Valerie Haertel - Investor Relations Gerald Hassell - Chairman and Chief Executive Officer Todd Gibbons - Chief Financial Officer Curtis Arledge - Chief Executive Officer, BNY Mellon Markets Group Brian Shea - Chief Executive Officer, Investment Services.

Ashley Serrao - Credit Suisse Betsy Graseck - Morgan Stanley Luke Montgomery - Bernstein Research Glenn Schorr - Evercore ISI Alex Blostein - Goldman Sachs Ken Usdin - Jefferies Brian Bedell - Deutsche Bank Brennan Hawken - UBS Mike Mayo - CLSA Jim Mitchell - Buckingham Research Adam Beatty - Bank of America Gerard Cassidy - RBC.

Good morning, ladies and gentlemen and welcome to the Third Quarter 2015 Earnings Conference Call hosted by BNY Mellon. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note that this conference call and webcast will be recorded and will consist of copyrighted material.

You may not record or rebroadcast these materials without BNY Mellon’s consent. I will now turn the call over to Ms. Valerie Haertel. Ms. Haertel, you may begin..

Thank you, Anna and good morning everyone. Welcome to the BNY Mellon third quarter 2015 earnings conference call. With us today are Gerald Hassell, our Chairman and CEO, Todd Gibbons, our CFO, as well as members of our executive management team.

Our third quarter earnings materials include a financial highlights presentation that will be referred to in the discussion of our results and can be found on the Investor Relations section of our website. Before Gerald and Todd begin, let me take a moment to remind you that our remarks today may include forward-looking statements.

Actual results may differ materially from those indicated or implied by forward-looking statements as a result of various factors.

These factors include those identified in the cautionary statement in the earnings press release, the financial highlights presentation and those identified in our documents filed with the SEC that are available on our website at bnymellon.com.

Forward-looking statements in this call speak only as of today, October 20, 2015 and we will not update the forward-looking statements. Now, I would like to turn the call over to Gerald Hassell.

Gerald?.

Thanks, Valerie. Welcome, everyone and thank you for joining us this morning. Our results demonstrate our focus on delivering significant value for our clients and shareholders in all market environments. Given the global market instability and continued low interest rates, it has been an exceedingly challenging revenue environment.

So, we remain laser focused on the key priorities we discussed with you at our Investor Day a year ago. We are executing our strategic plan, which is enabling us to deliver solid results in line with our 3-year financial goals.

For the quarter, we again controlled our expenses, while continuing to make strategic investments to enhance client service delivery as well as improving our technology platforms and capabilities to drive future revenue growth. In addition, we are making ongoing investments in risk management and regulatory compliance practices.

So, turning to earnings, earnings per share were $0.74, up 16% on an adjusted basis, which excludes the third quarter 2014 sale of our equity investment in Wing Hang Bank and our 1 Wall Street headquarters. It’s also net of litigation and restructuring charges.

Now, focusing on the year-over-year comparisons on an adjusted basis, we generated more than 370 basis points of positive operating leverage and improved our pre-tax operating margin to 31%.

Total revenue was up 1% as growth in Investment Services, including contributions from our volume and volatility sensitive businesses, was largely offset by softness in investment management, which was negatively impacted by the strong dollar as well as declines in equity market values globally.

Net interest revenue was up 5% and total expenses were down 3% and our return on tangible common equity in the quarter was 21%. So, looking at our progress against our strategic priorities, our first priority is driving profitable revenue growth.

We are working to deepen our client relationships and grow revenues, but we are also maintaining our pricing discipline when competing in the marketplace. Now, during the quarter, revenue in Investment Services again benefited from growth in Global Collateral Services and Asset Servicing.

We also on-boarded nearly 230 new staff during the quarter in association with the mid office services of T. Rowe Price that we are taking on. This strategic relationship further endorses the market demand for our expertise and platform capabilities.

Foreign exchange revenue was also up strongly year-over-year as we continue to benefit from both higher volumes captured through the expansion of our services and higher volatility. Investment management revenue reflected the reset in the equity markets and the impact of the strong dollar.

That said the diversity of our investment management business, combined with our growth initiatives in business improvement efforts, helped mitigate the market impact on our financial results. On a constant currency basis, investment management fees were flat year-over-year.

Our LDI strategies continue to see strong inflows reflecting continued client demand. And we also saw some good momentum in fixed income and our alternative strategy. Our initiatives to align our investment management portfolio to the largest growth pools are delivering results. Our U.S.

retail initiative, which is focused on third-party intermediary advisors and expanding the Dreyfus distribution platform is contributing to our results. As is our wealth management sales force expansion which has built a strong pipeline and is benefiting from the growing synergies with our Pershing business.

Our second priority is executing on our business improvement process that leverage our scale and expertise to deliver efficiency benefits to clients, while reducing our structural costs.

Our success on this approach is reflected not only in lower expenses in nearly all categories, but in our industry leading market positions across all of our businesses.

Now, some highlights of our business improvement program include the sale of Meriten, our German-based boutique, where we had a marginally profitable business and identified the opportunity to better redeploy our capital. That closed in the third quarter. We have realigned our UK transfer agency operating model to improve its profitability.

We have created a new client pricing strategy group to develop, analyze and measure service delivery costs to better align our cost with our client pricing. We have implemented an automated process to measure market data usage to identify opportunities to reduce the number of pricing feeds and terminals.

And we have created what we call MyDashboard, which improves employee productivity as part of our digitization strategy. And MyDashboard provides our managers with a convenient snapshot of key data on their employees such as expenses, performance measurement status, training and other key metrics.

