Q3 2019 Earnings Call
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Good evening and thank you for joining eat trades third quarter 2019 earnings conference call.
Turning the call today are Chief Executive Officer, Michael Pizzi, and Chief Financial Officer, Ted Turner.
Today's call will include forward looking statements. These statements reflect management's current estimates or beliefs and are subject to risks and uncertainties that may cause actual results to differ materially.
The company will also discuss non-GAAP financial measures during the call.
For a reconciliation of such non-GAAP measures to the most comparable GAAP measures and for additional discussion of risks and uncertainties that may affect future results. Please refer to the company's earning release furnished on form 8-K, along with the risk factors described in the company's filings with the FCC.
As a reminder, all of these documents are also available about dog eat trade dot com.
This call will present information as of September Thirtyth, 2019, and October 17th 2019.
The company disclaims any duty to update forward looking statements made during the call except as required by law.
This call is being recorded and a replay will be available by phone and webcast. Later this evening at about Dot E. trade Dot com.
No other recordings or copies of this call are authorized or may be relied upon.
I'll now turn the call over to Mr. PZ.
Good evening and thank you for joining us on our third quarter earnings call.
Over the quarter, we continued to build our leadership position across business channels, achieving strong operating and financial results. However, as you are all well aware the most noteworthy developments took place after we close the books on Q3 as October ushered in another round of commission reductions by competitors.
Joining us to eliminate retail commissions for online U.S. listed stocks as an option trades.
Although we did not believe it just prior pricing structure presented a meaningful barrier to investing for our target customers. The step down to zero has taken the conversation entirely off the table.
Whether through simple transactions or investment management through funds individuals can now gain access to the financial markets with zero friction.
The value proposition for customers is truly extraordinary.
Well, we did not favorite this shift we believe it enhances our competitive position in our core retail franchise in this new paradigm platform functionality and customer experience are more important than ever and that is where we truly differentiate.
We have an unrivaled active trader platform and service model, which has led to record customer engagement.
We offer easy to use intuitive to manage solutions that deliver across passive active and specifically tailored allocations and portfolio management. It a matter that rivals the best in the business.
Years, the trade business model has generated the highest revenue yield on customer assets across the peer set and under the new pricing structure, we believe that gap should only widen.
We now offer the number one platform in the business at the lowest price point and the industry, which we expect to be a killer combination in the battle for market share.
We have a mobile experience that rivals the desktop in its capabilities package, the simple and intuitive interface and we provide our customers with a best in class service experience.
The strength is only reinforced by our broader franchise as our industry, leading stock plan administration platform and our expanding advisor services offering provide differentiated growth vectors.
Shifting to published results the third quarter brought a heightened level of activity across the capital markets rhetoric on international trade mixed economic results across the global economy shocks to the supply of oil volatility in the it overnight repo market and even speculation on impeachment drove significant volatility.
Some of the greatest day to day moves in equity markets interest rate and commodity prices in several years.
Against that backdrop, we observed a meaningful shift in retail investor sentiment during the quarter as our customers were net sellers of securities for the first time since 2016.
The increase in uncertainty in market volatility provides an environment in which our operating and financial model shines Bradley.
On a quarter that is typically associated with the summer slowdown we generated a strong level of customer trading activity.
Even more encouraging and the volume of trades is the mix of activity.
95000 derivative dark in the quarter were 36% share of total darts, representing our strongest mix ever.
This activity bodes well for a future where the vast majority of the industry's transaction based revenue will come from derivative trading.
In terms of product Rollouts, we continue to keep our foot on the gas watching a series of enhancements to powering trade our active trader platform that should continue to drive growth in derivative trading.
We launched new functionality, such as our enhanced strategy seek experience, which helps structure an option to trade based on a preferred strategy your criteria.
Battle, a handsome in store live action markets scams and an exit plan strategy to help trainers mitigate risks on open positions.
On the mobile front, we've improved our voice capabilities by incorporating Google assistant functionality, allowing users to check their portfolio using voice commands while on the go.
In August we were rated the number one online broker in Kiplinger's annual review.
This review is one of the longest running and best respected in our industry and largely focuses on a brokers long term investing and managed product offerings.
This result offers tangible proof of the progress we have made on the investing front.
Over the past several years, we have delivered meaningful improvements to our offering for instance, we offer the most no transaction fee mutual funds with three star ratings are higher and the broadest access to new corporate bond issuances, when combined with a frictionless and easy to use digital experience. The result is a top notch investing offering.
On assets, we generated 2.8 billion of net new retail and advisory services assets, which includes nearly 400 million into managed products one of our best quarters for managed product flows ever and a testament to our focused on building out a compelling investing offering.
With respect to institutional stock plan to ministration remains the interest in the industry spotlight as others provider seek to expand their market share through acquisitions in partnerships. We are the leader in the market and continue to build on our competitive position punctuated by ongoing success from our all star sales team.
We continue to drift brinci it ourselves from the pack with enhanced tools and functionality.
As just one example in September we teamed up with Carver Addison startup in the employee stock purchase plan space that allows employees to maximize their plan contributions through an innovative cashless participation process.
Furthermore, we celebrated the number one ranking in stock plan loyalty and overall satisfaction for the eighth consecutive year by group five.
Each rate was also the highest rated among full administration plan sponsors for helping participant understand the value of their equity awards and how they can be used to help meet financial goals, which is key to unlocking the full value of our stock plan channel and translating it into retail growth.
We continue to benefit from the robust business momentum in this channel and in the third quarter. We brought on 5 billion of new corporate services relationships over the last 12 months. We have generated approximately 100 billion of gross stock plan in flows through new grants implementations and stock plan purchases.
Our outside success in this area has surpassed even our own lofty expectations and further bolsters our forecast for cash growth.
As a reminder relationship shore sourced through our stock plan channel tend to be more heavily weighted towards cash and with 30 billion a participant proceeds over the last 12 months the available pool of opportunity for retail asset growth continues to deepen.
As for Advisory services, we're seeing strong interest from advisors on both the traditional custody side, where we have increased the number of small to mid size our eyes on the platform and when the trade and within the trade Advisors network, where we continue to add larger advisors at the local regional and national levels as a third quarter to refer.
Oh program is operational and all 30 regional branches as well as our two national branches.
A key to capitalizing on the symbiotic growth inherent in our referral program as well as more fully penetrating our corporate services partnership relationships is our financial consultant Salesforce a group in which we continue to invest for growth since last year. We have increased the total FC head count by more than 62 a.
Let me 380 and intend to expand this team further over the medium term.
