Bank of New York Mellon Corp. (NYSE: BK) Q3 2020 earnings call dated Oct. 16, 2020
Corporate Participants:
Magda Palczynska — Global Head of Investor Relations
Thomas P. Gibbons — Chief Executive Officer
Emily Portney — Chief Financial Officer
Analysts:
Alex Blostein — Goldman Sachs — Analyst
Betsy Graseck — Morgan Stanley — Analyst
Glenn Schorr — Evercore ISI — Analyst
Mike Carrier — Bank of America — Analyst
Mike Mayo — Wells Fargo Securities — Analyst
Brennan Hawken — UBS — Analyst
Brian Bedell — Deutsche Bank — Analyst
Ken Usdin — Jefferies — Analyst
Steven Chubak — Wolfe Research — Analyst
Brian Kleinhanzl — KBW — Analyst
Gerard Cassidy — RBC Capital Markets — Analyst
Jim Mitchell — Seaport Global — Analyst
Presentation:
Operator
Ladies and gentlemen, good morning and welcome to the 2020 Third Quarter Earnings Conference Call hosted by BNY Mellon. [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 Magda Palczynska, BNY Mellon’s Global Head of Investor Relations. Please go ahead.
Magda Palczynska — Global Head of Investor Relations
Good morning, welcome to BNY Mellon’s third quarter 2020 earnings conference call. Today, we will reference our financial highlights presentation available on the Investor Relations page of our website at bnymellon.com.
Todd Gibbons, BNY Mellon’s CEO will lead the call, then Emily Portney, our CFO, will take you through our earnings presentation. Following Emily’s prepared remarks, there will be a Q&A session.
Before we begin, please note that our remarks include forward-looking statements and non-GAAP measures. Information about these statements and non-GAAP measures are available in the earnings press release, financial supplement and financial highlights presentation, all available on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, October 16, 2020 and will not be updated.
With that, I will hand over to Todd.
Thomas P. Gibbons — Chief Executive Officer
Thank you, Magda, and good morning everyone. First of all, I want to welcome Emily to her first results call as CFO. Most of you are just getting to know, Emily, and as you spend more time with her, I think you’ll agree that having been in a number of business leadership roles as well as having had experience in the finance function, Emily brings a perspective that positions her exceptionally well for this role. So, welcome Emily, great to have you here.
Before handing it over to her to review the financials in more detail, let me touch on some highlights in terms of our performance and other developments. For the third quarter, we reported revenue of $3.85 billion, earnings per share of $0.98 and a solid return on tangible common equity of 17%.
Our operating margin was resilient at 30%, despite the impact of low interest rates and the related money market fee waivers. And with our share repurchases suspended now for two consecutive quarters, we accreted significant capital, increasing our common equity Tier 1 ratio to 13%.
During the third quarter, volumes and volatilities continued to normalize. At the same time, interest rates trended a bit lower. As we look into next year, I believe the underlying strength of our franchise will become more apparent as we expect to have most of the run rate impact of lower rates and associated money market fee waivers in our earnings. At that point, we can start to more clearly demonstrate the progress we’re making around our key priorities of driving organic growth, optimizing the balance sheet and executing our efficiency priorities.
And notwithstanding the challenging current environment, our business model continues to generate significant excess capital. We look forward to recommencing share buybacks as soon as regulators and market conditions allow, which we expect to be meaningfully accretive to EPS.
Now, there are many opportunities across our business to differentiate ourselves with clients, while addressing a broader set of their needs. The crisis has increased the frequency and the intensity of my conversations with clients, as we help them navigate related issues. They’re adapting to a rapidly changing environment, as they’re assessing what they do across their operations, they want to know how we can help them and optimize their data and how to be more efficient and effective in what they do on a day-to-day basis.
In Asset Servicing, we are winning and retaining more deals and our pipeline is stronger than it was at this time last year. And I think that’s a reflection of the quality of our service as well as the unique set of capabilities that we can deliver for the front, middle and back office. This is of course, in addition to providing more custody and securities lending. Versus a year ago, we are seeing positive trends and win and retention rates and in our pipeline. Deals are becoming more complex and cross product and solutions based.
For example, we have recently been selected to provide a range of services by iA Financial Group, that’s one of Canada’s largest insurance and wealth management groups with CAD175 billion in assets under management. The mandate encompasses fund accounting and administration, custody, foreign exchange and a full data and analytics suite of solutions incorporating the data vault and data studio, performance measurement and reporting and middle-office services. We’re continuing to invest in building out our cloud-based data and analytics offerings and have integrated this into our Asset Servicing core business.
Clients trust us with $30 trillion of data assets on our software, including trillions where Asset Servicing is elsewhere, and over 20% of our pipeline deals now include data and analytics products. Just one example, which I mentioned last quarter is our new ESG app, that allows portfolio managers to create investment portfolios, customized to individual ESG preferences using multiple data sources with support from crowdsourced guidance around preferred ESG factors and priorities. We’re seeing real momentum with this app. We have a dozen clients in active trials, and we are in discussions with over 100 more. We’re also thinking about how we can integrate capabilities like this when developing holistic solutions for our clients.
In Pershing, the bulk of money market fee waivers is being absorbed by this business masking its underlying good performance, as the core long-term drivers remain intact. The pipeline is robust and the underlying performance of the business is strong. Firms are critically assessing their business model and their cost structures. This is particularly true with self-clearing capital markets firms that are increasingly looking to reduce cost and free up capital by outsourcing their trade settlement and clearing and turning it to us as a result of that.
Year-to-date, new assets on an annualized basis are strong at over 4%. Our pipeline is further improved with an increase of almost 50% in newly signed business from RIAs, who increasingly value our B2B platform, especially as the custodian industry consolidates. We have traditionally served larger RIA practices and are now expanding our addressable market to grow this client base, and we’re maintaining our leading market share in the broker dealer segment.
In Clearance and Collateral Management, we service $3.4 trillion in tri-party assets globally. Our ongoing digital enhancements should continue to drive revenue growth from our existing client base as well as from new clients that are entering the platform as they accelerate their needs to automate operations, except access real-time data and focus on process optimization and digitization in this challenging operating environment.
Our offerings, which include collateral optimization and advanced analytic solutions allow clients to move from manual to automated straight through processes, while optimizing their global securities inventory, which has proven for them to reduce funding and operating costs and enhance their available liquidity. We also expect more plans to convert balances from the bilateral repo and securities lending markets to our tri-party platform as the demand remains high for global asset mobility and operational efficiencies that they get on tri-parties.
Investment and Wealth Management had solid revenue growth, positive long-term flows and good performance this quarter. Across the 30 top strategies by revenue, which accounts for about 60% of IM’s long-term annualized revenue, 74% of those have pure rankings that are in the Top 2 quartiles on a three-year basis.
Hanneke Smits has now officially started here roll as CEO of Investment Management And we also recently appointed John DeSimone as CEO of Alcentra, one of the world’s largest managers of private credit. I’m excited to work with him to accelerate our growth by leveraging our Alcentra’s strength in Europe and increasing their market position in the US. There is an opportunity to grow this manager quite a bit faster.
Across Investment Management, we’re also investing in technology and developing offerings in ETFs, ESG and alternatives to align our investment capabilities to evolving client demands. And I think it’s going to nicely complement our leading positions in for example LDI, active fixed income, global thematic equity as well as private credit.
In Wealth Management, client acquisition has started to pick up again with the resumption of socially-distanced in-person meetings for investing in talent, initiatives such as strengthening our family office offering and technology and digital tools to support advisors and their clients.
We often speak about the importance of controlling expenses. This is especially critical in this low rate environment. We continue to identify opportunities to improve automation through operational enhancements. Our approach in deciding between reinvesting expense savings and allowing them to fall to the bottom line is based on a rigorous analysis, including investments and prioritizing them, the ones with the most attractive ROIs as well as taking a careful look at their payback periods.
