This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk11: Good day and welcome to the Northern Trust Corporation fourth quarter 2022 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jennifer Childs. Please go ahead, ma'am.
spk01: Thank you, Marjorie. Good morning, everyone, and welcome to Northern Trust Corporation's fourth quarter 2022 earnings conference call. Joining me on our call this morning are Mike O'Grady, our chairman and CEO, Jason Tyler, our chief financial officer, Laura and Alnutt, our controller, and Mark Betty, Briar Rose, and Grace Higgins from our investor relations team. Our fourth quarter earnings press release and financial trends report are both available on our website at northerntrust.com. Also on our website, you will find our quarterly earnings review presentation, which we will use to guide today's conference call. This January 19th call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be made available on our website through February 18th. Northern Trust disclaims any continuing accuracy of the information provided in this call after today. Please refer to our safe harbor statement regarding forward-looking statements on page 13 of the accompanying presentation, which will apply to our commentary on this call. During today's question and answer session, please limit your initial query to one question and one related follow-up. This will allow us to move through the queue and enable as many people as possible the opportunity to ask questions as time permits. Thank you again for joining us today. Let me turn the call over to Mike O'Grady.
spk14: Thank you, Jennifer. Let me join in welcoming you to our fourth quarter 2022 earnings call. I'd like to start by thanking our teams across the company for their strong execution throughout the year in the face of significant global political and market turmoil. It is our partners' unwavering focus on supporting our clients in uncertain and volatile times like these that truly differentiates Northern Trust. For the full year, revenue was up 5%, including trust fee growth of 2%, and our return on average common equity was 12.7%. Excluding the impact of $303 million in charges detailed in the presentation, revenue for the full year grew 8%, and our return on equity was 14.9%. Fourth quarter results reflected trends that were consistent with those we saw through the first three quarters of the year. Namely, on a year-over-year basis, weaker markets pressured our trust fees, but this was more than offset by strong increases in net interest income. Within our wealth management business, assets under management and advisory fees grew sequentially in the fourth quarter. Total fees declined, however, due to the lagged effect of markets, strategic price reductions in our index funds, and shifts in client allocations out of liquidity products. Overall, new business generation and wealth management was healthy in 2022. However, we did see some deceleration in the second half of the year as market activity waned. We continue to execute on our growth strategy and wealth management, including increasing the size and effectiveness of our sales force, expanding our digital marketing efforts, and leveraging the differentiated capabilities of the Northern Trust Institute. In asset management, assets under management were up sequentially, but fees declined due to the outflows we experienced in our liquidity and index products as a result of the impact of both weaker markets and clients seeking alternatives. We did see solid increases in alternative funds throughout the year, including year-over-year growth of more than 20% in the fourth quarter. Our ETF complex also continued to perform well, with year-over-year organic growth of 12%. Our product launches during the year focused on ESG capabilities, including three new ESG funds in the fourth quarter. And within asset servicing, we delivered a solid finish to the year. We saw healthy momentum throughout the year with our Whole Office offering, as investment managers are increasingly considering outsourced solutions in the face of continued margin pressure and the challenging macroeconomic environment. Whole Office integrates our global asset servicing platform with innovative partners facilitating access to new technologies, services, and solutions. One recent client win offers an insight into what differentiates us in the marketplace. After an exhaustive RFP process during which we conducted a complete review of a large UK-based asset manager's front-to-back operating model, we were selected to provide a holistic, full suite of core asset servicing, capital markets, and data and analytics products and services. This client was particularly impressed with our ability to digitalize their investment process to maximize the value of their data. We learned that this client chose us because of our combination of market-leading tools and first-rate client service. We also saw continued strong demand for our integrated trading solutions offering throughout both the quarter and the year. In 2022, the number of clients on the platform increased 20% year-over-year to nearly 100. Our one-but-not transition backlog that we spoke to you about last quarter started to transition in during the fourth quarter, and our pipeline remains strong. Expense growth continued to be elevated in the quarter, reflecting investments in people and technology to strengthen our resiliency, advance our digital modernization efforts, and drive growth in the business. All critical initiatives, but the level of growth is too high. Some of the charges we announced today reflect early steps we are taking to bring down the trajectory to better align with the current operating environment and create capacity for profitable growth. To underscore our commitment, we recently launched a dedicated office of productivity to reinforce our approach to driving efficiencies throughout the company. Jason will provide more color in his prepared remarks. In closing, as we begin 2023, we remain well positioned to navigate the ongoing macroeconomic and market uncertainty from a position of strength. Our focus is on driving organic growth, improving our productivity, and continuing to bolster our foundation. I'll now turn the call over to Jason.
