Okay, hello again, everyone. Ken Usdin back here, large-cap banks analyst at Autonomous. Really pleased to have another bank session here, another transformation story in BNY. Happy to be joined by Robin Vince, who joined BNY in 2020, became CEO in 2022, late in the year. He and the management team have embarked on a very ambitious strategy over the last few years to just streamline and de-silo the company. We are going to talk about that and future plans. With that, Robin, thanks for joining us.
No, it's great to be here. Thanks for the interest. I'm looking at the advertisement over there for one of the AI companies. This happens to be the one I use. We're kind of very into AI at BNY, so it's fun to see that.
Excellent, excellent. Robin, let's start with the market outlook and a big-picture perspective. A lot of movement, a lot of volatility, a lot of things changing in front of our eyes. You guys are so connected into all the global markets. How does this environment put BNY Mellon right in the middle of it? What are you seeing? How would you compare and contrast what you're hearing inside the U.S. versus outside the U.S.?
First of all, this is part of the strategic positioning, repositioning of the company, because making sure that we are taking advantage of all of the components of BNY Mellon. We used to operate very much in silos. We've been de-siloing, bringing the company together. That's a story that's sort of been well told. We'll talk about that. It's generating a lot of value for us. We are increasingly a platforms company. 65% of our pre-tax income comes from businesses that would really be responsive to the definition of what is a platform. When you have more activity in the market, more things going on, it sort of draws people to the platform, and we see more activity going through the platform. We've been pleased with the fact that things have been going on in spaces which are relevant to us.
Treasury markets, very relevant to us. Trading activity is true of many of our platforms, our clearing business, our custody business, our Pershing business. There are a variety of different ways. We like active markets. We also like markets which challenge our clients and market participants' questions about what do they want to be. To the extent that folks are under maybe a little bit of cost pressure or that maybe their platforms did not keep up with all of the volumes as well as ours did, we are in a position to be able to take advantage of that megatrend associated with a bit more outsourcing. Our clients are wanting advice about what is going on. 40% of our revenues come from outside the U.S. We are number one in clearing. We are number one in collateral, custody, all of these things. We have got huge franchises.
Clients are seeking us out, and they're saying, "I want to know what you think about what's going on in the treasury market." I don't think it's bragging to say that there probably isn't a private sector institution that has a better perspective on what's going on in the treasury market based on the breadth of our platforms and everything we do. It brings clients to us. We talk to them about that. We say, "Hey, would you like some of this with that?" We talk about what we're doing. They say, "By the way, what are you doing with AI? What are you doing with digital assets? Could you help us with this?" We talk to them about those things.
When there's stuff going on in the market, it causes people to talk to us even more, more interested, and they pull us into their environment. That's where our new commercial model allows us to then go do good things.
Yeah. And with that perspective, what are you seeing as the most important swing factors in the big-picture environment? If you were to just look out six to twelve months, given a lot of uncertainty about which way the winds are going to blow, what are the couple of things that you're either seeing or believing or thinking that we're going to be the most focused on?
From a macro point of view, some stability, understanding how the markets are going to travel, backdrop, geopolitics, those things are super important because they can cause clients to hunker down in their shells. We are not in the investment banking business, but if you are talking to an investment banker, of course, everybody is talking about, "Okay, when is the olds going to pick up?" and all of that stuff. The good news is that does not really happen to our platforms. Our platforms are always on capabilities that clients need to use to be able to just go about their daily business. There really is not a, "When are we going to see this cloud lift? When are we going to see a little bit more certainty for CEO confidence to go do a deal, to do an IPO?" Those things are not as relevant to us.
We want broad-based capital markets activity. Maybe in one quarter, it's a lot of issuance. That's great for some of our platforms. Maybe in another quarter, it's a lot of transaction activities in fixed income. That's good for a different platform. Maybe in another quarter, it's a lot of activity in trading and equity in retail. That's good for a different platform. I don't want to be complacent because, of course, we're always looking around and being careful about this, but we're built for quite a few different environments and different regimes, and that's very deliberate because diversification, we have sort of three theses around diversification. Number one, it's actually good to be diversified because your business fires off different cylinders. Fixed income, great. Equities, great. Market activity up, great. Those things all help us, and they're unlikely to be correlated to the downside.
It tends not to be that you have a down market and low volume and no activity in fixed income. It just does not tend to happen. We like that flavor of diversification. The second flavor of diversification that is something that we appreciate is our businesses are related enough to each other that encouraging people to come shop many of our different platforms is a realistic thing. We are not going to an investment banking client and say, "Hey, would you like to do retail banking with us?" We will go to a collateral client and say, "Hey, how about some clearing?" By the way, if you do custody with us, clearing is kind of super easy because it is just a book entry transfer on our platform.