We’re also assessing the long-term structural opportunities from this current work environment. There is no question, we’re going to have a meaningful impact on how we work in the future and we’ll need to be agile. We expect it will impact our real estate footprint, our location strategy, the need for contingency sites, marketing and business development and acceleration of our digitalization efforts with our clients.
Now, building a scalable and resilient operating model is a core part of our strategy. It will enable us to optimize and streamline the interactions across our businesses, technology and operations, all in the interest of serving clients and driving growth. Now to drive and advance our agenda more rapidly, we recently made the decision to bring operations and technology together under Bridget Engle’s leadership, by more directly connecting operations and technology into a single operating model. We’re taking a holistic approach to bring together both functions. And I think it’s going to give us the ability to share enterprise capabilities, prioritize investments, reengineer digitize processes more quickly to drive scale and agility, as well as to embed innovation and automation across end-to-end client journeys and create more agile client-centric teams.
Now, let me turn to the capital returns. On September 17, the Federal Reserve released scenarios for a second round of Frank’s stress test and that was followed by a September 30 announcement that share buyback and dividend increase restrictions have been extended for the fourth quarter. We are now working through the analysis and the modeling as we’re given 45 days from the date of receipt of the scenarios to submit our plan. We continue to believe that our low risk and highly capital generative model positions us very well through this test. We will commence buybacks as soon as possible with the decision to be informed by the economic and regulatory environment at the time, as well as the outcome of the resubmitted capital plans based on the new scenarios. In the meantime, we continue to accrete significant amounts of capital.
The stress capital buffer, I’ll just remind you gives us flexibility in terms of capital return timing and so it is a matter of when and not a matter of if. As a reminder, we also opportunistically issued $1 billion in preferred stock during the second quarter and that will provide us with the opportunity to re-stack our capital once we can recommence buybacks. We are committed to attractive levels of shareholder returns and we continue to aim to return at least 100% of earnings to shareholders over time.
Before I conclude my comments, I want to welcome Robin Vince, who has just joined us as Vice Chairman of BNY Mellon and CEO of Global Market Infrastructure with oversight of Clearance and Collateral Management, Treasury Services, Markets and Pershing. Bringing these complementary businesses together under his experienced leadership will better position us to become the central facilitator in our clients capital markets ecosystems across markets, asset classes and geographies. I’m excited to have Robin with us. He is an accomplished and respected leader in the industry who has held a number of leadership positions at Goldman Sachs, including serving as their Chief Risk Officer, Treasurer, Head of Operations, Head of Global Money Markets and CEO of the International Bank.
I’m also very pleased with how the leadership team has come together. It’s a highly talented, energized and diverse group that is willing to truly challenge each other to make us all stronger.
To wrap up, while uncertainty certainly lies in terms of how the pandemic evolves and its impact on the global economy, we have also significant uncertainty about the size and form of future stimulus programs as well as political developments. But given that, I am certain that the team we have in place will continue to navigate these challenges by executing on our strategic priorities. I am also proud that our employees across the company have worked diligently throughout this unprecedented time to provide great client service. We entered the crisis from a position of strength and have an unwavering focus on building ever greater value for our stakeholders going forward.
So with that, I’ll turn it over to Emily.
Emily Portney — Chief Financial Officer
Thank you, Todd for the kind introduction, and good morning everyone. Let me run through the details of our results for the quarter. All comparisons will be on a year-over-year basis, unless I specify otherwise.
Beginning on Page 2 of the financial highlights document. In the third quarter of 2020, we reported revenue of $3.85 billion, down less than 1% and EPS of $0.98. As expected, revenues were negatively impacted by low interest rates and associated money market fee waivers. Excluding these market factors, underlying fees would have been up, reflecting good momentum across many of our businesses.
Expenses were up 4%. However, it is important to note that 3% of the increase was driven by the tax-related reserve release in the third quarter of 2019. Pre-tax margin was 30% and we posted ROTCE of 16.7% and ROE of 8.7%. Provision for credit losses was $9 million.
We continue to accrete substantial excess capital and are in a good position to resume buybacks when regulators and market conditions allow. Quarter-over-quarter, both our CET1 and Tier 1 leverage ratio improved meaningfully by 40 basis points and 30 basis points, respectively.
Page 3 sets out a trend analysis of the main drivers of the quarterly results. Investment Services revenue was $2.9 billion, down 4%. Net interest revenue was down 11%, while fees were down 2%, including the impact of money market fee waivers. We saw healthy underlying growth across Asset Servicing, Pershing, Treasury Services and Corporate Trust, which I will discuss later.
Investment and Wealth Management revenue increased 3%, largely driven by higher market values and we also continue to see strong investment performance in our largest strategies with positive long-term flows this quarter. The impact of money market fee waivers on our consolidated fee revenue, net of distribution and servicing expense was $101 million in the quarter, slightly better than the $110 million to $125 million that we previously guided to and an increase of $22 million quarter-on-quarter. We provided you detail of the impact by business and the expense in the appendix of the highlights deck.
Finally, despite the contraction in high-margin revenues this year from lower interest rates and more recently the absence of share buybacks, pre-tax income, margins and EPS are healthy, although down versus a year ago.
Slide 4 summarizes the P&L and notable items in the year-ago period. There were two largely offsetting items, but relevant as we look at various components of the P&L. One is the lease impairment, negatively impacting NIR in the third quarter of 2019, and the other is a net reduction of reserves that benefited IM expense in the prior-year quarter.
Turning to Slide 5. Our capital and liquidity ratios remained strong and well above internal target and regulatory minimum. Common equity Tier 1 capital totaled just over $21 billion at September 30 and our CET1 ratio was 13% under the advanced approach and 13.5% under the standardized approach. As a reminder, under the new stress capital buffer role that became effective October 1, we are required to maintain a standardized CET1 ratio of 8.5%, including the 2.5% stress capital buffer floor and a 1.5% G-SIB surcharge.
Tier 1 leverage is currently our binding constraint due to the buffers we need to hold for potential growth in our deposit base driven balance sheet. We are comfortable operating by a ratio of around 5.5% to 6.0% versus the 4% regulatory minimum. At 6.5%, our current Tier 1 leverage ratio is well above our target and we expect to accrete more capital in the fourth quarter. Finally, our average LCR in the third quarter was 111%.
In terms of shareholder capital return, in the third quarter, we continued our suspension of share repurchases, and we’ll do so again in the fourth quarter, in line with Federal Reserve restrictions for CCAR banks. We continue to pay our quarterly cash dividend, which totaled $279 million and believe we had ample capacity to continue to pay dividends under a variety of economic scenarios.
Turning to Page 6. My comments on net interest revenue will highlight the sequential changes. Net interest revenue of $703 million was down 10%. This was within the range we provided in the second quarter results despite rates coming in a little lower than was implied by the forward curve at the time. We offset some of this impact through implementation of balance sheet optimization strategies. A full quarter of lower LIBOR, as well as lower rates in general, reduced the yield on the securities portfolio, loans and other interest earning assets.
For example, average one and three-month LIBOR levels were down 0.20 bps and 0.36 bps, respectively. The lower asset yield impact was partially offset by the related benefit of lower funding costs. The rate environment also drove MBS prepayment activity slightly higher than expected for the quarter. As I said, we were able to offset some of the rate headwinds due to deployment of cash into a larger securities portfolio, as more of our deposit balances seasoned. Additionally, we benefited from a decline in long-term debt outstanding.
Turning to Slide 7, which summarizes deposit and securities trends. Average deposit balances remained strong at $279 billion, up 23% versus the third quarter of 2019. Deposit growth reflects the success of our deposit initiatives linked to fee generating transaction activities that we’ve had in place for a year now across Treasury Services, Asset Servicing and Wealth Management. It is also partly attributable to Central Bank balance sheet expansion, which results in excess liquidity in the system. The average rate paid on interest-bearing deposits declined very modestly to negative 5 basis points during the quarter and reflected some pricing optimization in a few businesses. At this point, we generally feel that we’ve now reached the low point for deposit pricing. Recall that the negative rate paid reflects our business mix. Approximately 25% of our deposits are non-U.S. dollar and we charge negative rates on euro denominated deposits.
