY aims to use its AI platform, Eliza, to improve client delivery, develop products and increase operational capacity rather than primarily reduce headcount.
• BNY continues to target a 38% pre-tax margin and 28% return on tangible common equity, having exceeded both measures in the first half. Management expects roughly 75% of revenue entering 2027 to be recurring, though deposits, interest rates and market conditions remain sources of uncertainty.

Bank of New York Mellon NYSE: BNY Chief Financial Officer Dermot McDonogh said the company’s recent progress has been driven by expense discipline, a revamped commercial model and a cultural shift aimed at making the firm more ambitious and client-focused.

Speaking at an investor conference, McDonogh said BNY’s early efforts under Chairman and CEO Robin Vince centered on establishing credibility with investors through clear financial commitments. He cited 2023 measures including expense growth moving from 8% to 2.7%, buybacks exceeding 100%, and net interest income growth that finished above the company’s guidance.

“It’s been about the culture which has driven everything else,” McDonogh said, adding that the company has sought to give employees greater confidence in the firm’s long-term opportunities.

Commercial growth and cross-selling opportunity

McDonogh said BNY is now focused less on a “transformation” and more on executing its strategy through client service, product development, innovation, digital capabilities and artificial intelligence. The company has reported 14 consecutive quarters of sales growth, he said.

A key opportunity remains expanding relationships with existing clients. McDonogh said only one client currently purchases services from all eight of BNY’s business lines. He said the company has reported a more than 60% increase in clients using three or more business lines over the past several years, while new logos represented 10% of total sales last year and again this year.

McDonogh described organic growth as an outcome of winning new clients, cross-selling to existing customers and introducing new products rather than a fixed target. He noted that organic growth rose from roughly flat in 2022 to 4.5% in the first half of the current year. While he said growth could move higher in constructive markets, he added that BNY has not yet reached a steady-state growth rate.

Rather than framing the company’s strategy as taking share from competitors, McDonogh said BNY seeks to earn client trust and move relationships from a vendor model to a partnership model. He said the company is examining opportunities by product and geography through work led by its chief strategy officer.

Outlook, deposits and expenses

McDonogh said BNY maintained the updated top-line outlook it provided following the second quarter. He said the third quarter was slower than the second quarter, which he characterized as the firm’s strongest seasonal quarter. Capital markets and volumes remained strong and picked up in September, he said, while deposits were slower during the third quarter.

He also pointed to uncertainty surrounding interest rates, markets and upcoming midterm elections. Still, he said the company expects markets to become more constructive after some of that uncertainty clears, while acknowledging that risks remain through year-end.

On net interest income, McDonogh said BNY seeks to narrow the range of outcomes from interest-rate volatility. A 100-basis-point rate shift has a negligible impact on the company’s net interest income, he said. Instead, the more important drivers are the overall balance level and the mix between interest-bearing and non-interest-bearing balances.

BNY manages a $1.8 trillion liquidity ecosystem, McDonogh said, with deposits typically ranging from approximately $320 billion to $340 billion depending on the period. He added that the company has seen roughly a 150-basis-point yield pickup as maturing securities are reinvested into higher-yielding assets.

The company increased its expense-growth outlook to 6% to 7% from 4%. McDonogh attributed the change to revenue-related expenses, costs associated with Trump Accounts and additional investments in areas such as data, AI and other initiatives. He said BNY still expects 400 basis points of positive operating leverage for the year, up from its initial 100-basis-point expectation.

Capital allocation, targets and AI

McDonogh said BNY continues to evaluate partnerships, new products and acquisitions, though the threshold for transformative deals remains “extremely high” from cultural, financial and execution perspectives. He said the company also reviews smaller capability-focused transactions similar to its Archer acquisition, but said there was nothing currently on the horizon.

He emphasized that management sees a long list of internal opportunities and does not view acquisitions as necessary to sustain momentum. Over the past four years, BNY has generated roughly $2 billion in efficiencies and reinvested those savings into the business, he said.

BNY’s medium-term targets include a 38% pre-tax margin and 28% return on tangible common equity. McDonogh noted that the company reported a 39% pre-tax margin and 30% ROTCE in the first half, while characterizing the targets as milestones rather than endpoints. He said approximately 75% of the company’s revenue entering 2027 is expected to be recurring, supported by long-duration client mandates.

On AI, McDonogh said BNY is focused on “capacity creation to reinvest” rather than simply reducing headcount. The company spends about $4 billion annually on engineering, he said, and has invested in its AI platform, called Eliza. McDonogh said BNY is taking a deliberate approach to AI spending and expects the technology to support client delivery, product development and faster execution across the enterprise.

Business-line opportunities and digital assets

McDonogh said asset servicing has opportunities in new geographies and product segments, while investment and wealth management is working to reduce silos, improve its culture and attract assets under management to its investment performance. He said the company remains confident in its previously discussed medium-term 25% margin objective for investment management.

In corporate trust, McDonogh said BNY has invested in technology and talent after identifying legacy systems and underinvestment in the business. The company services approximately $15 trillion of debt through the platform, he said, creating cross-selling opportunities. He also said AI could help modernize loan-market processes that remain heavily spreadsheet-based.

Regarding digital assets, McDonogh said the market will evolve at different speeds across products and geographies. He said BNY sees opportunities in building future market infrastructure, supporting settlement certainty and partnering with digital-native firms. He cited a partnership with Baillie Gifford involving a digital transfer agency and said BNY expects to introduce additional offerings in the area.

About Bank of New York Mellon (NYSE:BNY)

BNY, formerly known as BNY Mellon, is a global financial services company headquartered in New York City. Formed in 2007 through the merger of the Bank of New York and Mellon Financial Corporation, BNY traces its roots back to 1784, making it one of the oldest banking institutions in the United States. It was also the first company listed on the New York Stock Exchange.

BNY operates at the center of the world's capital markets, partnering with clients to help them operate more efficiently and accelerate growth.

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