The capability was recently named best new digital project for financial services as part of the Gartner Financial Services Cool Business Awards. And we have also been analyzing our current real estate portfolio to reduce cost. And we are selecting locations and workplace standards that enable collaboration and innovation.

During the quarter, we completed our exit from 1 Wall Street ahead of schedule and we now occupy our new, more cost efficient headquarters at 225 Liberty Street and we are taking a very similar approach across many of our locations globally, which will help reduce our real estate footprint.

Given the more difficult-than-expected equity markets, it will be critical for us to keep driving efficiencies to meet our Investor Day goals.

To that end, we continue to identify additional opportunities to reduce corporate overheads and to leverage scale and operations, technology and distribution in both Investment Services and investment management while continuing to deliver a high level of service to our clients.

Many of our efforts are singles and doubles, but they have been adding up, helping us fund some of our revenue growth initiatives and increasing regulatory compliance costs. Our third priority centers on being a strong, safe, trusted counterparty. We continue to have among the highest credit ratings in the industry.

This quarter, our credit ratings were affirmed by the rating agencies, including our A1 rating from Moody’s. Now, during the quarter, we implemented a new system to meet the bulk of reporting requirements and completed a program to measure and monitor intraday credit risk exposure.

We also established a more granular and rigorous CCAR approach that strengthens our capital adequacy process. Our business improvement process has helped us fund some of these investments. Our fourth priority involves generating excess capital and deploying it effectively.

We remain focused on maintaining a strong balance sheet and capital and liquidity position. With respect to our capital ratio, we are pleased to report progress towards achieving compliance with the supplementary leverage ratio which increased to 4.8% this quarter.

Now, as a reminder, SLR is expected to be effective, it’s the beginning of 2018 and we are on a good path to meet the requirement by then.

Now, in accordance with our 2015 capital plan, which authorized us to return up to $3.1 billion to our shareholders, we repurchased 690 million in shares and distributed $190 million in dividends during the quarter. Year-to-date, we have repurchased more than 1.9 billion in shares and distributed nearly $575 million in dividends.

Our fifth priority is to attract, develop and retain top talent. Across our organization, we have been enhancing our talent strategies and culture to ensure we have the right people in the right jobs. Great talent enhances our ability to win. This quarter, we named a new President of our markets group, Michelle Neal, who starts next month.

She exemplifies the kind of talent we have been attracting and developing in our organization. Michelle has a special combination of experience in electronic trading and settlement and she is well equipped to continue to drive the markets group’s strong performance. And we are very pleased to welcome her to our team.

Now as we look ahead, we remain confident in our ability to achieve the 3-year financial targets we shared with you on Investor Day a year ago. With that, let me turn it over to Todd..

Thanks Gerald and good morning everyone. My commentary will follow the financial highlights document starting with Page 7, which details our non-GAAP or what we call our operating results for the quarter. As Gerald noted, EPS was $0.74, that’s up 16% year-over-year on an adjusted basis.

Now adjusted, it excludes the sale of our equity investment in Wing Hang and the sale of 1 Wall Street and is also net of litigation and restructuring charges.

Revenue in the third quarter was up 1% year-over-year reflecting strength in asset servicing, especially global collateral services as well as in clearing, foreign exchange and financing related activities. It was offset by the impact of the stronger dollar and lower equity markets, especially on our investment management business.

Expenses were down 3% year-over-year. Our success in lowering legal and consulting expenses and in bringing savings from our Business Improvement Process as well as the stronger dollar are driving lower expenses in almost every category.

Combination of our revenue mix and ability to control expenses through the business improvement process resulted in more than 370 basis points of positive operating leverage year-over-year. On Page 6 of our earnings release, you can see the key currencies that impacts our business, the strength of the U.S.

dollar against the pound and the euro, which were down 7% and 17% respectively, continue to impact investment management more than our other businesses, since 42% of the revenue is from outside the U.S. As we have noted in prior quarters, the overall company impact from currency translation is nominal. Adjusted for the stronger U.S.

dollar, revenue would have been up approximately 4% and expenses up approximately 1%. Income before taxes was 8% year-over-year on an adjusted basis and is up 10.5% if you exclude the provision for credit losses. On a year-over-year basis, our pretax margin increased approximately 200 basis points to 31% in the third quarter of 2015.

And finally, return on tangible common equity was 21%. Page 8 shows our consolidated fee and other revenue. Asset servicing fees were up 3% year-over-year and flat sequentially.

The year-over-year increase primarily reflects organic growth in global collateral services, our broker dealer activities and asset servicing and net new business, partially offset by the unfavorable impact of the stronger U.S. dollar.

Sequentially, organic growth and net new business was offset by the typical seasonal step down in securities lending revenue as well as lower market values. Clearing services fees were up 2% year-over-year, down 1% sequentially. The year-over-year increase was primarily driven by higher mutual fund and asset based fees.

Issuer services fees were down 1% year-over-year and up 34% sequentially. The year-over-year decrease reflects lower fees in depositary receipts and the unfavorable impact of a stronger U.S. dollar in Corporate Trust, now is partially offset by net new business in Corporate Trust.

The sequential increase primarily reflects seasonal higher fees and depositary receipts versus the second quarter. Treasury service fees were down 4% year-over-year and 5% sequentially, both decreases reflect lower payment volumes as we continue to be highly selective exiting client relationships that don’t meet our risk criteria.

Third quarter investment management and performance fees were down 6% year-over-year and sequentially.

