Emily Portney
Chief Financial Officer at Bank of New York Mellon
Thank you, Robin, and good morning, everyone. As I walk you through the details of our results for the quarter, all comparisons will be on a year-over-year basis unless I specify otherwise.
Starting on Page 3 of our financial highlights presentation. Total revenue of $3.9 billion in the fourth quarter was down 2% on a reported basis and up 9% excluding notable items. As Robin mentioned earlier and as you can see at the bottom of the page, our reported results in the fourth quarter included a few notable items resulting from actions to improve our revenue and expense trajectory. Reported revenues included approximately $460 million of net securities losses recorded in investments and other revenue, resulting from a previously disclosed repositioning of our securities portfolio, which I will expand upon later.
Fee revenue was flat as the benefit of lower money market fee waivers and healthy organic growth across our Securities Services and Market and Wealth Services segment was offset by the impact of lower market values from both equity and fixed income markets and the unfavorable impact of a stronger U.S. dollar. Firm-wide assets under custody and/or administration of $44.3 trillion declined by 5%. The headwind of lower market values and currency translation was tempered by continued growth from both new and existing clients, and assets under management of $1.8 trillion decreased by 25%. This also reflects lower market values and the unfavorable impact of the stronger U.S. dollar. And again, this headwind was partially offset by cumulative net inflows.
Investment and other revenue was negative $360 million in the quarter on a reported basis. Excluding notable items, investment and other revenue was positive $100 million, a good result reflecting another quarter of strong fixed income trading performance. Net interest revenue increased by 56%, primarily reflecting higher interest rates. Expenses were up 8% or 2% excluding notable items. Notable items amounted to approximately $200 million in the quarter, primarily severance expenses and provision for credit losses was $20 million, primarily reflecting changes in the macroeconomic forecast.
On a reported basis, EPS was $0.62, pre-tax margin was 17% and return on tangible common equity was 12%. Excluding the impact of notable items, EPS was $1.30, up 25% year-over-year. Pre-tax margin was 31% and return on tangible common equity was 24%.
Touching on the full year on Page 4. Total revenue grew by 3% on a reported basis and by 6%, excluding notable items. Fee revenue was flat. Investment and other revenue was negative $82 million or positive $340 million, excluding notable items and net interest revenue was up 34%. Expenses were up 13% on a reported basis and up 5%, excluding notable items, consistent with our goal to drive 2022 expense growth towards the bottom half in the 5% to 5.5% range that we guided to throughout the year. Excluding the benefit from the stronger U.S. dollar, expenses ex-notables for the year were up 8%.
Provision for credit losses was $39 million compared to a provision benefit of approximately $230 million in the prior year. On a reported basis, EPS was $2.90, pre-tax margin was 20% and return on tangible common equity was 13%. Excluding the impact of notable items, EPS was $4.59, up 8% year-over-year. Pre-tax margin was 29% and return on tangible common equity was 21%.
On to capital and liquidity on Page 5. Our consolidated Tier 1 leverage ratio was 5.8%, up approximately 35 basis points sequentially, primarily reflecting capital generated through earnings, the sale of Alcentra and an improvement in accumulated other comprehensive income, partially offset by capital returned through dividends. Our CET1 ratio was 11.2%, up approximately 120 basis points, driven by the increase in capital and lower risk-weighted assets. And finally, our LCR was 118%, up 2 percentage points sequentially.
Turning to our net interest revenue and balance sheet trends on Page 6, which I will also talk about in sequential terms. Net interest revenue of $1.1 billion was up 14% sequentially. This increase primarily reflects higher yields on interest-earning assets, partially offset by higher funding costs. Once again, NIR in the quarter exceeded our expectations as noninterest-bearing deposits remain elevated. Average deposit balances decreased by 2%. Within this, interest-bearing deposits increased by 2% and noninterest-bearing deposits declined by 11%. Despite this decline in the quarter, the share of noninterest-bearing deposits as a percentage of total deposits has held up better than expected at 27%, which is higher than historical averages and we continue to actively manage our deposit footprint to optimize across NIR, liquidity value and return on capital.
Average interest-earning assets remained flat. Underneath that, cash and reverse repo increased by 4%; loan balances were down 1%; and our investment securities portfolio was down 3%. As I mentioned, in the fourth quarter, we took actions to reposition the securities portfolio to improve our NIR trajectory for the coming years. We sold roughly $3 billion of longer-dated lower yields in municipal and corporate bonds, which we've been replacing with significantly higher-yielding securities earning roughly 5% or 250 basis points to 300 basis points more than what we were earning on the securities that we sold.
While we realized an approximately $450 million pre-tax loss with this sale, this transaction was virtually capital neutral because the unrealized loss was already recognized in AOCI. In fact, we freed up roughly $150 million of CET1 capital as the higher credit quality replacement portfolio consumes significantly lower RWA.