spk17: Thank you, Mike, and let me join Jennifer and Mike in welcoming you to our fourth quarter 2022 earnings call. Let's dive into the financial results of the quarter starting on page two. This morning, we reported fourth quarter net income of $155.7 million. Earnings per share were 71 cents, and our return on average common equity was 5.9%. Our results were unfortunately impacted by the inclusion of $266 million in pre-tax charges, which reflect $199 million in net income, impacts of $0.94 in earnings per share impacts. These charges included the following on a pre-tax basis. $213 million of investment security losses related to the intent to sell certain available for sale debt securities. which were subsequently sold in early January, $32 million of severance-related charges, $14 million of occupancy charges related to early lease exits, and $6.8 million of pension settlement charges. Also recall that in the first quarter of this year, we implemented an accounting reclassification of certain fees, which continues to impact the year-over-year comparisons as noted on this page. Let's move to page three and review the financial highlights of the quarter. Including the charges previously mentioned, year over year, revenue was down 8%, expenses increased 13%, and net income was down 62%. In a sequential comparison, revenue was down 13%, expenses were up 8%, while net income was down 61%. Excluding the charges previously mentioned, year over year, revenue was up 5% and expenses increased 9%. Excluding the charges previously mentioned, on a sequential basis, revenue was down 1% and expenses were up 5%. Let's look at the results in greater detail, starting with revenue on page 4. Year over year, unfavorable currency translation reduced our revenue growth by approximately 200 basis points. Trust, investment, and other servicing fees, representing the largest component of our revenue, totaled $1 billion. We're down 6% from last year and down 3% sequentially. Our trust fees continue to be unfavorably impacted by the weaker equity and fixed income markets and unfavorable currency movements. As a reminder, a significant portion of our trust fees are recorded on a month or quarter lag basis. So this quarter's performance is largely reflective of the third quarter's market performance, as well as the months of October and November. The year-over-year and sequential declines in all other remaining non-interest income are primarily driven by the $213 million pre-tax investment security loss due to the intent to sell certain available for sale debt securities. These securities were subsequently sold in early January 2023, which I'll describe in more detail in a few minutes. Net interest income on an FTE basis, which I'll also discuss in more detail later, was $550 million and was up 48% from a year ago and up 5% sequentially. Let's look at the components of our trust and investment fees on page five. For our asset servicing business, fees totaled $588 million and were down 6% year over year and down 3% sequentially. Within asset servicing, custody and fund administration fees were $406 million, down 11% year-over-year, but importantly, they were flat sequentially. Custody and fund administration fees decreased from the prior year quarter, primarily due to unfavorable markets and unfavorable currency translation, partially offset by new businesses. Assets under custody and administration for asset servicing clients were $13 trillion at quarter end, down 16% year-over-year, and up 6% sequentially. The year-over-year decline was primarily driven by unfavorable markets and currency translation. The sequential increase was primarily driven by favorable markets and currency translation. Investment management fees within asset servicing were $124 million. up 9% year-over-year and down 9% sequentially. Investment management fees decreased sequentially, primarily due to asset outflows and unfavorable markets. Investment management fees increased from the prior year quarter, primarily due to lower money market fund fee waivers, partially offset by asset outflows and unfavorable markets. Assets under management for asset servicing clients were $898 billion, down 25% year-over-year and up 3% sequentially. The year-over-year decline was driven by asset outflows, weaker equity and fixed income markets, and unfavorable currency translation. The sequential growth was driven by favorable markets and currency translation, partially offset by asset outflows. Moving to our wealth management business, Trust, investment, and other servicing fees were $454 million, down 7% compared to the prior year and down 5% from the prior quarter. Within the regions, the year-over-year declines were primarily driven by unfavorable market impacts and asset outflows, partially offset by the elimination of money market fund fee waivers. Sequentially, the decline within the regions was primarily driven by unfavorable markets, asset outflows, and a strategic repricing initiative. Within Global Family Office, the year-over-year growth was driven by lower fee waivers and new business, partially offset by unfavorable markets. The sequential decrease was mainly related to asset outflows, unfavorable markets, and the repricing initiative. Assets under management for our wealth management clients were $351 billion at quarter end, down 16% year-over-year, and up 5% on a sequential basis. The year-over-year decline was driven primarily by unfavorable markets and asset outflows. The sequential increase was primarily due to favorable markets. Moving to page six, net interest income was $550 million in the quarter and was up 48% from the prior year. Earning assets averaged $134 billion in the quarter. down 10% versus the prior year. Average deposits were $116 billion and were down 14% versus the prior year, while loan balances averaged $42 billion, up 6% compared to the prior year. On a sequential quarter basis, net interest income grew 5%. Average earning assets were up 1%. Average deposits declined 2%, while average loan balances were up 2%. The net interest margin was 1.63% in the quarter, up 64 basis points from a year ago, and up 5 basis points from the prior quarter. The prior year quarter increase is primarily due to higher average interest rates. The sequential increase is primarily due to higher average interest rates, partially offset by an unfavorable balance sheet mix. Turning to page seven, on a year-over-year basis, expense growth benefited by approximately 300 basis points due to currency translation. As reported, expenses were $1.3 billion in the fourth quarter, 13% higher than the prior year, and 8% higher than the prior quarter. The current quarter's expenses included $53 million in charges. These charges, in part, reflect steps we're taking in conjunction with the launch of our Office of Productivity. To shift away, we approach and manage our expenses. Through this initiative, we expect to leverage data and analytics to help us better understand the efficacy of our spending so as to optimize our cost base and drive greater efficiencies throughout the organization. We'll update you on our progress in the coming quarters as appropriate. Excluding charges in both periods, expenses in the fourth quarter were up 10% year-over-year and up 5% sequentially. Also, Recall that the current quarter includes the impact of the previously mentioned accounting reclassification, which increased other operating expense by $8.6 million compared to the prior year. Compensation expense was up 15% compared to the prior year and up 6% sequentially. The year-over-year growth was primarily driven by higher salary expense, in part due to inflationary pressures, and the previously mentioned severance-related charges, partially offset by favorable currency translations. The sequential increase is primarily due to the aforementioned severance-related charges and higher salary expense, partially offset by lower incentives. Employee benefits expense is down 4% compared to the prior quarter and down 6% sequentially. The year-over-year decrease is primarily driven by lower ongoing pension expense, partially offset by higher medical costs. The sequential decrease is primarily due to lower pension costs, including the lower pension settlement charge relative to the prior period, partially offset by higher medical costs. Outside services expense was $233 million and was up 4% from a year ago and up 5% sequentially. The year-over-year increase was primarily driven by higher technical service costs, legal services, and consulting services. partially offset by lower third-party advisory fees and subcustodian expense. The sequential increase was primarily due to higher technical services costs and legal services, partially offset by lower subcustodian expense and consulting costs. Equipment software expense of $229 million was up 17% from a year ago and up 8% sequentially. The year-over-year and sequential growth are both primarily driven by higher software costs due to continued investments in technology, as well as inflationary pressures, and higher amortization. We also recognized a $3.8 million termination charge associated with our mainframe strategy. Occupancy expense of $66 million was up 27% from a year ago and up 28% sequentially. The year-over-year and sequential growth were both primarily driven by the previously mentioned $14 million of charges related to early lease exits. Other operating expense of $108 million was up 37% from a year ago and up 31% sequentially. The year-over-year increase is primarily driven by higher staff-related expense, business promotion, and miscellaneous expense. The sequential increase is primarily due to higher business promotion, supplemental compensation plan expense, and miscellaneous expenses in the current period. Turning to the full year, our results in 2022 are summarized on page eight. On the right margin of this page, we outline the charges that we called out for both years. Including these items, net income was $1.3 billion, down 14% compared to 2021, and earnings per share were $6.14, down 14% from the prior year. In 2022, these charges had a $227 million impact on net income and a $1.08 impact on earnings per share. In 2021, these charges had an $18 million impact on net income and a $0.07 impact on earnings per share. Full-year revenue and expense trends are outlined on page 9 and include the charges previously mentioned. Trust, investment, and other servicing fees grew 2% in 2022. The growth during the year was primarily driven by lower money market fee waivers and new business, partially offset by unfavorable markets and unfavorable currency translation. Net interest income grew 36%. Average earning assets during the year decreased by 10%, while the net interest margin increased 64 basis points, driven by higher average interest rates. The net result was revenue growth of 5% in 2022 compared to 2021 and expense growth of 10%. Excluding these charges in both periods, revenue for the full year was up 8% from the prior year, and expenses were up 9%. Turning to page 10, our capital ratios remain strong with our common equity tier one ratio of 10.8% under the standardized approach up from the prior quarter's 10.1%. Our tier one leverage ratio is 7.1% up from 7% in the prior quarter. A decrease in net unrealized losses in the available for sale securities portfolio and less foreign exchange volatility were the primary factors in this quarter's increase in capital ratios. Accumulated other comprehensive income at the end of the quarter was a loss of $1.6 billion. During the quarter, we returned $158.9 million to common shareholders through cash dividends of $158.8 million and share repurchases of $0.1 million. In early January of this year, we sold $2.1 billion of higher capital-consuming, lower-yielding, non-HQLA debt securities to and reinvested the proceeds into lower capital-consuming, higher-yielding HQLA assets. This repositioning offered a unique opportunity to de-risk our portfolio, free up capital, and improve our liquidity ratios while simultaneously generating more attractive returns. With that, Marjorie, please open the line for questions.