On a constant currency basis, investment management and performance fees were down 2% primarily driven by lower performance fees, lower equity market values and net outflows, partially offset by the impact of the first quarter Cutwater acquisition and strategic initiatives.

The sequential decline primarily reflects lower equity market values, net outflows and seasonally lower performance fees. Both decreases also reflect the sale of Meriten Investment Management in July. Performance fees were $7 million compared to $22 million a year ago.

FX and other trading revenue on a consolidated basis was up 17% year-over-year and down 4% sequentially. FX revenue of $180 million was up 17% year-over-year and down 1% sequentially. The year-over-year increase primarily reflects higher volatility and volumes.

Financing related fees were $71 million compared to $44 million in the year ago quarter and $58 million in Q2. The year-over-year increase primarily reflects higher fees related to secured intraday credit provided to dealers in connection with their tri-party repo activity.

As we noted last quarter, some of our clients may moderate their usage or possibly find alternatives of sources with this financing. Importantly, both increases also reflect higher underwriting fees. Investment and other income of $59 million compared with $890 million in the year ago quarter and $104 million in the second quarter.

The year-over-year decrease primarily reflects the gains on the sales of our equity investment in Wing Hang and the 1 Wall Street building. Those are both recorded in the third quarter of ‘14.

There is also a $17 million loss on seed capital investments that’s recorded in consolidated investment management funds versus the $16 million gain last year that is not reflected in these numbers given the required separate gross presentation for consolidated funds.

The sequential decrease in investment and other income primarily reflects lower leasing gains and the loss associated with the sale of Meriten Investment Management. Page 9 shows the drivers of our investment management business that help explain our underlying performance. You can see AUM was $1.63 trillion, unchanged from last year.

Note that assets under management for the current and prior periods have been restated to exclude Meriten. We had $5 billion of long-term net outflows during the quarter. Those were primarily in index strategies, active equities and fixed income offset by continued strength in LDI where we retain a leadership position.

Our wealth management business expansion initiative is helping to drive an increase in loans and deposits. Year-over-year, we saw a 19% increase in loans and 11% increase in deposits. Turning to the investment services metrics on Page 10, you can see that assets under custody and administration at quarter end were $28.5 trillion.

That’s up $200 billion year-over-year reflecting net new business, partially offset by the unfavorable impact of the stronger dollar and the lower equity market values. Adjusted for currency, year-over-year growth would have been roughly 3%. Linked quarter, AUC/A was essentially flat.

We had estimated new – total new assets under custody and/or administration business wins of $84 billion in the third quarter. Now, while this is relatively low, it’s mainly due to the timing of new business wins this year. In the second quarter, we announced the significant new strategic relationship, which resulted in an upside win for that quarter.

We continue to see strong demand for our services and we have a solid pipeline of opportunities. It is important to note that this quarter we changed our methodology for reporting our estimated new business wins. Moving from reporting based on the day the mandate was granted to the date that it was actually contracted.

Although it’s not a significant, we have restated our historical new business wins beginning in 2014 through this quarter for better comparative purposes. Additionally, year-to-date new business wins totaled $1.42 trillion, so we are still trending above our historical average.

Now to – turning to a review of other metrics, the market value of securities on loan at year end again was up year-over-year increasing by 2%. Average loans and deposits continue the strong year-over-year growth trend. Our broker-dealer metric of average tri-party repo balances grew 4%.

All of our clearing metrics were up with global DARTS volumes up 18%. The net decline in sponsored DR programs primarily reflects our continued focus on exiting low activity programs. Turning to net interest revenue on Page 11, you will see that NIR on a fully taxable equivalent basis was up 5% versus the year ago quarter and down 3% from Q2.

The overall balance sheet was stable this quarter. We benefited year-over-year from higher average deposits and a better asset mix. The yield on interest earning assets increased 3 basis points year-over-year and the yield on interest bearing deposits decreased 4 basis points.

The decline in deposit yield was driven by our efforts to charge for deposits in non-U.S. locations to cover our cost, where negative interest rates exist. Sequentially, NIR was lower reflecting lower average securities and the impact of interest rate hedging activities.

The net interest margin for the quarter was 98 basis points, 4 basis points higher than the year ago quarter and 2 basis points lower than the prior year and in line with our expectations and remained in the range of 95 to 100 basis points as we noted on our Investor Day last year.

The year-over-year increase reflects the shift out of cash and into investments in securities and loans. The benefit of which was mainly realized in the second quarter. Turning to Page 12, you will see that non-interest expense on an adjusted basis declined 3% year-over-year and was flat sequentially.

The year-over-year decrease in non-interest expense reflects lower expenses on all categories, except other expense. Other expense includes concessions we gave to clients impacted by the system – the SunGard systems outage to cover out-of-pocket and other incidental expenses they incurred.

Lower expenses compared to a year ago reflect the favorable impact of a stronger dollar, lower legal and consulting expenses and the benefit of our business improvement process. The third quarter decrease was partially offset by higher consulting expenses associated with regulatory requirements.

Total staff expense declined 3% year-over-year reflecting the favorable impact of a stronger dollar, the impact of curtailing our U.S. defined benefit plan and lower incentive expense partially offset by our annual employee merit increase effective on July 1 and higher severance expense.

The sequential increase in headcount of 600 employees primarily reflects the on-boarding of staff related to two strategic relationships as well as our continued in-sourcing of technology talent to both reduce cost and retain institutional knowledge in-house.

Sequentially, the annual employee merit increase and higher severance and other expenses were almost completely offset by lower incentive, business development and sub-custodian expenses.

