Q3 2019 Earnings Call
Good morning, and thank you all for joining us on our call today, our CEO Rono Hanley will speak first then Eric <unk>, our CFO will take you through our third quarter 2019 earnings slide presentation, which is available for download in the Investor Relations section of our website investors that state Street dotcom.
Afterwards, we'll be happy to take questions during the Q and a please limit yourself to two questions and then review.
Before we get started I would like to remind you that today's presentation will include results presented on a basis that excludes we're just one or more items from gap.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix, where a slide presentation.
In addition, today's presentation will contain forward looking statements.
Actual results may differ materially from these statements due to a variety of important factors such as those factors reference in our discussion today and in our SEC filings, including the risk factors in our Form 10-K .
Forward looking statements speak only as of today, and we disclaim any obligation to update them, even if our views changed and let me turn it over to Ron.
Thanks, Charlie and good morning, everyone.
Turning to slide three we announced our third quarter financial results. This morning reporting E. P. S and all we have $1.42 and 9.7% respectively. Before I go into more detail about our results I'd like to discuss we're seeing at the macro environment.
As one of the worlds largest investment service providers, we have a unique window into global capital flows.
Spite of accommodative monetary policy supporting U.S. equities and global fixed income assets, a significant amount of cash remains on the five months notwithstanding the book and discrete and client flows have improved in recent quarters relative to 2080.
Relative to the year ago period State Street's total revenue fell 3%, reflecting lower interest rates weaker international average equity market levels and challenging industry conditions, including price compression, partially offset by the positive contribution of Charles River.
When compared to the second quarter. However, total revenue increased 1% driven by higher servicing fees stronger net interest income and better foreign exchange revenue.
We are encouraged by the direction of our servicing fee revenue and believed that our efforts to improve revenue performance are having the intended impact we're making progress we are not yet where I wouldn't like to see us as a business and reigniting servicing fee growth remains a priority.
Assets under custody and administration increased slightly quarter on quarter to 32.9 trillion and we are pleased with the level of new wins during the quarter, one trillion well assets you have to be installed increased to 1.2 trillion.
Global Advisors, we also had a good quarter assets under management increased by 1% quarter on quarter to just under three trillion supported by higher period end market levels and relatively strong etiology and cash inflows I'm, particularly pleased by the third quarter of consecutive net inflows.
We're making good progress across the enterprise, but we're not yet hitting our full potential which is why reigniting servicing fee growth remains a top priority.
I would like to provide you know with an update on some of the strategic progress, we're making to improve our revenue growth as well as all our operational efficiency.
First regarding reigniting servicing fee revenue growth, we're seeing some tangible progress as demonstrated by this quarter's performance.
Part of this initial success is due to a strengthened focused on our clients. We have made some appointments and key strategic areas of focus such as with the recent announcement of our new head of U.S. asset owner relationship management.
In addition, we've expanded our management committee in recent months, adding to the diversity of our leadership and talent.
Furthermore, we're taking steps to improve client service quality by reassessing and leveraging the capabilities of our newly combined operations and technology Division.
Regarding operational efficiency efficiency expense management remains a key focus for all of us.
As a result of ongoing process reengineering and automation efforts, we have been able to reduced high cost location headcount by more than 2700 year to date already exceeding our initial target of 1500 by yearend.
Furthermore, our 400 million underlying expense savings program for full year 2019 has already achieved 275 million in total year over year gross savings in the first nine months of the here.
You'll recall that last quarter I know, we're in the process of updating our core business strategy to help us return to stronger revenue growth as well as conducting a fundamental reassessment of our technology ecosystem in order to improve our operational efficiency in the near term.
This reassessment is underway and we have taken early auctions in this regard in recent weeks, we have rationalize some of our technology headcount or a number of areas. We're examining to create better technology outcomes at lower cost with an increased emphasis on development projects and innovation that have a direct client service better.
<unk> and strengthen our resiliency.
We continue to expect that we'll be able to provide further detail on our reassessment later this fall.
Our vision remains becoming the leading assets servicer asset manager and data insight provider to the owners and managers of the world capital.
Our front to back platform, which we have branded alpha is key to achieving that vision and our financial targets over the medium term.
This alpha strategy is facilitating deeper client relationships, allowing us to increasingly become there are essential partner well delivering operational efficiencies to both our clients and state Street.
Our front to back asset servicing platform continues to have a strong pipeline with a number of clients and exclusive negotiations.
Level of client engagements remains at an encouraging level.
Regarding shareholder return following our strong performance under the 2019 see CCAR stress tests, we recently announced an 11% increase to our quarterly common dividend to 52 cents per share and returned approximately 690 million to shareholders, including 500 million of common share repurchases during.
The third quarter.
We expect the changes to regulatory capital requirements will support our ability to return additional capital to our shareholders in the future.
To conclude our immediate focus is on delivering world class client service, while finding ways to reignite revenue growth in generate expense reductions for sustainable improvements in our operating model, we're making progress in all of these areas and with that let me turn it over to Eric to take you through the quarter in more detail.
Thank you Ron and good morning, everyone.
Let me start on page four.
On the top of panel, we show our GAAP results as well as certain results notable items in the bottom for those of you want to see some of the underlying trends.
On the right panel, we summarize notable items, which amounted to 45 million pretax or nine cents per share in third quarter, consisting of 27 million an acquisition and restructuring costs, primarily from Charles River as low as well as 18 million in legal and related expenses.
And our costs are in line with our expectations that are helping us deliver unanticipated CRD expense synergies.
For a period on period comparisons recall that we had no notable as in third quarter 18, but we did have $12 million vein or on a pre tax basis equal to three cents per share in second quarter, primarily due to Charles River.
Turning to slide five we saw a period and you see a levels declined 3% year on year end up slightly quarter on quarter on a year on year move was driven by the impact of the previously announced client transition, partially offset by higher spot market levels.
Quarter on quarter, the modest that you see a increase was mainly due to higher spot market levels and client flows partially offset by the same previously announced Klein transition.
In regards to the transition recall that this was immaterial to quarterly revenues since the end of 2018, and we do not expect any further material revenue track.
Hey, when levels increased 5% year on year, and 1% quarter on quarter on just about three trillion driven by higher U.S. marcon levels and strong net flows.
Third COVID-19 saw net flows of approximately 13 billion driven by cash products and F. A third consecutive quarter of positive inflows.
Moving to slide six servicing fees were down 5% year on year, but down just 3% year over year ex FX.
