Pershing reels in $40 billion in net new assets despite exits

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Despite substantial hits from lost business and waivers of fees on money market funds, one of the largest custodians is adding assets and clearing accounts more quickly than a year ago.

BNY Mellon’s Pershing brought in $40 billion in net new assets in the second quarter, which is nearly four times the $11 billion it tacked onto its clearing and custodial platforms a year earlier, according to the bank’s July 15 earnings statement. While representatives for the firm didn’t immediately respond to a request for more information on the significant flow of assets, the numbers suggest the firm’s move in May to simplify its business by dividing it into the Institutional Solutions and Wealth Solutions units may be paying off.

  • Money market funds are waiving fees to protect their yields from tumbling to below zero due to the low interest rates. At Pershing, the waivers cut into the firm’s revenue by $99 million in the second quarter, part of a total impact of $411 million since the first U.S. outbreak of the coronavirus last year. Outgoing client relationships that the firm’s executives have discussed in prior quarters, without specifying which wealth managers left, will also slash about $20 million from earnings each quarter, BNY Mellon CFO Emily Portney told analysts in an earnings call, according to a transcript by Seeking Alpha.
  • Average active clearing accounts expanded 6% year-over-year to 6.9 million in the second quarter. “The number of clearing accounts continues to grow at a healthy clip, and we saw strong net new asset flows, and the sales pipeline there remains robust,” BNY Mellon CEO Thomas Gibbons said in prepared remarks.
  • In a reflection of asset flows and equity values, average long-term mutual fund assets surged by 33% from the year-ago period to $731 billion. Pershing’s revenue ticked up by 2% to $590 million, driven by “higher market values, client activity and balances, partially offset by higher money market fee waivers,” according to the company.
  • While the company hasn’t given details about the departing wealth managers, it isn’t difficult to make an educated guess. LPL Financial has been luring and acquiring ex-Pershing clients in waves over the past year, among Waddell & Reed, M&T Bank, BMO Harris and CUNA Brokerage Services. The wealth managers have tens of billions of dollars in client assets that have moved or will go to LPL as their custodian. LPL acquired Waddell & Reed, a midsize firm, and it recruited the three major bank and credit union channel wealth managers. 
  • Asked by an analyst about the “competitive backdrop” faced by Pershing, Gibbons said that M&A deals can cause a “lumpy loss” but the firm has “probably” won more than it has lost. “On the advisory and the broker-dealer side, we think we can invest there and garner some more of what’s a very fast-growing industry,” Gibbons said. “There is some competition there. But the consolidation has also provided some opportunity for us.”    

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