Q4 2019 Earnings Call - Fixed Income

<unk> are facing and treasure like for dashi todays call will be hosted by Tom Roderick fixed income Investor Relations.

Yes, you. Please hold all questions until the completion of the formal remarks at which time you will be given instructions for the question and answer session.

Also as a reminder, this conference is being recorded today.

If you have any objections. Please disconnect at this time.

Mr. Roger you may begin.

Tom Rogers: Thank you, Maria. Good morning and thank you all for joining us. As Maria mentioned, I'm joined this morning by our Chief Financial Officer, Mark Mason, and our Treasurer, Mike Verdeschi. In a moment, Mike will take you through the Fixed Income Investor presentation, which is available for download on our website, citigroup.com.

Thank you Maria good morning, and thank you all for joining US as Ray mentioned I'm joined this morning by our Chief Financial Officer, Mark Mason, and our Treasurer and Mike for Dashi in a moment, Mike will take you through the fixed income investor presentation, which is available for download on our website Citigroup dot com afterwards, Mark and Mike will be happy to answer your questions.

David Brown: Afterwards, Mark and Mike will be happy to answer your questions. Before we get started, I'd like to remind you that today's presentation may contain forward-looking statements which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results and capital and other financial condition may differ materially from these statements due to a variety of factors, including the cautionary statements referenced in our discussion today, and those included in our SEC filings, including without limitation the risk factor section of our 2018 Form 10-K. With that said, let me turn it over to Mike. Thank you, Tom, and good morning, everyone. On today's call, I will cover a number of topics. First, I'll briefly discuss our 2019 operating results. Second, I will cover recent balance sheet trends, including growth in loans and deposits. Third, I'll review our issuance program.

Afterwards, Mark and Mike will be happy to answer your questions. Before we get started, I'd like to remind you that today's presentation may contain forward-looking statements which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results and capital and other financial condition may differ materially from these statements due to a variety of factors, including the cautionary statements referenced in our discussion today, and those included in our SEC filings, including without limitation the risk factor section of our 2018 Form 10-K. With that said, let me turn it over to Mike.

Before we get started I like to remind you that today's presentation may contain forward looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances actual results and capital and other financial condition may differ materially from these statements due to a variety of factors, including the Progenerics statements referenced in our discussion today and does include an RFP.

Filings, including without limitation, the risk factor section of our 2018 Form 10-K without that let me turn it over to Mike.

Mike Verdeschi: Thank you, Tom, and good morning, everyone. On today's call, I will cover a number of topics. First, I'll briefly discuss our 2019 operating results. Second, I will cover recent balance sheet trends, including growth in loans and deposits. Third, I'll review our issuance program.

Thank you Tom and good morning, everyone.

On today's call I will cover a number of topics.

First I'll briefly discuss our 2019 operating results.

Second I will cover recent balance sheet trends, including growth in loans and deposits.

Third.

We view, our issuance program and finally, I'll discuss our continued strong liquidity and capital position.

David Brown: Finally, I'll discuss our continued strong liquidity and capital position. Slide 3 summarizes our results for the fourth quarter and full year 2019. In 2019, we reported net income of $19.4 billion and achieved an ROTCE of 12.1%, ahead of our target. On slide 4, we show average balance sheet trends over the past five quarters in constant dollars. On this basis, we have grown our balance sheet by approximately 3% over the last year as we continue to leverage our global footprint to raise high-quality deposits across our institutional and consumer businesses to fund growth as we deepen relationships with clients. Sequentially, our balance sheet remained largely unchanged. In the fourth quarter, we continued to grow deposits and issued long-term debt to fund loan growth. Trading assets and liabilities declined given typical seasonality, and we grew investments as we optimized the balance sheet.

Finally, I'll discuss our continued strong liquidity and capital position. Slide three summarizes our results for the fourth quarter and full year 2019. In 2019, we reported net income of $19.4 billion and achieved an ROTCE of 12.1%, ahead of our target. On slide four, we show average balance sheet trends over the past five quarters in constant dollars. On this basis, we have grown our balance sheet by approximately 3% over the last year as we continue to leverage our global footprint to raise high-quality deposits across our institutional and consumer businesses to fund growth as we deepen relationships with clients. Sequentially, our balance sheet remained largely unchanged. In the fourth quarter, we continued to grow deposits and issued long-term debt to fund loan growth. Trading assets and liabilities declined given typical seasonality, and we grew investments as we optimized the balance sheet.

Slide three summarizes results for the fourth quarter and full year 2019.

In 2019, we reported net income of $19.4 billion and achieved an order of T.C.E. of 12.1% head of our target.

On slide four we show average balance sheet trends over the past five quarters in constant dollars.

On this basis, we have grown our balance sheet by approximately 3% over the last year as we continue to leverage our global footprint to raise high quality deposits across our institutional and consumer businesses.

On growth as we deepen relationships with clients.

Sequentially.

Balance sheet remain largely unchanged.

Fourth quarter, we continue to grow deposits and issued long term debt to fund loan growth.

Trading assets and liabilities declined given typical seasonality and we grew investments as we optimize the balance sheet.

Slide five presents trends in our loan portfolio on an average basis in constant dollars.

David Brown: Slide 5 presents trends in our loan portfolio on an average basis in constant dollars. Total Citigroup loans increased 3% year over year and 4% in aggregate across our consumer and institutional businesses. In our consumer franchise, average loans grew 4% year over year, driven by continued growth in North America and Asia. Average loans in Mexico were unchanged year over year, reflecting lower overall industry volumes. Overall loans on the institutional side grew 3% year over year. Breaking that down by business, TTS loans decreased 3% year over year as we continued to utilize our distribution capabilities to optimize the balance sheet while supporting our clients. Loans in corporate lending decreased 2%, reflecting the episodic nature of our clients' funding needs, as well as an active quarter in debt capital markets originations.

Slide five presents trends in our loan portfolio on an average basis in constant dollars. Total Citigroup loans increased 3% year over year and 4% in aggregate across our consumer and institutional businesses. In our consumer franchise, average loans grew 4% year over year, driven by continued growth in North America and Asia. Average loans in Mexico were unchanged year over year, reflecting lower overall industry volumes. Overall loans on the institutional side grew 3% year over year. Breaking that down by business, TTS loans decreased 3% year over year as we continued to utilize our distribution capabilities to optimize the balance sheet while supporting our clients. Loans in corporate lending decreased 2%, reflecting the episodic nature of our clients' funding needs, as well as an active quarter in debt capital markets originations.

Total citigroup loans increased 3% year over year, and 4% in aggregate across our consumer and institutional businesses.

Our consumer franchise average loans grew 4% year over year, driven by continued growth in North America and Asia.

Average loans in Mexico were unchanged year over year, reflecting lower overall industry volumes.

Overall loans on the institutional side drew 3% year over year.

Breaking that down by business TTS loans decreased 3% year over year as we continue to utilize our distribution capabilities to optimize the balance sheet, while supporting our clients.

Loans in corporate lending decreased 2%, reflecting the episodic nature of our clients funding needs as well as an active quarter in debt capital markets originations.

Private bank loans increased 13%, reflecting growth across regions, driven by both new clients as well as a deepening our relationships with existing clients.

David Brown: Private bank loans increased 13%, reflecting growth across regions, driven by both new clients as well as the deepening of relationships with existing clients. Finally, strong year-over-year Markets loan growth was primarily driven by residential and commercial real estate warehouse lending. Loans included in corp. other continued to decline, driven by the wind-down of legacy assets. On slide 6, we show credit quality trends in our GCB and ICG loan portfolios. As a reminder, this quarter we realigned our commercial banking business with all commercial banking activities now reported in ICG, including those previously reported as part of GCB. In GCB, overall credit trends remained favorable again this quarter. In ICG, non-accrual loans increased sequentially but remained low at 56 basis points of total corporate loans. Turning to slide 7, we show trends in average deposits over the past five quarters in constant dollars.

Private bank loans increased 13%, reflecting growth across regions, driven by both new clients as well as the deepening of relationships with existing clients. Finally, strong year-over-year Markets loan growth was primarily driven by residential and commercial real estate warehouse lending. Loans included in corp. other continued to decline, driven by the wind-down of legacy assets. On slide six, we show credit quality trends in our GCB and ICG loan portfolios. As a reminder, this quarter we realigned our commercial banking business with all commercial banking activities now reported in ICG, including those previously reported as part of GCB. In GCB, overall credit trends remained favorable again this quarter. In ICG, non-accrual loans increased sequentially but remained low at 56 basis points of total corporate loans. Turning to slide seven, we show trends in average deposits over the past five quarters in constant dollars.

Finally strong year over year markets loan growth was primarily driven by residential and commercial real estate warehouse lending.

And loans included in core bother continue to decline driven by the wind down of legacy assets.

On slide six we show credit quality trends in our GCB and ICICI loan portfolios.

As a reminder, this quarter, we realigned our commercial banking business with all commercial banking activities now reported in ice EG, including those previously reported as part of GCB.

In GCB overall credit trends remain favorable again this quarter.

I see G nonaccrual loans increased sequentially, but remained low at 56 basis points of total corporate loan.

Turning to slide seven we show trends in average deposits over the past five quarters in constant dollars.

Total deposits increased 9% from the prior year period.

David Brown: Total deposits increased 9% from the prior year period. In our consumer business, deposits increased 6%, driven by continued growth in North America and Asia. In North America, deposit growth accelerated to 7% with contribution from both traditional and digital channels. In our institutional business, deposits grew 10%, primarily driven by high-quality deposit growth in TTS. Now let me highlight our parent benchmark debt issuance program on slide 8. In 2019, we issued approximately $16 billion of parent-level benchmark debt across a variety of tenors, currencies, and structures. Last week, we issued just over $2 billion. Going forward, we'll continue to maintain the flexibility to issue a mix of tenors, currencies, and structures. On slide 9, let me cover our bank note issuance program. In 2019, we issued just under $9 billion of bank notes.