As Ron discussed while challenging industry conditions persist the pace of quarter over quarter servicing fee headwinds continue to moderate and third quarter with this quarter's results showing a sequential increase primarily driven by higher average market levels net new business and some market based catch up accrual.
And while two quarters are not yet a trend we continue to believe that the actions we have taken since late last year, including the rollout of our new client coverage model and the newly formed Executive review committee to strengthen pricing discipline are having an impact.
Nevertheless, as Ron also mentioned, we remain unsatisfied with the servicing fee results and recognize that still more needs to be done to reignite revenue growth.
On the bottom right panel this page and again included some sales performance indicators per to provide a little more texture. As you can see you see a wins totaled one trillion in third quarter, which also raise our assets to be install the sizable wins this quarter demonstrates the benefit of our scale and capabilities, including a mandate from an existing.
Large clients as we continue to grow our relationships.
Turning to slide seven let me discuss the other revenue line.
Beginning with management fees third quarter revenue was down 6% year on year, driven by the ongoing impact of the late 2018 outflows and mixed changes away from higher fee products, partially offset by higher average U.S. equity market levels.
Quarter on quarter management fees were up 1% driven by higher average us equity markets increased day count and good inflows.
FX trading was down 1% year on year end up 4% quarter on quarter as a business benefited from a volume and volatility uptick in August relative to the prior quarter.
Securities Finance revenues were down 9% year on year, largely reflecting the C correlated balance sheet optimizations made in the second half of 2018 and down 8% quarter on quarter due mainly to the absence of twoq seasonal activity.
Underlying this seasonality we are seeing some stability as our new optimization actions will position us for growth as we see client demand build.
Finally processing fees were up year over year, reflecting approximately 77 million in revenue contribution from CRD.
Quarter on quarter processing fees were down 15% driven by lower market related adjustments as long as lower CRD revenue due the timing of new business on renewals.
Moving to slide eight you'll see in the top of panel a summary of Crts operating performance in third quarter generating 85 million of Standalone revenues on 56 million of operating expenses.
Resulting in 29 million a pre tax income.
The business also saw a 5 million in new client bookings during the quarter all external.
While revenues were a bit lower this quarter due the timing of new business and renewal business continues to perform in line with our expectations.
The uptick in operating expenses in the quarter was anticipated and driven by planned increase in investment spending to support new business growth.
I would again remind this audience the lumpiness inherent in the six those fixed revenue reporting standards and not to read across any one quarter's results.
Turning to the upper right panel on this page we wanted to again provide you an update on our active client discussions regarding CRD.
As you can see here our client discussions can you continue to advance we're now actively engaged with approximately 130 clients representing approximately 41 trillion in assets.
As anticipated these tialata, resulting in a variety of revenue opportunities and we remain confident and the revenue and cost synergy goals announced at the time of the acquisition.
On the bottom to power the paid who began listed some of the growth and synergy milestones achieved this quarter as mentioned earlier in the call. Our front back pipeline remains strong as we saw an increased number of clients an exclusive negotiations and expect more announcements to come.
These front to back deals will also help drive growth in our core servicing business as they typically typically come with some combination of custody accounting and Middle office revenues. In addition to Charles River specific revenues.
Turning to slide Don.
And I was down 4% year on year with our NIM declining six basis points.
On a sequential basis, however, our eni was up 5% with our NIM, increasing four basis points.
The such the sequential increase in Eni was primarily driven by episodic market related benefits worth about three percentage points as well as higher client repo activity and active deposit management.
Absent these episodic benefits and I would have been about up 1% sequentially.
We've been seeing some success in our deposit gathering initiatives with our average total deposits growing for the second straight quarter.
These initiatives include a variety of efforts such as Sweet program minimum targeting new client segments, and adding market rate funding.
This active deposit management may help us offset a portion of the impact on deposit rotation in some quarters.
We're particularly pleased with our success this quarter in that regard, but we still expect to see continued gradual deposit rotation and the effect of lower long brands.
We also responded quickly to central bank rate reductions both in the U.S. in Europe with appropriately aggressive deposit pricing actions.
And finally on the earning asset side, we continue to target careful growth and client lending and a modestly larger investment portfolio.
On slide 10, we've again provided a view of expenses this quarter ex notables. So the trends are readily visible.
Year on year, our expenses, excluding notable items were up 2%, but down 1%, excluding Charles River and down slightly quarter on quarter.
We've also now seen three consecutive quarters of total head count declined driven by the ongoing reduction in our senior ranks in the previous hiring freeze implemented earlier this year and have reduced our high cost location head count by more than 2700 year to date exceeding our original target of 1500 by year end.
The cumulative impact can be seen in our compensation and benefits line has it is now down 2% year over year or down 4%, excluding Charles River as we've been able to move we're up to lower cost global hub and achieve greater efficiencies via automation, while actively improving client service levels.
Moving to slide 11, we wanted to show a full year view of underlying expenses, which excludes Charles River categorized by IP operations as well as business segments in corporate functions.
So you can see what we're delivering expense reductions and where we still see incremental opportunities going forward.
As you can see due to our ongoing cost management efforts for 2019, we expect to achieve year on year expense declines in two of these three major areas with significant efficiencies realized in operations as well as our business and corporate functions.
As we said last quarter the growth in our IC spend is too high and that is where we are in the mix of the top to bottom review Ron mentioned earlier in his remarks.
In fact in IP, we have already identified a number of optimization opportunities for this technology reassessment and have taken some early actions, including rationalizing approximately 275 staff this quarter.
We remain confident that we can continue to realize incremental benefits from automation initiatives, while delivering improved service quality and expect to share more detail on this assessment and its potential efficiency opportunities before year end.
Moving to the right side of the page we remain on track to achieve 400 million in expense savings. This year, having already realized 275 million savings here to date Viet mix of resource discipline and process engineering efforts, resulting in an anticipated one and half percent reduction in our full year underlying expense base year on year.
Which surpasses our original started the year, 1% production target.
Moving to slide 12, or capital ratios remain largely consistent quarter on quarter with our standardized that won at 11.3% and our tier one leverage at 7.4%.
We returned a total of approximately 690 million of capital to shareholders during the quarter 500 million of which were share repurchases.
The 690 million is a 45% increase from the 475 million return in 2019, as we began to execute on our 2019 seek CCAR plan and deliver on our priority of significantly increasing our capital returned to shareholders and the 690 million represents a 130% of netting.
Come available to common shareholders.
On the left side of the page, you'll see that our investment portfolio grew sequentially as we reinvested cash and maintain significant see CCAR stress capacity.