That type of diversified, as in we have many different businesses, and we can now, we did not used to be able to do this, but now increasingly help clients to see them. That is interesting. The third flavor of diversification is there are some combinations of our businesses that are unique capabilities of BNY Mellon. It is very, very hard to find some of the things together in nature other than at BNY Mellon because we own Pershing. It is $3 trillion of retail distribution. We have a collateral management franchise, which is number one in the world. We have the number one custody business in the world. We have a large FX, large margin SEG, large payments businesses. As a result of that and our focus on digital assets, we can do things in the future, I suspect, with stablecoins that will be hard for others to do.
It's diversification applied in a way where we're taking advantage of businesses which can come together in unique ways.
Yeah. When we think about the diversification, that also comes with complexity. There's a lot of businesses inside BNY. As you've embarked on this transformation of the company, you've had a really good start with it and seen some really early wins. Talk through the 1BNY ethos, how that has culturally changed the company, and how that's allowing you to bring some of those points together that you just mentioned into an overall better BNY.
I'd step back. 1BNY is a philosophy really principally around pulling together as a company. It was also the early label that we put on some of our sales efforts to really join the dots. Those things are true today. If I zoom out for a second, I would take you to our three strategic pillars because we've laid them out clearly. We published these a couple of years or so ago now. Number one was to be more for our clients. This was this point, de-siloing. Clients can shop multiple platforms in the company. They didn't used to do that. Delivering the whole company to them. That's some of the 1BNY topic. The second one was running our company better. This is de-siloing the very essence and de-duplicating what goes on. Platforms operating model, we can talk more about that.
That's the operationalization of what it is to take a company apart piece by piece and rebuild it essentially in a slightly different form while you're continuing to operate it. That's a very important part of our journey. The third thing was culture. The way that I talk about this internally to our people is by powering our culture, which is our third pillar, we get to run our company better, and that will allow us to be more for our clients.
That point on culture, which is really where you're going with your question, is we had a thesis that if we run the company differently and we have people value different things in the company and we have people really throw in for the whole and really focus on making the customer successful and making the company come together as one to serve the customer, we will have a differentiated experience for our people, for the way we run the company, and for clients. That has allowed, that's been an unlock for us, which I would say we thought was there, but it's been a bigger unlock than we even had realized. It's manifested itself in a hundred ways, but our sales philosophy is one of them.
We used to only do sales business by business, and we had a very small group that did mega account type of sales. We did not have a Chief Salesperson. We did not have a Chief Commercial Officer. We now have a Chief Commercial Officer. She has created sales rhythms, targets, processes, culture to bring the sales force together. Now our sales teams can sell multiple things, which they really were not equipped to be able to do before. We have not even had one full year in production under that new Chief Commercial Office structure. This is our first full year of doing that. In fact, we launched it last summer, and we have not yet gotten to the one-year anniversary of it. You know what? It is probably not a complete coincidence that the first quarter we had a record sales quarter.
Yeah. And so we've seen the early wins, but to your last point, this is a longer duration transformation of the company.
Yeah. We're taking a decade view, actually.
Decade view, and you've talked about replatforming, becoming more of a solutions provider. How does that lay out in terms of what's changed over the last five, ten years and then where that heads going forward?
Right from the beginning, as a management team, we did a few things. This is going back to September 1, 2022. We literally started on the first day. We said, "Let's look at what we've got. Let's re-underwrite the businesses of the company. Let's re-underwrite the question of how we go about things, how we're organized, who's doing it, all of those questions." We came out with a series of different theses from that. We spent time with our board and the leadership of the company. We really vetted our plan and came out of that first 90 days and said, "Okay, we have a pretty good sense of what we need to do, and now we need to go at it." One of those things was saying we wanted to de-duplicate the company. We recognized that we had two clearing businesses.
We had three different custody businesses. We had eight different client contact centers. We did client onboarding in every one of the dozen or so different businesses that we had. It was duplication and waste everywhere. We knew it would take a long time to really get at that stuff because it's not small things. It's not just rub two sticks together and off you go. What we did was we laid out a multi-year plan at a high level to say, "Okay, there's a sequencing that has to happen here." We wanted to do some things quickly because we wanted to get some early benefit. We'd had two years in a row of 8% expense growth. That was going to be a problem. We needed to take some quick action, and we did.
We said, "We think we can halve that for 2023 to 4%, the growth rate." We actually delivered 2.7% growth, so we were pleased with that. The way we did that was we attacked a whole bunch of different initiatives which we just thought were things that would have a shorter-term payoff. This year at 2025 is actually the first full year that we've had where all of those early initiatives that we started in 2022 have actually come into place. At the same time, we said, "Let us lay the groundwork for the things that will be important later, like platforms operating model." We started the work in 2022, but we did not actually start any of the conversion until 2024. This year, we're crossing right just half the 50% mark. The first full year of value of platforms operating model probably is not until 2028.