Shifting back to the economic and competitive backdrop. The current environment certainly provides its share of challenges across the industry. Since the beginning of sheer the fed has cut interest rates two times and the market expects a greater than 50% chance of at least two more cuts by March of next year, while the 10 year Treasury yield broke through 100.
50 basis points to just 10 basis points north of its all time low.
When we set our expectations of greater than $7 per share in 2023, we had accounted for potential macroeconomic pressure and contemplated offsets, including opportunistic strategies around balance sheet management and share repurchases as well as flexibility around expense containment.
We also anticipated the potential impact of continued commission compression consistent with historical trends. What we did not include were valued routing moves by competitors to Slash Commission revenue precisely when the markets look at least robust.
We still believe our business model is geared to generate the best operating leverage in the industry and where we expect we can still grow EPS at a double digit pace annually over the long term.
However, after removing three roughly 300 million an annual commissions on surprisingly our long term estimates have been revised downward.
While EPS that exceed $7 per share continues to be wholly achievable, we anticipate getting there a year later than originally articulated.
Given the reduction in commission revenue the expected rate environment, and the resulting impact on capital generation in capital return our current management estimates produce approximately $6 in 2023, EPS and seven in 2024.
In addition to slashing commissions and reducing interest rates, we layered in modest growth in cash from our institutional and retail initiatives and shifted to growing deposits on balance sheet earlier than previously contemplated given anticipated modest steepening of the yield curve.
We believe our forecast remains robust across a wide range of economic and operating scenarios given the multiple often offsetting levers inherent in our business model.
We will continue to be proactive in driving value in this environment.
First we are staying focused on sustainable long term revenue growth well going to commission costs will result in a step down we anticipate being able to grow the top line by mid to high single digits and expect to grow EPS by double digits, albeit off a lower base.
Second we're continuing to use our substantial capital generation and balance sheet flexibility to deploy capital in the most accretive way possible.
In that vein, we have the ability to complete our current buyback program by Q3 of next year and if we were to freeze the current rate curve, that's exactly what we would do.
But we will remain dynamic and shift quickly to resume balance sheet growth should the curve steepening to a level that makes the value of doing so more compelling for our shareholders.
And third we are intensifying our focus on cost containment, while we had expense initiatives underway. Prior to October we are executing with even more vigilant given the involved competitive landscape committing to a sequential reduction in operating expenses in 2020.
To that end, we've taken a hard look at our corporate facilities footprint and have decided to consolidate our New York City, and Jersey City locate Jersey city locations by the end of this year, eliminating or higher cost New York location, while co locating too high performing teams for improved productivity.
To end on a personal note. It is a great privilege to lead this storied company, we've accomplished a great deal over the last several years the current competitive and market backdrop, certainly provides challenges, but we have the right team and strategy in place to capitalize on our leading positions iconic brand and complimentary channels to drive growth in our franchising.
For our shareholders I will now turn the call over to Chad to walk through the results.
Thanks, Mike for the quarter, we reported net income available to common shareholders of 254 million or $1.80 per diluted share on record net revenues of 767 million included in the quarter was a 12 million pretax or four cents per share benefit to provision for loan losses.
As for core results net interest income decreased by 35 million sequentially, driven primarily by a $6 billion decrease in our average interest earning assets as we continue to shift deposits off balance sheet.
This was partially offset by an eight basis point expansion of our net interest margin to 328 basis points. Our NIM benefited from strong securities lending revenue and a favorable securities mix. Following the sale of 4.5 billion of lower yielding investment securities at the end of Q2.
Our blended deposit rate, including deposits held off balance sheet reduced by two basis points during the quarter to averaged 34 basis points driven by cuts in our customer cash rates. Following the Q3 fed cuts offset by a mix shift, resulting from promising growth and our premium savings balances.
For Q4, we expect the blended deposit rate to be 27 basis points, noting this rate includes both on and off balance sheet sweep deposits bank deposits and brokerage customer payables and assumes a 25 basis point fed cut in October .
Our average reinvestment rate in the securities portfolio is approximately 250 basis points.
For the full year, we anticipate generating a NIM of 315 to 320 basis points consistent with the expectations, we have given in prior quarters.
This guidance holds customer margin balances at their current levels assumes deposit growth grow off balance sheet and contemplates one fed funds rate cut in October .
Each 25 basis point move down in short term rates translates to a six basis point annualized impact to NIM.
Overall, Q3 was a solid quarter for customer cash growth with total customer cash in deposits ending the quarter at 65 billion up approximately 3 billion from Q2.
While customer net selling helped drive overall customer cash balances higher margin balances held up nicely with 9.9 billion of average balances over the quarter down slightly from Q2 levels. This is another example of how our overall active trader business continues to shine even during periods of market uncertainty.
Commission revenue of 122 million was up 1 million sequentially, driven by an extra half trading day in the quarter and a four cents higher CPT offset by a thousand fewer darts.
CPT of 718 came in as expected well within our previously guided range of 690 to 730.
Yes, and service charges of 163 million were up 37 million sequentially as we shifted an additional $2 billion of deposits off balance sheet over the course of the period.
The average net yield on third party cash was 196 basis points comprised of third party money market fees, a 53 basis points and third party sweep deposit fees of 218 basis points, both net of deposits.
For Q4, we anticipate gross fees from off balance sheet sweep deposits will be around 195 basis points and expect net fees to will be approximately 180 basis points, which contemplates an expected 25 basis point cut in fed funds in October .
We anticipate net money market fees will stay flat to Q3 levels.
Toward the end of the year, we will have an option to sweep premium savings deposits to third party institutions.
This will provide added flexibility to manage our balance sheet size and extend the FDIC insurance protection up to 1.25 million for premium savings customers.
Outside of money market and sweep deposit revenues the remaining components of fees and service charges totaled approximately 100 million down 2 million from last quarter.
Gains were $16 million in the quarter as we sold securities to capitalize upon the continued rally in rates and further reduced the balance sheet size going forward, we expect to realize around 10 to 15 million of gains per quarter.
Shifting to expenses.
Total non interest expenses of 399 million were relatively flat to last quarter as a 7 million dollar reduction in marketing spend was offset by a host of other impacts.
We now anticipate our marketing spend to come in just over $190 million for the full year 2019.
Highlighting a couple of other expense items clearing and servicing expenses ticked up from 32 million to $36 million, while FDIC insurance cost ticked down slightly from 4 million to 3 million, both driven by our shift of deposit off balance sheet.
We currently pay approximately three basis points in FDIC insurance for deposits held on our balance sheet at approximately eight basis points in servicing fees for deposits held off balance sheet.