I would again note that we are confident in our capital position believed that we have created some headroom and that as that as proposed changes the leverage ratio rules are being finalized we will continue to examine associated capital offers optimization opportunities.
Moving to our summary, and outlook on page 13, we were pleased to see the continued moderation in servicing fee headwinds during the quarter and our global FX business provided better than expected revenue results.
And I increased 5% sequentially driven by some episodic market related benefits, while we saw deposit stabilized in the quarter due to our deposit gathering initiatives.
Deposits are tough to predict of course quarter on quarter and prevailing rates continue to trend downwards.
The underlying expense reduction we've achieved to date demonstrates our ability to further bend the cost curve as we've now reduced our total head count 2% year to date and are on track to achieve this year's updated expense savings target of $400 million.
Finally, we began to deliver on our priority of increased capital return to shareholders and believe we are well positioned to continue to optimize our capital stack consistent with regulatory developments.
In closing I'd like to cover our for Q1 9 outlook.
On a sequential quarter basis, we currently expect fee revenues to be up 1% to 2% driven by CRD, assuming third COVID-19 end of period market levels.
We expect servicing fees to be flattish in spite of the third quarter catch up accrual as pricing pressure continues to stabilize.
Management fees are expected to be up a percentage point or two driven by the carryover a strong inflows from this quarter.
And what markets are always difficult to forecast. We currently expect our markets businesses to be down somewhat assuming lower levels of volatility than third quarter, while processing fees are expected to be up sequentially driven by fourth quarter seasonality in Charles River and the absence of some market related adjustments.
In regards to Eni, we will continue to see downward pressure from the decline in long rates and with another rate cut we would expect to be down 3% to 5% on a sequential basis, excluding the 20 million of episodic benefits we experience in third quarter.
On expenses, we expect expenses, excluding notable items and including CRD to be flattish sequentially.
At the same time, we remain confident in achieving our full year underlying expense reduction of 1.5% year on year, excluding both notable items and Charles River.
And as we mentioned previously we are conducting a fundamental review of our technology cost structure and expect that more information to share with you later this year.
Finally, we expect to see the full year tax rate come in at the lower end of our tax guidance of 17% to 19% for the full year.
And with that let me turn the call back over to Ron.
Thank you Eric.
This operator lets open to questions.
In order to ask a question you will need to press star one on your telephone withdraw your question press the pound or hash key. Your first question comes from Alex Blostein from Goldman Sachs. Your line is open.
Thanks, Hey, good morning, everybody.
So maybe starting with caution around servicing fees.
Obviously nice to see commentary around moderating pricing pressure again here.
Maybe give us an update where that stands I think 4% down is kind of how we're thinking about 2019 is your look into 2020, how do you expect these pricing pressures to evolve.
Alex It's it's Eric it's early to take a full year look at 2020, but I think we've started to see a couple of quarters here at some moderation in 2019. So in second quarter, you can see some of those early signs.
They continued this quarter as well.
And as we have reviewed the bulk of some of the larger than historical pricing concessions you recall, we were tracking the top hundred.
Clients.
We're now through 70, 580% of that have that fault.
And then that gives us an ability to begin to look forward into fourth quarter and even into the first quarter next year and as we we look.
Forward into those those time periods, we continue to expect the moderation too.
To to continue.
That's the kind of the indicators I think if we step back and asked the broader question for what's driving some of those changes I.
I think that are really two things I think on one hand.
We are beginning to see the effects of our coverage teams and how we have upgraded our coverage for the better Klein copper better cover clients and bring together.
The full set of discussions in one place and then with our executive.
Review pricing committee, we've actually brought up the pricing decisioning to literally just a handful senior executives and that's given us the ability to influence the amount and the direction of that goes those pricing adjustments and at the same time actually work collaboratively with our climb.
It's around where there is incremental business to be brought on and I think what we're starting to see the effect of that being year.
Control and engagement.
Habit effect on the on the revenues in the in these quarters.
Got it thanks.
Mike My second question is around servicing fees again, but maybe a little bit more specifically related to the quarter. Obviously, one trillion dollars on Wednesday Big number 1.2 trillion dollar pipeline is a big number.
Certainly appreciate the effort to sort of communicate the drivers of servicing fees in a more transparent fashion, but in the past. We've seen big are you I know you see numbers, but the translation sort or into fees have been sort of underwhelming. So can we talk through maybe the impact of these wins on the revenues and ultimately the timing of when Thats going ahead. Thank you.
Alex It's Eric again.
I think as you'd expect in our business.
Business is lumpy. It also comes with a range of different though wins and.
New business engagements I think it's hard to predict for any one quarter or what the effect will be on on future.
Future revenues and I think we've been quite clear in the past and sometimes we have large wins that start with one one particular product, sometimes we have larger or smaller wins that come on with multiple products and sometimes we see the follow on activity. So it's hard to that directly translate.
And I think the other.
The other.
Texture that I'd share with you is that our businesses is multifaceted across products and regions and we've talked before pricing differs by reach in emerging markets versus the us pricing differs by product.
Some of the cross border funds versus some of the more.
Typical 40 Act.
Usual fund so far to fee.
You know in fabric about the exact.
Correlation to revenues well, what I would say in one of the reasons. We do track. The CA wins is we think it gives you an indication of.
Slide engagement, we're having the amount of client activity in business.
And over time it has.
That that'll that'll flow into revenues exactly when and how much that's something that you'll see in the coming quarters.
Alex It's Ron what I would add to that is that we're very encouraged by that.
But that number there is a large existing client within there which reflects the trend that we've talked about for long time, which is which is around outsourcing, but also in that number is a broad base very high quality clients that we think are just adding measurably tour book.
Great. Thanks for that additional color.
Your next question comes from Glenn Schorr from Evercore. Your line is open.
Hello, just a couple of combined deposit rate related questions.
First just definitionally down 3% to 5% next quarter.
Base that we start from as we take out the 20 this quarter and then take it down three to five just making sure.
Glenn It's all right Thats correct, that's the right way to think about.
Okay cool.
On the.
If you look at your average noninterest bearing deposits sit down 17% lot of peers have seen similar numbers, but there are only down 1% quarter on quarter and I'm curious if you think were at a more.
We're entering a battery bottoming assays. This is a more natural percentage of the overall book or does that accelerate as we have more rate cuts just curious how you're thinking about that.
When it's Eric I'd like to see a couple more quarters here before we.
We make adjustment around the direction of non interest bearing deposits I think we've we've seen a consumer adoption I think about over the last two years in this kind of 15 to.