We'll actually be fully in the model partway through next year. 2027 would be the first full year operating in the model, but all of our data suggests that the value comes about a year after you're in the model because it's a means to an end. Organize people differently, have them work differently, create different levels of agility and forward. We started working on that in 2022, but we allowed ourselves to recognize that that's dollars out of the door investment that we were doing in 2023 and 2024, and the payback would be we already see the value of the payback, but most of the value is to come. Wow, aren't we lucky that we live in the world of AI, in the age of AI, because AI is going to be this gift that we're going to get in 2027, 2028, 2029, 2030.
We're working on it intensely now, getting some benefit today, but the big benefits to come. There is a storyboard on the expense line and a storyboard on the revenue line because the same story is just be more together and try to do more joint sales, connect the dots. That was the story for 2023 and 2024. Now it is the commercial model actually deliberately being able to sell more things. We just announced today our Chief Commercial and Innovation Officer, some new expanded role, new things. There is going to be a product journey associated with that. We started to deliver product. Last year, we delivered Wove as something that we were doing, BuySide Trading as a capability.
Now we're looking at sort of a variety of new sort of product launches and a lot of micro product launches that nobody notices, but that's the reason why we've been able to grow fee growth. And this is a storyboard that goes out really, call it seven or eight years, which we started planning in 2022, and we're just executing that plan. We were lucky a little bit that in 2023 we had good markets because we were able to deliver some expense savings, but we didn't have all the expense stuff under control yet, and we didn't have all the organic growth kicking in. So we were lucky we had a bit of a tailwind. Now we're not as dependent on the tailwind. We'll appreciate it. Positive operating leverage is our North Star. If we get more tailwind on some things, great.
We'll be able to, we'll recognize that. We'll spend a little bit more. We'll make some changes. We'll invest differently. We've got plenty of self-help on the revenue side and on the expense work side that we now feel like we're in control of our destiny on positive operating leverage, which is why we gave some of the guidance that we did at the beginning of the year.
Yeah. And so taking the underwriting the businesses one step further, three major segments, the market and wealth services, which has been the fastest growing and highest margin, the security services where you're focused on.
It is over 1/2 of the pre-tax income of the company in that segment.
Right. The biggest business.
It has got nothing to do with being a trust bank, by the way. I always smile when people call us a trust bank because we have got a trust bank inside us. It is great. It is good to have. We have got a bank inside us. It is great. Actually, over half the company has got nothing to do with that at all. It is our fastest growing, highest margin segment. Anyway.
Yeah. That's a good one starter on that one. Then you got security servicing, which is, to your point, you're working on improving growth there, and then investment and wealth management where you're focused mostly on improving margin. Maybe just walk us through where the three are in terms of those trajectories and in terms of the one or two drivers that are the most important things to think about.
Right. Let's start with the trust bank custody segment, what we've historically always very much known for, the custody and asset servicing business. That was a business where we were number one in the market, but where our cost to serve was high because all of this duplication that I was talking about on the expense side was dragging down our margin in that space, and it was expensive to run and more expensive than it should be. If you're the number one player, you should be more efficient, and we weren't. We set out guidance late in 2021, I think it was, where we said we're going to improve the margin in that particular segment with a target of 30%. There's some other stuff in the segment, but that's the biggest business in it. At the heart of that margin improvement was some revenue improvement.
Yes. It was kind of the low point for NII, so there was a little bit of NII improvement, but very much an expense story in there as well on the path to 30%. We are very much knocking on the door of that number now, which we are pleased about. That story has been about growth, improving the margin, and getting to a point where we have the benefit of our scale. The question is, okay, you love a scale business when it is actually operating with the benefits of being a scale business. Let us go be more scaley. That is a good thing. We are happy to do that, grow more, do more things, and do it at that elevated margin as opposed to the reduced margin.
We can play the strengths of being the scale player when we have the benefits of being the scale player, which we did not have, but we increasingly will have them. The other segment that we did not really talk about is the investments and wealth business. That is a business where we are, I would say, underscaled in both of those businesses. Growth really matters to those two businesses, both investments and wealth. They have also been challenged from a margin point of view, and we have to do work on the expense side. We have been doing that. We hired a new leader in that space. In the sequencing of everything that we have had to do, we have had to make choices. Every leader does. We made certain choices about tackling some things before other things.
Investments and wealth in all candor was something that we said, "Okay, it's sort of chugging along, but we'll attack that a little bit after we've attacked some of these other things." That really became a focus for us in 2024. We hired our new leader. He turned up in September, José Minaya. He used to be the CEO of Nuveen, part of TIAA. He is now taking those businesses and really re-underwriting, re-imagining them, and taking them forward. We have, and we've given guidance that we think in our medium-term outlook that we think we can return those businesses to a 25%+ margin, which is obviously our target.