Total deposits increased 9% from the prior year period. In our consumer business, deposits increased 6%, driven by continued growth in North America and Asia. In North America, deposit growth accelerated to 7% with contribution from both traditional and digital channels. In our institutional business, deposits grew 10%, primarily driven by high-quality deposit growth in TTS. Now let me highlight our parent benchmark debt issuance program on slide eight. In 2019, we issued approximately $16 billion of parent-level benchmark debt across a variety of tenors, currencies, and structures. Last week, we issued just over $2 billion. Going forward, we'll continue to maintain the flexibility to issue a mix of tenors, currencies, and structures. On slide nine, let me cover our bank note issuance program. In 2019, we issued just under $9 billion of bank notes.

Our consumer business deposits increased 6% driven by continued growth in North America and Asia.

North America deposit growth accelerated to 7% what contribution from both traditional and digital channels.

In our institutional business deposits grew 10%, primarily driven by high quality deposit growth in teach yes.

Now, let me highlight our parents benchmark debt issuance program on slide eight.

2019, we issued approximately $16 billion parent level benchmark get across a variety of tenders currencies and structures.

Last week, we issue just over 2 billion.

Going forward, we'll continue to maintain the flexibility to issue a mix of tenders currencies and structures.

On slide nine let me cover a bank note issuance program.

In 2019, we issue just under 9 billion of banknotes.

David Brown: Going forward, we will continue to maintain the flexibility to issue across a variety of tenors, currencies, and structures as we drive the efficiency of our funding sources. On slide 10, let me cover our issuance, maturity, and redemption expectations. As I mentioned, during 2019, we issued $16 billion of parent benchmark debt with $16 billion of maturities. At the bank level, we issued $9 billion of bank notes with $12 billion of maturities across both bank notes and credit card securitizations. Looking to 2020, we expect gross issuance in and around $25 billion in aggregate across our parent benchmark and our bank-level programs, including the roughly $2 billion we issued last week. We will maintain the flexibility to optimize our funding through opportunistic redemptions. On slide 11, we show the composition of our long-term debt outstanding.

Going forward, we will continue to maintain the flexibility to issue across a variety of tenors, currencies, and structures as we drive the efficiency of our funding sources. On slide 10, let me cover our issuance, maturity, and redemption expectations. As I mentioned, during 2019, we issued $16 billion of parent benchmark debt with $16 billion of maturities. At the bank level, we issued $9 billion of bank notes with $12 billion of maturities across both bank notes and credit card securitizations. Looking to 2020, we expect gross issuance in and around $25 billion in aggregate across our parent benchmark and our bank-level programs, including the roughly $2 billion we issued last week. We will maintain the flexibility to optimize our funding through opportunistic redemptions. On slide 11, we show the composition of our long-term debt outstanding.

Going forward, we will continue to maintain the flexibility to issue across a variety of tenders currencies and structures as we drive the efficiency of our funding sources.

On Slide 10, let me cover our issuance maturity and redemption expectations.

As I mentioned during 2019.

We issued 16 billion apparent benchmark that was 16 billion of maturities.

At the bank level, we issued 9 billion of bank notes with 12 billion of maturities across both bank notes and credit card Securitizations.

Looking to 2020.

We expect gross issuance in and around 25 billion in aggregate.

Yes, our parents benchmark and our bank level programs, including the roughly 2 billion, we issued last week.

And we will maintain the flexibility to optimize our funding through opportunistic redemption.

On slide 11, we show the composition of our long term debt outstanding.

David Brown: During the fourth quarter, our total long-term debt increased by approximately $7 billion to $249 billion, driven by issuance out of our non-bank entities. On slide 12, we provide an update of our LCR metrics and drivers. Our average LCR increased modestly to 115% this quarter. Turning to slide 13, let me summarize our key regulatory capital metrics. Our CET1 capital ratio increased sequentially to 11.7%, driven by a decline in risk-weighted assets. Our SLRs were 6.2% and 6.8% for Citigroup and Citibank, respectively. Moving to our last slide, let me summarize several key points. First, we earned $19.4 billion of net income and achieved an ROTCE of 12.1%, ahead of our target for the full year.

During the fourth quarter, our total long-term debt increased by approximately $7 billion to $249 billion, driven by issuance out of our non-bank entities. On slide 12, we provide an update of our LCR metrics and drivers. Our average LCR increased modestly to 115% this quarter. Turning to slide 13, let me summarize our key regulatory capital metrics. Our CET1 capital ratio increased sequentially to 11.7%, driven by a decline in risk-weighted assets. Our SLRs were 6.2% and 6.8% for Citigroup and Citibank, respectively. Moving to our last slide, let me summarize several key points. First, we earned $19.4 billion of net income and achieved an ROTCE of 12.1%, ahead of our target for the full year.

During the fourth quarter total long term debt increased by approximately $7 billion to 249 billion driven by issuance out of our non bank entity.

On slide 12, we provide an update of our LCR metrics in drivers.

Average LCR increased modestly to 115% this quarter.

Turning to slide 13, let me summarize our key regulatory capital metrics.

Our C E T. One capital ratio increased sequentially to 11.7% driven by a decline in risk weighted assets.

So long as were 6.2% and 6.8% for Citi Group and Citi Bank, respectively.

Moving to our last slide let me summarize several key points.

First we earned $19.4 billion of net income and achieved an ROTC of 12.1% ahead of our target for the full year.

David Brown: Second, we maintain a strong capital and liquidity position with a CET1 capital ratio of 11.7% and an SLR of 6.2%, an average LCR of 115%, and an estimated NSFR of greater than 100%. We maintain a surplus above our TLAC requirement. Finally, we continue to further diversify and optimize our liquidity resources. Before we move on to Q&A, let me touch briefly on the transition away from LIBOR. Broadly speaking, we are continuing to prepare ourselves by working with our regulators and industry working groups, such as the Alternative Reference Rate Committee. As I've mentioned previously, we have several work streams which are focused on the transition related to a number of areas, including the impact on our clients, operational capabilities, and legal and financial contracts.

Second, we maintain a strong capital and liquidity position with a CET1 capital ratio of 11.7% and an SLR of 6.2%, an average LCR of 115%, and an estimated NSFR of greater than 100%. We maintain a surplus above our TLAC requirement. Finally, we continue to further diversify and optimize our liquidity resources. Before we move on to Q&A, let me touch briefly on the transition away from LIBOR. Broadly speaking, we are continuing to prepare ourselves by working with our regulators and industry working groups, such as the Alternative Reference Rate Committee. As I've mentioned previously, we have several work streams which are focused on the transition related to a number of areas, including the impact on our clients, operational capabilities, and legal and financial contracts.

Second we maintained a strong capital and liquidity position with a C E T. One capital ratio of 11.7% and in SLR of 6.2%.

An average LCR of 115% and an estimated and SFR upgraded and 100%.

We maintain a surplus above our t. lack requirement.

Finally, we continue to further diversify and optimize our liquidity resources.

Before we move on to keep an eye, let me touch briefly on the transition away from lie bar.

Broadly speaking, we're continuing to prepare ourselves by working with our regulators and industry working groups such as the alternative reference rate Committee.

As I've mentioned previously we have several work streams, which are focused on the transition related to a number of various including the impact on our clients operational capabilities and legal and financial contracts.

David Brown: We are scoping our contracts for the repapering efforts that will be required to both transition to new rates and ensure that fallback language is robust. We are encouraging adoption of industry-led protocols and solutions in order to ensure consistency where appropriate. We are making markets in new risk-free rates, as well as supporting the transition of legacy derivatives portfolios. Lastly, we've issued benchmark bonds referencing SOFR from both the bank and the parent, as well as preferred securities, which will reference SOFR once the fixed interest rate period ends. With regard to the unique language in the subset of our preferred securities, we are continuing to evaluate alternatives, including a potential exchange or amendment. As we mentioned last quarter, we continue to get more clarity on the various implications of a potential transaction, including industry feedback received from the SEC in the fourth quarter.

We are scoping our contracts for the repapering efforts that will be required to both transition to new rates and ensure that fallback language is robust. We are encouraging adoption of industry-led protocols and solutions in order to ensure consistency where appropriate. We are making markets in new risk-free rates, as well as supporting the transition of legacy derivatives portfolios. Lastly, we've issued benchmark bonds referencing SOFR from both the bank and the parent, as well as preferred securities, which will reference SOFR once the fixed interest rate period ends. With regard to the unique language in the subset of our preferred securities, we are continuing to evaluate alternatives, including a potential exchange or amendment. As we mentioned last quarter, we continue to get more clarity on the various implications of a potential transaction, including industry feedback received from the SEC in the fourth quarter.

We are scoping our contracts for the Repapering efforts that will be required to both transition to new rates and ensure that full back languages robust.

Our encouraging adoption of industry led protocols and solutions in order to ensure consistency where appropriate.

We are making markets in new risk free rates as well as supporting the transition of legacy derivatives portfolios.

And lastly, we've issued benchmark bonds referencing so far from both the bank and the parent as well as preferred securities, which will reference so for once the fixed interest rate period Dan.

[noise] with regard to the unique language in the subset of our preferred securities.

Continuing to evaluate alternatives, including a potential exchange or amendment.

As we mentioned last quarter, we continue to get more clarity on the various implications of a potential transaction, including industry feedback received from the FCC in the fourth quarter.