18% to 19% range.
It's been a little bit lumpy in some of the previous quarters. I think you can look back a year ago was a little bit lumpy up and then.
Lumpy back down and in back to trend. So it's hard to read into one quarter's performance.
Exactly what the what the future hold so I think we'd like to see a couple more quarters and we'd like to see a couple more quarters actually at these new prevailing rates because remember part of the driver for the rotation was the higher rates that.
Said that brought us to now that they've cut rates a couple times than that contain a caught the differential between non interest bearing an interest bearing become smaller and so that may have an effect as well. So I think we you know we.
We're pleased with the results this quarter.
On non interest bearing we're pleased with the results on interest bearing as well because we were able to manage pricing quite actively as the fed and the CB cut rates and.
I think we're you know we're going to.
The.
Watching this one closely I think with.
Hi, everyone else.
Separately, how and what I would add that it's Ron here.
That.
Somewhat analogous to how we're managing servicing fee pricing, we're managing deposits and deposit pricing.
Very intensively at a client by client level, so well nobody is happy with the trends that we're facing in the and the environment that we're in as it relates to deposits I think the team is working very hard to manage these are quite intensively.
Perfect that was my follow up good. Thank you.
Your next question comes from Brennan Hawken from you'll be at your line is open.
Good morning, Thanks for taking my questions actually just wanted to follow up on Glens questions on deposits. So the interest bearing deposit costs dropped a lot you referenced that you talked about how that's becoming integrated.
I think you also referenced and so we saw the move by this the fed and it is by DCB.
Is it is there a way to parse out.
The impact.
By currency, where you're seeing betas shakeout in us dollar and in Euro and can you give us a sense about.
Whether there was noise.
And if you guys competitive we feel as though you are sort of leading the charge Howard how are you stacking up versus how some of your competitors are responding. Thank you.
All right and it's a it's Eric let me, let me take that from a couple of different directions, I think you've asked the currency question.
And the different.
Kind of areas of pricing on deposits because it is one that.
We've been working on intensely and just for context for you, but for others as well right as the has in the last couple of rate increases we've got to a place where deposit betas were rising and.
Where we are quite high and what we've been able to do in this particular quarter both in the U.S. and international is actually.
Effectively run with symmetric betas and.
Reduced pricing.
Quite a bit in line with the with the fed and the CB.
As we as if I were to summarize the the data analysis for the U.S., our betas were about 50% So we're able to.
Pushed on deposit rates quite a bit in the last.
As the U.S. rates came down by the 25 basis points.
In the last rate move and then with the CB rate caught that was a 10 basis point move we were able to actually reduce rates, even further even more than the 10 basis points, because we're really in a scenario in Europe , where we're going to be negative and not negative temporarily but negative for a long long time.
And it needs to be a place, where we and I think all banks actually can at least turn.
Fair Fair margins and so that's been part of our very active management of of deposit pricing.
And we'll take that kind of approach around the world as we see rate cuts, whether it's in sterling or Canadian dollars. There was the dollars or in some of the emerging markets as well.
Okay. Thanks for that Eric.
And then when we think about and I and the guidance.
Thank you would you are talking about and a number using the midpoint to get you right around 600 million.
And.
Yes, this quarter, if we're backing out the onetime.
The and I was up nearly 2% linked quarter.
And you guys previously taken up your guide due to about flattish. So I guess, what what I'm curious about is.
What is embedded in and I do you expect your deposit cost dynamics would be similar to this quarter.
And what are you expecting from from an asset yield perspective can you kind of help us understand the composition of that guide. Thank you.
Yes, I think I think let's let's take a twoq to Threeq you and then we'll fast forward to Threeq to Fourq because it gives you. Some some perspective I think ex the market related adjustments on Eni from Twoq to Threeq Q.
We certainly had some downdraft from.
From long rates, that's affecting us another and other institutions, we actually had a slight uptick from from deposit. So that was part of our deposit racing initiative.
And we got some benefit from our larger loan book in investment portfolio, and then our repo activity.
It did well as well as we continue to two to growth some of those balances.
If I if I, then think about that in from third quarter to fourth quarter.
We're going to continue to get a downdraft from our from long term rates right. That's a that's just playing through and it's an effect the belong eight rig fall from the last three four quarters are starting to accumulate and that's what that's the primary item coming through.
We expect to see some.
A reduction from deposit rotation, because as I as I mentioned in the previous.
Question on net interest non interest bearing deposit rotation will continue we'll try to offset that but we'll we'll see.
And then obviously as we.
Whether we issue a little more dad or or make other adjustments and the rest of portfolio. There is always likely to be a little bit of other effects. So.
I think I think we're on this trend line where.
Lower rates creates some.
A trend that is.
Not in our favor and what you've seen us do is.
Everything we can whether it's with pricing or balances are asset size to try to offset that and I think what you'll find is in some quarters were able to.
Offset those that longer trend and other cases, we may not be able to but that's the.
We're we're very focused on finding ways and.
Pushing on on a number of those levers that we have to find off that's where possible.
Great. Thanks for all that color.
Your next question comes from Ken US then from Jefferies. Your line is open.
Hey, Thanks, Eric to follow up on the on the cost side sorry. Your your guidance in the US then the deck just that you're expecting flat ish costs, both on an X C or D basis, and then I think that's what's implied for the with C or D basis, what I wanted to ask you about is.
First of all when do we get to that right run rate for the Charles River expense growth that we've been seeing number one and then number two is once you get to the 400 million a run rate also in the fourth quarter. You had this nice 1.5% decline this year and you've said that you'd be focused on on still getting costs down at the core can you continue that pace of decline.
As you look ahead into next year. Thanks.
Ken sure.
Couple a couple things I think on Charles River, we're obviously investing in that business.
As part of our growth strategy and I think you've seen.
The revenue numbers, they tend to be a little lumpy, but we're very pleased with the early signs around some of the synergy assumptions that we had in some of the.
Some of our.
Acquisition modeling that we've done that we had shared with you back a year ago.
The the costs will will will trend upwards and Charles River I think costs came in.
Little more quickly this quarter than.
In third quarter relative to second quarter than second quarter versus first quarter, So little it'll come in in ways, but it's all men to try to drive either sales and sales capacity or the installation engineering that we need because that's historically been a bottleneck for them to be able to recognize revenue literally bolting.
Got it on and providing the necessary integration for for clients. So that's what's driving some of the costs there and we feel like that is.
Well.
Those are those are sort of good cholesterol costs. Those are the cost that will drive our current and future revenues and we'll continue to to invest accordingly.