In our platform segment, which is sort of how I refer to market and wealth services, Pershing, clearing, collateral management, treasury services, those real platforms-like businesses, that is the place where, as you mentioned before, we're pleased with the rate of growth. We're pleased with the margin. We're not trying to improve those businesses from a margin point of view. We're very happy with the margin in the 45%-50% zip code, depending on the quarter. That is a business where we want top-line growth, and then we'll get pre-tax income growth. It is great that they're actually the fastest growing in the company, and they're increasing as a percentage of the total pre-tax income of the company. They're also in the right neighborhoods. We identified in January in our outlook that there were big mega trends that we were paying attention to.
Some of those mega trends very much apply to those businesses, and we want to capture those. That is the way that I think about the segments. Therefore, our business strategy for each of them has been a little bit different according to whether it is a margin story or that is really just a growth and do more story. How we thought about acquisitions has been relevant to that and can evolve as well. All of those things I would put in the mix.
Yeah. The predominance of the revenue that's generated by these businesses is fee income. You talked about earlier the benefit of diversification. In environments like this, you sit in the middle of all of that. Do environments like this, when the market's up, the market's down, when there's volatility, how does that apply itself to the business model in terms of being able to generate revenues when there's uncertainty out there?
It goes back to the point that we talked about before, Ken, which is if you only have one thing that drives your business, like market valuation is the dominant theme, or worse, market valuation in just one part of the market, whether it is equities or fixed income or a region or whatever it may be, then you are very beholden to that one thing. If that one thing happens in a year and it goes up, then you are happy. If the one thing does not happen in a year and it goes down, you will be sad. We do not want to run a company on the basis of that.
We want to run a company on the basis of the fact that in any one year, there can be things that will make you happy and sad, but the net-net effect is that you want it to be a stable environment. We're not looking to try to shoot perfect scores in every year in terms of the market environment. We want to be built for the environment where, in the vast majority of different market scenarios, we're going to be able to perform. It's a deliberate strategy to do that. Equity markets, fixed income markets, valuations versus transaction volumes, software, the flow of funds, payment volumes, the amount of collateralization in the world, sheer new supply, corporate trust, treasury issuances, all of those things, they're all aspects of our business which we have identified and are very happy with that breadth of different drivers.
It's not to say there couldn't be an environment. Meteor can hit the earth, and you can have an environment that's bad for lots of your businesses, but it's deliberate that we've tried to take out as much of the environment as we reasonably can as being the mainline driver for our revenue. Again, we'll never be fully successful. The same thing's true on NII because in NII, NII is a nice—we view it as a nice thing to have. It's a real minority of our pre-tax income, but it's high margin. Of course, we're going to like it. We don't want to be whipsawed around by NII. The story of BNY Mellon, the old place, five years ago was the progress year on year in terms of positive operating or not was a pretty easy algorithm. Was NII up or down?
It was sort of a way to run the businesses that you do not want to be behind. We have taken that away by saying, "We are not going to shoot for the moon on NII. We are going to shoot for relative stability and relative predictability." One of the reasons why we have been able to look ahead from January to the end of the year and give a reasonably good outlook for NII is because we have generally de-risked a lot of aspects of NII which could cause it to go in our face. We look at 20 different scenarios. We think about those scenarios, and we de-risk a lot of them. We say, "Sure, could we have made an extra 5 or 10 basis points of NIM?
Yeah, maybe if we'd actually allowed ourselves to be exposed, and maybe that thing happens, and that's great. That is not what we're playing for. NII is a nice additional feature of the business. We aren't trying to dramatically grow the balance sheet. We're not trying to do dramatically more lending. We could do a lot more lending if we wanted to. We could drive more deposits if we wanted to. We want stability because the real juice is in the fee businesses and everything else that we're doing.
Yeah. One of the benefits has been is that while the markets are doing what they're doing and while you've created this more stable NII, the organic growth has started to come out. In part, that's due to some of the newer products you guys have developed. You mentioned Wove earlier. Talk about that innovation side, the newness part, and how you expect that to aid organic growth going forward.
Yeah. There is again, going back to the storyboarding concept and sort of laying out the framework over a longer period of time, we started off by saying, "We can get more organic growth by just sheer hustle. Let us just push harder, work harder, sell harder, drive harder, and actually make more of what we have got. We can get more juice out of this squeeze." That is exactly what we did. We said to our salespeople, "You know what? You should sell more of what you have today, and you should hustle more and go see more clients and do all of those things." That gave us some value. There is no question about it. We started to say to them, "You know what? You should sell the product that is next to yours. If you sell clearing, you should probably sell collateral.
Why don't you throw in a little margin seg with that?" and all of those types of things. That horizontal expansion was the next version of more sales. That has been great. We came out with our commercial model, which is a much more deliberate approach to actually doing that. We are in the early innings of it, but early good signs. Right at the beginning, we started working on certain new products because the heart of any company that is going to be thriving is innovation and new products and creation. We started on Wove in 2022. We launched it, obviously, a couple of years later. That is one thing. Buy-side trading. We had lots of different trading desks in the company littered all over the place. It was a de-duplication play.