spk11: Thank you very much. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypads. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. And again, that is star one. We'll pause for a moment to allow the opportunity to signal for questions. But while we do, we'll take our first question from Glenn Shore from Evercore. Please go ahead.
spk10: Good morning, Laura. Good morning. So I guess I'll try to focus on deposits. So the interest bearing down 12, the non-interest bearing down 48% year on year. But there's a clear declining impact on a sequential basis. So I'm curious, a much higher rate paid and a decelering outflow of deposits, how can you help us think through what to expect in 23 on both attrition mix and betas for deposits? Thank you.
spk17: Sure. Well, let me... You know, there's a lot going on with the balance sheet with the repositioning as well. So, let me give you a couple of the key ingredients, and then let me know if there's additional detail you'd like. So, just on volume, we saw volume up at – well, down left to 116. We still think that that 110 to 115 – is a good starting point for first quarter. And as you know, the quarters have some seasonality. We usually get a spike at the end of fourth quarter. First quarter gets some build from tax preparation. And in the second quarter, we'll start to see outflows as clients pay taxes. But as you think about first quarter, at least 110 to 115 is still a good range. Then let me take beta in three different – or rate, really, in three different parts. First, beta, and you noted that beta was high. We'd indicated we thought it would be at this point in the cycle, and we still think that that's a pretty good indication of what we'll look like over the course of the next three months. So beta for interest-bearing deposits was 75%, 80%. It was in line. We do anticipate that to be similar. Balance sheet repositioning, that takes $2 billion, a little bit more, at what was about 2% or 2.25%. Then it reinvested on the short end of the curve a couple hundred basis points higher. Right now, we're mostly overnight, but we'll continue to think about what we want to do with that. from a non-HQLA perspective, but at least the starting point you should be thinking about is moving that $2 billion to overnight. And then just lastly, as we're talking about rate, just a quick reminder, the runoff on the portfolio, it's just over a billion dollars and you're moving that from two, two and a quarter to higher rates. We're repositioning as we mature securities. to the short end. So there's a similar pickup there. And then last thing on outlook, just as you think about first quarter is just remember that day count costs us about $8 million going from fourth quarter to first quarter. So those are the big ingredients. Hopefully that's helpful.
spk10: Wow. Well prepared. Thank you. Appreciate it. And maybe just follow up is similar question on average earning assets. up 1% quarter-on-quarter, should we feel in the range of stable now? Or I guess...
spk17: Yeah, it's hard to tell. I mean, I think about it very much from where the – obviously, you know, it's a liability-driven balance sheet, and so the commentary on deposits is really what's driving the size of average earning assets in general. And what we saw in the quarter, it certainly does look like things have – like client behavior has settled and leveled out a little bit, but we're not calling it flat at this point. We're still – operating in a way that we're anticipating some muted but continued decline that's why that 110 to 115 that's really the drive that should you should think of that as the driver of average earning assets okay i appreciate all that thanks sure thank you and we'll take our next question from betsy gracek from morgan stanley please go ahead hi good morning
spk13: So I heard all the commentary around, you know, the expenses and, you know, the efforts to, you know, kind of slow the growth rate as we go forward here. But maybe you could help us understand maybe the pace at which you think you can do that. Because when I strip out the one-timers from the expense ratio, it still looks like the expense ratio moved up a bit around 400 basis points Q and Q. So how should I think about the trajectory from here? Does it stabilize where it is? Is there still some push up from here, or should we expect that the arc begins to come down in 1Q? How should we think through that?
spk17: It doesn't stay where it is, and it certainly doesn't increase over time. That expense ratio needs to come down. It's pretty good. You're talking about assume expense to trust fees. Yeah. So, you know, a few things to think about, you know, one, and we can get into more detail on it, but in the short run, at least, from an expense perspective, as we think about what first quarter is going to look like, I can give you some thoughts there just as you start to model out what does it look like. You know, compensation is obviously our biggest line, and so we've got to start there. And so we've got the $30 million, which you indicated even pulling that out. And so what does that look like going forward? We actually think that, in general, that line item should start to flatten out in the near term as some of those severance-related activities come online, and we should get a benefit from that. We should do your question on timing. We should get a benefit on it this year. We're not going to get a benefit of it right away, but a significant portion, more than half of the actions we're going to take with severance we're anticipating to take place by the end of the first quarter. So we're going to start to see benefit of that. We're going to backfill some of those roles, but they're not going to be in expensive locations. This is less about us addressing FTE or headcount, and it's getting it what the economics are, which is the salary run rate line for the business showing up in comp. And we're going to get a benefit of that this year. And so as you think about first quarter, don't forget that we've also got retirement eligible incentives coming online that hits $50 million in that quarter, but that's very predictable and seasonal. The other dynamics for compensation, I'd call it a wash as we think about going into first quarter. And then equipment software is where we've seen a big uplift over the last couple of years. And We talked a few weeks ago externally about the fact that we thought that line would be at about $225 million. It came in higher than that at $229 million, but that difference, 100% of that is the $3.8 million. There's a contract termination we decided to do very late in the quarter. Otherwise, we feel like that line item is starting to flatten out as well. We will have a step up as we come into first quarter, but we think beyond that, that line item is going to flatten out. That's obviously where all of our depreciation is. We're going to see an uplift of about $12 million in first quarter in equipment software, 100% of that coming from depreciation and amortization. But other than that, we're anticipating that line item to start to flatten out. We're not going to see this kind of growth going forward. And then the other side of it is, as we think about trust fees and growth in the business, that's going to help the ratio that you started with as well. Mike, I don't know if you want to talk just more strategically about how you're thinking about this.