Turning to the securities portfolio, on average the portfolio increased approximately $9 billion versus the second quarter or at around $37 billion over the prior-year, or nearly 30% higher as we deployed the growing deposit base. Average non-HQLA securities, including trading assets were $33 billion in the third quarter, up from $22 billion a year ago as we’ve been buying some incremental non-HQLA securities to increase yield, while maintaining our conservative risk profile.
Moving to Page 8, which provides some color on our asset mix and our loan portfolio. Our average interest earning assets were relatively stable at $358 billion. But as I mentioned, we did redeploy some cash into investment securities this quarter. The loan portfolio represents just 15% of our interest earning assets. We continue to feel good about our credit exposures and the portfolio continues to perform well, still at zero net charge-offs this year, we will continue to closely monitor the portfolio, particularly the commercial real estate exposure and other sectors more acutely impacted by the current environment.
Provision for credit losses reflected a fairly consistent macroeconomic outlook versus the prior quarter and a modest net uptick reserves primarily related to our CRE portfolio.
Page 9 provides an overview of expenses. Expenses of $2.7 billion were up 4%, 3% of the increase was driven by the tax-related reserve reduction last year in Investment Management. The remainder of the increase was the result of continued investments in technology and the impact of a weaker U.S. dollar, partially offset by lower staff and business development expenses, namely travel and marketing.
Turning to Page 10. Total Investment Services revenue declined 4% as almost all business revenue growth rates were impacted by year-over-year lower net interest revenue. Assets under custody and/or administration increased 8% year-over-year to $38.6 trillion. And we continue to see organic growth with new and existing clients as well as the benefit from higher market values and the impact of a weaker U.S. dollars.
As I move to the business line discussion, I will focus my comments on fees. Within Asset Servicing, overall fees increased slightly primarily on organic growth with existing clients and higher market levels. These increases were partially offset by lower securities lending revenue due to tighter spreads, as well as marginally lower foreign exchange revenue on the back of lower industry volumes despite higher volatility in FX markets. Other trading revenue was down, driven by, fixed income trading activities, which is offset in NIR.
In Pershing, fee revenue decreased as the impact of fee waivers more than offset good organic growth. Transaction volume, clearing accounts, mutual fund assets and suite balances all increased, and net new assets were $12 billion in the quarter. Year-to-date, the pipeline has further improved as the business continues to gain momentum.
Issuer Services fees revenue decreased by 9%, driven by depository receipts based on slowdown in cross-border settlement as well as seasonal dividend and other corporate action activity due to macro uncertainty. Trends in DR masked good underlying momentum in Corporate Trust as demonstrated by new business wins in client deposit growth and Corporate Trust fees were modestly higher.
Treasury Services fee revenue was up 9%, despite the tough macroeconomic environment and lower overall payment activities, primarily due to higher liquidity balances which grew over 45% year-over-year, net new business and an improvement in product mix.
Clearance and Collateral Management fees were impacted by lower revenue of $12 million, driven by the divestiture of an equity investment in the fourth quarter of last year, as well as subdued activity in the U.S. Treasury market despite higher issuance levels at secondary trading and therefore settlement activity was lower. These headwinds were partially offset by higher non-U.S. dollar collateral management fees.
Page 11 summarizes the drivers that affected the year-over-year revenue comparisons for each of our Investment Services businesses.
Turning to our Investment and Wealth Management on Page 12. Total Investment and Wealth Management revenue was up 3%. Overall assets under management of $2 trillion are up 9% year-over-year, primarily due to higher markets, the impact of the U.S. dollar weakening and cash inflows from earlier this year. We had net outflows of $5 billion in the quarter, though long-term strategies had net inflows of $5 billion, including significant LDI inflows from targeted clients.
Investment Management revenue was up 5%, driven mainly by higher market values, the favorable impact of a weaker U.S. dollar, and uptick in performance fees and the absence of the impact of hedging activities that occurred a year ago. This offset higher money market fee waivers.
Wealth Management revenue was down 1% year-over-year, while fees were flat that higher market levels were offset by net outflows, partially due to client tax payments and a shift by clients to lower fee investment products. In the quarter there were $21 million of seed capital hedging losses that were more than offset by gains on seed capital. The net of these items is reflected in other fee revenue within the segment.
As a reminder, in the consolidated financial statements, the result of the seed capital hedges are in foreign exchange and other trading and the seed capital gains are reflected in income from consolidated investment management funds and investment in other income. In the third quarter last year, there was also a revenue hedge and one of the Investment Management boutiques, which has since been eliminated.
Now turning to our Other segment on Page 13. The year-over-year revenue comparison was primarily impacted by the lease related impairment of $70 million recorded in the third quarter of last year, while expenses declined primarily due to lower staff expense.
And now a few comments about the fourth quarter. First, I would note that the macroeconomic environment remains fluid. Although, we are expecting higher volatility in the fourth quarter around the election, it is difficult to predict whether this will translate into higher transaction volumes or whether it will be a risk-off environment.
Looking ahead at net interest revenue, we expect NIR to decline sequentially by 3% to 5%. As we look into next year, we expect the quarterly NIR run rate to be slightly less than the fourth quarter. level. This is based on a few factors. First, the forward curve indicates a fairly stable rate environment from here, implying that the work should be behind us. Second, we continue to take action and optimize the securities and loan portfolio as deposits season, generating marginally higher yields. Third, the unrealized gains associated with the higher yielding long-term securities will take some time to roll-off. Fourth, we do not expect further deleveraging and additionally, our deposit balances remained strong and are slightly higher than the third quarter average. We expect them to remain at these levels.
In the fourth quarter, we continue to expect money market fee waivers, net of distribution expense benefits to be in the original range indicated of $135 million to $150 million. As we look into the next year, we expect the waivers to be fully incorporated into our run rate at the higher end of that range. Waivers will also start to impact Investment Services businesses aside from Pershing to a greater extent. And on full-year expenses, excluding notable items, we expect to remain essentially flat versus 2019, including the 15 basis points full year-over-year impact from higher pension expense. It maybe up slightly if there is a weakening of the U.S. dollar, but this of course will be largely offset on the revenue line which would benefit from a weakening U.S. dollar.
Credit cost will be highly dependent upon individual credit and other macro economic developments. In terms of our effective tax rate, we still look to be approximately 20% for the full-year, although it was lower this quarter.
With that operator, can you please open the line for questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] We will take our first question from Alex Blostein with Goldman Sachs. Please go ahead.
Alex Blostein — Goldman Sachs — Analyst
Great. Good morning. Thanks, Todd and welcome Emily. So, first question for you guys, I was hoping to go back to opening comments around how the challenging rate backdrop and obviously market challenges in the beginning of the year, perhaps I am asking some of the growth initiatives that are taking place underneath. It sounds like Todd you are a little bit more optimistic about that into next year. So, can you help us contextualize which specific initiatives from a top line perspective you expect to be the most material contributors to sort of top line growth into 2021? And overtime, again, given the numerous things you mentioned, what do you see is a reasonable organic fee growth for the firm, excluding sort of the market dynamics?
Thomas P. Gibbons — Chief Executive Officer
Sure, Alex. Good morning, good to hear from you. I think probably the most impactful one is around Pershing. And so, and we did call out the details around Pershing, so as we’ve been investing in the advisory space and we are seeing some good growth and some good wins there. Yeah, we saw on a year-over-year basis, a decline in fees. But there is about $73 million of fee waivers that are reflected there. So if you adjust for that, there is actually pretty healthy growth. So, we continue to see that as a potential upside. And it will be good to get these fee waivers behind us, because the masking of what’s lying underneath that will go away.
I think secondly, in Asset Servicing, we’re seeing the the same effect, where we’re starting to see a little bit of fee waivers. Obviously, we’re seeing a lot of net interest income impact and there’s a little bit of other noise, I mean we had divested of an asset that was driving that fee line a year ago. We took a big gain in the fourth quarter, but there were some income related to that, that we would have enjoyed in the third quarter, that’s no longer there. But when we look at what what we see going on there, we do see some traction around our data and analytic space, we — I mean and also one of the important things there, and one of our key strategies is quality of service, and the quality of our service and the feedback that we’re getting from clients continues to improve. It helps not only the retention of business, but new business especially with existing clients, and we’re starting to see that come to the line and a bit of that is masked.