In a little bit of a nod to Amazon Web Services, we had an internal capability that could serve multiple different fiduciaries that serviced our own investment management $2 trillion base. We did not offer the service to clients. It was completely set up because you have to be arm's length fiduciary in order to be able to do that. We said, "Why do we not externalize it?" We signed up a client, and we signed up another client. That will be a process that is part of the mega trend of clients.
When I have client conversations with a $500 billion or $100 billion asset manager, and I was like, "Well, do you have to have trading desks all around the world?" and they're like, "Yeah, it's a pain because I've got to have three people, and one of them's on vacation, and then one can't go to the bathroom and all this stuff." I was like, "We'll do that for you because ours is multi-product capable." That's just another example. I talked about our Chief Product and Innovation Officer. She's absolutely lights out, super smart, creative, built a bunch of new stuff in her prior employers, and has come to BNY because she views us as the broadest network effect and the broadest toolkit of things to be able to go create new things. She's very digital asset savvy, thinks about true product creation.
I think it'll be interesting over time to see that. I mentioned micro innovations, and I want to pause on that for one sec because there are a lot of different small things that people do not notice, but yet cumulatively add up to a lot. There is a lot of adding up of $10 million here, $15 million there associated with these different things. We use collateral as an example. We have launched intraday repo. Now the Fed and also market participants can do two, can do a morning trade and an afternoon trade or a 24-hour trade, which used to be, that has created a new market. It allows us to basically earn fee twice in some cases for that product.
We have created this liquidity cascade out of our whole liquidity pool to be able to harvest out the specific deposits that we think are more stable deposits in order to be able to drive that NII stability. As part of that, we've been able to feed our money market fund business. We've fed our LiquidityDirect business. We've created Collateral One, which is a new form of optimization for our collateral business. That's creating significant value for clients that's attracting them to our collateral business. They can do things with our collateral business they can't do with anybody else's. That's a micro innovation. We don't have to have some big fancy thing. We don't have to put it necessarily in our earnings. All of these little things, that's a lot of innovation under the hood. That's a cultural thing as well.
Our people are encouraged to innovate. They see, "Oh, wow, well, we've got this and this. If we do that, then we can create this new thing." That is a cultural evolution. More important, when you've brought like services together, if you think for a second, if you have multiple different trading desks or you have multiple different custody systems or you have multiple different client onboardings, you have not really given people freedom to be able to create and innovate because they'd be like, "I don't know. Is that their turf over there? Is it mine? Oh, no, no, no. To create this new thing, I need a bit of what they've got and a bit of what I've got. I have to broker a peace treaty to be able to." None of that stuff is enablement of innovation.
De-duplication, platforms operating model, single commercial model, Chief Commercial Officer, better org structure, culture where people are playing for the whole team, not for their individual piece, those things are fuel for innovation and the sort of enablement of it. That's what I think we're in the early stages, and I mean early stages, of starting to unlock.
Yeah. Let's add one more component to it, which is new market growth. Talk about the private market opportunity and how that applies to the different businesses.
Yeah. This is a business, this is one of the mega trends that we obviously identified as relevant for ourselves. Obviously, it's sort of well known. I think arguably we're a bit late to it in terms of private markets. We had not focused as much on that as we could. We've been building a lot in the space, really building our client coverage in that space, building great, we do a lot of things with those clients, but those clients particularly appreciate being able to do multiple other things that we do together. That's important. Our products are very well suited. There are a lot of places where this is true, public markets to private markets, mutual funds to ETFs to separate accounts.
These trends, these evolutions where our products are very well suited for some part, but they've got to be able to cover the full spectrum is important because one of the other learnings is most clients don't just want to do one or the other. If you're good at mutual fund custody, you want to be good at ETF custody, and you want to be good at separately managed account custody. That was a gap. We bought Archer to fill that gap in that case. It's not that unless you have all of it and you're complete, you're not necessarily as useful because a lot of clients say, "I want to do all three. I don't want to have somebody for this one and somebody for that one.
I want to go somebody who has all of it. Private markets is a little bit like that with public markets as well. There are a lot of players who cross both. They want to see aggregated positions, aggregated risk management. The ability to blend public and private together is, I think, increasingly important to clients.
Yeah. And we come back to the business lines for a second and kind of drill down one level, starting with market and wealth services. Can you just touch on the most important revenue drivers for Pershing, treasury management, and collateral and clearing?
I think the most important revenue drivers on each of those are really future innovations. I mean, in terms of the growth pathway, I mean, if you want to know the drivers of revenues, Pershing fires off transaction volumes. We saw higher volumes associated with some of the market movements in March and April. It fires off software now, which it did not used to fire off at all, but software is a thing. Wove is a software sale. It fires off asset value. It fires off net new asset growth. All of those things are relevant. New features and capabilities that we can go one by one. I mean, we have got a lot of different businesses. We have got a lot of different businesses. It depends on the business.
It is go back to diversification, which is when you actually look at the company as a whole and you actually add all of those things up, there are a lot of different drivers. We like that.