David Brown: And while we are not yet in a position to speak to a specific transaction or timing, we are continuing to make progress working through the alternatives and will continue to provide you with updates. And with that, Mark and I will be happy to answer your questions. Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, please press star, then the number one on your telephone keypad. Again, to ask an audio question, please press star, then the number one on your telephone keypad. Our first question comes from Hima Inguva of Bank of America. Thank you very much for taking my question and Happy New Year, Mark, Mike, and Tom. Always helpful that you do these calls, and I hope that other banks definitely follow the trend. Thank you. Thank you, Hima.

And while we are not yet in a position to speak to a specific transaction or timing, we are continuing to make progress working through the alternatives and will continue to provide you with updates. And with that, Mark and I will be happy to answer your questions.

And while we are not yet in a position to speak to a specific transaction or timing. We are continuing to make progress working through the alternatives and we'll continue to provide you with updates.

With that Mark and I will be happy to answer your questions.

Operator: Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, please press star, then the number one on your telephone keypad. Again, to ask an audio question, please press star, then the number one on your telephone keypad. Our first question comes from Hima Inguva of Bank of America.

[noise]. Thank you as a reminder, ladies and gentlemen, if you wish to ask a question. Please press Star then the number one on your telephone keypad.

Again, asking on your question. Please press Star then the number one on your telephone keypad.

Our first question comes from a lot of FEMA and I think on there.

Hima Inguva: Thank you very much for taking my question and Happy New Year, Mark, Mike, and Tom. Always helpful that you do these calls, and I hope that other banks definitely follow the trend.

[noise]. Thank you very much for taking my question happy new year.

And Tom.

Well see lots that you do these calls and I hope that other bank definitely follow the Trump.

Mike Verdeschi: [crosstalk], Hima.

Thank you. Thank you Hema.

So.

David Brown: So I'm going to start off with actually the, I apologize if I couldn't find this, but the breakdown between parent benchmark debt and the bank level debt, if you're willing to provide that. Yeah. So Hima, over the last couple of years, if you look at what we've issued, go back to 2018, we issued $30 billion, and that was broken down evenly between the bank and the parent. Last year, we issued $25 billion, and we issued less in the bank than we had done in the previous year, and the benchmark was roughly the same. This year, we're indicating in and around $25 billion. And at this point, it's hard to know exactly how that split will break down. It really will be a function of how our balance sheet evolves and grows and what our client needs are.

Hima Inguva: So I'm going to start off with actually the, I apologize if I couldn't find this, but the breakdown between parent benchmark debt and the bank level debt, if you're willing to provide that.

I don't see that's me I.

I apologize if I couldn't find this but the breakdown to can spend benchmark that in the bank.

So if you are going into for like that.

Mike Verdeschi: Yeah. So Hima, over the last couple of years, if you look at what we've issued, go back to 2018, we issued $30 billion, and that was broken down evenly between the bank and the parent. Last year, we issued $25 billion, and we issued less in the bank than we had done in the previous year, and the benchmark was roughly the same. This year, we're indicating in and around $25 billion. And at this point, it's hard to know exactly how that split will break down. It really will be a function of how our balance sheet evolves and grows and what our client needs are.

Yeah, So hemo over the last couple of years, if you look at what we this year.

Go back to 2018, we issued 30 billion and that was.

Broken down evenly between the bank in the parent last year, we issued 25 billion and we issued a lesson the bank that we had done in the previous year and the benchmark was roughly the same.

This year, we're indicating in and around 25 billion and at this point, it's hard to know exactly how that split will break down a it really will be a function of how our our balance sheet evolving grows and what our client needs are but if you look at the last few years gives you some sense of how.

David Brown: But if you look at the last two years, it gives you some sense of how those levels between those two programs can vary. Our next question comes from Scott Kavanagh of APG. Good morning, guys. Thanks for having us, as always. So on the issuance, specifically just looking at the maturities versus the issuance expectations on slide 10, what is the incremental issuance at the parent? Is that just balance sheet growth, or how should we be thinking about that? Yeah. Scott, it's Mike. I would say that there's a number of things that are always going to impact how we think about that issuance activity. It is going to be a function of how the balance sheet grows and how our clients engage us.

But if you look at the last two years, it gives you some sense of how those levels between those two programs can vary.

How those levels between those two programs can vary.

Operator: Our next question comes from Scott Kavanagh of APG.

Our next question comes from one [laughter] Covenant APTP.

[Analyst 1]: Good morning, guys. Thanks for having us, as always. So, on the issuance, specifically just looking at the maturities versus the issuance expectations on slide 10, what is the incremental issuance at the parent? Is that just balance sheet growth, or how should we be thinking about that?

Hi, Good morning, guys. Thanks morning Das as always.

So on the issuance specifically just looking at the maturities versus the issuance expectations on slide 10, we do see incremental issuance of that parent Oh, we said this balance sheet growth or how should we be thinking about that.

Mike Verdeschi: Yeah. Scott, it's Mike. I would say that there's a number of things that are always going to impact how we think about that issuance activity. It is going to be a function of how the balance sheet grows and how our clients engage us.

Yeah, Scott, it's Mike I would say that yeah, there's a number of things that always going to impact how we think about that issuance activity.

It is gonna be a function of how the balance sheet grows a growth in how our clients in engage us.

David Brown: Obviously, we think about TLAC as well, and we're running a good size buffer right now, but over the course of the year, that will decay. And then, of course, we'll be thinking about market conditions. And then market conditions right now are favorable. So we'll be looking at a number of factors, and that will really drive how we issue over the course of the year. Our next question comes from Arnold Kakuda of Bloomberg. Hi guys. Once again, thanks a lot for the call. Really helpful. So this question might be a little hard to answer, but I'll give it a shot anyway. So concerns about the coronavirus are growing, and as a global banking institution, with about 12% to 19% of your loans based out of Asia, you might have a unique perspective on, currently, what are you seeing now.

Obviously, we think about TLAC as well, and we're running a good size buffer right now, but over the course of the year, that will decay. And then, of course, we'll be thinking about market conditions. And then market conditions right now are favorable. So we'll be looking at a number of factors, and that will really drive how we issue over the course of the year.

Slate, we think about T. lack is well and we're running a a good size a buffer right now but over the course of the year on that well decay.

Then of course will be thinking about market conditions and market conditions right now or are favorable.

So we'll be looking at a number of factors.

And that will really drive how we issue over the course of the year.

Our next question comes from Arnold Kakuda of Bloomberg.

Our next question comes from one a phone on capital of Bloomberg.

Hi, guys. So once again, thanks, that's left the call really helpful.

Arnold Kakuda: Hi guys. Once again, thanks a lot for the call. Really helpful. So this question might be a little hard to answer, but I'll give it a shot anyway. So concerns about the coronavirus are growing, and as a global banking institution, with about 12% to 19% of your loans based out of Asia, you might have a unique perspective on, currently, what are you seeing now.

So this question might be you know little hard to answer but in all kinda shot anyway. So you know concerns about the crown of ours are growing and asset global banking institution with about 12% to 90% of your loans based out of Asia, you might have a unique perspective on you know currently what do you see.

We now and maybe if you can give some context of a you know what did you see maybe 17 years ago with Sars.

David Brown: Maybe if you can give some context of what did you see maybe 17 years ago with SARS? Hi, it's Mark. How are you? Good. How's it going? Good. As you described, that is a tough question to answer. I guess I'd address it in this way. Our primary concern, as you would imagine right now, is for the health and well-being of those impacted. We don't have any presence in Wuhan. That said, we do have operations in China and across the region. We have a continuity of business plan that's in place today. We're obviously focused on the safety of our employees and have taken a number of actions regarding restricting travel in order to ensure the safety of all employees. It's a fluid situation that we continue to monitor closely and will continue to do so over the coming period of time.

David Brown: Maybe if you can give some context of what did you see maybe 17 years ago with SARS?

Hi, it's mark how are you.

Mark Mason: Hi, it's Mark. How are you?

Arnold Kakuda: Good. How's it going?

Good you know that as you describe that is a.

Mark Mason: Good. As you described, that is a tough question to answer. I guess I'd address it in this way. Our primary concern, as you would imagine right now, is for the health and well-being of those impacted. We don't have any presence in Wuhan. That said, we do have operations in China and across the region. We have a continuity of business plan that's in place today. We're obviously focused on the safety of our employees and have taken a number of actions regarding restricting travel in order to ensure the safety of all employees. It's a fluid situation that we continue to monitor closely and will continue to do so over the coming period of time.

Question to answer I, I guess I'd I addressed it in this way our primary concern as you would imagine right now is for the health and wellbeing of those impacted and.

We don't have a any presents a into Hon. Hai that said, we do have operations in China and across the region.

We have a continuity a business plan that's in place today, we're obviously focused on the safety of our our employees and have taken a number of actions regarding restricting travel a in order to ensure a safety all employees. It's a it's a fluid situation that we.

We.

Continue to to monitor closely and we'll continue to do so over the over the coming period of time with regard to the Corona bars. That's really all we can say at this point it it's a a it's a situation.

David Brown: With regard to the coronavirus, that's really all we can say at this point. It's a situation that we're taking very seriously, and we're very focused on health and well-being. Our next question comes from Scott Frost of State Street Global Advisors. Hi. Thanks for taking the call. The question, just to—I think you touched on this—the FICC-related results in the last quarter, we shouldn't look at that. That seems to be more calendar-related. We shouldn't look at that as a sustainable level. I think that's correct, but correct me if I'm wrong on that. Yeah. So we did, in the fourth quarter, we saw very good FICC performance on the heels of a prior year, as you know, at the end of 2018, where there was serious pressure from an industry point of view on activity in markets broadly.