This quarter as adjusted operating margin, which excludes provision benefit was 48%.
For the full year, we anticipate generating an adjusted operating margin of approximately 44%.
Including potential discrete charges related to restructuring or exit costs from our cost containment initiatives in the fourth quarter.
Shifting to the pricing changes the impact from eliminating retail commissions for online US listed stock F and options trade is roughly 300 million per year, assuming the most recent quarters trading activity.
We plan to offset a material portion of this forgone revenue through a host of revenue and expense initiatives.
As we diligently review the profitability dynamics of our customers Post commission reduction, where thoughtfully approaching solutions and our exploring ways to minimize underutilized feeds and features for those with less complex needs as well as ways to monetize customer activity most effectively.
We're also taking a hard look at additional efficiency gains, including facilities expenses vendor relationships and our putting a deeper focus around the allocation of resources.
As Mike mentioned, we're targeting a reduction to our noninterest expense in 2020, even after excluding any onetime costs in 2019 to put numbers around this we expect non interest expenses to total approximately 1.5 billion in 2020, though we will remain tactical.
And spend into growth should we find opportunities.
Moving to capital we executed on 566 million of share repurchases in Q3, as we completed our previously previous 1 billion authorization and made progress against our current 1.5 billion program.
While the commission cut slows our near term capital generation, we can offset this in the near term through our flexibility to shift deposits to third party banks and further reduce the size of our balance sheet through expected securities runoff.
Our effective tax rate in the quarter was 28% elevated slightly from a few discreet items, we expect the full year 2019 rate to be approximately 27%.
We finished the quarter at 380 million of corporate cash, reflecting 695 million in subsidiary dividends less the 566 million used to repurchase our stock 34 million paid and common dividends and 20 million paid and preferred dividends.
As a reminder, we target holding a minimum of 300 million in corporate cash.
Before concluding I just wanted to highlight a couple of other quick housekeeping items first.
We plan to complete our review of the New accounting standard for current expected credit losses also known as Cecil in the fourth quarter.
We currently anticipate this will result in a net benefit to equity of approximately $75 million to $100 million, which will be reflected in the first quarter of 2020.
This benefit primarily relates to the write up of the collateral backing our legacy loan portfolio.
We will provide an update on the fourth quarter call. When we have finalized our review.
Second as we contemplate the presentation of our trading metrics, we anticipate future releases will look largely similar to today is capturing all customer directed trading activity.
We will continue to separately present derivative activity.
Given the addition of commission for EPS and promotional trades to this metric we anticipate the change will only slightly increased the amount of darts We report.
With that I will turn the call back to the operator for QNX.
Thank you. So if you would like to register a question. Please press the one followed by the four on your telephone.
Three tone prompt the acknowledges your request if your question that's been answered and you would like to withdraw your registration. Please press the one followed by the Sthree.
Our first question is from Steven Chubak with Wolfe Research. Please go ahead.
Hey, good afternoon.
Afternoon. So.
Wanted to start off my with a question on the October strategic update at that time, you had outlined some earnings and profitability targets and the message was that the firm's sees a credible tat to sustained earnings growth are are we expansion and a $7 earnings call.
Which is really in my mind and at least have received mine in many investors. The foundation for your case to remain a standalone after considering strategic alternatives and so since that update clearly a lot of things have changed organic growth has slowed we had the earnings and.
Okay earnings declines really driven by rate headwinds commission costs. So all in all I guess, taking a step back and would suggest to us that the case to remain a standalone company has weakened and just given those developments how has your thinking and down to the board really changed since the October update, particularly around your willingness to consider some of these strategic.
Try this again.
Yes, Stephen Thanks for the question.
The environment certainly has changed interest rates are much lower.
Roughly 100 basis points are so across the yield curve.
While the increased volatility from some of the market events. This quarter drove active engagement from our derivative and trading base. You are seeing some degree of longer term investors reduce risk and moved to the sidelines a bit.
Well, we did not desire the move and commissions.
It has removed really the final point of differentiation in the marketplace and it's substantially improves our competitive position.
We believe will accelerate growth over the near term.
We have a number one platform in the market and it's now essentially free.
We have a strong and growing franchise really the best platform overall in the market unrivaled capabilities and derivatives and an unparalleled corporate services group.
So.
We see a clear path to growth Stephen and we still see that today going back to last October we outlined very clearly set of goals for that environment in that time that we thought we are readily achievable. We are very transparent and provided uncommon view into the long term value generation of the company.
Today sitting here, we're doing the same thing providing a transparent insight into what we think that we can generate as a company, but we're well aware that possible combination or alternatives could accelerate shareholder value.
If thats the case, we remain open really to all discussions as we always have been around the direction that we should take to drive that value.
Alright, Thanks, Mike I, certainly appreciate hearing about the openness.
Yourself in the bar to consider those opportunities to create the value or additional shareholder value. Just one two parter for me on expense I was hoping to maybe unpack a little bit on what drove some of the elevated expense, which is up about 5% year on year. This corridor on a clean basis and just longer term pre.
Great that commitment to cut expenses in 2020, but just given the updated targets contemplate high single digit revenue growth and low single digit sustained expense growth. If we enter more challenging revenue backdrop beyond 2020, how should we think about expense flags and is there room to actually kind of expenses on a sustained basis over the next couple.
Of years, if thats required.
Well, let me talk a little bit about forward look and then I'll turn it to Chad to talk about kind of the current year and the current quarters operating expenses.
We have made substantial investments in the past few years in our marketing area in our technology area in modernization efforts across a large footprint of the company.
Even in sort of modernization of facilities much of that investment is behind us and ongoing investment is really a matter of reprioritizing the portfolio of investment as projects roll off and new projects begin to get going so I feel very good that the expense cuts that worried that we've discussed in the prepared.
Remarks for next year really will not compromise investment in our business or investment in growth in any way.
And I think we can be able to achieve that and drive that.
And deliver basically by Reprioritizing Retiming re looking at the portfolio of investment opportunities.
If there is continued degradation in the environment can we go deeper.
Thats something that we'll have to look at as the environment evolves. I think you always are constantly re optimizing constantly looking at your overall expense base looking at your portfolio of investment projects, you're build versus running costs and constantly looking to re optimize.
We took an important facilities action this period.
And thats it thats, an ongoing consolidation that will deliver some expense saves going forward, it's things like that the we'll always continue to look at continue to evaluate what we're doing to really drive the best value for our owners.