If I step back on the broader question of expenses, you've seen and we were purposeful on describing page 11 that historically I don't think we've been as good as we should have been or we would have liked to have been on on costs than for the last few years Weve.
Consistently grown our expense base and.
As you know with a 1.5% forecast down. This year. This is the first year that we are really bending that curve in a significant way.
If it when it comes to what we're going to do going forward. I think we've said that we have to continue to work on expenses and productivity right. There is.
Theres no Theres no other course of action in in a productivity focus than a and slower growth industry like the one we.
We find ourselves in and as a result, we're going to continue to find ways to drive down expenses and what we've tried to do is enumerate. The levers. So that you can try to see you can you can actually see the range of actions, whether it's the comp and benefits side, whether it's on a non personnel side and we've also cut it through the different areas site tea.
Operations and some of our business costs. So every one of those lenses provides I think.
An opportunity for us, we're not going to start to.
Predict next year's costs I think that will spend some time on in January as we report fourth quarter earnings, but I think you couldn't be assured the direction of travel for our cost base has to be down not not up and you've got a management team here that's committed to finding a way to do that exactly how much in in which areas.
In which quarters, that's the kind of planning that we're assembling like as part of our budgeting right now and will be I will be sort of come back with a good amount of specificity in in January with with our 2020 plan.
Thanks, Eric it wrong, Okay Ron.
Let me just underscore irks last point there because what we've done this year is reduce our expenses, while continuing to invest in the business and create a value proposition to our clients, but we think is superior to our competitors.
But we recognize that our returns aren't where they need to be so what you should expect from US is more of the same and we'll come back to your specifics.
Great and one just quick follow up for Eric Eric did you say, if I'm sorry, if I missed it the premium am you had expected it to increase from second to third can you just tell us where the to win from and then now.
That weve Rebase is that after what kind of a flat level from here or do you expect incremental as you go forward. Thanks.
Yes, Ken it's all right.
Disproportionately high premium amortization that we saw in the second quarter has begun to burn out and we're pleased with the third quarter results.
And so I don't think we expect anything out of sorts at this point and that particular part of the portfolios been.
In.
As an outperformed the much more closely in line with our expectations I think the one thing we will see as continued effective long rates and that's just the.
That that's on the overall portfolio and that's a little bit of what's driving the quarter on quarter guide on the Eni, but nothing nothing unique anymore as we had flagged earlier in the year.
Thank you.
Your next question comes from Betsy Graseck from Morgan Stanley . Your line is open.
Hi, good morning.
Good morning Thats it.
Couple of questions one on the deposit sweeps could you just give us a sense as to how far along in the program you are and how much more you know running room there is as your clients.
You know execute on that.
Sure Betsy, it's Eric so deposit sweeps or one of a I'd call half a dozen different deposit initiatives that we're working on all around how do we both serve our clients as well as.
Think about.
The the appropriate kind of offerings pricing and so forth.
For background deposits sweep.
Came out as we looked at a large pool of particular segment of clients. What we found was that we were sleeping down to zero, which ended up costing operational efficiencies and overdraft for clients.
Ways that wasn't particularly constructive for them and in some ways. If you think about.
The the retail world.
Put the.
Put both decline and us as a company in a position with pitch didn't make a lot of sense and so what we've effectively done on that particular initiative and like I said, it's one of half a dozen initiatives that we have out there. It's just weep down to a minimum call it could be a million dollars level as an example.
Anything below that sits and client account either at a low rate or.
Typically at a low rate, sometimes that a non interest bearing rate.
The benefit of that over the course of the last three four months Oh, let's say on the order of just under $1 billion. So it's something that helps and that's the those are the kind of tactics. We take we're rolling that out into some of our European geographies now so you can see that.
Scaling a bit, but I guess I would frame it as one of a long list of initiatives to find the right way to accommodate clients the right way to do business the right way to.
Create the.
The services, but also to to have appropriate.
Value.
Both for us and for our clients.
So, including all of the various programs.
Same kind of question how long how far along do you think you already thinking like a quarter true half through 75% through just looking for legs on that.
That's a good way to ask the question I think were part of the way through because as we rollout you know deposit program 123, and four and kind of finished number one and go to number two we're beginning to think about what our deposit program five six and seven and then you know imply.
Renting those and then going to eight nine and 10. So I guess, we think of that the challenge that comes upon us by lower rates and less liquidity and assist of the challenge for US how do we continue to innovate and expand.
What we can do and what you've seen us do here as part of this is around deposits. What can we do in terms of how we take cash and.
Supported clients with deposits on our balance sheet and then the broader set of engagement with clients as how do you support them with all their liquidity needs. So think about the cash cascade. It's about what is the offering on deposits, what's the offering on repo and there are several different versions of repo and that's actually contributed to.
Due to our anti.
What can we do on money market sweeps and actually sweep more of their funds.
Two.
Two into some of the.
Yes, as GA areas, and Thats, where we've actually been particularly successful this year or to other third party fund that that they're choosing an earn out.
A transaction fee as part of the process. So I think of it as the cash Cascade and because we don't have as large of a loan book as the more traditional regional bank or Universal Bank. What we're doing is thinking about where to yet where do you anticipate and expand on the liability side and sweeps is one example reach.
Those another example.
And so on and so forth our our ways that we do that and will you know its upon us to continue to innovate in those areas and find ways to serve our clients.
And then just as rates come down I mean, you do have clients I would expect that are paying you through noninterest bearing deposits. So as rates come down shouldn't the and I be start to grow.
As rates come down.
They may choose clients may choose to leave more non interest bearing deposits I think we we don't always see that when rates come down slowly I think we see that typically.
In a quick recessionary environment, where suddenly clients have.
An immediate surplus of cash they leave it in account I think because.
The rate environment has been well telegraphed here clients, our disciplined and are going to continue to be disciplined and they're going to think how much while even noninterest bearing and we think there'll be a certain amount there.
I think we'll we're hoping is that the.
Rotation out of non interest bearing slows down and maybe even flattens adds rates trend downwards, but we need to see we need to.
We need to we need more quarters to observe the exact trends in that regard.
Okay. Thanks for all the color I appreciate it.
Yes.
Your next question comes from Brian Bodell from Deutsche Bank. Your line is open.
Great. Thanks, Good morning, guys.
Just come back to the a big servicing win on the trillion is I guess for supposed to clarify is that all one client or essentially all one client I don't know if you can name the client.