On the Clearing and Collateral Management space, where we’re making significant investments in what we’re calling the future of collateral, which will make make that business much more interoperable and beneficial to our clients, we see some growth opportunities. This particular quarter was pretty soft for that. I mean it had — again we had divested of an asset that was reflected in that line. We also, and this is kind of surprising, just the clearing volumes and in the treasury market, despite the massive increases in issuance by the U.S. government, they were down. It was kind of a quiet quarter when it came to the Clearing and Collateral Management business, and the clearing business in particular. We saw a very modest increase in global collateral, but domestic collateral management was down a little bit as we saw some deleveraging. So there were a number of things masking that. I think we’ll be able to pick up market share in the future and I think we’ll also be able to pick up a movement from bilateral to tri-party because of the efficiencies that they’re going to get on our platform. So I think those are a couple of the key points.
Alex Blostein — Goldman Sachs — Analyst
Got it. And I guess just putting it all together, and not to pinpoint 2021 or 2022, as you think about the collection of businesses that you guys have, what do you think is the reasonable organic fee growth that we should anticipate from BNY Mellon over time?
Thomas P. Gibbons — Chief Executive Officer
Yeah, I don’t think I want to put that out of the guidance at this point. But when we look to this year, there is a modest amount, 1% or 2% underlying kind of organic fee growth, a lot of it masked by all those things I just described.
Alex Blostein — Goldman Sachs — Analyst
Got it. Thanks very much.
Operator
We will take our next question from Betsy Graseck with Morgan Stanley. Please go ahead.
Betsy Graseck — Morgan Stanley — Analyst
Hi, good morning, Todd and Emily.
Thomas P. Gibbons — Chief Executive Officer
Good morning, Betsy.
Emily Portney — Chief Financial Officer
Good morning.
Betsy Graseck — Morgan Stanley — Analyst
Todd, you mentioned the buyback, when the gates are listed from the Fed and I just wanted to understand how quickly you would be willing to buyback the stock down to the Tier 1 leverage ratio of what, I think it’s 6% that you’re using as your self imposed minimum there.
Thomas P. Gibbons — Chief Executive Officer
Well, first of all we’d like to get started as, obviously as soon as we can. The guidance that the Emily gave is a target, and right now our constraint is the Tier 1 leverage ratio, as we go through the stress test, that’s historically what it’s been. And we gave guidance that we think we should target somewhere between the 5.5% and 6.0% range, and we’re currently at 6.5% and growing. That being said, the reason we give guidance in that range is right now our — as you know our balance sheet is a bit bloated because of all of the liquidity that the Fed has put in place. So in this kind of environment, where we’ve already felt the sharp increase in deposits that come with the market environment, we wouldn’t expect another course of that. So we probably will be willing to move towards the middle or lower end of that target. So that being said, we’ll have to look at market conditions at the time when the Fed lifts the restrictions, see what the economy is doing, what we think is going to be going on with the balance sheet and we’d absolutely be willing to start moving aggressively.
Betsy Graseck — Morgan Stanley — Analyst
Okay. So if there was another fiscal plan that came through that doesn’t really impact your deposits obviously as much as the Fed, increasing the size of the balance sheet, so another round of fiscal stimulus doesn’t really drive up your deposits, you don’t have to worry about that too much. Is that one of the takeaways there?
Thomas P. Gibbons — Chief Executive Officer
I think that’s right.
Betsy Graseck — Morgan Stanley — Analyst
Okay. Okay, thanks. And then on the follow-up question, just on how we’re thinking about reinvesting the cash you have on the balance sheet. Maybe Emily you can speak to how you’re thinking about redeploying that into securities? You talked about having NIM next year or I should say, NII next year be running at a little bit less than the 4Q run rate. So I’m expecting that some of that cash redeployment will be occurring. Maybe if you could give us some color as to how you’re thinking about that, the pace and how much of your cash you’re willing to redeploy into securities?
Emily Portney — Chief Financial Officer
Sure. Good to hear from you Betsy. Ultimately as we’ve been talking about for some time, we have been looking to redeploy the excess cash that we have, and of course, as deposits do you begin to season, we have an ability to do that. We have been increasing the amount of high quality non-HQLA in the portfolio marginally quarter-on-quarter and actually year-over-year that’s up about 29 — that’s about $10 billion, sorry. And so it’s a mixture of growing the portfolio, investing in growing the non-HQLA around the edges, extending duration and the only other thing I would say is, we it’s not just about the securities portfolio, but it’s also about the loan portfolio. So we are redeploying some of our deposits into our loan portfolio, which of course also helps with client service and client relationships.
Betsy Graseck — Morgan Stanley — Analyst
Okay, thank you.
Operator
We will take our next question from Glenn Schorr with Evercore ISI.
Glenn Schorr — Evercore ISI — Analyst
Hi, thanks. Just a follow-up on the capital. And Todd, we’ve talked about this a little bit in the past, but I get it, you got tons and you keep making more and the buyback is awfully enticing and accretive. I’m curious on how you guys balance that with the potential to deploy capital into something else that could accelerate growth and/or improve the overall mix of the company? Thanks.
Thomas P. Gibbons — Chief Executive Officer
Yes. Okay, Glenn. Yeah, thanks for the question. We’re constantly looking at what opportunities lie out there for us, and we take, and when I say, Glenn, is we take a very, very careful look at it and I think a very disciplined approach to how we would look at something inorganic. We’re certainly not opposed to it, from time to time we see certain types of actions and lift-outs that that might make some sense to us, but frankly we compare them to a capital return and they should be able to beat the long-term EPS growth that we would otherwise get buying back our shares. So we hold ourselves very, very strictly to that discipline. There may be — and we did things through the financial crisis, there may be opportunities here to do something we’ve got a team that’s constantly evaluating whether it’s in the fintech space, whether it’s extending a market, whether it’s doing something in adjacency to what we’re currently looking at. So we’re absolutely willing to consider things, but they have to make sense for the long-term growth of the company.
Glenn Schorr — Evercore ISI — Analyst
Okay, I appreciate that. Maybe just one quickly on Issuer Services, which I know it’s hard with the crystal ball, but we’ve had a big surge in debt issuance this year. I’m curious on how you think about, just the overall business growth going into next year, what you see is pulled forward versus just a still good issuing environment. Thanks.
Thomas P. Gibbons — Chief Executive Officer
Sure. So in our Issuer Services, we’ve actually got two businesses in that segment. We’ve got the Corporate Trust business which you’re referring to, but we also have the DR, the Depositary Receipt business. The DR business was, as you might expect, was quite a bit softer. A lot of that is international — it related to international equities, obviously. And the volume and dividends and the action there was down, so we generate a lot of revenue off of the corporate actions in the third quarters, typically a pretty good quarter. It was still up sequentially, but it was down substantially year-over-year. So that kind of marks the underlying performance of Corporate Trust.
Within Corporate Trust, continues to — we’ve picked up a little bit of market share in some of the core businesses. Frankly, we had lost our mojo a couple of years ago and I think we’ve gotten it back and we’re seeing some growth there and the opportunity in the issuance that has taken place has been significant. It’s not the highest yielding type of issuance, but as we start to see some more of the structured product and the credit product come back, we think we’re well positioned to capture that growth. There is a little — this is another one of the businesses that does — is impacted by fee waiver, so a little bit of that will be masked by fee waivers over the next quarter or two. And that’s why in my opening remarks I said I’m looking forward to getting that reset done, having the fee waivers fully priced into the run rate, as well as the lower interest rates and our net interest income and we expect to see that probably sometime early next year.
Glenn Schorr — Evercore ISI — Analyst
Thanks, Todd.
Thomas P. Gibbons — Chief Executive Officer
Thanks, Glenn.