With regard to the coronavirus, that's really all we can say at this point. It's a situation that we're taking very seriously, and we're very focused on health and well-being.

That we're taking very seriously and we're very focused on on health and wellbeing.

Operator: Our next question comes from Scott Frost of State Street Global.

[laughter] or next question comes from minus Scott from a state Street political.

Scott Frost: Hi. Thanks for taking the call. The question, just to—I think you touched on this—the FICC-related results in the last quarter, we shouldn't look at that. That seems to be more calendar-related. We shouldn't look at that as a sustainable level. I think that's correct, but correct me if I'm wrong on that.

Hi, Thanks, Thanks for taking the call them.

The question I'm, just I think you'd touched on this the sick related results in last quarter, we shouldn't look at the that seems to be more calendar related we shouldn't look at that is a a sustainable level.

I think that's correct, but correct me if I'm wrong on that.

Mike Verdeschi: Yeah. So we did, in the fourth quarter, we saw very good FICC performance on the heels of a prior year, as you know, at the end of 2018, where there was serious pressure from an industry point of view on activity in markets broadly.

Yes. So so we did in the fourth quarter, we saw very good uptick performance on the heels of a prior year as you know at the end of 2018, where there was seriously serious pressure from an industry point of view on activity in markets broadly and so that.

David Brown: And so that strong performance is a byproduct of, we think, very strong continued engagement with our clients. But on a tough comparison from the, or a very poor comparison in terms of the prior year's performance, we do feel good about the engagement we're seeing with clients across the fixed income franchise. And we do expect to see continued strong engagement as we grow there and take share there. But the performance is a byproduct of that rebound in part. Our next question comes from Robert Smalley of UBS. Hi. Good morning. And thanks for doing the call again. A couple of things on. Thanks, Robert. Thanks. A couple of things on asset quality and one on preferreds quickly. Could you give us an update on Flex Loan and Flex Pay? How have they been performing so far, getting what you want out of that?

And so that strong performance is a byproduct of, we think, very strong continued engagement with our clients. But on a tough comparison from the, or a very poor comparison in terms of the prior year's performance, we do feel good about the engagement we're seeing with clients across the fixed income franchise. And we do expect to see continued strong engagement as we grow there and take share there. But the performance is a byproduct of that rebound in part.

<unk> as a byproduct of we think very strong continued engagement with our clients.

But on a on a tough comparison from the oriented very poor comparison in terms of the prior years performance. We do feel good about the engagement, we're seeing with clients across the fixed income franchise.

And we do expect to to see continued strong engagement as we grow there and take share there.

But the performance is a byproduct of that that rebound in part.

Operator: Our next question comes from Robert Smalley of UBS.

Our next question comes from minus Robert Smalley, Yes.

Robert Smalley: Hi. Good morning. And thanks for doing the call again. A couple of things on. Thanks, Robert. Thanks. A couple of things on asset quality and one on preferreds quickly. Could you give us an update on Flex Loan and Flex Pay? How have they been performing so far, getting what you want out of that?

Hi, good morning, and thanks for doing the call again, a couple of things shopping. Thanks, a couple of things on asset quality and one on preferred quickly could you give us an update on a flex loan and Flexpay how have they been performing so far getting what a you one out of that.

Also in the equity call.

David Brown: Also, in the equity call on asset quality, you spoke about episodic downgrades. When do these become a pattern? Are you starting to see any patterns there? And then finally, on preferreds, you have a few issues that are callable near the end of the year. Given the low-rate environment, the success you had with your recent issue, have you thought about bringing a call or anything like that forward on those? Thanks. Sure. So why don't I take kind of the first two, and then Mike, you can touch on the last ones. With regard to Flex Loan, so I guess I'd start by saying we feel very good about the execution we've seen in our North America consumer strategy in particular. We're getting, we think, very good traction in growing our penetration of our branded card customers.

Also, in the equity call on asset quality, you spoke about episodic downgrades. When do these become a pattern? Are you starting to see any patterns there? And then finally, on preferreds, you have a few issues that are callable near the end of the year. Given the low-rate environment, the success you had with your recent issue, have you thought about bringing a call or anything like that forward on those? Thanks.

On asset quality, you spoke about episodic downgrades when do you went to these become a pattern or are you starting to see any patterns. There and then finally on preferred.

You have a few issues that are callable near the ended the year given the low rate environment. The success, you've had a with a with the recent issue.

Have you thought about bringing a call or anything like that forward on those thanks.

Mark Mason: Sure. So why don't I take kind of the first two, and then Mike, you can touch on the last ones. With regard to Flex Loan, so I guess I'd start by saying we feel very good about the execution we've seen in our North America consumer strategy in particular. We're getting, we think, very good traction in growing our penetration of our branded card customers.

Sure. So why don't why don't I take kind of the first two and then Mike you can you can touch on the on the last one so with regard to flex loan. So yeah, I guess I'd start by saying, we feel very good about the execution, we that we've seen.

In our North America consumer strategy in particular, we're getting a we think very good traction.

In a in growing our penetration of our branded card customers. We think we're getting very good traction in a way of demonstrating our digital capabilities.

David Brown: We think we're getting very good traction in the way of demonstrating our digital capabilities as we've seen our digital deposit sales grow 7% and about roughly $6 billion in digital deposit sales. We also feel good about applying those digital capabilities to how we expand our lending offering. And so, as you referenced, in January, we launched Flex Loan. Flex Loan allows our customers to access funds by converting a portion of their existing credit line into a fixed interest payment personal loan. The results continue to be positive. Loan originations continue to grow. We're maintaining a strong credit profile. In April, we launched Flex Pay. That allows customers to select certain larger purchases or groups of certain purchases and pay for them over time. And while it's still early, we also there see good initial results. And again, while maintaining a strong credit profile.

We think we're getting very good traction in the way of demonstrating our digital capabilities as we've seen our digital deposit sales grow 7% and about roughly $6 billion in digital deposit sales. We also feel good about applying those digital capabilities to how we expand our lending offering. And so, as you referenced, in January, we launched Flex Loan. Flex Loan allows our customers to access funds by converting a portion of their existing credit line into a fixed interest payment personal loan. The results continue to be positive. Loan originations continue to grow. We're maintaining a strong credit profile. In April, we launched Flex Pay. That allows customers to select certain larger purchases or groups of certain purchases and pay for them over time. And while it's still early, we also there see good initial results. And again, while maintaining a strong credit profile.

As we've seen our digital deposit sales grow 7%.

On bearable roughly $6 billion in digital deposit sales. We've also we also feel good about applying those digital capabilities to how we expand our lending offering and so as you referenced a in January we launched a flex loan a flexible and allows our customers to.

Access funds by converting a portion of their existing credit line into a fixed interest payment personal loan.

The results continue to be positive.

Loan originations continue to grow we're maintaining strong credit profile.

In April we launched flex pay that allows customers to select certain larger purchases or groups of certain purchases and pay for them overtime.

And while it's still early we also there see good initial results and again, while maintaining a strong credit profile. So we feel good about those two products, but more broadly we feel good about progress, we're making with our North America consumer strategy and the capabilities, we're demonstrating on the heels of having made.

David Brown: So we feel good about those two products, but more broadly, we feel good about the progress we're making with our North America consumer strategy and the capabilities we're demonstrating on the heels of having made investments in our digital capabilities. With regard to the episodic downgrades on the corporate side that you referenced, look, when I look at the performance in our corporate lending portfolio and the cost of credit that we have for the full year there, it is in line with what we've talked about in the way of a normalized level of cost of credit. And so it's right in line with that. We did see a couple of episodics in Q4, but again, that aggregate level is consistent with what we would have expected.

So we feel good about those two products, but more broadly, we feel good about the progress we're making with our North America consumer strategy and the capabilities we're demonstrating on the heels of having made investments in our digital capabilities. With regard to the episodic downgrades on the corporate side that you referenced, look, when I look at the performance in our corporate lending portfolio and the cost of credit that we have for the full year there, it is in line with what we've talked about in the way of a normalized level of cost of credit. And so it's right in line with that. We did see a couple of episodics in Q4, but again, that aggregate level is consistent with what we would have expected.

Investments in our digital capabilities.

With regard to the episodic downgrades on the on the corporate side that you referenced.

Look we went when I look at the performance in our corporate lending portfolio and the cost of credit that we have a for the full year. There. It is inline with what we've talked about in a way of a normalized level of cost of credit. So it's it's right in line with that.

We did see a couple of episodic in the in the fourth quarter, but again that aggregate level is consistent with what we would have expected and when I look at a loss rates. They are they are very very low and and again inside of the range, we would've expected.

David Brown: When I look at loss rates there, they are very, very low and again, inside of the range we would have expected. We continue to have and focus on a high credit quality customer. So north of 80% is in investment grade in the way of the client focus that we have. We aren't seeing anything in particular that is of major concern. We obviously continue to watch very carefully in light of where we are in the cycle, but we aren't seeing any systemic areas of concern as we continue to monitor activity in the portfolio we have. Mike, you want to come in? Yeah. Sure. In terms of preferreds, and I would say similar to how I think about the broader issuance, we're always going to be monitoring and evaluating market conditions. That will be a factor.

When I look at loss rates there, they are very, very low and again, inside of the range we would have expected. We continue to have and focus on a high credit quality customer. So north of 80% is in investment grade in the way of the client focus that we have. We aren't seeing anything in particular that is of major concern. We obviously continue to watch very carefully in light of where we are in the cycle, but we aren't seeing any systemic areas of concern as we continue to monitor activity in the portfolio we have. Mike, you want to come in?

We continue to have and focus on a high credit quality customer so north of 80% is in a investment grade and the way of the client focus that we have.