I think Mike said, it well Stephen just add a few comments you asked about the year over year view I wouldn't look at any given quarter in isolation just as it relates to comparison, there can obviously be a bit in noise, there, but Mike said it well around just our operating leverage in the investments, we're making there where we not only invest for growth on the topline.
But we also invest to make sure that we maintain that best in class operating leverage that we talk about in the industry. That's a bit of what we've talked about even doing this year. So I think some of that will materialize going into next year. That's why we we know that the operating margin framework that weve used in the past is not necessarily been helpful. For you guys.
And so thats, where we thought it was most productive to give you an operating expense number around that 1.5 billion guidance for next year to help you understand the dynamics of how we can grow while still maintaining discipline on the bottom line.
Next question is from rich Repetto, with Sandler O'neill and that lines open.
Yes, good evening, Mike, leaving Chad I guess, the first question is on the stock loan.
It looks like.
You just like other plays in the industry had excellent quarter. So I'm just trying to first give some color on what drove it and it looks like and then did you incorporate what are you assuming in Fourq you from stock loan it looks like it contributed.
By our calculations eight basis points or so of four cents EPS, the upside quarter to quarter in stock loan.
Look very strong quarter in stock learn to give you a little color in terms of it at some very specific names that are well known.
Beyond meat was one of them. It's the larger group of cannabis stocks all of them are very fell into the hard to borrow category as.
Sort of institutional risk positions built the hard to borrow rates for those stocks kept climbing all throughout the quarter. There are a little softer here going into going into the next quarter, but still overall very robust levels I'll, let chad speak to kind of the the the forecast in kind of the outperformance in the quarter rich as we look forward obviously this right.
Revenue can be a bit unpredictable. So we'll evaluate that as you see going or some of this does correlate with the margin book and so we would we would identify that they're.
Definitely we're not assuming that these levels continue.
So I would certainly highlight that the second thing I wouldn't know just as a kind of back the envelope comment as well as not only did we see this in the normal securities lending book, but we also saw this through fully paid so thats an initiative that we've talked about growing overtime that will never grow to a significant level given that it's for a smaller set of customers, but it is a place where we may.
Meaningful investment of reaching out to our larger more sophisticated customers.
With opportunities around a fully paid program that has provided benefit as well in this quarter.
Yes, okay, because it did well with your guidance is 315 to 320 in the NIM. It looks like that was again eight basis points. So so im just trying to reconcile that but anyway.
Into my next question and Mike with all due respect.
Just to be block.
I think its debatable.
On how open I guess, you trade was a year ago.
The consolidation. So my direct question would be today compared to 12 months ago, you more open the same or less open to consolidation.
Rich I think it would be not really responsible to comment specifically around M&A.
We are always open to look at transactions that will deliver more value for our shareholders shareholders.
And sort of the than sort of as a standalone performance of our business, we remain open to it today.
Got it thank you.
So as a reminder to register a question first the one followed by the four new keep that next question is from Devin Ryan with GMP Securities. Please go ahead.
Thanks, Good evening guys I guess first question here as possible to maybe go a little deeper in to maybe some of those revenue opportunities that you noted that could exist around being zero and and Im just curious if you're thinking about potentially charging our card for any services or even.
Subscription model or I guess really what you're thinking around.
That and also appreciate very little data, yet on being zero, but in any anecdotes you can share around maybe people wanted to try the platform for free or anything interesting on engagement just post change yeah sure Devon on the on the revenue opportunity side. The way to think about it is we have original always taken a modeled approach.
Giving everything to all customers the full capability in suite of the platform.
What that means really it's not so much on the revenue side as much as we are incurring cost per every account for services and features that customers do not use or do not put value on.
A good example of that is the high level of market data access we provide free of charge to just about all our customers.
Many customers don't use it and would use would take a lesser offering.
It out without looking to what we're providing today.
There are other areas in terms of tools screeners other items and so we can consolidate cost bike customizing, what we give to each customer we're not really set up today to do that immediately but over time. It allows us flexibility sort of in our overall expense structure to by reducing portions of the offer that.
Really not important to that particular customer and reduce our overall usage of services that we pay quite a lot of expense for a free model makes us really have to look at that that's really coming on the expense side in terms of other revenue opportunities. We are always asking ourselves are there ways to add adjacent services adjacent proud.
Dr or were optimizations or things and maybe some of those things that we would be adding that would differentiate us in the past were offered to differentiate the price point, we were at in the market versus other participants, whereas today they could become the basis of alternative models. It's obviously early days and we've got a lot of strategy work to do here, but it's.
Paul It's all out there for consideration.
Okay, Great and then just kind of drilling down a little bit more into expenses you touched on a couple areas, where maybe there is an expense savings, but just bigger picture can you maybe go a little deeper around where the expense reductions are going to come from where you can get leaner.
How much is being at zero change kind of innovation in the industry I guess due to people continue to invest in pushing platforms towards innovation or does this cycle that just given the kind of lower profitability from each customer all else equal and then just last on expenses. The guidance for next year does that what does that imply for advertising.
Hi, guys, if I Miss that.
We have always had a great and capable platform we have the best platform in the derivative space. Today, we are number one you're not going to stop improving our platform. It is its source of strength and growth for us in key portions of our business, even with commissions going to zero trading is still a very profitable business as I highlighted in.
The prepared remarks option trades are still in strategically important to the company and really the source of most of transaction revenue remaining in the industry.
So looking at overall, we're not really going to be pulling back now that said how you invest in what you choose to invested in how you prioritize that investment will shift over time.
Two areas that have the highest value and this is a change in that value equation, but by no means are we going to pull back on our product or our service offering, which we see Israel differentiators for us in the marketplace in terms of kind of some of the more technicals on the expense side I'll turn it over to chat.
Sure so.
Few areas I talked about.
In my prepared remarks are around vendor negotiations prior to October we were already actively moving towards cost containment initiatives internally to make sure that we could effectively maneuver around the the landscape and what was happening in the overall macro environment that only intensified further post October I think.
Event like the commission reduction that is widely publicized in the press is a prime opportunity for us to make sure that we're talking to our vendors in a very direct way around the products and services were providing via them and how they can.
How they can help us be more efficient in some of those are so I think Thats. An example, there Mike mentioned, New York consolidating into New Jersey, and the collaborative nature that that will provide for those offices working together as it relates to the expense for that we'll incur about a $10 million charge in Q4, we expect around that exit but.
That will generate around $5 million annually and savings so thats or you can see that as a prime example of a really quick payback on something that we're doing so theres lots of tactical examples like that part of the reason Devon that we gave the billion five and not specifics whether it be around marketing or other areas, we are dynamically moving and making our.