Operator
We will take our next question from Mike Carrier with Bank of America.
Mike Carrier — Bank of America — Analyst
Good morning and thanks for taking the questions. First, just given the managed revenue and waiver pressures, just curious if there is any other efficiency initiatives possible to reduced expenses heading into ’21 despite some of the investments that you guys talked about, making for the business to drive growth?
Emily Portney — Chief Financial Officer
I’ll take that. So, yes, we do have many efficiency initiatives that are actually ongoing and ultimately, whether it is — I think we’ve talked at previous — in previous forums, whether it’s investments that we’ve made in terms of automating client inquiries, hands-free NAV and various other initiatives, those are all things that are coming. What we do expect — they already are coming through our cost line, the benefit and they will continue to come through the cost line.
The other thing I would just say is that, in this year, we probably — not probably, we reached our peak investment in resiliency. That doesn’t mean we’re going to stop investing. We have — we will continue to invest in resiliency, but we reached the peak investment. So that will abate a bit and give us some room. And likewise, we have ultimately various different initiatives across the business from a structural perspective as we’re looking at the potential permanent impact of COVID on real estate footprint as well as sales and marketing expenses and other digitization efforts that are accelerating with our clients.
Thomas P. Gibbons — Chief Executive Officer
Yeah, Mike, if I could add, one of the things that we did in the quarter is I named Bridget Engle Head of Tech and Ops. He was previously Head of Technology. And by bringing tech and ops together and ops covers most of the operations of the Company, I think the opportunity to automate to work more closely together, to really target where we’re going to invest in our automation process, we still do — there’s still lots of fruit on — low lying fruit on that tree, because we still do, unfortunately, have a lot of manual processes, things that we can do more efficiently. So by putting tech and ops together and Bridget Engle working with our Head of Operations and that much more closely, I think we’ll be able to identify and execute more quickly on some of these efficiencies. And we’ve been moving pretty well as basically funded, the increase in our — the significant increase in our technology expenses over the last few years, we do think those increases are going to abate. They are not going to be at the same rate. It’s probably been a 10% compounded annual growth rate for a number of years here, and so that puts us in a position to keep grinding through it.
Mike Carrier — Bank of America — Analyst
All right, that’s helpful. And then, just a follow-up. Given some of the noise with the waivers and even volatility levels throughout the year, just curious how pricing has been trending in Asset Servicing over the past six or so months. And then in terms of going forward, any expected changes or any expected kind of services and contracting decisions that could move it one way or another?
Emily Portney — Chief Financial Officer
Sure, Mike. I’ll take that. We — obviously, Asset Servicing is a pretty mature business, so repricing is just a continual headwind, although it’s pretty modest and we have not seen a change in that — in the amount really from a percentage basis and impact on revenues for several years, so it’s not any worse than it has been. As you do rightly point out though, it is lumpy and as bigger contracts do come up for renewal, that can be lumpy.
Thomas P. Gibbons — Chief Executive Officer
But the pipeline is strong. Yeah, the pipeline is strong and when we look at the pipeline, a very high percentage of them, now, I think over 20% of it is looking at our data and analytics offerings. So we’re really starting to see that pick up. And when you — if you look at it, I mean, I think the best way to evaluate the business is from the operating margins and the operating margins aren’t under pressure because of pricing. They’re under pressure because of the cyclical nature of interest rates in that business.
Mike Carrier — Bank of America — Analyst
Got it. Thanks a lot.
Operator
We will take our next question from Mike Mayo with Wells Fargo Securities.
Mike Mayo — Wells Fargo Securities — Analyst
Hi. I guess there some factors you have difficulty controlling and some factors that you can control. You mentioned once interest rates settled down, we’ll see some more of the benefits you guided for lower NII ahead though. So the first question is, when do you think that you’ll see the full negative impact of interest rates in the run rate, so we can see the underlying progress come through and then I’ll ask a second question.
Emily Portney — Chief Financial Officer
Sure.
Thomas P. Gibbons — Chief Executive Officer
Go ahead, Emily.
Emily Portney — Chief Financial Officer
Sure. Mike, good to hear from you. So look, I’m not going to try to call the market or the timing on the trough in rates, but as we did just guide in our prepared remarks, we think that the four quarter NIR will probably be anywhere from 3% to 5% down from this quarter. And ultimately, we do think it’s probably a pretty good estimate to use slightly lower than what the fourth quarter is meant to be or what we expect it to be to predict out the rest of next year.
Thomas P. Gibbons — Chief Executive Officer
So basically we’re saying, Mike, that something slightly under the fourth quarter run rate, but that’s making the assumption that the forward yield curve is reflected and what actually happens.
Emily Portney — Chief Financial Officer
Just to add to that —
Mike Mayo — Wells Fargo Securities — Analyst
Okay.
Emily Portney — Chief Financial Officer
Yeah.
Thomas P. Gibbons — Chief Executive Officer
So, no improvement in rates. It just reflects where the market is today.
Emily Portney — Chief Financial Officer
Exactly.
Mike Mayo — Wells Fargo Securities — Analyst
Okay. There’s only so much you can do about that, I guess, but on the other question, assets under custody are up 8% year-over-year and your Investment Servicing revenues are down 4% year-over-year and this is not a new issue for you or any of these trust banks, but how can you grow the Investment Servicing business while also growing Investment Servicing revenues? You mentioned, Todd, you gained share in the trust business, but there seems to be a disconnect between AUC growth and the revenues related to that. Is that just competition and could you change your fee model or how you charge your customers? It seems like your customers are getting the better end of the arrangement?
Thomas P. Gibbons — Chief Executive Officer
Yeah, sometimes it feels — there is a little bit of noise, Mike, in that line and in the — when we look at the Asset Servicing fees in the corporate line rather than in the segment, that reflects the clearing and collateral management business as well. And the clearing and collateral management business in the third quarter didn’t have a very good quarter. And I think there was a divestiture that took place and lost a significant amount of revenue there. But the activity was actually — it was actually pretty depressed in the quarter, which is kind of a surprise because even though the U.S. government’s issuing a significant amount of additional treasuries, the actual trading around that was a little bit less than we would have anticipated, and there were some other impacts there.
The other thing in that line is securities lending. In securities lending, again, volumes are up. That’s another interest rates and market related issue. The reinvestment rates are significantly down, so the spreads are down and we didn’t see many things in the way of special, so there is a little bit of the deleveraging. So if you adjust for that, we don’t see anything substantially different in the pricing or the operating margins — underlying operating margin, except for some of the cyclical effects that I just pointed out. That being said, it puts us in a position should we price to assume that those cyclical pressures are going to remain forever, or should we price, maintaining the optionality that we’re going to have on the upside. And competition will help us drive that, but we’re going to do what we think will be in the long-term interest with those clients.
Mike Mayo — Wells Fargo Securities — Analyst
Okay. I guess that leads to why you’re putting too much effort on the efficiency. I mean we don’t have the earnings from Investment Servicing, you don’t break it out to that detail, but we still get even after adjusting for securities lending, these other factors, there is still — AUC is growing faster than the revenues from it, right and so that’s why you’re trying to improve efficiency. Anything about the earnings related to that business? Is it keeping pace because again, we don’t have it at that level. And that’s a core function of what you guys do.
Thomas P. Gibbons — Chief Executive Officer
Yeah, no, I think we — it’s a meaningful contributor to overall performance of the Company. I think we are continuing to get more efficient. But we also have some other investments that we think we can expand the revenue stream as we provide more capabilities around data management. For example, we’re starting to see a little bit of traction there, some of the applications I described — I described, one on the — in my earlier remarks, where we’ve got an ESG app that I think is really starting to gain some traction. We’ve got 12 clients now operating on it. We’ve got maybe 100 demos that we’ve given, very good take up on that. We have another app on distribution analytics, which I think it really help our clients increase their distribution. And there’s — that’s how you really build out relationships. So there is things that we’re trying to generate more revenues as we take on more of the operational burden from our clients. But at the same time, we are — the throughput is going up without significant increases in costs. So yes, we are driving down our per unit cost meaningfully.