spk14: Yeah, I would just add, Betsy, to your point. It is about trajectories and curves, if you will. So, you know, we've been on a downward trajectory with trust fees as a result of the factors that Jason has gone through. Obviously, we're trying to drive that the other way, primarily through growth. When it comes to NII, we've had a strong trajectory up. That's not likely to carry through into the new year or into 2023, just as a result of the rate cycle. And then looking at the expenses, as Jason went through there, we're clearly trying to bend down that expense growth curve, without a doubt, through the productivity office, but also just in every day and how we operate the business.
spk13: And that Curve bend downwards sounds like it's a second half. We'll see that more in second half than in first.
spk14: Yeah, I think that's right because, as Jason's saying, some of these things, there's actions that we already took in the fourth quarter, which we had talked about on the previous call, the intent to get going on those, and then more of them that are happening in the first quarter as well and then carrying through. So you're right. By the time you see the impact, it's delayed relative to the actions.
spk13: Okay, thank you, appreciate it.
spk02: Sure.
spk11: And our next question comes from Brennan Hawkin from UBS. Please go ahead.
spk07: Good morning. Excuse me, good morning. Hope you guys are doing well. Hoping to get some more specifics here. So the Productivity Office, you know, helpful that we're seeing that emerge. but what are the objectives, right? So what are the metrics that they're looking to drive? You gave some generally kind of high-level comments on how to think about bending the curve and whatnot there in response to Betsy's question, but really expenses have been a bit out of control, just being blunt, especially relative to the peer group. and especially relative to the revenue trends. So investors are really, I'm getting hit a lot this morning, looking for some more details, better understanding, and what specific metrics you're using and how we can make sure that you're hitting your goals when you're pushing through to make these changes.
spk17: Yeah, I can, first of all, the thing that we look at to, litmus test how we're doing from an expense management perspective is still expense to trust fees. And even pulling out the charges from this quarter, being anywhere near 120, that's not where the business is going to be in the long run. That's going to come down. And so then you start to think more tactically, how does the productivity office look to do that? and just say, what are the numbers associated with it? Historically, we have talked about productivity matching inflation. And when inflation was at 1% or 2%, we felt like we were doing that really well. And with inflation at 8% or 9%, we are not going to get productivity to that level, but we should absolutely have productivity above 2% of our expense base. Second, Every group in this company has productivity goals. We go through it all the time, every year in our planning process. And then next, if you start to just think tactically, how is this office going to get at this work? Where are the buckets that we're going to get at? I'll give you how the group is laid out. First of all, it's technology. That's the largest component and the fastest-growing expense item we have. That's $1.4 billion, and so we've got to get at technology costs. We accomplished a lot in 2022 and 2021, but we've got to do it efficiently, and that means determining how we're purchasing, how we're developing technology, how we're consuming it, how we're delivering it. Two is vendor strategy and how we're thinking about engaging with our partners externally. Three, investment governance. There are areas around the company where we're investing in growth for the business. We're investing to get deeper and stronger, but we've got to accomplish those things, but at the same time test whether or not we still want to be investing at the same rate, at the same timing. And then lastly, fourth is a big pillar is workforce analysis. And, you know, a couple things there. You already see us getting a larger severance than we normally take, and that should get to 300, 400 positions that will be impacted. That's why we're focused on driving productivity across operations. And then even separately than this, we took out hundreds of technology-related contractors in fourth quarter. And just as an indication of how aggressively we're getting at this internally, and that's a big effort to do that. But again, we accomplished a lot, and now it's time to turn the corner on it.
spk14: Yeah, and, Brennan, I would just add, I think Jason described it well, but think about it as bottoms up and top down, right, which is each of the groups, as Jason is saying, they have to have their productivity initiatives that work their way up to their productivity goals that are in the plan. And then the top-down part is the productivity office, which is doing things that can cut across the enterprise and also have the structure to, you know, work with the groups to help them meet those productivity initiatives. So that's the approach to it. And, again, this is... We always have productivity as a part of the planning process, but as Jason is saying, when you have inflation like we do, you have to be able to ramp up those activities in order to get greater efficiencies.
spk07: Sure, sure. And everybody's dealing with inflation, and it's certainly troubling, and it's weighing on the results without question. And that was a lot of color, and I appreciate that color, Jason and Mike. I would encourage you, please, to provide some actual metrics, though, to the investment community so that we can measure your progress, understand what your goals are, and actually have some visibility in order to think about where you're going and what you're trying to do, not just from a conceptual perspective, but from a numbers perspective because I think that would really help in improving the confidence. One follow-up question. would be on wholesale funding. Should, I just took a look at, you know, wholesale funding was up again this quarter. Should we think about it getting back to the 2019 levels where it was like mid 6% of the funding side of the balance sheet? Is that reasonable? Because it still looks like there's a little ways to go to get there. Or, you know, is this the upper end of the range and are you trying to limit that growth?
spk17: There's nothing strategic that we've been doing in that area to bring it down. And so it is instructive, as you're doing, to look back at more historical levels. It's not to say that's the target, but it is to say that where we are right now is not reflective of any strategy that we have for lower levels. Okay. All right.
spk02: Thanks for the caller.
spk11: Thank you very much. We'll take our next question from Alex Blostein from Goldman Sachs. Please go ahead.
spk04: Good morning, Alex. Hey, good morning. Thanks for the question. So maybe pivot a little bit. I was hoping to spend a couple of minutes on the wealth management and the global family office trends. You guys highlighted outflows, client outflows, asset outflows, I think, in both of those for the quarter. Wealth management tends to kind of ebb and flow, but it Global Family Office historically, I think, has been a source of stronger organic growth. So maybe help us unpack what's driving the outflows in both of these businesses and maybe also hit on the strategic price reductions that you mentioned. How much of that is fully captured in the Q4 results? Is there any kind of negative carryover effect into Q1 as we think about fees? And again, maybe a little bit more color on the reasons behind these pricing reductions and what you ultimately expect to achieve there.