Budget now our strategic plan for next year, obviously the commission impact.
As Mike mentioned is helping us evaluate where were making those investments maybe a bit differently. So marketing is one of those lenses that we look at should the environment.
Give us the returns we wanted marketing that would be a place we would act to actively investor should we believe theyre not there due to the due to the overall environment that will be a place we would pull back as well.
Yeah understood. Okay. Thank you very much.
Next question is from will Nance with Goldman Sachs. Please go ahead.
Hey, guys good evening.
Maybe I'll ask one about the balance sheet strategy. So I think come on board with the capital dynamics for the off balance sheet strategy, but I guess, the resulting impact on the duration of your client cash pushes you farther and farther towards the short ended the curve.
I guess, we seen most of your competitors going the other direction to extend duration, whether that's on or off balance sheet. So I guess can you help us understand why going shorter on the duration curve makes sense right now given what the forward curve at imply for short term rates.
Well, we have always approach investing our on balance sheet cash to match the duration profile of the liability.
We've always talked about our sweep liabilities in sort of the overall for your range additive invested them on balance sheet accordingly.
When we moved in Q3 to move money off balance sheet.
With the right thing to do from an overall return dimension was to leave some of the off balance sheet in shorter term or or closer to short rate.
Type placements at third party banks, giving us maximum flexibility to move the cash back if we want to or to move it out the curve into more fixed rate type agreements at the time that was not the compelling thing to do it still not to do right now.
Our model contemplates, bringing some of that cash back on balance sheet as the yield curve steepens.
And that the Twofifty that we're quoting is a duration equivalent rider that three or four you think of our suite duration being in that three to four year duration that that twofifty would be if you were growing your balance sheet today, if that if the math of capital.
Accretion determine that you would do that that would be what you get an added duration equivalent basis.
Got it that's helpful. And then maybe one for more on some of the moving pieces on the margin. So I think by my math in order just to hit kind of the high end of the range you need to see a pretty sizable fall off in the margin in the fourth quarter. So could you just help US bridge the gap understanding that the jumping off point from from the stockpile is probably a little bit lower than what youve.
As of today, just what are some of the moving pieces that kind of get us into that low range and is there any kind of opportunity to outperform that.
Yeah, you're right on the stock loan piece in that we don't assume that at a brick recurs at that level. So that would certainly be one I would also note that the the guidance we give articulate that we would continue to move deposits off balance sheet. So any additional whether it be additional deposits, we get would move off.
And with the reinvestment rate, we talk or with the investment when we talk about there also any paydowns we have in the portfolio those would move off and so we're guiding.
Being a bit more capital light and shrinking the balance sheet in the quarter, So thats going to put a bit of impact on the revenue side as it relates to expenses there are a little bit if there is a bit of onetime in their around some of the cost containment initiatives I talked about the New York piece being 10 million Bucks there maybe some other items in there that would also drive that a bit lower.
Got it that makes sense I appreciate you taking my question.
Sure.
So once again to register question first the wonderful for next question Christian Bolu with Autonomous research and Atlanta.
Good afternoon, just a follow up on the comments around being open to potential combination.
Is this thinking still that potential buyer has to underwrite $7 EPS number for it to be interest in to the management team.
Christian I think we've seen as it is the volatility of interest rates the movement in in commissions to zero has created as a degree of volatility in the businesses.
I would say that there's significant upside to plans if interest rates were to move higher there's downside if interest rates were to move materially lower even though the term rates are really kind of at the lower end of of historical trading trading areas.
I think we'd have to we have to think about what the combination looks like what value. It dries for our owners how that really comes together and what the overall value proposition is.
It's not about underwriting a specific EPS number in a plan, it's about what value it drives in the combination.
Okay makes sense and then make as you referenced the prepared remarks like the competitive landscape has meaningfully changed potentially to your benefits and but doesn't sound like this strategy has changed right. So how do you balance to put unity to be more aggressive in growing the business potentially increase your share of voice.
Trying to hold expenses I'm very very tightly.
To sort of meat.
EPS targets well, what we know today is our competitive position is substantially improved.
We can look back in our data and see where we have lost customers, whether it was to a free offering or to a lower price point competitor or to any special promotion a competitor was running and we can compare kind of where we stand today.
On free in our platform, we have actively engaged in a in a win back you've seen some of our advertising out in the marketplace.
We want to take advantage of the improvement in our competitive position.
We are it's early yet, but we are seeing a lot of anecdotal stories in evidence of win backs on customers customers coming back to to use the platform into engage with us option customers coming in to UTI to have gain access to the platform. Although they were small some of those are much smaller sized customers, but really.
We take advantage of the breadth of capability that we have at the highest level. We are seeing a great increasing the number of of of hits on our prospect page and that is translating into an acceleration in account openings, but it's very early and so we have to see if this is going to be sustained all of that there needs to be factored in.
Into our marketing plan and what we can really deliver from an overall marketing level and what the return on that spend is so.
It's a little bit early to give any exact specifics at how we would optimize that but thats exactly the work we're doing today.
Great. Thank you.
Next question is from.
Brendan Hoffman with US. Please go ahead.
Sure.
So looking at.
The the walk from three Bucks tend to six Bucks and seven Bucks.
In 2023 in 2024, it looks like you need about an 18% earnings per share cagar to get there and so what I'm curious is if there do you guys have a period of time, where you could point to where you had earnings growth that was comparable to that particularly at a time when we had.
At an environment, where you've got rates going against you rather than going with you I'm just trying to understand I'm struggling a little bit with your guys model and kind of getting that level of earnings growth and so hoping you can help shed a little light on some of the other factors involved with the model Yeah sure. Let let me start with a with a couple I mean the.
First when we talked about we're not taking the commission cuts lying down Weve redoubled our efforts on the expense front I think we've given you some pretty strong expense guidance for next year.
That's an ongoing effort to try and drive to those results overall.
We think there are some revenue side opportunities here as I was just talking about in terms of the overall level of growth.
Some of that I think we'll be quick in terms of the pickup in growth that we're seeing given the capability and breadth of our platform and the price point that it's at now in the marketplace. In addition to that we talked about an investment in financial consultant headcount.
That the payback on those is pretty clear to me and that's why we've been moving those numbers up and we will continue to move those numbers up that drives both investments and asset builds but it also improves cash.
Additionally, our corporate services channel has grown tremendously it's exceeded even our own lofty expectations. We have 21 billion of plant assets put on this year 5 billion in a quarter alone generating $30 billion proceeds.