In the security servicing business, I did want to ask you to just touch on a couple of the sub-businesses within there. Corporate trust and ADRs have been long-standing hallmarks. Just talk about what those add to the company and how those fare in terms of that organic growth.
Yeah. Look, they add more margin. They're good margin businesses. Both of them are. ADRs is one of those businesses. It's a smaller business for us, but it's one of those businesses that folks have predicted the decline of forever, but yet it never seems to go away. Given the fact that it's a good business, it runs at a great margin. Actually, there are opportunities for innovation. When you have geopolitical tensions and in one couple of years, people are very hot on listing in this place, and they're listed in that place. "Oh, no, I'm listed in this one, but I'd sort of like to have a foot in that one." I mean, all of these types and our team's very agile. A lot of that's very international by definition.
We're talking to clients all over the world about those types of listings. It's not just ADRs. It's also GDRs. Other listings will help a company in South America to list in Asia and vice versa. All of those things are permutations of it. Corporate trust. Inshore services were the world's largest in that set of businesses. Corporate trust is a great business from a data point of view as well. We have $15 trillion worth of corporate trustee assets. That's a place where the data from all the securitizations, the ability to observe things, super interesting. It's a scale business. It's also a business which has historically had a lot of people in it. It's been quite inefficient from an operating point of view based on the way that it was run.
It'll be a particularly strong beneficiary of our platforms operating model and over time, AI. It's also a great generator of deposits because our deposits, so much of our deposits are operational in nature. If you have to give us the money to pay your coupon and we require you to give it to us a little while in advance, you can't just not give it to us. Or at least there'll be some nasty consequences for you if you make that choice. There is a lot of integration between some of these operational businesses and our deposits franchise. Corporate trust is actually one of the larger generators of deposits.
Yeah. Within the servicing ecosystem, can we talk about digital assets? Obviously, a huge focus of the today, whether it's crypto, tokenization, stablecoin, etc., all ties into AI as well. How is BNY approaching the changing ecosystem?
I do not want to skip AI because AI, I think, might be one of the most important things that happens to the world over the course of the next 10 years. I think it's going to transform corporate America, and I think it's going to transform lots of firms. Very important to get it right. Very, very bad to get it very, very wrong. On digital assets, look, it's a great technology. Blockchain, distributed ledgers are an ability. I think about them, and I would encourage you to think about them as sort of a multidimensional ledger. It's not a binary on or off. Do I have it? Do I not have it? Do I have two or do I have one? Have I lent it? Do I own it? It's a much more multifaceted way to be able to record the state of an asset.
As such, it's sophisticated, and it's more capable, and it can create a lot of efficiencies. The best uses of it, I think in the meantime, in the medium term, are going to be for assets that are very hard to manage in the traditional financial system. Clunky, like private market things, loans, real estate, commodities. These things do not operate well in the traditional rails of the financial system. You can certainly tokenize equities and tokenize bonds, and we will, and we've been experimenting with those things, but they're super cheap. If you own some equities, you probably don't have to pay much to transact. You don't have to pay much to look after it. There's not a lot of vig there for the digital asset disruption.
Welcome the disruption, but at the end of the day, it's going to be hard for those disruptors to make a lot of money in that space, at least for the moment. We see a little bit of a split in the ecosystem. Not everybody thinks that. Different people talk their own book on it. Stablecoins, important. Stablecoins are going to be part of enabling an online commerce world from a digital asset point of view. We need a stable currency in the online world because Bitcoin's not super stable. ETH is not super stable. They move up and down. You buy something, sell something, and next you know the currency itself has changed in value, which is not great for commerce. We're a big traditional rails firm. We've invested significantly in digital assets.
We think we're the intersection of the on-ramp and off-ramp point, but we want to play in that world as well. We've been very supportive. We sent one of our team members up to Capitol Hill to give testimony on stablecoins. We support the vast majority of the big stablecoins out there. Circle talks very publicly about their appreciation of our support for them. It's just one example. I only mention it because they do. We think it's interesting, but it's really about the tech first and foremost.
Yeah. Lastly, to sum up on the businesses, investment and wealth management, it's been getting better from a margin perspective, but it's been the toughest from a revenue perspective. You've had new leadership there as well. What needs to happen to improve both the top-line results in addition to the work you're doing on the bottom line?
Yeah. This is a business that it's particularly unfortunate that we operated it in a silo, in a bubble. In fact, both businesses were independently bubbled. Wealth was a bubble. Investments was a bubble. In the ultimate travesty of it is we allowed all of the subsidiary investment management brands because our investment management businesses really run through five big brands. Most people do not know BNY Investments. They know Insight. They know Walter Scott. They know Dreyfus. They know Newton, and they know Mellon. Those are the brands that make up the $2 trillion. The fact that we would have siloed bubbles within the siloed bubble in a company that sort of operated generally in silos was not a recipe for success. Breaking those down takes time because there are layers of it in this particular case.