Mike Mayo — Wells Fargo Securities — Analyst
Great, thank you.
Operator
We will take our next question from Brennan Hawken with UBS.
Brennan Hawken — UBS — Analyst
Good morning, thanks for taking my question. Just wanted to follow up on NII. You — and we thank you for providing — taking going a stab at 2021. And I appreciate that you’re using the forward curve, so just was curious about what assumptions are also embedded for MBS prepayment activity in that. It seems as though more recently that was a bit of a surprise versus some of maybe what the third parties — third-party data sources had been expecting. Are you expecting that that will continue to accelerate?
And then when you talk about the lending and some balance sheet optimization into lending, is that on the margin side — margin loan side or is that elsewhere? Because it looks like the margin loan yield is holding up better than the prior reserve period. So curious if that’s sustainable, is that some mix or some color on that front. Thank you.
Emily Portney — Chief Financial Officer
Sure, sure. I’ll try to take both of those. In terms of MBS prepayments, just for what it’s worth, they were — we had — they accelerated about 5% more than we originally expected and that’s part of the — that is part of the headwind on NIR, at least in the third quarter. In terms of that, we think about as we go through next year, we do expect it to slow modestly. So that’s in our projection. And then I guess in terms of your question with regard to lending, we actually — at the minute, our lending portfolio is relatively flat at $55 billion. You’ll see probably growth in that as we get into next year, again more marginally. We don’t need with lending, it’s certainly something that we do to strengthen relationships that we have with our clients. And the places where we really see a lot of or some opportunities in the ’40 Act lending space, well, basically mortgages in wealth and also supply trade finance in Treasury Services.
Thomas P. Gibbons — Chief Executive Officer
Yeah. And I would add to that, Brennan, that interestingly in the big drawdowns that we had on the corporate committed facilities, 70% of those have been paid back, so we’re seeing that loan — part of the loan portfolio go down. So I think that’s kind of the noise associated with that that’s been stabilized, but we would like to continue to grow and we’ll do it prudently. The margin lending business, it’s a very low risk, gets a decent return. We’d like to see some more ’40 Act lending, which is something that looks akin to do that as well as the supply chain and mortgages in wealth that we talked about.
Brennan Hawken — UBS — Analyst
All right. That’s really helpful. Thanks for that color. And then when we think — taking a step back here, rates are tough and clearly more environmental then something that specifically you guys are doing. A big part of your economic model is embedded within rates because of the deposit spreads embedded within your — the returns that you generate from your clients. And so this period feels sort of different than when we went into the last one. The last one was viewed as temporary, it’s just something we need to get through and then we’re going to come out on the other side and will return to a “normal environment”. And that sort of position has come under pretty significant question.
So I guess what I would say is, what are you — how are you thinking about making adjustments to the pricing model? How are you thinking about reconsidering some of the economic considerations when you assess clients? And what are your assumptions for where deposit spreads would return to just to ensure that new business that you win the assessment of existing relationships remains reasonably calibrated to what is the likely environment, unfortunately we’re going to be in for a while? I know it’s a tough one, but just curious, your thoughts.
Thomas P. Gibbons — Chief Executive Officer
Yeah. So yeah, I think that the general feeling and ours is as well is that rates are lower for longer. By the way in the last cycle, they were low for fairly substantial period of time. That being said, we see the light at the end of the tunnel for the fully baked-in impact of interest rates today and it’s from there that we will grow. So we will take into consideration what the market implies in interest rates as we price activity going forward. And that’s reflected in all of our pricing assumptions. And we’ve also got a whole series of initiatives that we think will give us deeper relationships and add revenue streams as we look there out. So we do see the potential for some margin expansion. We see potential for some revenue growth, we see the benefits of our operating efficiencies. It really just points back to our key priorities, there’s a handful of organic growth initiatives that we’ve got in place. They’re not all going to pay off, but some of them will. And the activity levels are still high. What we do is important, and it’s growing. I mean if you look at the Pershing marketplace, the advisory business is growing rapidly and we think we can capture more of that. There’s been a consolidation amongst custodians. That’s an interesting opportunity for us. So it’s not always us. We understand, we’ve got an interest rate headwinds. We want to get it behind us and move off of a bit and grow the Company from there.
Brennan Hawken — UBS — Analyst
Okay, thanks for the color.
Operator
We will take our next question from Brian Bedell with Deutsche Bank.
Brian Bedell — Deutsche Bank — Analyst
Great, thanks. Good morning folks. First of all, thanks for the extra disclosure on the money market fee waivers and Emily, on the balance sheet strategy. Definitely very helpful. Maybe going into Pershing picking off, starting with that last — with your last answer, Todd, within that opportunity within the RIA custodian space, first of all, I missed one number you’ve quoted earlier. I don’t know if it was the $12 billion of net new assets in that business, but if it’s something different, if you could repeat that.
And then the question really is, is more of the opportunity going forward on that, I guess, the timeline of that, are you — have you benefited from that significantly already or do you think that’s — we’re in the early innings of the RIA market share gain there? And are you doing anything differently than you had in the past in that business to try to win that business from the other custodians?
Thomas P. Gibbons — Chief Executive Officer
Yeah, no, you’re number was correct. And yes, we are investing more significantly in the business. We’re investing in both sales, marketing as well as the platform that supports the advisory business and we’ve got plans to do more and to continue capturing market share. We’re doing — the pipeline is strong. There is another space that I really didn’t even mentioned and that is institutional clearing. It’s something that we’re uniquely positioned to do and we’re seeing more and more as even bigger broker dealers look to outsource, trying to reduce some of the capital requirements and balance sheet requirements as well as just gaining efficiencies. And the connectivity of that Pershing has to our own clearing and collateral and tri-party business is a unique offering. So we see opportunities there as well.
Brian Bedell — Deutsche Bank — Analyst
Is there some confidence that you can outweigh the fee waivers from that segment over the next few quarters, potentially from the organic growth?
Thomas P. Gibbons — Chief Executive Officer
It’s going to be difficult in the short term. That’s why I want to get them behind us. As I just indicated, Brian, on a year-over-year basis that fee waiver was $74 million in the quarter — $73 million in the quarter for Pershing.
Brian Bedell — Deutsche Bank — Analyst
Yeah.
Thomas P. Gibbons — Chief Executive Officer
Once we get absolutely — once we get that, then we’re working back to recover it.
Brian Bedell — Deutsche Bank — Analyst
Yeah, that makes sense. And then, your comments on the data offering, 20% of the pipeline, can you just talk about the role of Aladdin within that? I know you’ve integrated that into some of the servicing process. And you also mentioned the ESG, that’s obviously starting still in an early phase, but maybe if you can talk about what you’re doing there, is that aggregating data from the other ESG services or are you actually putting a proprietary analytical engine on the ESG that might generate some additional growth and are you beginning to charge for that yet?
Thomas P. Gibbons — Chief Executive Officer
Yeah. So Brian, let me focus on the ESG first. So it’s a little bit of both. So basically, the client brings the license to us. So we have integrated or we’ll connect to as many as 100 different ESG data providers and we’ve built the whole — we’ll use the United Nation factors or will also kind of customize factors that are most frequently used and so you can run your own analytics against those factors, probably the neatest thing that we’ve done against as we’ve built a crowdsourcing app as well. So there is a sharing of which factors, which data suppliers appear to be the most trusted and if it — and it also shows you how much data there is on each of the factors that you’re looking at, so whether you can even trust that factor or not.
And when there is a lack of information or the quality of information is challenged by the crowd, we’re feeding that information back to the data providers, so they can constantly improve it. So we think it’s pretty innovative and we’re agnostic to where the date is. They can to us, we’re the custodian, we can flip the switch and turn it on for them. So that’s the — that’s that particular app. Do you have anything to add, Emily?
Emily Portney — Chief Financial Officer
Yeah, I could take the OMS side.
Thomas P. Gibbons — Chief Executive Officer
Okay, go ahead.