We've really looked carefully at those numbers and the cash generation capabilities of those business.
Look going forward, what we think we're going to be able to do and modeled out the value of the growth over the last couple of quarters to really show what that does to our asset build and more specifically our cash build.
Lastly, we've looked carefully at what we've done in the banking sector, what we're doing and sort of the savings deposits type products. We are at a good rate in the marketplace today, but we don't have to be at the best rate and we're showing solid growth in our banking products as well and we're still working on modernizing and building out the user experience so putting that altogether we.
We can drive substantial earnings growth over the period.
Correct.
Right and one thing I would I would add just is at the front end of the plan. A reminder, that as of the ended the quarter. We have almost $12 billion of sweep deposits that are off balance sheet that those those are our deposits now that with the generation of capital in a very short period of time can be onboard and so when you think about the revenue build at the front end and Ed.
Generation that that can create when the curve normalizes and steepens a bit and our assumptions. We laid out that gives you a tremendous amount of growth upfront.
Sure sure that.
Get that and that makes sense and thanks for all that additional color like really appreciate it.
My for my follow up.
It's my understanding that number one it's my understanding that in the corporate services business that the commission rates paid is sort of a dynamic that theres an interplay in between.
Platform fees and the commission rate paid and there is if there is that sort of menu pricing. That's available. So that can result in.
Commission per trade that skews away from your guys overall commission rates and so since Thats a menu pricing.
The trading in the commission rates on your corporate services business wouldn't necessarily move with the rack rate number one I just want to confirm that Thats true and number two if those commission rates in your corporate services business stay higher than your rack does that provide like an incentive for you to retain some more.
Customers have been transfer over become you trade customers.
Increase that 15%.
Because there is almost like a natural incentive for them to switch over for the better Commission pricing.
Yes. The initial first trade out of the stock plan. The commission on that is negotiated with the plan sponsor when they when they elect to use us.
Now there's lots of different value elements. There there is what they pay for the software we offer specialized consulting services outsource services.
That they choose to pay sometimes in a bespoke way, sometimes they want it wrapped up in the fee. They pay for the software. They also aware kind of that that the commission level as a value to us. So it enters into the overall equation is as you kind of talked about it so.
So value is is really different for each client at in terms of what they need from us and how they engage.
Whatever commissions come into focus like this there is some pressure on those commissions to make sure that that they are they're close to the overall level of commissions that are that are being offered in the marketplace. We've seen some of that pressure overall, but by and large these are individual planned levels that are negotiated.
In terms of just the retention side, we think.
Stock plan business is a wide business theres a lot of higher income level employees in the plan, but they're also companies that give stock to everyone. So while I don't think it will be.
An incredible shift.
The Zero Commission on the platform today May mean more of the of the smaller stock plan participants do a do open an account and stay with us in the long term. So I'm optimistic that yes. It will have an impact in account retention, maybe not a dozen maybe we'll not total much and assets, but it probably means more accounts for us and more customer activity.
Thanks for all the color Mike.
Next question is from Dan Fannon with Jefferies. Please go ahead.
Thanks, I guess, a follow up on the corporate services business.
Are you assuming in your outlook said, the 15% retention improves.
Then from where it has been for I guess, a sustained period recently and if so kind of.
What are the factors that gives you confidence around that no. We don't we don't model a sustained improvement of the 15% that would be that would be upside to the modeled estimates.
We did look at a little bit of the bank flows from this year and we do think that is driving some of our savings as a deposit inflows and the strength that we model for those in the long run plan, but we don't take up the 15% appreciably.
And and the only thing.
One comment I would add there would be around the implementations we've seen today right. So.
As Mike mentioned in his in his prepared remarks, we have exceeded even our most lofty goals internally.
21 billion of implementation to date that obviously generates a significant amount of stock plant assets that result in cash. So that's something we've looked at in the model around the last few years seeing that dislocation and the win rate than we've had there and the amount that we brought into plans that has increased that view in the out years, we noted that on the slide array.
And why we think thats going to provide a bit of an outsized growth rate versus core retail there.
So that would definitely be something to think about as you as you model.
Okay. That's helpful. And then just with regards the advisory services can you put some numbers around the number of advisors that are coming on the platform or I think you talked about.
Increased engagement with prospective advisor any numbers around backlog or anything that we can think about in terms of sizing that.
Yes, we've been we've increased the number of advisors on the platform in this period by about 20.
That's just the natural advisors coming on that we're adding overall the platform, but we've also signed some much larger national advisors that want to participate in our referral program.
In the case of those the number is not meaningful the sizes are very large in the flows that they control are also very large we've talked about some of them in the past.
That is a lot to do with the technology work that we're doing right now to make sure. We've got the seamless type of integration for the larger advisors.
And that the platform of Liberty, which is the trade advisor services platform seamlessly integrates to eat trades middle and back office. So that it can be essentially seamlessly scaled as we grow this business.
Okay. Thank you.
Next question is from Craig Siegenthaler with Credit Suisse. Please go ahead.
Thanks, Good evening everyone.
And Craig.
So just coming back to the $6 EPS target.
How do you factor in future future pricing pressure across your other fee streams and then also how do you think about further dilution.
Your roka ex spread revenues over the next four years, because I'm imagining you don't give it to us, but imagine there's actually a pretty wide spread between your target and in their revenue guidance you gave us.
Craig So first off just as it relates to commission revenue for example, we to Mike talked a bit about the stock plant side and some of that the fee compression. There we do assume a moderate that have that continuing on the commission side. So.
Not to the level, obviously of what happened in October , but consistent with what we talked about before a little bit of erosion. There as it relates to cash in general I would just note that we we frankly believed that we have a cash generating machine that is really second to none right, whether it's the corporate services.
Business that channel that Mike just talked about and everything that's generated there or the core retail business that is low cost deposits right. The best deposit franchise out there just around customers that are not meaningfully looking for yield right. We continue to see that this quarter was a prime example of that if you use this quarter as a microcosm forecasts.
Cash growth for the firm, we've always talked about in a normalized net buy sell environment right over the last few years, you've seen significant buying at record levels that has put pressure on cash growth. This quarter. We had net selling just to a tool a minor amount and you can see that we brought in $3 billion of cash growth.
In the quarter from our customers. So we're not assuming net selling out over the period were just assuming that we have normal customer growth coming in.
Through growth in our business that generates that generates cash into the firm that can be generated data that can be invested at a reasonable spread as it relates to rates. We do assume a couple of fed cuts in the plan as we outlined it and then we just follow the forward curve for reinforcement.