spk17: Sure. So Let's just walk the fees, because that's probably kind of how you're framing the question, and fees down roughly $20 million for the quarter. Right at half of that is markets. And then a quarter of it is the repricing that we mentioned earlier. And as this group knows extraordinarily well, in the asset management side of the business, fee compression is still persistent. And so we've not done those types of reductions a lot recently. We want to make sure that we're priced appropriately. And so with some of the index products, we took fee reductions. That's only on the product side, not on the advisory side. And those are done. So they're a step down there. no incremental benefit going forward, and at this point, no plans to do more. The other quarter of the decline was outflows, but that was product-related outflows, so really client repositioning in the money market space, in the liquidity space. And we've seen a journey there for our clients across both wealth as well as asset servicing and it's very closely aligned to what we saw in deposits of large decline as we came into COVID and decline as markets gained more confidence and then started to redeploy assets into risk assets. And so if we think about the way we litmus test the business and wealth is to think about our advisory fee, frankly, not the product side, but what are the assets and what are the And what are the fees related to the advice we have with clients? And that's gone well. In the quarter, client flows for wealth management from an advisory perspective were positive. On a link quarter and year-over-year basis, the net new business and flow activity that we tracked was positive, low single digits, but it was positive. So the business is not in decline. What we're seeing is a lot of clients deploying away from their historical mix of using our money market funds, and then in this quarter, repricing of products.
spk04: Got it. As you think about pricing broadly for the products, not the advisory component, but if you think about the money market offering, given the fact that money market funds are actually given a pretty healthy yield, is there any thought around reducing your money market fees as well to become more competitive to, you know, maybe capture the more of those flows or prevent folks from leaving and seeking a better kind of yield options and net of fees?
spk17: We look at it all the time. That comes more into play on the institutional side. And we've got a very large and successful money market mutual fund business. We do a lot of liquidity work for our clients. And so even now, there are some strategic waivers that we have in the institutional side of the business where we're working pricing to ensure that we're as attractive as we can be. But it's not just pricing that clients look at. On the institutional side in particular, they look at size and they look at the underlying quality of the assets. And so it's a lot of the ultra-large investors have investment policy restrictions on how big they can be within a fund. And so the fact that we've got funds that are $40, $50, $60 billion, it enables those large investors to put money to work. And so the competition set is a little bit lower on the institutional side, and we're above that threshold. So In the long run, that's very good for us. There'll be ebbs and flows based on other factors. In the long run, it's good. On the wealth side, that's just going to ebb and flow with the business. Traditionally, it's been more aligned. This is just a period of time where our clients are also thinking about deploying to building their own treasury portfolios and laddering in portfolios there, and then potentially other product. They'll use ultra-short. And so, We do have high confidence that the mix of the usage of this product is going to come back to where it was historically, and you're exactly right. It's a very attractive engagement for us economically.
spk03: Okay. Thanks. I'll hop back in the queue.
spk11: Thank you. We'll take our next question from Ken Euston from Jefferies.
spk12: Good morning, Ken. Hey, good morning, guys. Jason, Sorry to come back to NII, but I was just wondering, can you kind of put that all into context for us in terms of, you know, if the balance sheet's shrinking, you get, you know, a little bit of help from the repositioning. Just can NII grow from here or, you know, based on what you still expect on the rate curve? And, you know, I guess that would be the question. Thanks.
spk17: Yeah. Yeah, yeah. No, I appreciate you pushing on that. The answer is yes, it can absolutely grow from here. And we anticipate that throughout the year, it will. And I don't think first quarter is going to see meaning. I'm not sure it's going to see meaningful growth, but the trajectories are still in our favor. And I mean, the balance sheet repositioning in and of itself, that's an attractive lift. And then Betas are not 100%. And so with Fed actions, we're going to do well. And then we've also got the runoff, which helps us too. And so the only offset to that is volumes. And that's what we're not sure what that's going to look like. But even that remained relatively flat. It was at the top end, maybe a tiny bit above of what our anticipation was last quarter. So, if I look out through the year, absolutely anticipation for NII to be growing from this 550 level.
spk12: Okay. Thank you. And my follow-up to that is, how do you think about incremental betas from here in terms of deposit cost increases? You know, you had said you had expected a decent move up this quarter. You did get that. So, how do we just understand that, you know, that mix of deposits and the beta that you're looking at? Thank you.
spk17: Sure. Yeah. I mean, the mix, we haven't seen that changing dramatically, but you're raising an interesting point, which is that the betas are actually different depending on the currency that you're talking about. And so I just think that's something that's important for people to think about. And then most of the way the industry also calculates beta is on just the interest-bearing portion. I think it's instructive to think about the total beta as well, because as we've talked about, the mix of interest-bearing to non-interest-bearing changes over time. And so that has an effect as well. But the betas on the institutional side, I think you've got to call them close to 100% at this point. It varies by currency, but I think you've got to call it close to 100%. And then on the wealth management side, it's less than that. And you can imagine for us to get to a blended level that I'm talking about and kind of that you know, 70% to 80% range, wealth is closer to 50% and the institutional side, you know, closer to 100%. Okay. Got it. Thank you, Jason. Yep.
spk11: Thank you. We'll take our next question from Brian Bezell from Deutsche Bank.
spk05: Good morning, Brian. Good morning, folks. Good morning, Jason. Thanks. for taking my question. Maybe just to also ask about NII, but actually more to focus on that deposit growth trend. And you talked about 110 to 115 in one queue. As you come into second quarter, maybe it's hard to assess this early, but what type of headwind would tax payments be on that? And then sort of a related question would be, To what extent do you want to or do you think you need to defend those strategic wealth deposits and raise the beta further as we get into 2023?
spk17: We're looking, I'll go in reverse order. I mean, we've talked about heavy defensive wealth deposits. The economics are important and those are the things we want to be doing with our clients, hard stop. And so we're going to do everything we can to defend those. And they're largely relationship driven, but there's also, there are pockets where where our clients look really aggressively at rate. And so we've got good governance and infrastructure to make sure we're doing what we can to maximize that. And then throughout the year, just asking how are we thinking about it over the course of the year, we've tended, you can go back and look historically at first quarter to second quarter. and see what kind of decline there has been that we don't think we don't anticipate anything different this year. And then what I can tell you is that from there, we don't expect that we're, we have more of a flattish outlook, but we've got to just remember that that second quarter decline does take place and history should be a pretty good judge.
spk05: Yeah, that's helpful. And then maybe just on expenses, you mentioned the equipment software of $12 million in the first quarter. Is that from the 229 level in 4Q, or is that 225X the charge?