But more importantly, what did where are you doing for them specifically in animals I read it was an accounting service mandates. So just maybe clarify little bit of what Youre, a we'll be doing them now and any.
Colour on the timeline of when you will move.
Let's.
Start doing that function.
Brian It's Ron.
We're not at Liberty to name the client firstly, the it's not all one client so as I said earlier.
There is a large mandate in there, but there was also were rich mix of both us and non us clients.
New and existing but that came through in the quarter.
This was a client that wasn't existing client and then have chosen to outsource accounting tours and we will be implementing that sometime in the first quarter of 2020.
Okay, and they were doing custody with you just because see we're already with the doing that office with you as well.
They were doing.
Several other things with those.
Okay.
And then maybe just on the portfolio a reinvestment strategy Eric.
You know as obviously, we get more headwinds with potentially long rates movie down over over time, just can you talk really quickly about the ability to either extend duration or move more into ABS.
From it looks like you've been actually taking duration down a little bit over the last few quarters.
And is H is not H Qs, it's not going HQ away constraining that word or do you think you have some flexibility to.
Two.
Improve the securities portfolio yields via the investment strategy.
Brian It's Eric on the.
On the asset side, we really think about two drivers we think about what we can do on the securities portfolio and we think about what we can join the lending portfolio and in fact the.
The first topic that we spend time on is how can we serve our clients on lending and you've seen that grow at a.
At a better pace this year its capital call financing its 40 Act.
Leverage fund financing it.
Lines of credit and I think a nice mix of activity.
And in a way its extending our balance sheet, which which clients with servicing clients value quite a bit and it's actually probably a way to help drive some growth in eni and partly a way to solidify and actually drive some servicing fee growth. So that's the first part on the investment portfolio.
Our perspective is that as we.
Maintain stability in the balance sheet find ways to.
Keith deposits stable or even grow them, there's a natural ability just continuing to invest.
Gently in the market I think generally because we don't think it's a great time data tonnage duration.
Given given rates.
We we want to keep a portfolio thats relatively.
Car friendly so that means there is some duration in there there is a well diversified book of MBS and then there is some.
In the international markets there are some of the.
Some of the high quality sovereigns and some of the other.
Multinationals as well and so.
In General I think we're going to try to build the investment portfolio in terms of size, but we'll do it at that pace and that should be able to create a little bit of of of an eight.
Okay, great Great. That's helpful. Thank you.
Your next question comes from Jim Mitchell from Buckingham Research. Your line is open.
Hey, good morning.
Can you discuss a little bit.
How you're thinking the leverage ratio will evolve for you.
Thanks.
And if that's going to flip.
Constraining factor to see Q1, or do you think it'll still be the leverage ratio.
It's the former I guess, how do you think about.
Right.
Q1 ratio would be.
Okay.
Yes.
Sure Jim.
The leverage ratio is is right now our binding constraint as we if we operate the company more than more than any other factor and.
We've been heartened by some of the rule make or some of the legislation in Congress that came out on the on the leverage ratio and then some of the proposed rulemaking that was out for comment and.
That's a had put out there.
Through the spring and summer.
So we're obviously waiting for final rules on.
Exactly.
How they how they propose to implement the the congressional legislation.
Once that occurs.
We've all seen the proposed rules for that that that will create the.
Some room in our balance sheet, what that effectively does is move our binding constraint from leverage back into C.T. won or or capital.
And as a result that should free up an ability on our part to reassess what's in our capital stack and in particular.
The amount of preferred that that we have that form the basis for for the tier one tier one capital.
So that'll be the that'll be the.
That will be the.
The approach we take in the first stage of capital optimization I think once that occurs your broader question on what are the right.
That one targets the common equity tier one targets, it's something we have to navigate through but we need to do it.
Once we see the feds proposals on the stress capital buffer and some of what.
The feds been describing is is coming as part of seek Har. Later later this year and I think once we see that then we and in fact other banks will have a better understanding or what kind of set one constraints will be under and what kind of targets will run well be able to run out and I think once we see more of that.
We'll be able to give you a little more of an indication of how we expect operating.
Okay, that's fair and maybe just one.
Question on the pricing efforts.
How does that.
Work is it more about convincing clients to give you more ancillary business.
Offset some of the lower.
Lower pricing demands or you actually able to kind of work with some of the larger clients to keep the fee rate higher or convince them to how does that work I guess in practice.
Jim It's Ron it's a it's it's a little bit all the above plus more its a.
It's and that's been part of the management discipline, we've been post here is to ensure that.
The conversation is comprehensive and not just about what do we paying and should it be less or more so.
Some of it is is consolidating business. Some of it is broadening the set of services that we provide including a discussion on for example global markets.
This is all occurring against the backdrop, where we have fundamentally improved our offering through the addition of Charles River. So some of it is around that in terms of putting in place.
Move towards the long term.
Outsourcing of activities towards so.
It's a holistic conversation.
There are some patterns, but in effect remember the same but it's all about.
Managing it to something much more brought them what is the right. We're paying the decline is paying.
At any given time.
Okay. That's helpful. Thanks.
Your next question comes from Mike Mayo from Wells Fargo Securities. Your line is open.
Hi.
I guess I'm asking for a little preview of your update before the end of the year. So when you say you're reassessing the tech ecosystem kind of what does that entail.
And is it I think I saw on line, you're looking to get into CIO is that correct didnt.
So I guess the question is why and why now and then lastly, Charles River selected Microsoft.
Give me selected Microsoft for the cloud.
And why did you choose Microsoft in it.
The other parts of state Street, using somebody else to the cloud. So maybe it's a hybrid model, we're just little bit of color on.
The cloud strategy.
It's been changes and what you mean by reassessing the tech ecosystem. Thanks.
Well Mike.
It's Ron.
As you know.
Technology is fundamental to what we do and the technology requirements of our business continue to go up so we're operating environment, where.
We spent the last.
We have to ensure that we're getting the greatest return on that spend and we have to ensure that we're continuing to innovate.
Throughout this or throughout the cycle so for.
What we've done to date is.
Very disciplined about what's important to surfacing and innovating on behalf of for clients, but at the same time, ensuring that we're getting a return on that.
We're also focusing on making sure that we're operating at the highest levels of technology and operational resiliency.
With that requires is an intensive.
Management of the profile of not just on a year to year, but arnaud.
Month to month than week two weeks.
Putting the vernacular it's all about running the bank and change in the bank in doing that.
In an optimal way so we are in the market for new Chief Technology Officer.
Or.
Warmer technology.
Sure.
Part of ways with our former Chief Technology Officer, that's search is underway.