Thanks send up just as my follow up here.
Now that the commission free platforms have essentially ended will any of the third party. Yes on your platform, which is which is all of them still use shelf visa Rev shares in Fourq here, one Q posting emission cuts.
Craig that's something we're still working through its a good question and something we're working through I don't think it's very significant so as far as impact to us, but but it's something that we're going through.
Thank you.
Next question is from Chris Harris with Wells Fargo. Please go ahead.
Thanks, Hey, guys.
So it looks like the.
The yield you guys earn on off balance sheet customer cash went up.
Sequentially quarter on quarter over to the surprise because fed funds went down what drove that.
Chris the yield actually went down so in Q2, the gross yield on on the sweep deposits. So thats before any deposit costs was to 63.
In down to 244 this quarter with the fed cuts and the guidance. We gave is that it will go down to 195. So it does follow it does broadly follow short rates. The only thing I would note is and we mentioned this a bit on the Q2 call is that with the significant amount that we were moving off balance sheet post the 4.5 billion dollar.
Our sale in Q2, it does give you an opportunity to negotiate a bit more with some of the third party banks that are looking for blocks of liquidity and so we do see that a bit where our ability to earn a little bit more of a spread off of short rates from some of those providers read through a bit but it did go down by just under 20.
Basis points in the quarter.
All right. So maybe I can try to ask a different way if I look at just that revenue line item money market funds and suite deposit revenue it triples.
Sequentially, but the balances did and triple So I guess and having a hard times squaring why the revenues were up that much relative to the balances growth.
Yes, Chris I think because if you go back far enough year.
Proportion its money funds is larger as we're moving sweep deposits off balance sheet and growing deposits off balance sheet. The sweep deposit rate is the higher rate, it's taking the weighted average rate up against the backdrop of fed that's cutting the fed cut doesn't hurt the Rev share on the money funds.
But it does bring to sweep rate back down.
And it.
Would be to take the foreign half billion for example that we moved off with the into last quarter. If you just apply that average rate for the quarter to it and then we moved another 2 billion off this quarter taken average whatever take an average of 1 billion for the quarter. There I think you'll be able to get to just the marginal math of of the change in that line item for the quarter.
Okay. Thank you.
Next question is from Patrick O'shaughnessy, with Raymond James and the lines open.
Hey, so killing off of a previous question. How do you think about future disruptive pricing actions that competitors might take in terms of your EPS outlook. So if somebody were to eliminate the options per contract fee or maybe somebody would start rebating order flow relevant to their clients and you guys that you had to match for competitive reasons.
How do you.
Can you still achieve your new targets in an environment, where you had direct like that.
Look the substantial amount of transaction revenue that's left Patrick is related to option pricing.
And our corporate services business.
Now what I will say about option customers, that's a bit different than equity ETF customers is the platform truly matters to them.
It is the tool set by which they are finding their trade opportunities the ability to execute complex order types. There you are more sophisticated traders superior execution quality matters to them.
So it's not about payment or free it's about where they are getting filled at on a complex option order. They also are extensive users of your risk management tools. Your strategy seek that I mentioned in my prepared remarks, we look at it from we're helping the customers identify the trade opportunity.
Execute the trade opportunity in the most efficient straightforward way given given the ability to execute complex order types.
And to manage complex positions once they have come on so there is a premium that can be maintained in the option space, obviously, we would happen.
Assess whatever competitor. It was there are platforms that are closer to ours and capability.
There are platforms that are clearly is clearly not there.
So in options I think it would depend on on what really moved.
Order flow on I think individual trade well, that's a tough concepts really talk about because a lot of it is driven on volumes or other numbers.
So how do you map that all back.
Could get very cumbersome.
So I think that there is while there could be some additional disruption.
I don't think we I don't think what's going to see much of it.
Got it Thats helpful. Thank you, Mike and then for my follow up have you mentioned a couple times at moving to $0 commissions eliminates a competitive disadvantage for E trade and as we look at the top two charts on slide 14, Youre net new retail and advisory services asset growth and your account growth and certainly we've seen a slowdown a pretty significant slowdown in 29.
Team would you said, it's one that slowdown is because of because of that competitive disadvantage that you've been in terms of commissions.
Look I think that on an account side I think you can look at kind of younger customers.
Who have been looking more at free platforms.
So I would say smaller accounts certainly there's been a competitive effect.
For the smaller less sophisticated new entrant to trading they they're trying the free platforms first so I think on the account side. There has certainly been in effect.
I think we're in a great position to recapture that into our growth today, given the competitive shift thats happened on the asset side I think we had strong asset flows for a while I do think we are seeing the resultant effect of very high degrees of volatility in the marketplace.
Around events that in some ways are not even macroeconomic related to some degree whether its impeachment whether its geopolitical risk in the middle east or other events that caused the market to move it take core investors and get them to move to the sideline a bit and sort of diminish interest in investment overall.
So until we moved past these type of market environments.
Patrick one comment on the account side that I think it's important that we didnt cover in our prepared remarks, so for the for the quarter. The net new retail accounts. It was impacted by some cap one attrition that was broadly inline with expectation. So as a reminder, we.
We acquired a closed block of accounts of just under a million in the quarter. There were about 20000 accounts that attracted from that population or inactivated from that population that population was fairly low value accounts at acquisition, so not not a higher value accounts that we have retained the balances.
And all the activity of capital one is performing at or better than we expected, but that is something to highlight just as it relates to the account metric for the quarter.
Understood. Thanks for taking my questions.
Next question is from Kyle Voigt with KBW. Please go ahead.
Thanks, maybe just just a follow up on Patrick's question something competitive environment.
Just wondering.
You described it on option side, but do you believe that the heightened competitive pressures in the industry that were previously concentrated on the commission side of the business will now begin to migrate and kind of seep into these other revenue stream, so towards brokerage pay rates or proprietary asset management products or something else.
And then I guess.
We're looking at the industry.
When you look at your offering versus the other three larger players I guess, what do you see if that key differentiator.
For the average retail users so maybe not so much that interested in the active trader platform, what's the differentiator for free trade.
Yes sure on the on the first point I think your rate an obvious point that youre going to target your use of promotions to the things that generate the best revenue capacity.
That said I would just keep in mind that inactive option trading customer is still an excellent customer even with the commission change.
I don't think you'll see any any you'll see us and you probably won't see any of our competitors stock competing aggressively for that business trading even even across equity products still generates.