Emily Portney — Chief Financial Officer
So we’ve actually seen very nice uptick in terms of, or take up, I should say, in terms of our partnerships with the various OMSs. And by the way, just as a reminder, it’s not just Aladdin, but we have a partnership with Bloomberg, SimCorp, CRD as well as SS&C, so we are really about open architecture. And we think that our integration is more robust. We truly have a degree to do single sign on and the data feeds, also across more asset classes. And ultimately it’s not only beneficial to us, but it’s also beneficial to those service providers. And then last thing I’d just mention about open architecture. It’s not just about the front end, it’s actually about throughout the entire lifecycle — investment lifecycle. So we’ve got also agreements and partnerships with many fintechs, ESOPs, milestone, King Fields and others.
Brian Bedell — Deutsche Bank — Analyst
Okay, great. That’s very helpful. Thank you.
Thomas P. Gibbons — Chief Executive Officer
Thanks, Brian.
Operator
We will take our next question from Ken Usdin with Jefferies.
Ken Usdin — Jefferies — Analyst
Hi, good morning. Thanks for taking my questions. Todd, you mentioned earlier that a couple of the businesses were just kind of quiet this quarter. I wanted to ask you just a bigger question, when you think across the businesses, the activity-driven businesses versus the really strong first quarter, things have kind of settled down. Do you get — you get a sense that we kind of are now at normal levels of activity when you think across the more transactional parts of the Company? Thanks.
Thomas P. Gibbons — Chief Executive Officer
Yeah, hey, Ken. So I’d say the answer to that is yes. And I’d also say the third quarter was, I mean, typically, it’s a little bit of a seasonal quarter to slow down, and it’s the vacation. We actually saw that this quarter and versus a year ago, we had a blip in the repo markets and some unusual things and some unusual revenues related to that. We didn’t see — this looked more like the seasonality that we would typically see in the quarter. So it feels, at least for the time being, that there is a level of normalcy around volumes and activity.
Ken Usdin — Jefferies — Analyst
Okay. And a follow-up on the buyback, Todd. Loud and clear that you’re ready to go. Would there be anything — if the Fed were to lift the buyback restriction after 4Q, is it just onto your own decisioning from there? Is there anything you’d do politically or regulatory that could get in the way of you guys just ready to plow back into the buyback and related, how would you start to think about if you were able to get back in? Do you go right back to buying back a 100% total capital return or do you have to kind of leg in? Thanks.
Thomas P. Gibbons — Chief Executive Officer
Yeah, so one of the benefits of the new regime once they get fully implemented, the stressed capital buffer, it’s no longer a program where we submit a plan with X amount of buybacks by period and if we vary from that plan, we have to make an adjustment or a resubmission. It is we have to maintain our stressed capital buffer. And so we’re not restricted by timing and the implications of that. So we actually — we think it’s a very logical approach and we look forward to operating within it, because I think it gives us more of the agility that you’re pointing to there, Ken.
Now, in terms the critical consequences or — I mean, that’s really outside of our control. The Fed is meant to be an apolitical institution. And I think they will go through the stress test, they will make those assessments and they will determine what actions they are going to want to permit.
Ken Usdin — Jefferies — Analyst
Got it. And just one final clean-up just on the — any change in your outlook for the tax rate or can just help us understand what that outlook is? Thanks.
Emily Portney — Chief Financial Officer
It’s still — I think we guided already, it’s still 20% for the full year.
Ken Usdin — Jefferies — Analyst
Great. Thank you.
Thomas P. Gibbons — Chief Executive Officer
Thanks, Ken.
Operator
We will take our next question from Steven Chubak with Wolfe Research.
Steven Chubak — Wolfe Research — Analyst
Hi, good morning.
Thomas P. Gibbons — Chief Executive Officer
Good morning, Steve.
Steven Chubak — Wolfe Research — Analyst
I wanted to start off with a question on capital. Emily, I appreciate you drawing a line in the sand, outlining the 50 bps — roughly 50 bps to 100 bps of excess Tier 1 leverage you have today. Admittedly, like when we start to run various scenarios in terms of significant deposit uplift and if there is like a negative market shock that we ultimately experienced, that 5.5% to 6% target, it still feels quite conservative. And just wanted to get some context as to why you feel that’s the appropriate level that you need to manage to and how could that potentially evolve over time if you find that the deposits prove to be stickier and the balance sheet volatility ultimately proves to be less as the COVID pressure start to abate?
Emily Portney — Chief Financial Officer
Sure, I can take that and Todd, you can add to it. In terms of — just worth mentioning from a deposit perspective, our deposits are trending about 3% up from where they were in the second quarter. So there — that just —
Thomas P. Gibbons — Chief Executive Officer
In the third quarter.
Emily Portney — Chief Financial Officer
I’m sorry, in the third quarter. Apologies, in the third quarter. They are currently around 3% up. And ultimately, when it comes to, just thinking about the Tier 1 leverage, you are correct at it, our binding constraint. Having said that, we have done very well on all of our stress tests which have taken into account very severe market shocks. And we do feel that the buffer that we’ve talked about is certainly sufficient and you are correct that we’re running above that. And as a result, our — have excess — certainly excess capital to mix others — an additional surge in deposits.
Thomas P. Gibbons — Chief Executive Officer
Yeah, I’d add to that, Steve. And it’s a — when you look at your capital ratios, you have to look at kind of BAU and current operating conditions, so yeah, we’ve got massive access relative to that. And if your point, is it more stable? We’ve already gotten a significant uptick due to the activities coming out of the Fed and fiscal is not going to — is probably not going to have anything like that to the underlying deposit base. So we’re really positioned to have a our growth, but we also have to run it through the stress test. So, it’s not just in normal business conditions, but through stress that Tier 1 leverage ratio, it could be a constraint. And that’s what we’re playing out, so the buffer reflects both what could be an increase in the deposits for any, any particular sharp upturn, as well as what we need just to run a traditional stress test.
Steven Chubak — Wolfe Research — Analyst
Thanks for all that color. And just one follow-up for me regarding some of the discussion regarding some of the organic fee green shoots that were cited earlier. And over the last couple of years, PPNR has contracted, it’s almost been exclusively driven by NII and the interest rate pressures. Core fees have been running flattish, expenses have also been running flattish and you’ve tried to maintain discipline there. As we think about the scenario where say in 12 months, if some of those organic fee green shoots that were cited, if we’re still running at flattish fee income, just wanted to get a sense as to how you’re thinking philosophically about how you want to manage the expense base? And if we’re not seeing that pickup in organic fee growth, how your philosophy around that might evolve?
Thomas P. Gibbons — Chief Executive Officer
Okay. I’ll make a couple of comments. And then when you look at that fee growth, it’s also absorbing and we pointed to $150 million fee waivers per quarter. So that’s an enormous, that’s an enormous number. So underneath that, there has to be some growth in order to sustain with where we are, and we think we’re going to be able to continue that. Obviously, based on conditions and what actually happens to revenues, we will take harder and harder look at expenses. We’ve been able to make the investments in technology, resiliency, automation, cyber everything that we’ve that we’ve done to make ourselves a stronger company. I got to admit it, it actually is more and more important having gone through this last crisis, as clients see the benefit of resiliency of our global operating model and was able to meet huge increases in volumes. And so if anything, I think we’ll probably see more as a result of that. So we’ve been able to do all of that and manage the the expenses and will drop more to the bottom line based on what happens to the revenue picture.
Steven Chubak — Wolfe Research — Analyst
Great, thanks for taking my questions.
Thomas P. Gibbons — Chief Executive Officer
Thanks, Steven.
Operator
We will take our next question from Brian Kleinhanzl with KBW.
Brian Kleinhanzl — KBW — Analyst
Great. Thanks, good morning. Just a quick question on the Asset Management business, I know there was a restructuring there in the past and combining some of the boutique that you had standalone. But now what we’ve seen across the Asset Management space was certainly more interest in consolidation. So I guess keep, maybe address that from both sides of it, like what the opportunity to one through acquisitions and what the appetite as well, but then maybe get rid of the potentially — divest some of these businesses within Asset Management?