And we'll have more to say about so later on the year.
In terms of.
Microsoft and Microsoft to the cloud partner.
As we've talked about I think repeatedly with you and others. We're building out a true platform in this front to back offering.
So it's not just about saying, we've got a new additional set of products and services, but it's an integrated platform underpinned by the data that we are uniquely positioned to provide manage.
And we want to make sure that we're building the platform carefully. So a Microsoft is is the cloud provider towards presort, so working with us to help make sure that the platform. So operates as we wanted to that it's as much cloud enabled as possible and.
This was.
This was a competitive bid we talk to basically all the providers. There in are feeling was the Microsoft brought not just a cloud capability, but an ability to ensure that or platform is going to better than any other.
And then.
I guess just separately when do you look to convert state Street to Charles River.
I think you had said you'd be your first client at some point.
Yeah, you're talking about assess together as with both states for global advisors and that the conversions underway right now.
Okay, great. Thank you.
Your next question comes from Gerard Cassidy from RBC. Your line is open.
Thank you good morning.
Just speaking Im Charles River, Ron can you share with us.
The success the conversion rates that you're having when you go in to pitch new business to a customer with the Charles River offerings versus what those when rates were for the traditional state Street business are you, having more success or is it more challenging.
Good Gerard.
If you go back to slide eight.
And we report on this or we're trying to report them. So every quarter.
Theres, a broad based sort of discussions underway.
Discussions or.
Frankly more than we expected when we acquired the business a year ago and they are they range from GE. We do have bought with you already states treated now we see this.
This Charles River thing to the exact opposite the street, we do nearly nothing would view, but we're seeing the so.
Yes.
This platform that you are building and recognize that it could help us improve our business improve our operations and create better investment outcomes.
Those are.
These are discussions oftentimes from fundamental business model these asset managers and asset owners have so almost by definition there a.
They have a different cycle than a typical RFP driven custody assignment would be.
What's encouraging about the discussions is that it's not just about Charles River, it's not just about let's bundle when Charles River to what we're doing with the client already in the back office in the Middle office, but it really is about.
How do we partner with you State Street, and think about use or outsource partner our service provider and.
And provide a set of services that can help us create better investment outcomes. So the.
They often don't follow the usual.
Scripted RFP kind of timeline.
But we're highly encouraged by the fact that this pipeline that we've been showing you and again, we're showing growth numbers here, but relatively few have fallen off.
Somehow but relatively few have fallen off.
And the discussions or continuing although we are in terms of where we are now we're in exclusive negotiations at this point with several.
Which is more than we expected to be when we talk to you about the acquisition a year ago. So we remain very encouraged.
In the end and continuing with this line of thought is there any synergies where then if you brought some Charles River.
Customers onto the state Sri platform.
Could it be higher margin business or no. It's just the costs are different and you just don't see those synergies versus again somebody that doesn't use state street at all.
And your bring them onboard you're not going to get the synergies right away.
Well, it's it's a mix of both but I'll talk to you about some of the early wins here, which has been existing Charles River clients that are now using us for various global markets activities that business tends to be.
Quite high margin.
By enabling a Charles river user to access some of our various E channels in a in the global markets business or were giving relatively user friendly access at a very high margin to some good products of course.
Very good and then just maybe Eric.
On the median term targets on slide 16, and the presentation.
Can you frame out.
How you define medium term is that two to three years or five to seven years.
Sure Gerard its it's Eric I think if if you look carefully at the footnote. So we were.
Targeting end of 2021.
That's really means that in 2021, and thus on a run rate basis 2022.
And I think the perspective, we have as those are the right targets for us as a firm that we set them in.
The very beginning of December 2018 in a few things have shifted since then right. The markets took a turn down and then at least rebounded that was those bad and then good.
Interest rate completely different environment. If you think about where we were in the fall last year and the.
The tenure with that whatever to 75 as opposed to.
One you know 75 now, but we've seen you know sub 150.
And obviously economic activity out there, there's some real uncertainty, whether it's with foreign trade or a global.
Global growth. So you know some some some I think some real events of transpired, but if we think about our business and the kind of margins that we should be delivering the kind of returns that we should have and the kind of.
Capital.
Provision back to investors, that's that's where we're headed and I think are the work we're doing as Hal and.
How do we do we find a way to get there and get their that as faster pace as possible and I think related to one of the earlier questions on the call part of our expense program this year, which they need to translate to additional savings next year is going to be a way to do that.
As well as.
Rebuilding the.
The growth engine because of that.
That's equally important than just navigating the rate environment. So I think those those we feel are appropriate.
And we're going to come back overtime, with how and how we're going to take.
Important steps in that direction.
Thank you.
Your next question comes from Rob will track from Autonomous Research. Your line is open.
Hi, guys I wanted to ask about the Ts business.
He brokers all going commission free there's a view out there that this could be a big positive for the ETF space.
Is that if you share and if so can you give us a sense for how you see that benefit playing out.
Yeah, Rob it's Ron I think that anytime you're lowering your cost to the end user customer I think it's so it's good for the business and in this case, we think it's particularly good for us because.
While we have a low cost offering.
We've not been on as many of the transaction.
Okay.
Production cost free platforms as others by kind of picking that Oh, it's enabling us to focus on where we truly are superior which is liquidity and if you think of both of the various SP why offerings that we have their amongst the most liquid iOS on the planet.
In many cases they constitute collectively.
Significant double digit of exchange volume and as a consequence of some of the tighter spreads up there often so we think that this is this enables us now to focus on where we are truly superior so.
We look forward to this and think it it will be beneficial Tory to your business.
Thanks, and then we've talked a lot about pricing in the.
Moderation, you're seeing there, but I'm wondering if you could clewiston.
On how the pricing improvement is progressing relative to your expectations. When you under took all of these initiatives earlier in the year.
Rob It's Eric.
I think we went into this wave of pricing with you remember was partly a catch up as markets appreciate price clients come back to us, but also realizing that some of our clients.
We are under pressure and we had to find ways to.
To do right by them and become more efficient on our end to to make it work.
I think what I'd tell you is that we have patients that we could intervene and there were.
Our results that we could secure.
But we weren't sure how how how how how much we could moderate pricing and at what pace to be honest right. Because this was a bit of.
The new environment for us.
What I wouldn't tell you is I think were we were pleased to see some of the moderation in second quarter of this year, because we only really set up for example, our executive pricing.
Many late last year. So that's two quarter then.
We're pleased to see again third quarter feel that better.
And then have some visibility into fourth quarter as well. So I think we've been pleased with the pace I think.