Turning to capital on Page 13, our fully phased-in advanced approach common equity Tier 1 ratio decreased by 60 basis points to 9.3, that was driven by increases in risk-weighted assets primarily related to credit risk and operational risk.

In addition, we are also no longer assuming use of a methodology that is subject to regulatory approval, which reduced the ratio by approximately 25 basis points. As Gerald noted, we made good progress on our supplemental leverage ratio and we are at 4.8% this quarter due to higher capital and a lower average balance sheet.

While our ratio is now 20 basis points below the required 5% minimum, we do plan to maintain a cushion above that. As we have noted previously, this ratio was expected to be our binding constraint and we are confident that we will be in compliance when the regulation becomes effective.

To the extent that excess deposits did not run off as we anticipate with an increase in rates, we have many levers to pull, including the issuance of additional preferred, if necessary, to achieve compliance. Few final notes about the quarter. As you will see in our release, our effective tax rate was 25.4%.

Also on Page 11 of the earnings release, you will see some investment security portfolio highlights. At quarter end, our net unrealized pre-tax gain in our portfolio was $1.05 billion. That compares to $752 million at the end of June, with the difference owing principally to a decline in interest rates.

Now, I would like to discuss a few points to factor into your thinking about the fourth quarter. We expect to see the typical seasonal decline in depositary receipt fees with the limited offset in expenses. We estimate the decline of the fourth quarter from the third quarter to be approximately $120 million in revenues.

We expect to generate seasonally higher performance fees in our investment management business in the fourth quarter, approximately in line with last year. Net interest revenue is expected to be flat. We expect to see seasonally higher business development expenses.

Additionally, we expect an increase in consulting expenses related to our investments in regulatory compliance initiatives. I would also like to note that the fourth quarter of last year was when we began to see the U.S. dollar strengthened. So, you should keep that dynamic in mind as you model us.

We expect total expenses to be relatively flat in the fourth quarter versus the year ago period, adjusted for litigation and lower for the full year 2015 as compared to the full year 2014. We continue to expect our tax rate to be approximately 25%.

I will also remind you that we are going to pay a dividend on the preferred that we issued in the second quarter. And finally, we continue to expect to execute on share buybacks in accordance with our planned authorization.

So in summary, we are executing on our strategic priorities and we are pleased with the progress we are making even with the relatively challenging market headwinds. We are continuing to generate significant positive operating leverage even while we invest in initiatives to drive further growth and absorb higher regulatory compliance cost.

We are focusing on managing our balance sheet, generating capital and deploying it effectively to deliver value to our shareholders and we remain on track to achieve the 3-year targets we shared at Investor Day this time last year. With that, let me hand it back to Gerald..

Thanks, Todd. And operator, I think we are ready to open it up for questions..

[Operator Instructions] Our first question comes from Ashley Serrao from Credit Suisse. Your line is open..

Good morning..

Good morning..

I was just curious, what portion of the $500 million in savings that you outlined at Investor Day have been achieved so far? And also what portion of that has been reinvested in the business? Ultimately, I am just trying to get a sense of the net savings that have dropped to your bottom line.

And I may have misheard this, but it sounds like you have also identified incremental opportunities that you think would be additive.

Any color there would be appreciated?.

Yes, Ashley, let me say that – this is Todd, let me just say, first of all, that the $500 million was a number that we put out last year and we have been working hard to add to that total figure and this is a continuous process improvement. These are structural changes and not one-time events.

And we do continue to see increasing opportunities and the number continues to get bigger. In terms of how much is adding to the bottom line versus what’s being reinvested into regulatory or other strategic platforms. I think the best way to look at that is to look at the increase in the operating margin.

Some of that is that – the 377 basis points this quarter, some of that, on a year-over-year basis, some of that is related to the dollar, probably about 77 or so, so even on a constant currency basis were 300 basis points better. So that’s what you are seeing dropped to the bottom line..

Okay, thanks for the color there. And then I guess the other question was I noticed cash into bank placements ticked up sequentially for what looks like the first time in the year. I know you have proactively been trying to shift away from cash.

So, I was curious how we should be interpreting the increase?.

Yes, I think if you look at the average period, it’s probably a better way to look at it. You will see it’s relatively flat and actually cash at the Central Banks is down a little bit. So, we do get spikes from time to time on quarter ends.

In fact, the period ends have been spiking by about $15 billion or $20 billion, but you could guess get noise there, but general, cash at other banks should be flat and Central Bank deposits is going to be down on a year-over-year basis as we put more in loans as well as in securities..

Okay, thanks for taking my questions..

Alright, thank you. Our next question will be coming from the line of Ms. Betsy Graseck from Morgan Stanley. And your line is open..

Hi, thank you.

Todd, I wondered if you could give us an update on how you are dealing with negative rates over in Europe, the degree to which deposit pricing strategy is done and why with an expectation to reduce deposits there?.

Yes, there is a slight decline, Betsy in deposits since we initiated that strategy, but not much. We did up the charge for some of those deposits in the third quarter, late in the third quarter. And I would say just seeing a modest decline, if any..

And so as you think about the size of the balance sheet and this lower for longer rate environment, could you talk through thoughts on the SLR and whether or not that includes issuing incremental preferreds?.

Sure. So, we did get to 4.80 on the quarter. We do accumulate even at 100% payout ratio, we accumulate somewhere between $600 million and $800 million a year in incremental capital from the amortization of intangibles as well as equity that’s issued for compensation plans.

