BNY Mellon's Q4 2025 Earnings Call: Contradictions Emerge on Capital Returns, Deposit Growth, and AI Maturity

Date of Call: Jan 13, 2026

Financials Results

• Revenue: $5.2B, up 7% YOY (full year record $20.1B, up 8% YOY)
• EPS: $2.02 per diluted share, up 31% YOY (full year $7.40, up 28% YOY)
• Operating Margin: Pretax margin 36% on reported basis, 37% excluding notable items (full year pretax margin 35% reported, 36% excluding items)

Guidance:

• Revenue for 2026 expected to grow approximately 5% YOY (excluding notable items).
• Expenses for 2026 expected to grow approximately 3% to 4% YOY (excluding notable items).
• Positive operating leverage of more than 100 basis points expected in 2026.
• Pretax margin target increased to 38% (from 33%) for the medium term (3-5 years).
• Return on tangible common equity target increased to 28% (from 23%) for the medium term.
• Tier 1 leverage ratio management target unchanged at 5.5% to 6%.

Business Commentary:

Strong Financial Performance and Strategic Execution:

• BNY reported record net income of $5.3 billion and revenue of $20.1 billion for 2025, with an 8% year-over-year revenue growth and a return on tangible common equity of 26%.
• This performance was driven by consistent execution of strategic priorities, including the commercial model, platform operating model, and AI adoption.

Operating Leverage and Expense Management:

• The company achieved 507 basis points of positive operating leverage on a reported basis and 411 basis points excluding notable items.
• This was a result of a combination of revenue growth and disciplined expense management, with a focus on reducing sensitivity to interest rates.

AI and Innovation Initiatives:

• BNY has made significant advances in AI adoption, with the deployment of over 130 digital employees in 2025, enhancing capacity and enabling higher-value work.
• The integration of AI, exemplified by collaborations with Google Cloud and OpenAI, aims to support deep research, analysis, and data-intensive workflows.

Client Relationship and Multiline Business Growth:

• The number of clients purchasing 3 or more services increased by 60%, with organic fee growth reaching 3%.
• This growth was supported by the new commercial model and targeted investments in high-growth market segments.

Security Services and Asset Management Performance:

• Security Services reported total revenue of $2.5 billion, up 7% year-over-year, with investment services fees growing by 11%.
• The growth was driven by higher client activity and market values, with a focus on providing multiline business solutions.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated '2025 was another successful year' with 'record net income' and 'generated a return on tangible common equity of 26%'. CFO highlighted 'positive operating leverage continues to be our North Star' and raised medium-term financial targets. Management expressed confidence in growth momentum and strategic execution.

Q&A:

• Question from Ebrahim Poonawala (Bank of America): Unpack the assumptions underpinning the revenue growth outlook and on fees for 2026.
  Response: Total revenue guided up 5% YOY for 2026; NII growth expected slightly ahead of 5%, fees slightly lower than 5%.

• Question from Ebrahim Poonawala (Bank of America): How would you think about medium-term earnings growth potential and confidence in defending margins if revenue environment worsens?
  Response: Management is humble about market assumptions, has built agility in expense base, and deliberately reduced macro sensitivity to revenue; confidence in ability to react if needed.

• Question from Michael Mayo (Wells Fargo Securities): How does AI play into the new hire targets? How many AI digital employees expected and what are the savings?
  Response: AI is seen as a capacity multiplier; enterprise platform 'Eliza' supports scaling. Savings and exact headcount projections are unclear early days, but AI is expected to drive revenue growth and optimize employee potential.

• Question from Michael Mayo (Wells Fargo Securities): Detail the pretax margin improvement to 38% and how individual business line pretax margins are evolving.
  Response: Improvement driven by growth in platform businesses (Security Services, Market and Wealth Services) and recovery in Investment and Wealth Management; compositional shift as platform segments grow.

• Question from Steven Chubak (Wolfe Research): What is institutional demand for tokenized deposit capabilities and how might monetization differ from traditional deposits?
  Response: Part of broader digital asset strategy to connect traditional and digital rails; tokenized deposits improve cash utilization and programmability for clients, enabling new activities and deeper relationships.

• Question from Alexander Blostein (Goldman Sachs): Frame organic fee growth for 2026 and beyond.
  Response: Confidence in organic growth driven by deepening client relationships (64% increase in clients buying 3+ services over 3 years) and new product development; no single business is doing better than others.

• Question from Brennan Hawken (BMO Capital Markets): If organic growth is accelerating but fee revenue outlook is sub-5%, and why would balances be flat?
  Response: Management not concerned about over-earning; guide considers variability in NII and fee growth inputs. Balances expected roughly flat in 2026, with growth from asset-side reinvestment at higher yields.