It shows that if you put your mine to something and you take action and you put the right senior people and right processes. You can have an effect now pricing last year and this year old run as a headwind about 4% per year. If we can cut that back by a point you know again.
Got it to 3% I mean, that's the first stage gate and that's what we're working hard to do.
And I think our perspective is we should contain a lean into our management practices and our approaches on pricing because they're having some of the desired effects are having them relatively good pace and.
It encourages us to continue to find ways to do more.
Thanks, guys.
Your next question comes from Marty Mosby from Vining Sparks Your line is open.
Thank you wanted to ask a couple of things here when we look at the 275 and expense savings and we're saying we're going to get to 400 budding ended the year.
How does that kinda equate it seems like Thats, a little bit of a pick up in that were getting relatively flat expenses between third and fourth quarter.
Is that just being offset by the growth, you're seeing and Charles river or the seasonality of their revenues and expenses are tied to that so just wanted to see what what's the thought was there.
Sure Marty it it's Eric I think there are a couple of things at play I think if you think about the quarterly pattern of expenses last year in the quarterly pattern. This year, we could begin to kind of.
Square that circle I think on a year to date basis X X Charles River were down 2%. So we're certainly running at pace relative to.
Where we were last year in the first three quarters of this year. So I think we feel.
Pretty good about that and I would tell you that expense savings come in waves. We've got very good visibility you know one quarter out and so we're quite pleased that we've been able to deliver the 275 and we see we have solid visibility and high confidence that I will deliver the.
Next hundred 25 and will.
We'll put a fall around this and then begin our work on.
Savings for next year as well.
So I mean that gives you a $30 million of incremental run rate savings that you get more in the fourth quarter, which would be helpful. And then when you think of the.
Premium amortization on mortgage backed securities and the impact on at a high your quarterly in IP doubt about $700 million towards the end of last year, and we're forecasting $600 million as we're going into the fourth quarter of this year. So when you look at that 100 million dollar shift.
The very low west so we got to was around 525, when we had rights at close to zero. So how much of the 100 that we've lost over the last year and in a high isn't related to the amortization of mortgage backed securities and the premium there and then kind of gave us the accounting of what happens once long term.
Rates stabilize and there is there any of that $100 million that's.
Potentially recaptured as those long term rates begin to flatten out.
Sure Marty it's it's Eric the.
The MBS premium amortization on the some of those Ginnie Mae pool that we had called out that was were.
On the order of.
20, 530 million Bucks against the the 600 or seven 100 million that you you describe and you have in our.
Our result, and for that particular pool from Threeq to third from the from.
Twoq to Threeq, we've actually been able to cut back on the amount of.
Premium amortization just as we've.
Sold out of a couple of those positions and otherwise seeing some burn out.
So I think we're feeling good about the how we manage through that that uptake and now have seen that remediate.
Think the broader question, you're asking is around whats the direction of rates that the you know that the fed is.
Putting us on are they going to cut once more twice or three or four times are they going to go back to.
Fed funds down at the 25 basis point range because.
If they do that that certainly puts pressure on Austin all banks.
As a way.
And in a manner to drive down net interest income and net interest margin I think we're just going to kind of have to say.
I think what I would encourage you to do is go back though would take a look at one year ago two years ago three years ago.
Because I think our low point was.
With that was further down and.
I think our balance sheet is the higher quality now and better position to to manage through some of what we might have in front of us.
Thanks.
Your next question comes from Brian Kleinhanzl from KBW. Your line is open.
Yeah. Thanks, just two quick questions.
On the 20 million of the episodic market related benefits as you saw in and I could you just got a little bit detail as to what that was on the line items that impacted.
Sure Brian It's it's Eric so in anti there are couple.
Kind of.
Balance sheet type adjustment that would make at the end of the quarter.
That tend to be a little lumpy, sometimes are positive sometimes we'll negative they tend to offset but we had a couple of that ended up in the positive territory. This this quarter one of them was.
The markets that we take on our FX swap position.
And when the trades crossed quarter end and we do that just to make sure that we have stability given the volatility in.
In some of those those rates you end up with a balance sheet Mark that you take and then and Unwinds effectively as the trade matures. So you get a kind of call. It a September Thirtyth December 30, onest that kind of impact sometimes positive or negative and this time it was positive.
The other activity that we do like all other banks is we hedge our long term debt at the test for an effectiveness and see the ineffectiveness testing, sometimes a little positive sometimes whole negative again that one was positive. So those were the two largest driver.
They collectively we're about to they came to about $20 million this quarter and in the past they've been bouncing around that plus five plus and minus five minus 10, and just kind of part of what we have to.
Book to as part of our financial profits.
Okay, and then a separate question on Securities Finance, you mentioned that you have new optimization actions on going to just give little more detail as to what that is what the potential revenue opportunity is there. Thanks.
Sure Brian It's it's our again Securities Finance is one of those businesses that has to features I think on one hand, we had to make some adjustments to.
To some of our counterparty positions in both FX and Securities Finance this past year as part of some of our some of the C car testing and somewhere dialogues with the fat in the FX space, we're able to navigate through that because it tends to be a market with a large number of counterparties you can do compression trades you can do.
Are you can diversify counterparties easily et cetera, SEC financed a little harder and I think that was one where we felt more constrained over the last year, which is why our balance our lending balances are down and we've also had to constrain so far activity, which is driven revenues down what we have click on to do though.
His innovate in securities finance and find ways to.
Two.
To refine some var.
Our trading activity some of our structures Weve also been innovating in some areas around peer to peer matching right that create some.
For more latitude for us and as we've begun to take some of those actions we feel like we've begun to free up space relative to the constraints that.
Where effectively imposed upon us a year ago.
So now the team feels as if they're they're more open for business and so now we're out there.
Engaging with clients and part of what we now need to see is client demand come back because as you know there's lot of money on the sidelines is a risk off sentiment and so as we see borrowing and lending happened in that space, which particularly at the domain of hedge funds and other market participants once that rebounds.
And so which is really a kind of an industry demand.
And client demand.
Question once that rebalance, we feel like we are better prepared now to begin to.
To to grow our activity.
There are no further questions mr. it'll be alert I turn it over to you.
Thanks, Operator as reminder, this conference call is being recorded for replay State Street's conference call is copyrighted and all right are reserved no. Other person may record for rebroadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation.
Only authorized broadcast of this call will be house on the State Street website now with that let me turn it to Ron to close the call.
Thanks, Charlie and thanks to all on the call for joining us.
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