So if you take that into consideration that moves us up a bit over the next couple of years. We have also gone through – if we kind of look at our balance sheet through two lenses, one is in a zero rate environment and one is on normalizing rate environment that’s reflected in the forward curve.

In the normalizing rate environment, as you know we would expect quite a bit of deposits to run off and we could probably comply in the normal course with the SLR with a pretty decent cushion. If it stays in a zero rate environment, we have got a team working together with investment services in the treasury group.

And we have prioritized all of our balance sheet consumption and where we might either look at interest rates going even negative on interest rates to discourage deposits or in other words pushing off other SLR related activities. And we would hold as a kind of a last resort if it makes sense economically to issue preferreds..

Okay.

And I am sorry if I missed it, but have you given your bank SLR, I know you talked about the hold co level?.

Yes. The bank SLR is about 20 basis points below the hold co level right now..

Alright. Okay. Thanks..

Thank you. Our next question will be coming from the line of Luke Montgomery of Bernstein Research. Sir, your line is open..

Thanks. Good morning, I would like to know what your thoughts are on the application of block chain technology to securities settlement in tri-party repo, I think you know that there is a number of start-ups out there that are looking at this.

Do you think that technology would be more likely to disintermediate the settlement infrastructure, which would be maybe the central securities depositories or could it also be some of the services that global custodians like you provide.

And then do you see any limitations in the technology or maybe vested interest that would prevent it from being adopted by this the securities markets and just how closely have you been examining it?.

That’s a mouthful of questions. We are studying block chain technology quite intensely. It has some very, very positive attributes. Clearly, the whole idea of two sides showing up on a public ledger and being able to swap values instantaneously is very appealing.

So we are looking at it and whether it can be deployed in some pilot programs we have internally. And therefore see how the technology can be used to improve our core operations, both on the clearance and settlement side. We have been trying to engineer our company for same day or real time settlement regardless.

And so whether it’s through block chain or through other means, it’s something that we think about a whole lot. We do have some pilot programs going on in the payment space, I mean our treasury services area, where that’s the area most impacted at the moment by third-party technology companies are going after the payments.

Typically, it’s the small payments, consumer payments, but anything that happens at the consumer level, we assume is going to happen at the institutional level. As it relates to clearance and tri-party directly, that is an extraordinarily complex operating platform with incredibly complex algorithms built into it.

So, we are not naïve to think that technology can’t disrupt even that, but I think we feel pretty comfortable at the moment there. The last but not least, for a block chain to work, you need to have everybody on both sides, the buy side and the sell side, to show up simultaneously in volume to have it make sense.

And so we are looking at some technologies on how it can be applied. So a lot of – there is a lot of room ahead of us before it’s fully implemented but we are studying it very carefully..

Okay. Thanks. That’s really helpful.

And then I was just hoping you could sketch out in a little more detail what you are attempting to achieve with Dreyfus and retail distributional, I think I recall one of the possible explanations for the low to mid-30% range operating margins in the asset management business, is that the retail platform is expensive but maybe not up to scale.

So as you execute against that plan, do you expect to see operating margins in the asset management business improve?.

Yes, this is Curtis. Absolutely, what I would point you to is that while we are the sixth largest asset management in the world, in terms of U.S. mutual fund families, we are currently 37th.

So we have all of the investment capabilities or a large majority of the investment capabilities in-house that is used by investors that use mutual funds, financial advisors and individuals, ultimately as the end users.

But our platform to reach advisors is below where we think it should be or where it could be to really improve our distribution of our investment capabilities through that channel. It’s very important to appreciate the large scale shift of assets from defined benefit plans, ultimately into what we will refer 1K after they go through retirement plans.

And so a major industry shift to these assets that have been managed by CIOs, pension plans are now even managed again by individual advisors. So, we want to obviously be in sync with that shift. The investment that we’ve began over a year ago we are actually pretty excited about U.S. retail, despite a pretty challenging environment for the industry.

We have done quite well. And so recent statistics around flows actually have come out and we were 18th in terms of the third quarter in terms of net flows.

So, the 37th largest family is 18th and net flows over an extended period of time, we should see our market share grow and it’s a very important part of our initiative that we outlined at Investor Day. I would also highlight that we do reach clients directly through our wealth management business.

Our wealth management business tends to focus on individuals and family offices with higher net worth. And we have seen through our expansion fantastic growth there. Todd mentioned the 19% increase we have seen in loans and deposits.

I would share with you that our partnership with Pershing has been a really important contributor to that, nearly a quarter of our growth in loans and deposits came from connecting to the financial advisory clients of Pershing. So both U.S. retail coverage of advisors and wealth management are important parts of our future investment management..

Alright, thank you. Our next question will be coming from the line of Glenn Schorr of Evercore ISI. Sir, your line is open..

Thanks very much. So, everybody likes the positive operating leverage even without the currency impact, a quick question on the delta in the legal and consulting expense year-on-year.

I don’t know if you can give us the dollar amount for each quarter or just the delta, just curious how much that was a contributor?.

Yes. The consulting and legal expense did decline on a year-over-year basis a little. We are seeing some of the dividends from the lower litigation defense charges as well as lower consulting expenses related to a number of our strategic platforms.

That was offset somewhat by higher consulting expenses related to some of the regulatory compliance efforts, especially around improving the qualitative process in our CCAR as well as the resolution recovery planning. So on a year-over-year basis I think it was down about $20 million..

That means the bulk of the 300 basis points on your operating leverage is the structural improvements stuff?.

That is correct. Yes, it’s beyond that. A lot of it’s coming – obviously the biggest expense is in the staff expense and so that’s where most of it’s coming..