And we aren't seeing anything in particular.

That is of a major concern we obviously continue to watch very carefully in light of where we are in the cycle, but we aren't seeing any systemic or areas of concern as we continue to monitor activity in the portfolio we have.

Mike you want to yeah sure.

Mike Verdeschi: Yeah. Sure. In terms of preferreds, and I would say similar to how I think about the broader issuance, we're always going to be monitoring and evaluating market conditions. That will be a factor.

In terms of preferred than I would say.

Similar to how I think about the broader issuing a we're always going to be monitoring and evaluating market conditions and.

That will be a factor, but then again of course will be actively looking at the balance sheet needs and the growth of that balance sheet, and therefore, where does that mean for our capital needs and right now where where maybe running a a bit high on 81 relative to where we could be running it but.

David Brown: But then again, of course, we'll be actively looking at the balance sheet needs and the growth of that balance sheet. And therefore, what does that mean for our capital needs? And right now, we're maybe running a bit high on AT1 relative to where we could be running it, but I would say that this is going to be an ongoing evaluation. We'll be looking at both issuance from an opportunistic perspective, but also looking at the needs over time. And then certainly, as it pertains to our calls, we'll always look at whether we do need the capital at that time and whether we wish to just call it away. And if we do need the capital, we'll look at the economics associated with leaving that particular preferred outstanding versus calling it and reissuing at the then current market levels.

But then again, of course, we'll be actively looking at the balance sheet needs and the growth of that balance sheet. And therefore, what does that mean for our capital needs? And right now, we're maybe running a bit high on AT1 relative to where we could be running it, but I would say that this is going to be an ongoing evaluation. We'll be looking at both issuance from an opportunistic perspective, but also looking at the needs over time. And then certainly, as it pertains to our calls, we'll always look at whether we do need the capital at that time and whether we wish to just call it away. And if we do need the capital, we'll look at the economics associated with leaving that particular preferred outstanding versus calling it and reissuing at the then current market levels.

I would say that this is going to be a an ongoing evaluation will.

I'd be looking at both a issuance from an opportunistic perspective, but also looking at the need over time.

And then certainly as it pertains to our call.

We'll always look at whether we do need the capital at that time and.

You know, whether we wish to just call it away and if we do need the capital we'll look at the economics associated with leaving that particular preferred outstanding versus calling it and reissuing at the at the then current market levels.

Our next question comes from one of smart killed Us Nike shelf.

David Brown: Our next question comes from Ilana Markino of MacKay Shields. Hey. Good morning. Just two questions. Just first of all, on the digital deposits gathering effort, to an extent, if you're more successful there, can that help kind of credit some of the issuance at the bank level? And is that strategy there more focused on providing services rather than just kind of rate paid and being a high payer? And then my second question was, with the issuance of the 20-year by the Treasury later this year, could that kind of change some of the tenors that you would focus on in terms of issuance at the holding company level? Thank you. Thank you, Mark. In terms of our bank issuance program, again, as I said earlier, we're going to be looking at a variety of factors that can impact the bank.

Operator: Our next question comes from Ilana Markino of MacKay Shields.

[Analyst 2]: Hey. Good morning. Just two questions. Just first of all, on the digital deposits gathering effort, to an extent, if you're more successful there, can that help kind of credit some of the issuance at the bank level? And is that strategy there more focused on providing services rather than just kind of rate paid and being a high payer? And then my second question was, with the issuance of the 20-year by the Treasury later this year, could that kind of change some of the tenors that you would focus on in terms of issuance at the holding company level? Thank you.

Hey, good morning, just two questions just first on the digital deposit gathering effort to an extent of your more successful there conduct help kind of credit some of the issuance of at the bank level and is that strategy. There more focused on providing services rather than just kind of rate paid and being at a rate hike payer and then my second question was with the issuance.

The other 20 year, but the treasury literacy or could that kind of change some of the 10 years that you were focused on the transition.

At the holding company level. Thank you.

Mark Mason: Thank you, Mark. In terms of our bank issuance program, again, as I said earlier, we're going to be looking at a variety of factors that can impact the bank.

Thank you Mark.

In terms of our our bank issuance program and.

Again as I said earlier, we're going to be looking at a variety of factors that can impact the bank and well look at market conditions, and we'll look at the needs of the balance sheet and if you look at over the past couple of years, we did issue a bit less in the bank last year then.

David Brown: We'll look at market conditions, and we'll look at the needs of the balance sheet. If you look at over the past couple of years, we did issue a bit less in the bank last year than we did in the previous year. Some of that was influenced by, I would say, the good momentum that we saw in deposits. That was true in the retail bank, but it was also true in our other businesses that we've mentioned before. In terms of digital, the focus really there is about engaging our consumer customers and thinking about that as a holistic engagement of that customer base. So what we want is a full offering of product for those customers. Digital is just part of that strategy.

We'll look at market conditions, and we'll look at the needs of the balance sheet. If you look at over the past couple of years, we did issue a bit less in the bank last year than we did in the previous year. Some of that was influenced by, I would say, the good momentum that we saw in deposits. That was true in the retail bank, but it was also true in our other businesses that we've mentioned before. In terms of digital, the focus really there is about engaging our consumer customers and thinking about that as a holistic engagement of that customer base. So what we want is a full offering of product for those customers. Digital is just part of that strategy.

We did in the previous year and some of that was influenced by I would say that good momentum that we saw in deposits and that was choosing to retail bank, but it was also true in our other businesses that we've mentioned before I in terms of digital.

The focus really there is about engaging our consumer customers and thinking about that is a holistic engagement of that have that customer base.

And so what we want is a full offering of product for those customers and digital is just part of that strategy. As we think about our deposit base. We are raising deposits both from traditional channels and a six major markets that we operated what utilizing digital capabilities allow.

David Brown: As we think about our deposit base, we're raising deposits both from traditional channels and the six major markets that we operate in. But utilizing digital capabilities allows us to grow deposits outside of that footprint. It allows us to grow deposits with a broader customer base that we have in our consumer bank. So it is not about rate. It's more about engaging our clients from a broader perspective. Our next question comes from Jessie Rosenthal of CreditSights. Good morning. Morning. Morning. Just a quick one from you guys on LIBOR, and definitely echo everyone's appreciation for these periodic updates. But you mentioned the SEC response to the ARRC letter that came in December. And I think it was last call, last quarter, you had talked about the IRS and Treasury guidance that came out.

As we think about our deposit base, we're raising deposits both from traditional channels and the six major markets that we operate in. But utilizing digital capabilities allows us to grow deposits outside of that footprint. It allows us to grow deposits with a broader customer base that we have in our consumer bank. So it is not about rate. It's more about engaging our clients from a broader perspective.

This to grow deposits outside of that footprint allows us to grow deposits with a broader customer base that we have in our consumer bank.

So it is not about.

Right, it's more about engaging our clients in it from a broader perspective.

Operator: Our next question comes from Jessie Rosenthal of CreditSights.

Our next question comes from line of Jesse Rosenthal credit side.

Jesse Rosenthal: Good morning. Morning. Morning. Just a quick one from you guys on LIBOR, and definitely echo everyone's appreciation for these periodic updates. But you mentioned the SEC response to the ARRC letter that came in December. And I think it was last call, last quarter, you had talked about the IRS and Treasury guidance that came out.

Morning.

Good morning.

Just a quick one from me guys on lie boring and definitely ACO everyone's appreciation for these periodic updates, but you mentioned the FCC response to the air RC letter. They came in December and I think it was last call last quarter, you talked about the IRS and treasury guidance. They came out and just wondering what other sorts of sort of dominoes may be out.

David Brown: Just wondering what other sorts of sort of dominoes may be out there that we should be looking for as the industry progresses and as you kind of contemplate dealing with the legacy securities via amendment or exchange. Sure. It's Mike. Look, there's been a number of factors that have come out, and we're actively evaluating all of those. It's hard to know what else may come through, but I would say what we're broadly looking at is understanding the implications of our alternatives. I've talked about an amendment or an exchange. Some of those alternatives could be the impact of whether that transaction could be deemed extinguishment or whether that's just a modification. So that was a key. Then also the adoption of, I would say, a lot of the legacy language and the protocols.

Just wondering what other sorts of sort of dominoes may be out there that we should be looking for as the industry progresses and as you kind of contemplate dealing with the legacy securities via amendment or exchange.

There that we should be looking for as the industry progress is as you kind of contemplate a dealing with legacy Securities fly Amendment or exchange.

Mike Verdeschi: Sure. It's Mike. Look, there's been a number of factors that have come out, and we're actively evaluating all of those. It's hard to know what else may come through, but I would say what we're broadly looking at is understanding the implications of our alternatives. I've talked about an amendment or an exchange. Some of those alternatives could be the impact of whether that transaction could be deemed extinguishment or whether that's just a modification. So that was a key. Then also the adoption of, I would say, a lot of the legacy language and the protocols.

Sure, it's Mike and.

There's been a number of factors that are that have come out and we're actively evaluating all of those it's hard to know what what else may come through but I would say what were broadly looking at is understanding the implications of our alternatives and I talked about an.

Amendment or an exchange and some of those alternatives could be the impact of whether.

That transaction can be deemed extinguishment or whether that's just a modification on so that that was a key.

And then also.

The adoption of I would say a lot of the legacy language and the protocol those roll things more broadly that the industry is still working towards and I would say that continues to be an evolution.