Thomas P. Gibbons — Chief Executive Officer
Sure, Brian. It’s been kind of interesting as you start to see a little more action. I think as you think about that business there are kind of really three drivers of success, and that’s probably what’s — and now and that’s probably what’s moving some of the action, I think it comes down to scale integrated distribution, if you have it and obviously performance. And so if you look at, we are a $2 trillion AUM. So we have meaningful scale. Our performance has actually been pretty darn good. One of the things I cited in my opening remarks is that our 30 largest funds, where there are indices for them to follow and they make up about 60% of our revenues are performing in the Top 1 or 2 — first or second quartiles. So, and that’s been — they’ve been there over the last three years. So I think we’re well positioned and it’s reflective. We’ve got some pretty interesting assets under these there. The liability driven investment, it’s been growing and it’s a business that we think we can, it’s primarily in the U.K. and Europe, it’s something I think we can important into the U.S. We’ve got one of the world’s largest credit managers. We just put a new CEO in place there. This is primarily a European credit manager and I think there’s significant opportunity for it to grow probably underperformed, in the past couple of years has done fine, but I think it missed opportunities to grow faster.
And if you think about our distribution, we’re pretty interesting too, because we have a wealth manager, it’s open architected, but it delivers some of our manufacturing capabilities, and Pershing is also very powerful platform, again open architected, but it’s a platform where there’s real estate for some of our product and probably more potential there. So we’ve got a number of the components. So we’re watching very carefully what’s going on in the industry. And if something made sense on our platform, we have to give it our consideration.
Brian Kleinhanzl — KBW — Analyst
And then just a second question, I mean last earnings call, you talked about the potential cost saves opportunity from how you think workforce or workplace. In the future, as it’s stemming from work-from-home and pandemic, how far along are you rethinking the workforce or workplace of the future and when you could actually see some cost saves come through from that?
Thomas P. Gibbons — Chief Executive Officer
Yeah, so as we think about it, it’s going to impact real estate, it’s going to impact things like disaster recovery sites, because we have created a new amazing disaster recovery capability here. It will certainly impact longer term what we think business development, travel, entertainment those types of costs. So there is a number of areas throughout the organization. We’ve done — we’re starting to do a pretty deep analysis on who needs to be in the office all the time, who doesn’t need to be in the office, any of the time and who should be in the office some of the time. And my view is, there continues to be a compelling argument for aggregating, it leads innovation, it leads building really the performance culture that you want to inculcate into the company, difficult not to do it without some in-present meetings. I do think travel and seeing clients is still critical. I think it will change a little bit and the use of some of the technology now will be much frequent, we’ve all gotten pretty stewed at it as well, even me. And so I think that will change. So we’re kind of laying out where we could go and what the implication to our real estate is, but that’s going to — before that to factor into the P&L will take some time. And ultimately as much as we might think it should go one way or the other, the market is also going to kind of dictate it a bit too, because we have a lot of technologist, and if the market starts to lean to more work-from-home, we’ll adjust to that.
Brian Kleinhanzl — KBW — Analyst
Good. Thanks.
Operator
We will take our next question from Gerard Cassidy with RBC.
Gerard Cassidy — RBC Capital Markets — Analyst
Thank you. Good morning, Todd. Good morning, Emily.
Emily Portney — Chief Financial Officer
Good morning.
Gerard Cassidy — RBC Capital Markets — Analyst
Todd, you mentioned obviously the binding constraint for your capital leverage ratio, and when you look at your balance sheet, I think you said it’s related today to up about 15% from a year ago. Can you share with us where do you think it should be under normal conditions and and how long would it take to get there? And what would we need to see in the macro environment for you guys to actually reach a more normalized side of the balance sheet?
Thomas P. Gibbons — Chief Executive Officer
Yeah, I think the balance sheet probably will grow traditionally with the growth in the underlying businesses, which if you think about the AUC and there is a relationship to that, if you think about what’s going on with Pershing payables there is a relationship to that. The Treasury Services business, for example, Gerard, we took a — we went on a campaign, we said, we probably were to shy on taking on deposits and there was an opportunity where great counterparty and our clients wanted us to grow our deposits there. So, I fee some of that was core growth underneath it. It’s hard for me to to really estimate exactly what the — what is excess versus what would have been the traditional growth over that period, and what would have grown based on our own internal efforts, but I would expect that there certainly is some excess in it and I would expect, if there is a change in interest rates and we don’t see that in the near-term, that would contract it a bit. Obviously, I think a lot more profitable, but contracted a bit.
Gerard Cassidy — RBC Capital Markets — Analyst
Very good. And then coming back to something you said earlier on the call about organic growth. if you look, if you turn back the clock and look at your organic growth over the last three or maybe five years, how are you framing out between existing customers giving you more business versus new customers winning new business that drives that organic growth?
Thomas P. Gibbons — Chief Executive Officer
Yeah, so if we, — first of all, existing customers are great customers, because they don’t have the implementation costs and everything else about it is less. So if a new fund, if a client opens up a new fund, and they’ve got multiple custodians and we’re the ones winning the new funds, that’s organic growth and it’s very important to our organic growth and it demonstrates the quality of our services and the capabilities that we’ve got. And that’s where we’re seeing meaningful improvement. So we would include that as well as new customers. There are only — in the Asset Management space there are only so many new customers to be had.
Gerard Cassidy — RBC Capital Markets — Analyst
Thank you.
Thomas P. Gibbons — Chief Executive Officer
Thanks, Gerard.
Operator
We will take our last question from Jim Mitchell with Seaport Global.
Jim Mitchell — Seaport Global — Analyst
Hey, good morning. Maybe just a big picture question on expenses, Todd. It seems like the biggest challenge and opportunity both is just sort of standardizing and automating the client interface. Just how do you think about that opportunity set, where are you and can that be sort of a longer-term tailwind that’s material for expenses?
Thomas P. Gibbons — Chief Executive Officer
Emily, do you want to take it?
Emily Portney — Chief Financial Officer
Sure. Ultimately, we — many of our investments are all about improving the customer experience and making it much more seamless, that’s part and parcel of the open architecture that we’ve been talking about and it’s all about data integration. And that’s going to take a while, that’s a journey. But every client looks and feels slightly different, so we are kind of solving for many different outcomes, but ultimately that’s part of the open architecture strategy and that we want to offer best in breed, and as much flexibility and optionality to our clients as we can.
Thomas P. Gibbons — Chief Executive Officer
And the other thing that I would add is that, when we look at our technology, there’s still a lot of legacy technology debt and one of the commitments and so — when you look at where we’re actually being forced to invest, it’s in a lot of older systems. And we could run those systems much more efficiently. Of course, they are effective, they run, they are industrial, like a lot of banks, just about all banks have the same issues. As we Cloud enable and make our underlying applications more and more efficient, there will be opportunity — there will be long-term opportunity to get rid of a lot of that legacy technology debt. So this is — so we don’t see this as a one or two year effort, I think it is just, and it’s just making the commitment to constantly to reinvestment to actually get it done, because it does take investment to make that transition. So we’re trying to incorporate that into our investment activities, so that we get to renew that stack. So, it’s a combination of both what’s going on in the operations, how efficiently we can be operating our corporate functions, as well as how efficiently we can operate our technology.
Jim Mitchell — Seaport Global — Analyst
Okay, great. Thanks for the color.
Thomas P. Gibbons — Chief Executive Officer
Thanks, Jim. So, I believe operator, that was our last question.
Operator
Yes. And I would like to turn the conference back to Todd Gibbons for any additional or closing remarks.
Thomas P. Gibbons — Chief Executive Officer
Thanks everybody for your call. Please reach out to Magda and our Investor Relation team, if you have any follow-up questions. Have a good day.
Operator
Thank you. This concludes today’s conference call and webcast. A replay of this conference call and webcast will be available on the BNY Mellon Investor Relations website at 2:00 PM Eastern Time today. Have a good day.