Alright. Thank you. Our next question will be coming from the line of Alex Blostein of Goldman Sachs. Sir your line is open..

Great. Good morning everybody. Todd, it might be a little premature, but as we think about 2016 you guys obviously had a great job this year controlling expenses and some of that’s FX related, but as you noted and a lot of it is just kind of core improvement.

Given the fact that it sounds like you made a lot of progress on the regulatory front and getting those systems in place, where are we I guess in the pace of growth of regulatory-related expenses and as we think out into next year, is there still enough you guys can do in the core business to keep expenses kind of flattish to down?.

Yes, I think, Alex it’s a little early in our planning process. We continue to identify through the business improvement process additional actions that we can take. We do anticipate as I had indicated in the fourth quarter, a bit of a pop on some of the regulatory cost as we further build out some of the compliance and risk functions.

I would say it’s a little early to call it for next year, but we do see a number of continued opportunities and our goal is, as you will even see in this quarter, as the guidance that we gave for the fourth quarter is to keep things flat on a year-over-year basis.

Depending on the revenue growth and where the revenue comes from, that could be more challenging..

Got it. And then just around balance sheet management, so you guys have been charging forward deposits in Europe for the last couple of quarters, I guess. Any thoughts in doing the same in the U.S.

given the fact that the balance sheet came down a little bit quarter-over-quarter, but overall still pretty elevated? So, any thoughts around charging for deposits here?.

Yes. Alex, I will take that. We do have a team working with our Treasury group and our Investment Services group at the U.S. client base.

And making sure whatever deposits we do have from them are ideal operational deposits versus non-valuable deposits and experimenting with certain types of clients and client segments whether they can be priced differently than what they are today and either they pay for it or pay for the use of the balance sheet or they move the deposits somewhere else.

And so we are doing it on a selected basis. We haven’t put through any charges yet, but we are having conversations with certain clients in certain client segments..

I think we also benefit from having the ability in the portal to be able to help our clients sweep cash into money market mutual funds, both our own and other providers. So, we can at least retain some of the distribution fees associated with it..

Alright, thank you. Our next question will be coming from the line of Ken Usdin of Jefferies. Sir, your line is open..

Thanks. Good morning. On the asset servicing side, you are able to keep fees flat quarter-to-quarter even with sec lending and equity market declines. I am just wondering, did you always start to recognize revenue from the T.

Rowe contract? And how do we start to understand how that builds forth over time? It seems like the underlying core servicing and new business was quite good relative to the market conditions.

So, I was just wondering if you could flush that out for us?.

Yes, the asset servicing – it’s Brian Shea speaking. The asset servicing fees were up 3% year-over-year. It’s driven by a combination of global collateral services, broker dealer services and the core asset servicing fees, so pretty good performance overall. I think, from a T. Rowe Price perspective, we on-boarded the T.

Rowe Price middle office team in August and we began to receive some revenue from middle office operational services from T. Rowe Price in August. We will be then – we will be moving towards a fund accounting conversion from their existing fund accounting platform to ours and then a new middle office platform in stages.

And as we implement each stage, we expect to have additional revenue growth from each stage through the execution process. And importantly, we see this as a secular trend among investment managers who are looking for much more variable cost by share economies of scale services both from middle office services and technology platforms as well..

Very little revenues in the third quarter from T. Rowe..

Okay. So, then what was the – what drove the sequential growth ex-T.

Rowe then across the businesses aside from sec lending decline?.

Organic growth, global collateral services growth, broker dealer services growth, all contributed to asset servicing year-over-year improvement..

Sequential improvement, yes..

And sequential improvement, yes, sure..

Alright, thank you. Our next question will be coming from the line of Mr. Brian Bedell of Deutsche Bank. Sir, your line is open..

Great, thanks for taking my questions. Just to maybe zero in on the short-term rate environment, a couple of things, I guess.

What’s your outlook for money market fee waivers into fourth quarter given just the recent pullback in some of the treasury and repo yields? And then also on the balance sheet for the quarter, we saw an uptick in securities portfolio yields, maybe you just talk about the driver of that.

It looks like the rate on the MMDAs went to zero on the liabilities side.

So, maybe if you can talk about those dynamics?.

Okay, I will – good morning, Brian, it’s Todd. In terms of fee waivers, there is not a heck of a lot of noise there. We have given a $0.06 to $0.08 impact overall per quarter. And I would expect it’s going to be well within that range. It was kind of in the middle of that range in the third quarter.

And so we are seeing some noise on yields with the potential government shutdown.

And your second – what was your second question, Brian?.

On the results in the third quarter on the drivers of – there was an uptick in the government and other securities lines in the securities portfolio and then also on the, in fact, the MMDA went from 13 basis points to 0, I just wonder if that’s sustainable?.

Yes. In terms of the – and you are talking about the securities portfolio, our proprietary portfolio, it is up from last year at this time fairly substantially and we did get some yields out of it.

Basically, we repositioned cash once we had a full understanding of the LCR and it was acknowledged that we could use to help the maturity account and still have an asset considered as a high-quality liquid asset.

So, at that point in time, we took down inter-bank placements and we increased our securities, increased our duration for a little bit in the portfolio and also increased the yield.

That’s been a little bit of change over the past couple of quarters, but we think that’s relatively stable and that’s why we are forecasting into the fourth quarter flat NIR relative to the third quarter. In terms of the MMDAs going down, I don’t know of course – I don’t see any impact to that degree at this point in time..

Okay.