Generates cash it generates order flow it generates all of the characteristics that continue to drive revenue overall, so it's still something that you're going to pursue but obviously you're going to tailor your efforts around promotions around sort of what you're doing the trying to track that customer to the products that generate the best return overall and this has.
Just change the landscape quite a bit so we have to sort of we're still doing that work and still carefully thinking how that how we're going to change, but we think this offers up but it creates a number of advantages for us in the marketplace of where we are that an improved competitive position.
And can continue to to drive it that improved competitive position to overall drive growth.
On the second side I think we put a lot of work under investing platform over the last couple of years.
The user experience is better than ever on our robo.
On our other managed products largely distributed through our FCS, we've we've seen customers drive it pulling more assets and consolidate relationships with us as we build out those relationships over time.
So we are seeing really the pay off of that I can't point to a better outcome than the kiplinger surveyed rating us number one.
Thats a long standing survey that really looks at the investment capability of your platform and what you're offering your customers.
Thank you.
Next question is from Brian bundle with Deutsche Bank. Please go ahead.
Great. Thanks, very much maybe just to come back to the M&A discussion might appreciate your answer earlier about being in just opened to two ideas if you.
If for some of you obviously, if you think about some of the risks that could impede the ability to get to $6 that are out there outside of your control, mostly loosely rates and other competitive moves in balance that against.
Potential combinations doesn't make a big difference you mentioned value creation for shareholders.
Make a big difference.
For you to consider something that would be in end market consolidation versus combining with someone outside of the online brokerage industry and broadening out the consumer financial platform and of course.
Okay being a part of that.
Growth.
Growth business as as opposed to spin.
Being subject to cost cuts within market transaction.
Yes, Brian look I guess I'm not going to get specific about any particular transaction or style.
I think all of the most of you have published merger models in the past that focused on consolidation type transactions I would say your question at the point, you're making in the question is a very valid one with 7 million accounts and roughly that many customers and really the touch points, we have broadly.
Cross financial services.
Our corporate stock plan business is a is a strategic deal of the better deal.
I'm not going to speculate that on that except to say that obviously, we bring a lot of strategic value, including the most ethnic brand in financial services today.
Okay Fair enough and then just a housekeeping back to the.
You mentioned the possibility of moving the the savings accounts off balance sheet to just touching again on the timing of that and then the economics of.
How that would change.
Economic side, it's more flexibility it gives us the ability to optimize versus the sweet program, what cash is off what cash is on.
If the investment environment is there and it's the best thing to do to have it all on we could easily do that if it's not we can we can begin to optimize and move those positions. So think of about it as a tool that allows us to continue to grow those savings deposits over time without losing any capital flexibility for our balance sheet.
And Brian did that that flexibility will be available towards the end of the year.
Okay.
It would be something that would be a onetime move we're just.
He said overtime I think Mike mentioned, how we would do it right just how we manage overall duration of the portfolio. What we think is the best.
Use of capital so it would not something that is it would be something that would just be a tool in our tool box to manage our balance sheet.
Got it thank you very much.
Next question is from Mike carry with Bank of America Merrill Lynch. Please go ahead.
Alright. Thanks.
A quick one defend the updated $6 target.
Missing on the upper single digit revenue growth target can you explain just with the NIM compression.
And then when I think about the net new asset growth being around 2% versus that target.
If you make money on client assets.
Client assets or activity levels, how can you get see like a three multiple.
On that organic growth rate.
To get to like a revenue growth rate without.
Either pricing power a big shift.
Like advice.
Well look at.
We have and I think we've demonstrated this you can see some of the impact of it in the quarter.
A significant ability to grow cash and that comes from a number of areas.
The things that are sort of.
Our new and we talked about them in the prepared remarks or how we're thinking about it is we've upped our investment overall in financial consultants considerably that drives increased asset flows that drives increased cash.
We've taken sort of the growth rate in corporate services that has occurred that growth is already here, it's already booked on our platform, but we've taken that out to say what is that growth work in cash generation as we begin to move forward.
Putting that altogether.
That's really kind of the key revenue driver.
Along with the other revenue streams in our in our modeled approach.
And we think that theres going to be as we've already talked about.
Degree of lift from the improvement in competitive position to overall activity.
Okay. Thanks, a lot.
And our last question is from Michael Cypress with Morgan Stanley . Please go ahead.
Hey can anything thanks for fitting me in it.
Mike So it's been about a year since.
You guys concluded your strategic review and introduce new targets and since I mean, you've had time to assess and talk to shareholders and incremental owner. So I guess, just realizing the environment has changed versus a year ago and your targets have changed Im just curious what lessons you and your management team take away from the past 12 months.
Well look I think the commission change that we've seen in the market, we looked at and hoped that most competitors would have learned lessons of 2017.
That you really can't Gainshare that everyone has the ability to adjust.
Can adjust.
And would and with this day would not come for that reason.
What we've seen is irrational moves can happen.
They happened in 2017, and they happened again last month, so or sorry this month.
So one thing to think about as is the unexpected and what that drives but that said commissions were never source of growth in our modeling approach.
We had always seems we always model the degree of erosion due to the competition. So there were not really driving growth. They were really kind of almost a constant as volumes went up we are rooted CPT. So the growth potential of our model was never never hinged on what happened with commissions I drove from all the other factors in our business.
I think the results were show.
Well the plan, we're showing today and the results of this quarter really show that quite clearly.
Great and just a quick follow up on the rate environment, which continues to come in worse than I guess, many would have thought a year ago. So I guess the question is just if rates go to zero, how should we think about the impact to NIM and I seeing your disclosure you have to 25 basis point Cod is worth six basis points to simply multiply that across and looks like that NIM, maybe comes down to like too.
I'd airing or so but need to take into account portfolio rolling over so just hoping you can help us flush out kind of what's reasonable lower bound if I look back through 2014 look like a bottom down to 30 is that a reasonable level from zero rate environment or should it be a little bit lower or higher that how should we be thinking about that.
It really depends not just depends on whether the funds rate goes to zero again. It also depends on what term rates do.
We've been getting a lot of questions around kind of.
More scenarios, where we would see unprecedented lows in tenure rates or things like that it really depends and so thats why weve given you essentially nine scenarios of per twist and shape changes.
For a reasonable extensions are small movements increases those are somewhat linear but they can become they can become non linear as you kind of move either lower lower or higher and higher in rates, but I think thats why we provide you that detail. So that you can make those estimates.
Okay. Thank you.
No further questions I'll turn the call back.
I just want to thank everyone for joining us and look forward to speaking with you again next quarter. Thank you.
That does conclude your conference call for today, we thank you for participating and you may now disconnect.
Further.