spk17: Yeah, thanks for confirming that. It's off the 225 level.
spk05: Great. Okay, great. Thank you. I'll get back in the queue. Thanks.
spk11: Thank you. And we'll take our next question from Jim Mitchell from Seaport Global. Please go ahead.
spk15: Morning, Jim. Hey, good morning. Maybe just a little bit on the pension accounting. Did that get triggered again this year, and should we expect more charges this year?
spk17: So every year we come into it, we don't expect there to be – to trigger settlement accounting. And it's ironic because in 2021 – We had the thresholds, but then we did a larger RIF, and those ended up triggering. And then this past year, it was interest rates going up significantly. That led to a higher level of retirements than we anticipated. And so in no year do we anticipate it at this time. But the bad news is we're in the exact same boat this time, which is that we look at the thresholds with our outside actuaries, with our consultants, but we can't predict anything. with high degrees of certainty what the experience will be from a retirement perspective. And so we have to let that play through. That said, what we've experienced in 21 and 22 we had not experienced prior to that. And so it's not like this is something that it's happened the last two years, but if you look over the last 10 years, it hasn't happened outside of these last two years. And so that's how we think at it. It seems like more of a trend certainly than what we're planning or anticipating.
spk15: Okay. And maybe just on capital, you had a nice sequential improvement in capital ratios Is there any content you didn't really do much in the way of buybacks in 22? Do you see that being a bigger part of the EPS story this year?
spk02: Yes, at some point.
spk17: And so if you think about the framework we've used historically, and I've talked about it a lot, there's no red flags there. And we don't have to have all of those components of the frameworked. Saying green, we look at it in combination at any given point in time, and we're at 10.8 right now. We also still have $1.6 billion in AOCI. That'll come down a little bit, actually, in a chunk because of the securities repositioning, because we did that after the quarter. And so we've got, call it a billion four that's going to be accreting into capital over time. The returns in the business are still strong. And so there's no reason we wouldn't be back at some point.
spk02: Okay. Thanks. Sure.
spk11: Thank you. We'll take our next question from Rob Wildhack from Autonomous Research.
spk06: Morning, Rob. Morning, guys. On the fee side, I just wanted to check in on organic growth and the competitive landscape this quarter and into 23 for both the institutional and the wealth businesses. Thanks.
spk17: Sure. I'd say different stories there. We talked about wealth a little bit earlier, and if we think about just the core underlying business, really focusing more on on the account management side, then the business had a very strong first half of the year, and the second half of the year was weaker. And we've also noted GFO was much stronger than the regions, but again, that's going to ebb and flow over time. But organic growth, the way we have calculated it and communicated it, historically was negative in the regions for the quarter. and call it flat for GFO, if you actually slightly positive for GFO, if you think about it on a year-over-year basis. So it at least gives you a sense of where that business is. But then again, from the advisory side, even for the year-over-year and at the end of the quarter, the advisory fees did well. The core business there is strong, just we think it's the product mix and other factors leading to the way we've calculated organic growth as being negative. In asset servicing, different story. We talked at the early part of the year that we felt pipeline was good. That pipeline has started to onboard in fourth quarter, and we feel good about the growth in that business. And the proxy there is, should be more custody and fund servicing fees. Just as I talked about account management fees and wealth management, the proxy for the same corollary there is custody and fund servicing. And that was a positive in fourth quarter. It was actually really attractive. We had new business that Mike talked about early coming online in the business to the tune of kind of mid- single digits, and we feel like that business is back to its historical organic growth rate. And that's evidenced by what we onboarded. The one not onboarded business we have right now is higher than our three-year average. and the pipeline of business they have that they're still bidding on in late stages is higher than the three-year average for the business. And so a lot of positive signs in the asset servicing business from an organic perspective.
spk06: That's helpful. Just on that, starting to onboard business and asset servicing, I think in the past you had talked about that not really coming online until the second half of 23. So is that a pull forward there?
spk17: Actually, there's – go ahead, Mark. Yeah, I'm sorry. It was early 22 that we talked about there being business in the back half of the year. There was onboarding, so that did come into place. We do have right now – there's a chunk of business that we know is onboarding in the short run. The pipeline's good. And then you go out farther to the end of 23, and there's another – chunk of large business that we're anticipating to come on in a couple different areas, fourth quarter and even into first quarter of 24. And so the pipeline for that business at various stages is looking good. Got it. Thank you.
spk11: Thank you. Our next question comes from Mike Mayo from Wells Fargo Securities. Please go ahead.
spk08: Hi. On the expenses, it's Oh, my. I get it. Look, you guys are dealing with the first decline in both stock and bond markets in over 50 years. You said you're preserving growth by investing in people and tech. There's inflation. But wow, this is the worst quarterly operating leverage that I can recall for you guys. And for the year, it was negative operating leverage of 500 basis points. And even COP has grown twice the pace of revenue growth. So I guess what I'm looking for is more assurance that expenses haven't gotten away from you. I get it. At the high level, you said, you know, it looks like you're right-sizing headcount with severance. You took out hundreds of tech-related contracts. You have some kind of mainframe strategy. I have to tell you, I just don't understand what that means from a bottom-line standpoint. So I guess the question is, you said you're – expenses to trustee ratio of 120% is unacceptable. But what is acceptable? And when should you get there? Like 2024 2025? What kind of sense of urgency do you have? Because this is not the northern we've gotten to know over the past long while, aside from your, you know, resiliency through tough times. Thanks.