And the interest deposits are still in that 50 to 70 billion camp?.

That’s where we would estimate them. Yes, Brian..

Okay. And then just a follow-up on asset management, it is really benefiting in the LDI side from the flows coming out of defined benefit pension plans.

As you think about the revenue capture that you get in the LDI versus the stuff that you will be losing in the index and in the active, is that an accretive swap? It sounds like that could obviously a longer term trend, if you just want to comment on that?.

Yes. So, index fees, as you know, are very low and the large majority of our index assets are institutional, so they are truly on the low end of the fee range. LDI has single-digit management fees, many of those mandates also have performance fees, so a lot of the performance fees that we are in actually come from LDI mandates.

So, it’s – so, we have to think about it from a blended management and performance fee perspective. The only thing I would tell you is that when we take on an LDI mandate, we are frequently taking on a large majority of a client’s total portfolio.

So, they maybe reducing their equity and other exposures that are managed by others and moving their portfolio, sometimes their whole portfolio to us in LDI. So, a lot of the LDI growth we have seen have been – where pension plans have either taken a portion, or again, in some cases, the large majority of their plan and moved it to us.

Index assets are a pretty interesting flow dynamic to watch. They have a lot to do with just the overall exposure, some very large clients will have the used index products to get data exposure to equity markets and fixed income markets.

And given the volatility you have seen the outflows we have had in equity index strategies that we have mentioned in the last quarter and I will say again this quarter, some of the flows in index are very large flows from single clients and so not really as connected to what we are seeing in LDI..

Thank you. Our next question will be coming from the line of Mr. Brennan Hawken of UBS. Sir, your line is open..

Good morning. Thanks for taking the question.

I understand that what you can say on this might be limited at this point, but is there anyway you can help us think about any potential liabilities and other headwinds from the SunGard outage at this point? And how you feel about your ability to pass those liabilities on to SunGard?.

Okay. Brian, this is Todd. I will take some of that, maybe I can turn it over to my colleagues as well. In terms of the financial impact, we did incur some incidentals as you might expect in the quarter and those ran through the numbers.

And we did cover the related charges that are – some of our clients would have experienced and we did take that as a charge in the third quarter as well. In terms of any differences in making investors whole, we don’t see as we have gone through the reconciling process, we don’t see much in the way and there certainly could be some of that.

And we have of course have reserved our right to include SunGard any recoveries that we will be looking to make. That’s about where we are financially..

And just broadly Brennan, we have been very proactive with our clients, making sure that they were – they have been covered in terms of their out of pockets or when they have went through a challenging week, so we wanted to make sure we were proactive in covering their costs and taking care of them.

Investors, at the end of they day between the “machine generated NAVs” and the process, the protocol we followed at the time, was miniscule. So we felt good about the process that was employed.

And so we are actively working with the clients, working with their fund boards, making sure that they fully understand what happened and how we recovered and why the system is stable and safe. So we are moving forward..

Okay, great. And then certainly, we have talked actually to some of your clients and they have described as good partners for this, so heard that on the other side as well. So thanks for that.

And then just a quick one on capital, can you quantify or give us a sense about how much of your advanced RWAs are in up risk at this point?.

Yes. So Brennan, this is Todd again. It’s a very big number. And that may change as the regulators reconsider the standardized approach.

But as there have been – the methodology is informed by external losses or losses at third parties and as there have been bigger and bigger losses, that gets filtered into our model and as a result, keeps driving up the risk weighted assets.

So the number is about a – really probably a little over a third or right around a third of our total risk weighted assets in the advanced approach..

Thank you. Our next question will be coming from the line of Mr. Mike Mayo of CLSA. Sir, your line is open..

Hi, Mike..

Can you hear me?.

Now, we can hear you better. Thank you..

Sorry about that.

Can I just get a clarification, your assets under custody are flat in a down market, second quarter to third quarter, is that explained by the global collateral services and broker dealer services or is there something else going on?.

It’s organic growth..

Yes. So Mike assets – it’s Brian Shea, assets under custody most recently are up 1% year-over-year, flat sequentially as you mentioned. Currency and market values had a negative effect. If you had a constant currency and constant market, you would seem more like a 3% growth rate in our AUC/A which is pretty solid.

And as you know, our focus is not exclusively on AUC/A growth or pure revenue growth or pure market share growth, but we have shifted our focus towards better profitability and creating more value for clients and shareholders.

I guess, the best example of that which Gerald mentioned earlier is that we are repositioning our UK TA business and we are actively repositioning as a global institutional bundled service and reducing the focus on local UK retail TA.

So, we are actually pushing AUC/A out in that environment, but we are going to improve our profitability in the process and that’s the goal..

And it was in the quarter that we on-boarded T. Rowe, Mike. So that was a substantial reason for the sequential – not having any material sequential impact..

Okay, that makes sense. We have heard a lot about pricing for better profitability for 3 years, 4 years, not just from you but for the whole sub-segment. I mean are you raising your hurdle rates, are you instructing your relationship managers to do something differently.

I know you have mentioned that you have had these sorts of pricing conversations with the kind of lower tier accounts, but can you provide anything else more tangible, more than just the UK example?.

Sure, Mike. It’s Brian again. So I think you have heard us talking in the past about up pricing small accounts, raising minimums, enforcing minimums and etcetera. And we have done quite a bit of that over the past few years and made some progress for sure.

But now, what’s happening is a slightly different thing, which is we formed a client pricing strategy group and the focus of it is to align the drivers of our costs and our client pricing to drive more rational behavior and to end with the clients.