New leadership was required, and José has arrived. He's really just over six months in, so he's still very much kind of working the opportunity here. It is a top-line issue. It is also a distribution issue. It is odd that so little of our own investment product ends up in our distribution channels. We have over $3 trillion worth of distribution in Pershing, and it is a tiny percentage of that. Now, we're open architecture in Pershing. We like being open architecture, so we're not trying to close it out, but still, there's real opportunity there as well that we haven't tapped into. There is also opportunity inside into asset servicing clients. We're the world's largest asset servicer. If you look at some of our competitors, they actually distribute a lot of their own investment management product into their own asset servicing channel.
We do not, which is, again, a bit of a miss. We have spent more time now that we have got new leadership, we have spent more time really looking at this, understanding how others do it. It is important. The actual manufacturing of the firms underneath is really pretty good. Insight is number one in its business. Walter Scott is a terrific franchise. Dreyfus is a terrific $400 billion money market fund, super high margin business for marginal assets. The actual manufacturing capabilities are good, but it has really been an org model and organization and a strategy thing. That is really what our focus is.
Yeah. Let's talk a little bit about the environment and some of the metrics you've talked about. You mentioned earlier the goal to try to create a more stable NII environment as part of creating a more stable environment for the revenue trajectory of the company. It's been a really good success over the last couple of years. You've talked about mid-single-digit growth this year. Given the environment that we're in and just the ins and outs of everything, what do we need to know and what do we need to be thinking about, like your expectations of how that projects from here and any things that's going on in the current environment?
Sure. As a general matter, we've sort of been careful to not do fully updated re-guidance on a quarterly basis. We gave guidance at the beginning of the year. As you pointed out, we said mid-single digits for NII. Now, Dermot alluded to this a little bit in April when we did our first quarter earnings call, but we have seen more deposits. It is not really about the actual rate environment because, as Dermot said, our CFO, we sort of took out the rate view from our 2025 NII book by doing work in 2024 so that we were really more insulated from the ups and downs of the yield curve and the specific timings. The events of earlier in the year did drive volume to us from a deposits point of view.
I think if you were looking at the mid-single digits today, you'd sort of say it would be probably for the year on the higher end of the mid-single digits zip code. Let me give two caveats to that. Number one is the third quarter is seasonally slower for deposits. That would be our expectation, has been the case generally in the past and would certainly be our expectation as well for this year. You have to be careful when you look at it quarter by quarter, which is why I say for the whole year, it was mid-single digits. Now, maybe on the higher end of mid-single digits.
There is a flip side to that as well, which I think is relevant as well for the year, which is on the expenses side, which is we've deliberately allowed ourselves to run at the high end of the range on the expense guideline. People sort of look at our observation of 1%-2%, and they sort of split it and think, "Okay, maybe it's 1.5%." We've sort of been running on the high side of that expense for the year. That is deliberate because I know we can't say this enough, so therefore it bears repeating. Positive operating leverage is our North Star. According to what happens in the environment, things like the deposit flows coming in, okay, that's great. You know what? We'll carry on in doing a little bit more investing. We've also had some currency impact.
There's volume-related expenses, but we didn't need to offset the volume-related expenses because, okay, that's all right. We've had more revenue. The deposits or inflow is allowing us to be able to do it. Positive operating leverage, North Star. That's okay to do it. Had the opposite occurred and we had had a softer, I was here saying, "Gosh, it would be at the lower end, hypothetically, of the mid-single digits," then you would not see expenses be on the higher end. It's not that they're buffeting us around. We're in control of that destiny, but we're making deliberate choices because we're focused on positive operating leverage.
Yeah. On the deposit, NII is driven by deposits at a firm like BNY. Anything changed with regard to the type of deposits that are coming in or the mix of them?
NII is driven by deposits and the assets. One of the things that we think has been a little bit of a secret sauce in our NII story, although we talk about it publicly, we're not trying to make it a secret, is we have three very, very important constituencies in managing that. We have our treasury function. We have our asset investment function, and we have our kind of liability platform function, which we call Global Liquidity Solutions. Those three teams are focused on driving the ultimate outcome.
It isn't about, "Wow, can we drive the asset yield higher?" or, "Can we drive the deposit yield lower?" It's about how do we optimize for our goal of stable NII that we can look at, that kind of obviously you'd rather have an up year rather than a down year, but how do we construct that? How do we do it ahead of time so that it fits with our planning? That's really been the way that we've actually focused on. Deposits itself, we've talked about the fact that we have this $1.6 trillion ecosystem of cash. That cash comes as a result of all of the client interactions across all of our platforms. We invest cash. We help clients invest cash, treasurers. We have LiquidityDirect, which is a portal.