spk14: So, Mike, to your point, you know, if you go back a number of years where we were at levels that are like this, it's been a long time, and that's why it is considered unacceptable where we are. And we were effective in driving that ratio down into an area where, yes, we thought it was, you know, within that range for us to be able to continue to operate. And that's kind of that 105 to 110 range. And we have the same objective now of getting it back into that range. That calculation is a numerator and a denominator, and we're trying to drive both of those. So beyond the challenging environment on the fee front, which is going to happen at various times, We're trying to drive the organic growth there. And as much as we had, you know, good growth in the year, it was not one of our stronger organic growth levels. So challenged on the numerator, both, I would say, conditions, but also what we did on our parts. And then on the other side, from an expense perspective, as Jason said, we got a lot done, not just this year, but the last couple of years in really making the company more resilient. And I'll get into a little more detail on that. But just contextually, if you think back a few years with the pandemic and then the last couple of years, You know, the technology infrastructure of the company is just critical to your ability to be just what you said, you know, which is, you know, resilient and there for your clients in any set of conditions. And so that's required a lot of investment, you know, in technology. Some of it, if you think about it, you have to be able to operate completely remotely, and so you have to invest to be able to do that. And you also have to be reliable for clients. And so when it comes to modernizing all the technology you have, it does require investment on that front. And in the meantime, we also push forward with our digitalization efforts, which is much more the client-facing part of that, which is essential to being competitive and essential to growing. So it's been very active across that. Some of that is non-discretionary, right? It needs to be done to be able to do what I said. Other parts of it, you do have more discretion in the speed, particularly around the digitalization front, and you're looking at the returns that you're going to get for that. So we've talked about things like Matrix, which has been a meaningful investment, which will drive both productivity but also will drive our capabilities and therefore revenue and organic growth on that front. The same thing is happening in wealth management, where we have to make sure that our interface with our clients is frictionless, as Steve would say, in the technology interface with the clients. That part of it, again, we can pay some, and that's part of what we'll have to do on the technology front. And the last part of it is, you know, just the need for efficiencies around the technology spend, and then just more broadly, which we've done, you know, many times and need to just increase the focus on execution around those what I'll call more traditional ways to drive productivity. You ask the question on, okay, when does it get into that range? Is it, you know, 23? Is it 24? You know, I don't know because I don't know exactly what's going to happen with the numerator and the denominator, but that's what we're driving towards is to get it into that range. And in the meantime, you know, also trying to drive profitability, meaning driving pre-tax margins above 30%. So that's kind of the view in the plan.
spk08: Can you give any – specifics for the year. I know it's not always your style, but in terms of kind of expense growth for the year or what the savings are from the elimination of all the tech contracts or even just if I think of investing along a J curve, seems like you're on this tech journey like a lot of others are and some are still in the investing phase and some are in the harvesting phase. When do you think you go from investing to harvesting on this broader tech strategy, which seems to be impacting your expenses?
spk14: Yeah. So I'll answer both, but then let Jason add, too. But, you know, we are clearly in the investing stage. But I would say, you know, and you're always investing, of course, you know, in that because, you know, the needs change over time, et cetera. But from a, you know, cresting perspective, et cetera, you know, we're more towards that than we are away from it. if that makes sense in others we have gotten a lot done uh in the last couple years on that front so that's my view and then as far as the expenses you know we talked about you know for the year uh expenses at nine percent so that's the part where we're saying yeah that doesn't work uh and so how do we bring that that down now there's still going to be growth and expenses for the year because there's certain aspects that just carry into the year right so you do have base pay increases uh that flow in and you do have some of the technology costs you know that are amortization that just come into the year but you know outside of that you're trying to do everything you can with productivity to offset other other increases all right thank you all right you said jason was going to follow up
spk17: Well, I can give you a little bit more color on the year, if it's helpful. And whatever information is helpful, obviously, I'm happy to give what we see at this point. But one thing, as you're thinking about the next several quarters, not just the next one, is outside services is elevated. And, you know, lots of things happening there in fourth quarter. Some of that's episodic. Some of that has other expense. Some of that's episodic agency expense, supplemental pension plan. Some of those have more of a longer-term trend. So think travel marketing. That was actually up $8 million over third quarter. That's likely going to stay elevated. But some of these were episodic. And so we don't think we're going to see other expenses happening. at $107 million. That should quickly, and some of it's out of our control because things like the supplemental pension plan are market affected, but that should get to below $100 million and hopefully stay that way going forward. And then you just think about the impact also of compensation, just to give you some color there. We know base pay is going to come online in second quarter. That's going to be a $20 million lift. And then to severance activity, we think that's going to help us help offset that a little bit, probably $5 to $7 million on a quarterly basis, starting in second, third quarter. And then... We'll have some additional hiring, but that's going to be in line with the growth of the business. So that at least gives you a sense of some of the line items. And then last one, visibility on equipment and software and the depreciation list that we've got coming into first quarter, that levels out a lot. There's some growth. you know, call it a couple million dollars, one or two million, a couple million dollars a quarter after that, but nowhere near this level. And so a lot of the, that's where you get to what's the impact of those hundreds of contracts coming out. We're starting to flatten that depreciation and amortization line, which sits within equipment software, which has been the fastest grower. It's just reflective that we've gotten a lot of work done.
spk08: Okay, thank you.
spk11: Thank you. We'll take our next question from Gerard Cassidy from RBC. Please go ahead.
spk16: Good morning, Gerard. Hi, Jason. Coming back to the expense topic in conversation, on the salaries, can you share with us the cost of those salaries? Is it going more to entry-level folks or is it more your senior people? And then second, are you at risk of losing people, which is why you had to bump up salaries? And maybe a little more details about just the salary portion.
spk17: Yeah. So two very different dynamics happening. The actions we're taking this year are not across the board, much more targeted than they have been historically, and very centered around frankly, around technology and some operations-oriented functions effectively. And so that just gives you a sense of where we're going. And then to why we've had some of the increases, some of the salary increase we had last year obviously was an inflation-related higher-than-average merit increase. But a lot of the growth we had last year was doing off-cycle adjustments to retain talent specifically in the wealth management business. And we think that's largely done at this point. Can never claim with certainty that that's fully over, but that was meaningful. And you know how important that franchise is to us and how important that talent base is. And so we were going to defend that base. And with that episode, that seems to be over at this point, and we're more to a business-as-usual growth rate across the organization, but we're identifying areas where we can get significant salary run rate savings and getting after those aggressively.
spk16: Very good. And then as a follow-up, can you share with us On the sale of the fixed income portfolio, which resulted in the losses that you reported, can you give us some color on what types of securities were sold and, you know, the yields of those securities? And then by reinvesting the proceeds from that sale, how long will it take you to earn back that loss that you had to take to exit the portfolios?
spk17: Yeah. So what we looked for was, were securities that have, that had, a combination of a couple things. One, poor RWA treatment. And secondly, lower coupons, lower yield. And third, that they still had significant time to maturity. And so that bucket ended up being two, two and a half billion dollars The coupon on those was in the 2% to 2.25% on average. And the reinvestment of those coming in at, you think about in earnings on reserve balances at the Fed, in the 4.5% range at this point. And in terms of the... The payback on that is more like a three and a half years. But remember, from a regulatory reporting perspective, we had already stripped out the unrealized loss in that portfolio. And so the drivers of this were very largely around the opportunity to improve capital ratios. Not that we needed to improve capital or liquidity. We didn't. But seeing the opportunity to benefit CET1 in the form of lower RWA treatment, help improve liquidity ratio, and at the same time not hurt the economic value of your earning stream was very attractive to go after. And that's really what led us to do this.