We believe there is a real opportunity to lower costs end to end with our clients in partnership and we are using pricing strategies and data to inform the clients in a way and to incent the clients to actually implement low cost behavior.

So for example, we have online systems that clients can use, which are more efficient and to provide better service and yet clients are still faxing us things.

So we are putting incentives in place to move towards the online systems and use the more rational service delivery, that actually lowers the client’s costs and make them more efficient as well.

And so there is a series of things like that that we are working on and we will be consulting with our clients and trying to drive lower end to end cost with them in a rational way..

Thank you. Our next question will be coming from the line of Mr. Jim Mitchell of Buckingham Research. Sir, your line is open..

Okay, thanks. Good morning.

Maybe just a quick follow-up on capital, with the bank SLR at 4.6, needing to get to 6, is there anything you could in terms of shifting around assets from the holding company to the bank to kind of shore that up, because that’s obviously more of a constraint than the firm wide SLR, how do we think about that if we are in a lower for longer and higher deposit type environment?.

Yes. Jim, that’s exactly what we intend to do. So I think you hit the point. We think we can probably downstream capital in a way that pumps up the capital at the bank over the capital at the holding company. There will be a little bit of cost of that, but it won’t be huge. So we don’t need to execute that right now..

Okay.

And do we have to think about – do you have to incorporate I mean maybe we don’t know yet, but just thinking about next year’s CCAR, it will capture 2018, do you need to build a glide path into next year’s CCAR for SLR in any way or do you have time to get there?.

Yes. The CCAR, next year’s CCAR specifically excludes the SLR, so that will go into effect in 2017. But I think any prudent analysis, so this kind of get into the qualitative side of it. I think that we are going to have to demonstrate that we have a reasonable glide path and we have a way to get there.

So I think that will be from a qualitative side, but it’s excluded from the actual quantitative side of next year’s CCAR..

Thank you. Our next question will be coming from the line of Mr. Adam Beatty of Bank of America. Sir, your line is open..

Thank you and good morning. Just a couple of follow-ups on asset servicing, firstly on SunGard, I want to close the loop on that.

Have you seen any kind of extended duration of the contracting process, any impact on your discussions with perspective clients due to that? And then on the cost side, is there any run rate cost that you would expect from maybe additional safeguards or what have you? Thanks..

Yes, it’s Brian Shea. So, we have been in constant communication with our clients throughout – especially the affected clients during the period of time that there was an impact.

But actually, we have extended our outreach to clients to put this in context and to help them understand the details of – and had meetings and dialogues of well over a thousand clients to make sure that they understand what’s going on.

I would say our clients have been working with us very closely and been very supportive and understanding during the incident and are getting tremendous amount of transparency from us and from SunGard around the actual incident.

And what we are doing about it going forward in terms of ensuring our ability to deliver service on critical activities and have systems in place that are more reliable and more resilient both from a vendor management perspective and our own internal system.

So we are using every opportunity here that we – to learn from this experience and to actually make us a more resilient, reliable partner. And I think our clients appreciate that and are getting very good insight from us about that. In terms of the financial perspective, I will let Todd....

Yes. At this point, we have not identified any material increase in costs as a result of this. We did incur pretty meaningful cost in the third quarter, which we ran through the numbers. But we – there could be some to your point, but we don’t – at least we haven’t identified any that would be material..

I appreciate that. Thanks. And then on the T.

Rowe relationship, it sounds like there is going to be some layering on of costs and revenues, what’s your expected timing given your implementation plan of number one, achieving kind of a net profit contribution from that and also in terms of just getting to steady state in terms of revenues and costs?.

Yes. We are still in the investment stage of the strategic relationship. And as you know, we have on-boarded a couple hundred plus people in August, and we began to receive some revenue although as Gerald mentioned, it’s on the modest end.

We will do the fund accounting conversion in 2016 and that will have the additional – providing more services and we will get some more revenue associated with it. And the final stage will be the middle office platform conversion, which I don’t have the timing directly in front of me, but let’s just say ‘17.

And at the end of which, we expect to have a good strategic relationship that’s profitable and beneficial to both parties..

Thank you. Our final question will be coming from the line of Mr. Gerard Cassidy of RBC. Sir, your line is open..

Thank you. Good morning.

Todd, can you share with us on the deposits that you are assessing a fee on what percentage of your total deposits are actually in the environments that actually have negative rates and of that amount what percentage are you charging a fee and one non-interest bearing deposits included in that as well?.

Non-interest bearing deposits could be included in that, typically overseas. You can go either way. So about a third of our deposits are non-dollar and so of that, the majority are euro and so that would be the number that would be, at this point in time exposed to a fee.

I mean, any other currencies like Swiss franc and the Danish currency, it’s a pretty small number that doesn’t even move the needle. So it’s really basically the euro where we are assessing anything of any size..

Great. And then just as a follow-up, I may have missed it.

You mentioned about the other operating expenses, including the one-time costs associated with the SunGard issue, what was the dollar amount of that, those one-time costs?.

We didn’t disclose the dollar amount, Gerard. But if you look at that number and you can see the sequential increase in other, most of that was related to – or a substantial part of that was related to SunGard matter..

Great, thank you..

Okay. Well, thank you very much everyone for dialing in. We really appreciate it and your questions. If you have additional follow-up questions, please give Valerie Haertel a call. And again, we thank you for your participation and support..

If there are any additional questions or comments, you may contact Ms. Valerie Haertel at 212-635-8529. Thank you, ladies and gentlemen. This concludes today’s conference call. Thank you for participating..