David Brown: Those are all things more broadly that the industry is still working towards. I would say that continues to be an evolution. From the preferred perspective, again, all this information that continues to come in just ensures that we have a good line of sight in terms of how we evaluate our potential options. That's both for us and our investors. So again, we just want to make sure we're taking a thorough evaluation of it and that we continue to operate in a way that's consistent with industry standards. Our next question comes from Jeff Bernstein of Insight Investment. Hi. Three short questions. Hong Kong exposure, would we expect in 2020 the rate of growth to decline, or do you have a specific target as to what you might want to get to?

Those are all things more broadly that the industry is still working towards. I would say that continues to be an evolution. From the preferred perspective, again, all this information that continues to come in just ensures that we have a good line of sight in terms of how we evaluate our potential options. That's both for us and our investors. So again, we just want to make sure we're taking a thorough evaluation of it and that we continue to operate in a way that's consistent with industry standards.

You know from the preferred perspective.

Again, all this information that that continues that come in jets ensures that we have a good line of sight in terms of how we evaluate our potential options and that's both for us and our investors. So again, we just want to make sure we're taking a thorough evaluation of it and that.

We continue to operate in a way that's consistent with industry standards.

Operator: Our next question comes from Jeff Bernstein of Insight Investment.

Our next question comes from a lot of Jeff Bernstein of inside investment.

Jeff Bernstein: Hi. Three short questions. Hong Kong exposure, would we expect in 2020 the rate of growth to decline, or do you have a specific target as to what you might want to get to?

Hi, three short questions Hong Kong exposure.

We expect in 2020 the rate of growth to decline or do you have a specific target as to what you might want to get to second thing. The besides change in a FICO calculations kind of impact you think that will have on you guys. If at all or what kind of reaction you might have to it and lastly on the library.

David Brown: Second thing, the publicized change in the FICO calculations, what kind of impact do you think that'll have on you guys, if at all, or what kind of reaction you might have to it? And lastly, on the LIBOR question, a little different angle. How would you handicap the possibility that it remains quoted after the current drop-dead date? Great. So why don't I start on Hong Kong? So look, we've been in Hong Kong for over 100 years. We've monitored the situation there over the past number of months. In terms of the underlying performance, we've got our loans. If you look at kind of the top 25 country exposures that we put out in Q3, our loans were roughly about $15 billion or so. Our total exposure there was roughly about $53 billion.

Second thing, the publicized change in the FICO calculations, what kind of impact do you think that'll have on you guys, if at all, or what kind of reaction you might have to it? And lastly, on the LIBOR question, a little different angle. How would you handicap the possibility that it remains quoted after the current drop-dead date?

Cash and a little different angle, what how would you handicap the possibility that it remains quoted after the current a drop dead date.

Mark Mason: Great. So why don't I start on Hong Kong. So look, we've been in Hong Kong for over 100 years. We've monitored the situation there over the past number of months. In terms of the underlying performance, we've got our loans. If you look at kind of the top 25 country exposures that we put out in Q3, our loans were roughly about $15 billion or so. Our total exposure there was roughly about $53 billion.

Great. So why don't why don't I start on ER on on Hong Kong. So look we've been we've been in Hong Kong for over 100 years.

We've monitored the situation there over the over the past number of months in terms of the underlying performance. We've got our loans. If you look at kind of a top 25 country exposures that we put out in the in the third quarter, our loans were roughly about $15 billion or sell our.

Oh sure there was roughly about $53 billion, we've seen good growth in the way of a in a way of our activity our loan activity, there wouldn't and secured lending and more broadly we would expect to see notwithstanding the environment.

David Brown: We've seen good growth in the way of our activity, our loan activity there with unsecured lending and more broadly. We would expect to see, notwithstanding the environment there, we would expect to see continued client engagement over the course of 2020. It continues to be an important market for us as we move forward inside of the Asia region. Yeah. In terms of the LIBOR question, obviously, we're still a couple of years away. It's hard to know at this point what that handicap may look like. I would say the industry clearly has been focused on the transition. I would say a lot of what's been done to date has been planning for the broader effort. Clearly, as we've been doing, we've been making markets in those risk-free rates. We've been issuing off of that index as well, such as SOFR.

We've seen good growth in the way of our activity, our loan activity there with unsecured lending and more broadly. We would expect to see, notwithstanding the environment there, we would expect to see continued client engagement over the course of 2020. It continues to be an important market for us as we move forward inside of the Asia region.

Yeah, we would expect to see a continued client engagement over the course of.

2020, and it continues to be an important market for us as we as we move forward and inside of B The Asia region.

Mike Verdeschi: Yeah. In terms of the LIBOR question, obviously, we're still a couple of years away. It's hard to know at this point what that handicap may look like. I would say the industry clearly has been focused on the transition. I would say a lot of what's been done to date has been planning for the broader effort. Clearly, as we've been doing, we've been making markets in those risk-free rates. We've been issuing off of that index as well, such as SOFR.

And in terms of the the libel or question, obviously, we're still a couple of years away.

It's hard to know at this point Oh, what that Handicap may look like I would say the industry clearly has been focused on on the transition I would say a lot of what's been done to date has been has been planning for the broader efforts are clearly as we've been doing we've been making.

Markets in those risk free rates, we've been issuing off of that index as well such as so for and so there is a good amount of transition that still needs to take place in terms of execution, including building liquidity in these risk free rates.

David Brown: And so there's a good amount of transition that still needs to take place in terms of execution, including building liquidity in these risk-free rates. There's a lot of work to be done on contracts as well. It's just hard to know right now, though, what the probability of banks continuing to quote beyond the end of 2021. I think the industry's focus has been and will continue to be on ensuring that by the end of 2021 that we are ready to transition away. In terms of your other question, which was around the significance of the FICO changes, we operate in markets where FICO is a factor and in markets where it's less of a factor in terms of how those markets have developed from a credit rating point of view.

And so there's a good amount of transition that still needs to take place in terms of execution, including building liquidity in these risk-free rates. There's a lot of work to be done on contracts as well. It's just hard to know right now, though, what the probability of banks continuing to quote beyond the end of 2021. I think the industry's focus has been and will continue to be on ensuring that by the end of 2021 that we are ready to transition away.

There's a lot of work to be done on contracts as well, it's just hard to know right now, though what the.

The probability of banks continuing to quote beyond that the end of 2021 I think the industry's focus has been and we'll continue to be on ensuring that by the end of 2021 that we are ready to transition away.

In terms of your other question, which was around these significant so the FICO changes and we operate in markets, where FICO is a factor any markets, where it's a less less of a factor in terms of how those markets have developed for me a credit rating point of view FICO as a result.

Mark Mason: In terms of your other question, which was around the significance of the FICO changes, we operate in markets where FICO is a factor and in markets where it's less of a factor in terms of how those markets have developed from a credit rating point of view.

David Brown: FICO, as a result, is one of many factors that we consider when we think about the lending activity that we do with customers. But we tend to focus on the higher-end customers, whether they're corporate customers or consumer customers, and how we assess their credit is a combination of things, including FICO. Our next question comes from the line of Brian Monteleone of Barclays. Hey. Thanks. Good morning. Morning. Morning, Brian. Hey. So Maganis talked about kind of the efforts that you're undergoing in terms of scoping out contracts that are in need of repapering. Can you talk a little bit just about what you've learned in terms of the size of that effort? And then also just kind of do you have a timeline in mind for kind of completing that work? And then you referred to the kind of updated guidance from IRS and from FASB.

FICO, as a result, is one of many factors that we consider when we think about the lending activity that we do with customers. But we tend to focus on the higher-end customers, whether they're corporate customers or consumer customers, and how we assess their credit is a combination of things, including FICO.

It is a is one of many factors that we consider when we think about the lending activity. When we do that we do with customers, but we tend to focus on the higher and customers, whether their corporate customers or consumer customers and how we assessed their credit is is it.

Combination of Ah things, including cycle.

Our next question comes Carolina, Brian monthly own of Barclays.

Operator: Our next question comes from the line of Brian Monteleone of Barclays.

Hey, Thanks, good morning.

[Analyst 3]: Hey. Thanks. Good morning.

Hi, Brian Hey, so Mike any talks about kind of the efforts that you are undergoing introduce scoping out contracts that are in need of Repapering can you talk a little bit just about like what you learned in terms of like the size of that effort and then also just because you have like a a timeline in mind for kind of comply.

Mike Verdeschi: Morning, Brian.

[Analyst 3]: Hey. So Maganis talked about kind of the efforts that you're undergoing in terms of scoping out contracts that are in need of repapering. Can you talk a little bit just about what you've learned in terms of the size of that effort? And then also just kind of do you have a timeline in mind for kind of completing that work? And then you referred to the kind of updated guidance from IRS and from FASB. Do you have any kind of timeline in mind for when you expect those proposals to be finalized?

Meeting that that work and then you referred to the kinda updated guidance from IRS than from fast. We do you have any kind of timeline from a in mind for what do you expect a those proposals to be finalized.

David Brown: Do you have any kind of timeline in mind for when you expect those proposals to be finalized? So in terms of the repapering efforts, again, this is pretty broad in terms of how we're thinking about that. Obviously, it's going to pertain more to, I would say, the corporate loan books. Really, that involves a lot of the centralizing of those contracts, the digitizing of those contracts to enable a smoother transition, and whether that's including amendments or being able to transition to those new rates. So it's going to take some time. I don't have the exact timeline on it because there's those contracts which you may want to digitize, but then, of course, you may have more bespoke contracts that will be a little more involved. So it's hard to know exactly what that timeline looks like.

Mike Verdeschi: So in terms of the repapering efforts, again, this is pretty broad in terms of how we're thinking about that. Obviously, it's going to pertain more to, I would say, the corporate loan books. Really, that involves a lot of the centralizing of those contracts, the digitizing of those contracts to enable a smoother transition, and whether that's including amendments or being able to transition to those new rates. So it's going to take some time. I don't have the exact timeline on it because there's those contracts which you may want to digitize, but then, of course, you may have more bespoke contracts that will be a little more involved. So it's hard to know exactly what that timeline looks like.