By the way, we sell that as a white-label service as well, another sort of AWS-type parallel, do-it-yourselves. We can sell the software to others, which we do. We have another GCIP that uses that software. Because of that large ecosystem, we're then in a position to say, "Okay, a little bit like a distillation plant, let's tap off the stuff that's exactly right for our deposit base. If you're going to give us a volatile deposit here today, gone tomorrow, you want Fed funds minus not very much, great. You sound great, custom-made for a money market fund. Let's pop you right in there." Yet, if you're going to leave the money for a while, if it's adjacent to another piece of business, whatever the case may be, we'll let you go onto our balance sheet. I use those words advisedly.
We let you go onto our balance sheet. We consider it to be a privilege to be allowed to be on our balance sheet as a deposit. It is that approach to thinking about curating the deposits, which is a critical part of ensuring the right composition and stability as well.
Yep. I want to come back on the expense point you made. As you drive towards positive operating leverage as the North Star, in a good revenue environment, it's always easy to add that spend and still drive it. It's harder to just pull back. As you've built this incremental flexibility into the business model, how much better or deeper is your ability to pull back outside of just compensation, which is the most obvious choice?
Yeah. So it's much improved, and that's what the work of exposing the levers of expenses has been very important to us. Platforms is part of this as well. We do quarterly platform reviews. We have spend envelopes, which we can adjust. We have a lot more transparency onto that. Dermot, our CFO, is able at any point in time to make adjustments to the trajectory of expenses and to say, "You know what? We chose that we were going to lean in more to that, but you know what? Now we probably won't, and we'll sort of pull back a little bit," constructing our workforce in a way where it has some agility to it as well. We have flex. Of course, you're not suddenly going to be up 10, down 10 types of swings. You can't do that on a dime.
Being able to pull the levers and tilt the trajectory of expenses is something that we feel within reason is in our control. That is exactly what we allow ourselves to do, which is last year we have one set of conditions, and we say, "Okay, we're going to lean a little bit more in this direction. The year develops. We make a little adjustment." We are making these adjustments as we go through the year. The question people often ask is, "Okay, so what's your guiding North Star in terms of how you choose whether or not you're going to be at the lower end of the range or allow it to be at the higher end of the range?" The answer is positive operating leverage. That is what we're focused on.
Yep. As we wrap up, I want to talk about capital and usage of capital. You have been very consistent about talking about wanting to maintain very strong levels, way above any regulatory minimums. You talked about this year returning around 100% total capital return. How do you think about just the cascading of organic growth versus dividends versus buybacks? How, if at all, would you consider acquisition to be a part of that capital utility?
Yeah, sure. We like having a conservative balance sheet because if you're a platforms company, balance sheet is not really meant to be the focus. We're not trying to drive our balance sheet to be much bigger. We like our balance sheet. It can experience a little bit of growth over time, but it's not a strategic objective to make it bigger. We view it as a great tool and a means to an end to support the rest of the company's business. Now, there are a lot of great uses that we can put our balance sheet to, but that quality, that, "Well, we don't have to worry about BNY." Remember, resilience for us is an incredibly important attribute, and we prize resilience.
We celebrate with our operations and engineering teams that resilience is a commercial attribute because it allows clients to say, "I do not worry about them." If you go back to things like the regional banking crisis, there were two banks that picked up deposits, and there is a flight to quality. A lot of people talk about being a port in a storm, but there were two banks that were a port in the storm in that time. It was JP Morgan and BNY. We really focus on making sure that resilience is a commercial attribute to us. That has been sort of how we thought about it. Now, the waterfall to your other question is, yeah, invest in the business.
Now, we do not need that much capital to invest in the business because we are more of an expense investment type firm as opposed to a capital investment firm, but we will if we see opportunities to it. To the extent that we do not need it, we are happy to return. Of course, after we have made sure that we have got our capital ratios at that high end of the range, which is kind of where we like it. Now, we can flex. Market environments move up and down. Capital ratios can move. We have ranges for a reason, but we like to run the place conservatively. M&A, I would say this is a thing that has evolved and should continue to evolve for any company. In 2022, I was pretty categorical, which is like, "We are not doing any M&A. We have got to get our house in order.
We've got to organize ourselves. My goodness, we've got platforms operating model. We've got expense problems. We have all these issues. We've got to get ourselves sorted. It is always a high bar for M&A. It's got to be right. It's got to be the right thing. It's got to be really additive. I can't imagine what it would be. 2023, we're doing work. 2024, we're doing work. Now, we did talk about adding tuck-ins if they had special capabilities. We did the Archer transaction for exactly that reason, separately managed accounts. I talked about that before.
Now we're in a mode where it's still a very high bar, but we will be thoughtful if we see ways to make our business get faster and better and leverage this great chassis that we think we've built with platforms operating model, our commercial model, our balance sheet strength, our liquidity strength, our improvements in scale in some of these businesses, our faster organic growth. If there are ways that we can do things to now take advantage of all of that, of course, it's the responsible thing to do.
Very good. We are out of time. Thank you so much, Robin. Please join me in thanking Robin for joining us today.
Thanks.