• Question from Glenn Schorr (Evercore): How does BNY's book of business position it for future consolidation in the wealth management space?
  Response: Sees significant role in market; pipeline is robust with recent contract renewals and new client onboarding; expects digestion period post recent M&A activity.

• Question from David Smith (Truist Securities): Why are new medium-term targets sufficiently ambitious given the opportunity set?
  Response: Targets (38% pretax margin, 28% ROTCE) raised from prior 33%/23% as company progresses; ambition is to outperform targets, reflecting stretch for current transformation phase.

• Question from Gerard Cassidy (RBC): What are the thoughts on growth through acquisitions or inorganic opportunities?
  Response: Open-minded but not pressured; M&A would need to accelerate, derisk, or enhance value proposition with strong cultural fit and financial returns; organic transformation provides runway.

Contradiction Point 1

Capital Return Philosophy and M&A Strategy

Contradiction on capital deployment focus and M&A appetite between quarters.

What are the capital return plans for 2026 and how do share repurchases factor into the growth strategy? - Alexander Blostein (Goldman Sachs)

20260113-2025 Q4: The capital philosophy remains unchanged... BNY will continue consistent capital returns. The buyback as a percentage is an output of the overall model and is expected to be in the 95-105 range. - [Dermot McDonogh](CFO)

Is the company considering increasing buybacks due to the stock's recent performance, and is inorganic M&A-driven growth no longer an option? - Ebrahim Poonawala (Bank of America)

2023Q4: The capital deployment waterfall remains unchanged: first invest for profitable growth, then return surplus capital to shareholders. M&A is not the focus currently; the priority is running the existing business better... - [Robin Vince](CEO)

Contradiction Point 2

Deposit and Balance Growth Outlook

Contradiction on deposit growth trajectory and underlying assumptions between quarters.

What factors contributed to the strong December NII and why didn't they lead to higher organic balance growth? - Unknown Analyst (Autonomous Research)

20260113-2025 Q4: For 2026, balances are expected to be roughly flat seasonally. - [Dermot McDonogh](CFO)

With recent deposit growth in late 2023 and easing headwinds, could 2024 deposits outperform the -10% guidance? - Robert Wildhack (Autonomous Research)

2023Q4: The firm is comfortable with the -10% guidance [for deposits in 2024]. Uncertainty remains due to QT, liquidity in money markets, and stock market movements. - [Dermot McDonogh](CFO)

Contradiction Point 3

Outlook for Net Interest Income (NII) and Organic Growth Drivers

Contradiction on NII growth drivers and the relationship between strong NII and organic balance growth.

What drove the strong December NII and why didn't that result in improved organic balance growth? - Unknown Analyst (Autonomous Research)

20260113-2025 Q4: Strong NII in Q4 was driven by asset servicing activity leading to higher balances. For 2026, balances are expected to be roughly flat seasonally... The NII pickup will come primarily from reinvesting maturing securities at higher yields. - [Dermot McDonogh](CFO)

How are balance sheet derisking and interest rate risk management evolving in anticipation of a potential rate decline, given the 18% NII growth this quarter? - Glenn Schorr (Evercore ISI)

2025Q3: The strong NII was driven by reinvesting maturing securities at higher yields and unique client activities (CLOs, M&A escrows). For Q4, NII is expected to be flat sequentially... - [Dermot McDonogh](CFO)

Contradiction Point 4

Strategic Positioning on Stablecoins and Digital Asset Opportunities

Shift from viewing stablecoins as an opportunity to acknowledging disruption risk.

What is the institutional interest in tokenized deposits and how might their monetization strategies differ from traditional deposits? - Steven Chubak (Wolfe Research)

20260113-2025 Q4: Tokenized deposits are part of BNY's strategy... They provide programmable, on-chain representation of client deposits... This innovation serves both digital-native clients and existing clients. - [Robin Vince](CEO)

Will the rise of stablecoins and falling rates impact - David Smith (Truist Securities)

2025Q3: The CEO views the evolution of money market funds and stablecoins as an opportunity, not turbulence. BNY is positioned to support the transition to tokenized money market funds... - [Robin Vince](CEO)

Contradiction Point 5

AI's Financial Impact and Maturity

Contradictory statements on whether AI is already benefiting the P&L or is still in early stages.

How will AI and tech influence new hire targets, particularly the number of AI digital employees projected over 3-5 years and the associated savings? - Michael Mayo (Wells Fargo Securities)

20260113-2025 Q4: AI is seen as a catalyst for transformation... The focus is on cultural adoption and scaling AI as a capacity multiplier. - [Robin Vince](CEO), [Dermot McDonogh](CFO)

How is AI impacting operating leverage, and is it currently benefiting the P&L as a revenue or expense driver? - Betsy Lynn Graseck (Morgan Stanley)

2025Q2: It is still early days, and there is not yet a significant net impact on the P&L, but early signs are promising... - [Robin Vince](CEO)