spk02: Great. Thank you. Sure.
spk11: I think we'll take our next question from Stephen Chuback from Wolf Research.
spk03: David? Hey, good morning. So Gerard actually asked my question, but I did want to clarify one item relating to the securities portfolio repositioning, which is whether you have any appetite to actually engage in further repositioning of the book from here.
spk17: Well, we would have appetite, frankly, because it's an attractive thing to do. But at the same time, we feel like we've harvested just about everything that's there. And And I'm glad you asked to follow up, because as soon as I finished, I realized, Gerard, and now you might be interested in just a little bit more colored. Corporate bonds within the $2 billion was about half. Munis and mortgage-backed securities were about a quarter each, just so you know. But it's an attractive time to go after something like that, given the yield curve and the ability to change non-HQLA assets to HQLA assets. pick up capital, pick up liquidity, and no impact from an economic perspective, and in fact, making it positive.
spk03: That's great. Thanks for taking my follow-up. Sure.
spk11: Thank you. We'll next go to Mike Brown from KBW. Good morning, Mike.
spk09: Great. Hey, good morning. I just want to follow up on one of the capital and insurer purchase questions from earlier. You know, I guess, you know, I look at your capital ratios are well above your minimums, which is consistent with how you've always managed the capital. But you've got a number of tailwinds on that front. And Jason, you mentioned that you plan to resume the buybacks at some point. But I guess it seems to me that there's really no time like the present. So my question is, should we expect the share of repurchases to engage in a more meaningful way in the first quarter? And when we think about the full year, what are the guardrails we should consider for your capital ratios as we think about modeling capital return from here?
spk17: Sure. So we won't comment more on timing. And if I get to the guardrails, it's instructive, I think, to look. And again, none of these are 100% determinative. They're just part of how we think about it. But these are the factors we think about. Look at the absolute levels, which tells you to look at history, look at where we are relative to peers, and then relative to regulatory perspectives, we look at those things. And then the other dynamic is that RWA has been less predictable than pre-COVID. And we used our balance sheet to be there for our clients. And we were one of the few institutions that actually let RWA increase over the last several years. And it's because we wanted, our clients had loan demand and they wanted us to be there in FX activity and SEC lending and we did that because we had, it was because we were able to, because we had the capital strength and flexibility to do that. And so that's the thing that we're also looking forward on to make sure that we're not missing any significant changes in client demand that might impact our behavior. But you're right in that sitting at 10.8, it's a much better position. And then back to this concept of a billion four and AOCI pulling apart over the next several years, plus the return on equity in the business is still attractive. And so we're still each quarter accreting capital.
spk02: And so no reason we won't be in the market at some point.
spk09: I could just follow up on that, Jason. The loan balances were down about 2.5% sequentially. How are you thinking about that loan demand from here? Our view is it sounded like it was kind of softer going forward, but you kind of alluded to the fact that maybe you want to be there to meet client demand. So are you expecting that loan demand to pick up here in 2023? And then I guess just one other follow-on on the capital side, if you guys think about, how do you think about inorganic actions here in terms of capital allocation? Like, do you see any other opportunities to, you know, change your strategic asset mix and scale so that perhaps that could be another avenue that you would consider on a capital allocation front?
spk17: Sure. So, on loan demand, I always remind people, super spiky. And you know, on the base of business we have and the clients that we have, they can come with really significant asks and we're happy to do it because a lot of times they've got potentially billions of dollars in in assets, and then they might have a liquidity need and they don't want to liquidate the asset, it's a great opportunity for us to help them at very large dollar amounts. It solidifies relationships well. And so we just don't look quarter to quarter at loan volumes as much as I think it's appropriate to for other institutions. In general, our growth expectations are for more of a business-as-usual growth rate. We do anticipate some growth this year in the business, not a ton, but more business-as-usual. And then on capital, there's no problem we're trying to fix in mix or scale or, frankly, in capability. We're just thinking opportunistically if things come up, we've got the capital to be able to look at it. We have talked about having more of a bias at this point toward wealth management. We've done some things from an acquisition perspective in asset servicing over the last several years. They've gone well, but we've got a whole product circle there that we feel good about. We do in wealth, but the more we can bring on attractive wealth clients that don't necessarily have the holistic product approach that we can bring to it's a great opportunity for us to create value. And so that would be top of the list, but no problems we're looking to solve from a mixed or scale perspective.
spk09: Okay. Very interesting. Thank you for taking my questions. You bet.
spk11: Thank you. And we'll go to our last question from Brian Bedell from Deutsche Bank.
spk05: Morning, Brian. Great. Thanks for taking my follow-up. Let me switch gears a little bit just on the wealth side. To what extent are you seeing any impact from some of your entrepreneur clients that may have had lower valuations in their private businesses or in their public businesses? Are you seeing any kind of pullback from those clients? Is it significant or is it really just not that big a deal?
spk14: Brian, it's Mike. I would say we definitely are seeing a different perspective on the part of the clients that you're talking about or prospects, right? I mean, a lot of the activity in 2021, beginning of 2022, was as a result of business owners who were selling their businesses, were monetizing assets. And so that was an uplift for us. And with the reduced activity that you're seeing of IPOs and market activity there, but then also certainly in the private marketplace, lower activity there definitely has had an impact for us of just less market opportunity for us.
spk05: Okay. Thanks. And then just one more on expenses. A lot has been asked and answered, but just In terms of the onboarding for the asset servicing pipeline, should we expect what is typically in the business where you have some onboarding expenses ahead of when the contracts are installed and generating revenue? Is that something also that might create some noise for 2023, given the 4Q larger, chunky mandate that I think you're bringing on?
spk17: A couple things. One, nothing that we'd call out at this point. If that changes, we'd call it out for you. And in some instances, even some of those expenses are capitalized in long-term contracts. But nothing at this point that we'd want you to be thinking ahead on.
spk05: Great. Thank you so much for taking my follow-up.
spk11: Sure. We will now turn it back to our speakers for any closing remarks.
spk00: Thanks very much for joining us today. We look forward to speaking with you again soon.
spk11: Thank you. And ladies and gentlemen, that does conclude today's conference. We appreciate your participation. Have a wonderful day.
Disclaimer