Moving on to expenses on Page 7. Expenses for the quarter were $3.2 billion, up 8% year-over-year. Excluding notable items, expenses were up 2% year-over-year. This year-over-year increase reflects investments, net of efficiency savings, higher revenue-related expenses, including distribution expenses as well as the impact of inflation, partially offset by the benefit of the stronger U.S. dollar.
Turning to Page 8 for a closer look at our business segment. Securities Services reported total revenue of $2.2 billion, up 18% compared to the prior year. Fee revenue increased 2% and net interest revenue was up 79%, driven by higher interest rates, partially offset by lower balances. As I discussed the performance of our Securities Services and Market and Wealth Services segment, I will focus my comments on investment services fees for each line of business, which you can find in our financial supplement.
In Asset Servicing, investment services fees were down 1% as the impact of lower market values and a stronger U.S. dollar were mostly offset by the abatement of money market fee waivers, higher client activity and net new business. In Issuer Services, investment services fees were up 7%, driven by the reduction of money market fee waivers and higher depositary receipt issuance and cancellation fees.
Next, Market and Wealth services on Page 9. Market and Wealth Services reported total revenue of $1.4 billion, up 19%. Fee revenue was up 14% and net interest revenue increased by 33%. In Pershing, investment services fees were up 22%. This increase reflects lower money market fee waivers, higher fees on suite balances and higher client activity, partially offset by the impact of lost business in the prior year and lower market levels. Net new assets were $42 million [Phonetic] reflecting a very healthy level of growth from existing clients while flows related to dividends and year-end capital gain distributions were naturally more muted than in the prior year quarter and average active clearing accounts were up 4% year-on-year.
In Treasury Services, investment services fees were flat. The benefit of lower money market fee waivers and net new business was offset by the negative impact to fees from higher earnings credits on the back of higher interest rates. And in Clearance and Collateral Management, investment services fees were up 6%, primarily reflecting higher U.S. government clearance volumes driven by continued demand for U.S. treasury securities due to elevated volatility and an evolving monetary policy.
Now turning to Investment and Wealth Management on Page 10. Investment and Wealth Management reported total revenue of $825 million, down 19%. Fee revenue was down 18% and net interest revenue was up 2%. Assets under management of $1.8 trillion declined by 25% year-over-year. This decrease largely reflects lower market values and the unfavorable impact of the stronger U.S. dollar partially offset by cumulative net inflows.
As it relates to flows in the quarter, we saw $6 billion of net outflows from long-term products and $27 billion of net inflows into cash. Among our long-term active strategy, liability-driven investments continued to be a bright spot with $19 billion of net inflows in the quarter, a real testament to our market-leading capabilities and resilient performance during the recent market dislocation, a very healthy net inflows into our cash strategies come on the back of strong investment performance, most notably Dreyfus money market fund.
In Investment Management, revenue was down 22% due to lower market value and mix of cumulative net inflows, a stronger U.S. dollar and the sale of Alcentra, partially offset by lower money market fee waivers. And finally, in Wealth Management, revenue was down 12%, primarily reflecting lower market values. Client assets of $269 million were down 16% year-over-year, primarily driven by lower market value.
Page 11 shows the results of the other segment, where investment and other revenue includes the net loss from the repositioning of the securities portfolio and expenses include severance.
And let me close with a few comments on how we're thinking about 2023. With regards to NIR, we have positioned ourselves for another year of healthy growth. And so we currently project an approximately 20% year-over-year increase for the full year and that assumes current market implied interest rates. Having said that, the range of potential outcomes remains relatively wide and the quarterly trajectory of NIR will be dependent on various factors, including the path of deposit levels and mix as well as interest rates. As it relates to fees, as you know, market-driven factors like equity and fixed income market level, currency and interest rates dominated fee dynamics in 2022, while underlying growth across Securities Services and Market and Wealth Services was offset by headwinds in Investment and Wealth Management.
For 2023, we expect to return to some underlying fee growth for the firm. Now Robin talked about the work we've been doing over the last few months to bend the cost curve while making sure we're continuing to invest. For 2023, this translates into expenses, excluding notable items increasing by approximately 4%, assuming exchange rates remain flat towards the ended 2022 or by approximately 4.5% on a constant currency basis. This compares to 8% in 2022.
And then on taxes, we expect our effective tax rate for the year to be in the 21% to 22% range, primarily due to an increase of the corporation tax rate in the U.K. this year.
And finally, I want to close with a few remarks on capital management. As you saw, we ended 2022 comfortably above our management target. And our Board of Directors has authorized a new $5 billion share repurchase program, which provides us ample flexibility. As always, the timing and the amount of repurchases is subject to various factors, including our capital position and prevailing market conditions, among others. Based on our current expectation for continued earnings growth in combination with our estimated trajectory of AOCI pulling to par, we're now resuming buybacks and would expect to return north of 100% of earnings through dividends and buybacks in 2023.
With that, operator, can you please open the line for questions.