So in terms of the Repapering efforts.

Again this is pretty broad in terms of how we're thinking about that obviously, it's going to pertain more too I would say the corporate loan books and really that involves a lot of decentralizing of those contracts digitizing of those contracts.

To.

Enable a smooth transition and whether that's.

Including amendments or being able to transition to those new rates.

So it's going to it's going to take some time I don't have the exact timeline on it because there's those.

Contracts, which you may want to digitize, but then of course, you may have more bespoke contracts that.

We'll be a little more involved so it's hard to know exactly with that timeline looks like but clearly as I've said before.

David Brown: But clearly, as I've said before, we are operating with the assumption that we transition away from LIBOR by the end of 2021. So all of our efforts are aimed to get that work done in advance of that date. And again, in terms of the broader work going on, again, we're taking that information. We're evaluating it in terms of what our alternatives may be and making sure that we understand the implications very clearly on us and our investors. Again, with all these efforts, very clear focus in terms of the timeline that we need to be operating under. We know what that transition entails, at least in terms of timing. So that just remains a key factor for us, is that ultimate transition away from LIBOR. It's a firm-wide effort. Our next question comes from David Jiang of Prudential. Hey, guys.

But clearly, as I've said before, we are operating with the assumption that we transition away from LIBOR by the end of 2021. So all of our efforts are aimed to get that work done in advance of that date. And again, in terms of the broader work going on, again, we're taking that information. We're evaluating it in terms of what our alternatives may be and making sure that we understand the implications very clearly on us and our investors. Again, with all these efforts, very clear focus in terms of the timeline that we need to be operating under. We know what that transition entails, at least in terms of timing. So that just remains a key factor for us, is that ultimate transition away from LIBOR. It's a firm-wide effort.

We are operating.

With the assumption that we transition away from line bar by the end of 2021, so all of our effort to aimed to get that work done a in advance of that date and again in terms of the.

In terms of the broader work going on again, where we're taking that information we're evaluating it a in terms of what our alternatives may be and making sure that we understand the implications very clearly on us and our investors again with all these efforts are very.

Clear focus in terms of the timeline that we need to be operating under a we know what that transition you know intel's at least in terms of timing. So that just remains a key factor for us is that ultimate transition away from from LIBOR, So far and wide effort.

Our next question comes from a lot of David Chang of credential.

Operator: Our next question comes from David Jiang of Prudential.

Hi, guys I think a quick question on the.

David Jiang: Hey, guys. I had a quick question on the issuance plan. I noticed in 2019 and even in 2020, there's no securitization. Is there not a need for further securitizations out of the credit card trusts?

David Brown: I had a quick question on the issuance plan. I noticed in 2019 and even in 2020, there's no securitization. Is there not a need for further securitizations out of the credit card trusts? Hi. It's Mike. I would say that when we've looked at the note program, we've seen very good demand in that program. And of course, we're evaluating the economics and other factors that impact the notes, including FDIC fees. So I would say our lead has been with bank notes rather than securitization. But obviously, that program is something that we still could utilize over the course of the year. It's really just been a preference for bank notes based on the demand and the economics. But we'll be evaluating all of our funding levers over the course of the year as we normally would.

Oh the issuance plan.

I noticed in 19 and even in 20, there's no securitization is there.

You're not a need for further securitizations out of the record Trust.

Hi, It's Mike I would say that when we've looked at the note program, we've seen very good demand.

Mike Verdeschi: Hi. It's Mike. I would say that when we've looked at the note program, we've seen very good demand in that program. And of course, we're evaluating the economics and other factors that impact the notes, including FDIC fees. So I would say our lead has been with bank notes rather than securitization. But obviously, that program is something that we still could utilize over the course of the year. It's really just been a preference for bank notes based on the demand and the economics. But we'll be evaluating all of our funding levers over the course of the year as we normally would.

In that program and of course were evaluating the economics and other factors that that impact the notes, including.

FDIC fees, so I would say our lead has been with bank notes, rather then securitization but.

Obviously that that program is something that we still could utilize a over the course of the year. It's really just spend a preference for bank notes pace on the demand and the economics, but we'll be evaluating all of our funding levers over the course of the year as we normally would.

Our next question comes online I'm thinking of Bank of America.

David Brown: Our next question comes from Hima Inguva of Bank of America. Great. Thank you very much. I just have a couple more questions from me. I would like to know your expectation around SCB and how you're factoring that into your plans for preps and subdebt. So are you expecting SCB to be finalized for 2020 CCAR? That's the first question. And then your thinking around how that factors into your overall plan that you laid out for preps as well as subdebt. Yeah. So I'll get that started. So look, I mean, just based on the public statements that are out there, we expect that we will get some version of the SCB prior to the submission for the 2020 CCAR cycle. We certainly welcome the greater clarity. We're obviously, between now and then, continuing to work on our CCAR process.

Operator: Our next question comes from Hima Inguva of Bank of America. Great.

Great. Thank you very much either.

Hima Inguva: Thank you very much. I just have a couple more questions from me. I would like to know your expectation around SCB and how you're factoring that into your plans for preps and subdebt. So are you expecting SCB to be finalized for 2020 CCAR? That's the first question. And then your thinking around how that factors into your overall plan that you laid out for preps as well as subdebt.

Couple more questions for me I would like to know your expectation CB and how you're factoring that into.

You are planned for perhaps than sub debt. So are you expecting you'd need to be fine lightweight BC card. That's the first question and then and then you're thinking around how that talk you can do you know you had overall plan that you laid out for Uh huh.

Yes.

Yes, so I'll get that started so look I mean, just based on the public statements that are that are out there. We expect that we will get some version of the FCB prior to the submission for the 2020 see CCAR cycle.

Mark Mason: Yeah. So I'll get that started. So look, I mean, just based on the public statements that are out there, we expect that we will get some version of the SCB prior to the submission for the 2020 CCAR cycle. We certainly welcome the greater clarity. We're obviously, between now and then, continuing to work on our CCAR process.

We certainly welcome to greater clarity, we're obviously between now and then continuing to work on our see CCAR process and as we've done in the past.

David Brown: As we've done in the past cycles, we'll submit a robust, incredible plan based on our bank-holding company scenarios and with, obviously, consideration for the regulatory scenarios whenever they come in. And whenever we get clarity on SCB, we'll incorporate that accordingly. I guess what I'd point out is I'd point you back to some extent to our CET1 targeted level, if you will, targeted ratio of about 11.5%. We're at 11.7% now. And when we think about that target that we've set, we've factored in, obviously, the regulatory minimum at about 4.5%. We're at 4.5%, another 3 percentage points for the G-SIB score that we carry. And then as a proxy for the stress capital buffer, we have another 3 percentage points. And then, obviously, a management buffer of about 100 basis points.

As we've done in the past cycles, we'll submit a robust, incredible plan based on our bank-holding company scenarios and with, obviously, consideration for the regulatory scenarios whenever they come in. And whenever we get clarity on SCB, we'll incorporate that accordingly. I guess what I'd point out is I'd point you back to some extent to our CET1 targeted level, if you will, targeted ratio of about 11.5%. We're at 11.7% now. And when we think about that target that we've set, we've factored in, obviously, the regulatory minimum at about 4.5%. We're at 4.5%, another 3 percentage points for the G-SIB score that we carry. And then as a proxy for the stress capital buffer, we have another 3 percentage points. And then, obviously, a management buffer of about 100 basis points.

Past cycles will submit a robust incredible plan.

Based on our bank holding company scenarios and and with obviously consideration for the regulatory scenarios whenever they come in and whenever we get clarity on FCB will.

Incorporate that accordingly, I guess, what I'd point out is I'd point, you back to some extent to RCT one targeted level. If you will targeted ratio of about 11.5% were at 11, seven now and when we think about that target that we've set a week.

Factored in obviously, the regulatory minimum at about 4.5% or at 4.5% another three percentage points for the GCIB score that we carry.

And then as a proxy for the stress capital buffer we have another three percentage points.

And then obviously a management buffer of about 100 basis points and so we factored in based on what we know today and based on output from prior year scenarios, but as we get more information, we'll obviously moved to two factor that into our analysis I in time for the the submission.

David Brown: So we factored in based on what we know today and based on output from prior year scenarios. But as we get more information, we'll obviously move to factor that into our analysis in time for the submission, notwithstanding not having received it yet. Yeah. And Hima, it's Mike. I think you were asking about the preferreds. And all I would say is that we're really not taking a different approach. As we've talked about in the past, as calls come due, we're going to evaluate the need for that capital. You can see we're running a little bit above our AT1 target now. But again, we'll take a view on what our capital needs are going forward and whether it's an opportunity or not to call that security. Our next question comes from Scott Kavanagh of APG. Thanks, guys, for putting me back in the queue.

So we factored in based on what we know today and based on output from prior year scenarios. But as we get more information, we'll obviously move to factor that into our analysis in time for the submission, notwithstanding not having received it yet.

Notwithstanding not having received the yet.

Yeah, and he made its Mike I think you are asking about the preferred then well I would say that we're really not taking a different approach.

Mike Verdeschi: Yeah. And Hima, it's Mike. I think you were asking about the preferreds. And all I would say is that we're really not taking a different approach. As we've talked about in the past, as calls come due, we're going to evaluate the need for that capital. You can see we're running a little bit above our AT1 target now. But again, we'll take a view on what our capital needs are going forward and whether it's an opportunity or not to call that security.

As we've talked about in the past says as calls come do we're going to evaluate the need for for that capital.

You can see we're running a little bit above our 81 target now, but again, we'll take a view on what our capital needs are.

Going forward and whether it's.

An opportunity or not too to call that security.

Operator: Our next question comes from Scott Kavanagh of APG.

Our next question comes from one of Scott Kevin off of a PD.

Thanks, guys to bring it back in the queue up so two questions on C.. So we saw a number of your peers put out varying levels of disclosure.

[Analyst 1]: Thanks, guys, for putting me back in the queue. So, two questions on CECL. We saw a number of your peers put out varying levels of disclosure on it. How are you guys thinking about that going forward? And then secondly, for your private label portfolio, how do we think about the RSA agreements? And I know they're all tailored, but how should we be thinking about that, the balancing of the provisioning and the varying levels of flexibility under those contracts?

David Brown: So two questions on CECL. We saw a number of your peers put out varying levels of disclosure on it. How are you guys thinking about that going forward? And then secondly, for your private label portfolio, how do we think about the RSA agreements? And I know they're all tailored, but how should we be thinking about that, the balancing of the provisioning and the varying levels of flexibility under those contracts? Okay. In terms of CECL, I referenced on the earnings call that we expect the day-one impact to increase the reserves by about 29%, which is in line with the guidance that I'd given in the past. That roughly equates to about $4 billion. When we look at that from a regulatory perspective, it's about 6 basis points on the CET1 capital in 2020.

How are you guys see about that going forward. It then secondly for your private label portfolio. How do we think about the RC agreements I know there or tailored, but how should we be thinking about that the bouncing up the provisioning and.

Levels.

Flexibility under those.

Contracts.

Mark Mason: Okay. In terms of CECL, I referenced on the earnings call that we expect the day-one impact to increase the reserves by about 29%, which is in line with the guidance that I'd given in the past. That roughly equates to about $4 billion. When we look at that from a regulatory perspective, it's about 6 basis points on the CET1 capital in 2020.

Okay in terms of in terms of Cecil I referenced on the on the earnings call a and at that we are we expect the day one impact to increase the reserves by about 29%.

Which is in line with the guidance that I'd given in the past that roughly equates to about $4 billion.

When we look at that from a regulatory perspective, it's about six basis points on the C. One capital.

In 2020.

When you break down that $4 billion, given our consumer and our corporate.

David Brown: When you break down that $4 billion, given our consumer and our corporate businesses, the lion's share of it is out of the consumer business due to cards. That's roughly $4.8 billion is due to cards and really changing the coverage and increasing that from 14 to 23 months. There's a decrease on the corporate side of about $800 million. That's due to more precise usage of tenors, so rounding to the next quarter versus year, as well as incorporating estimated recoveries. The combination of those two gets us to that roughly $4 billion. We factored that into how we've thought about our go-forward targets and are comfortable managing to that. As it relates to disclosure going forward, that's going to, obviously, there are guidelines around the disclosure.

When you break down that $4 billion, given our consumer and our corporate businesses, the lion's share of it is out of the consumer business due to cards. That's roughly $4.8 billion is due to cards and really changing the coverage and increasing that from 14 to 23 months. There's a decrease on the corporate side of about $800 million. That's due to more precise usage of tenors, so rounding to the next quarter versus year, as well as incorporating estimated recoveries. The combination of those two gets us to that roughly $4 billion. We factored that into how we've thought about our go-forward targets and are comfortable managing to that. As it relates to disclosure going forward, that's going to, obviously, there are guidelines around the disclosure.

Businesses, the the Lions share of it is out of the consumer business due to cards.

That's roughly $4.8 billion is due to cards and you really changing the coverage and increasing that from 14 to 23 months.

There's a decrease on the corporate side of about $800 million.

And that's due to more precise usage of tenors, so rounding to the next quarter versus.

Versus year as well as incorporating a estimated recoveries and so the combination of those to get us to that roughly $4 billion.

We factored that into how we thought about our our go forward targets.

And are comfortable managing you know to that as the as it relates to disclosure going forward.

You know that's going to obviously, they're guidelines around the disclosure and the level the level of Cecil impact will.

David Brown: The level of CECL impact will vary from quarter to quarter based on the balances that we have and how they grow through the course of the year. The mix, whether they are on the card side, branded cards versus retail services versus on the corporate side, as well as the economic assumptions that are out there, including the probability of recession and severity of recession. So there are a number of factors that will influence kind of the day-two impact. We, obviously, will work to ensure that we provide disclosure that is consistent with the guidelines that have been given. Then in terms of the second part of your question, the NCLs generally impact the revenue-sharing agreements and not the reserves. Our next question comes from Scott Frost of State Street Global Advisors. Thanks for the follow.

The level of CECL impact will vary from quarter to quarter based on the balances that we have and how they grow through the course of the year. The mix, whether they are on the card side, branded cards versus retail services versus on the corporate side, as well as the economic assumptions that are out there, including the probability of recession and severity of recession. So there are a number of factors that will influence kind of the day-two impact. We, obviously, will work to ensure that we provide disclosure that is consistent with the guidelines that have been given. Then in terms of the second part of your question, the NCLs generally impact the revenue-sharing agreements and not the reserves.

Barry from quarter to quarter based on the balances that we have and how they grow.

Through the through the course of the year and the mix whether they are on the card side branded cards versus retail services versus versus on the corporate side as well as the economic assumptions.

That are that are out there, including the probability of recession and severity of.

Have a recession and so there are number of factors that will influence kind of the day to impact and we are we obviously will work to ensure that we provide disclosure that is consistent with the with the guidelines that are that have been giving.

And then in terms of the second part of your question the end CLS.

Generally impact the revenue sharing agreements and not.

Not the not to reserves.

Operator: Our next question comes from Scott Frost of State Street Global.

Our next question comes from Atlanta, Scott from a state Street level.

Scott Frost: Thanks for the follow. Just to touch on preferreds once again, I just want to make sure I'm getting where your head's at on preferred issuance. I mean, I understand low rates, tight spreads, and especially what looks like with five-year through SOFR for very low backends. Is it fair to say that you're thinking of this particular vintage of new and potential preferreds as more permanent in nature, or is that a reach? And also, I have a follow-up for your TLAC issuance, just to clarify.

Thanks for the follow just to just to touch on preferred is one once again.

David Brown: Just to touch on preferreds once again, I just want to make sure I'm getting where your head's at on preferred issuance. I mean, I understand low rates, tight spreads, and especially what looks like with five-year through SOFR for very low backends. Is it fair to say that you're thinking of this particular vintage of new and potential preferreds as more permanent in nature, or is that a reach? And also, I have a follow-up for your TLAC issuance, just to clarify. Yeah. Look, with the preferreds, I mean, typically, when you're issuing and you can see what we have outstanding, they will have some call feature to them. And so we embed that purposely in the structure. And I'm sorry, your second question? Well, it was, should we think of these as more permanent in nature, or is that a reach?

Just to make sure I'm getting where your heads out on on preferred issuance.

I understand low rates tight spreads and especially what looks like it with five year through so for very low backend.

Is it fair to say that you're thinking of these this particular vintage of new potential preferred is more permanent in nature or is that.

Reach.

And also a follow up for.

Like issuance just to clarify.

Mike Verdeschi: Yeah. Look, with the preferreds, I mean, typically, when you're issuing and you can see what we have outstanding, they will have some call feature to them. And so we embed that purposely in the structure. And I'm sorry, your second question?

Yes look with the preferred to mean typically when you're issuing and you can see but we have outstanding they will have some.

Call feature to them and so a you know we embed that purposely.

Infrastructure.

I'm sorry, you your your second question.

Well. It was we should we think of these is more permanent in nature or is that is that is that a reach.

Scott Frost: Well, it was, should we think of these as more permanent in nature, or is that a reach?

Again, I would say that is as we looked at all of our structures.

David Brown: Again, I would say that as we've looked at all of our structures, there's a call feature. And when that call is eligible, we'll evaluate the need for maintaining that or not. Okay. And on TLAC, I mean, again, Scott's questions were about rationale for issuance. But what I heard you say was growth in potential issuance at HoldCo could be related to balance sheet growth or for resolution purposes. There's no specificity there. Should we also weave in ROTCE targets as a factor in how you're going to issue? Well, look, I think when we're issuing, we're, again, including a variety of factors. And first, when we think about our liability structure, we're focused on maintaining a good amount of liquidity. We want to have the right amount of liquidity for the firm. We want to have diversification of those liquidity resources.

Mike Verdeschi: Again, I would say that as we've looked at all of our structures, there's a call feature. And when that call is eligible, we'll evaluate the need for maintaining that or not.

Theres a call feature and when that I'll call is eligible we'll evaluate the need for maintaining that or not.

Okay and on T. like I mean again.

Mark Mason: Okay. And on TLAC, I mean, again, Scott's questions were about rationale for issuance. But what I heard you say was growth in potential issuance at HoldCo could be related to balance sheet growth or for resolution purposes. There's no specificity there. Should we also weave in ROTCE targets as a factor in how you're going to issue?

Strong Scott's questions were about.

Rationale for issuance, but what I heard you say was growth in potential issuance at holdco could be related to balance sheet growth or for resolution purposes. There is no specificity.

There.

Should we also we then ROTC targets as a factor in and how you're going to issue.

Look I think when were issuing where again, including a variety of factors and first when we think about our liability structure. We're focused on maintaining a good amount of liquidity, we want to have the right amount of liquidity for the firm we want to have diversification.

Mike Verdeschi: Well, look, I think when we're issuing, we're, again, including a variety of factors. And first, when we think about our liability structure, we're focused on maintaining a good amount of liquidity. We want to have the right amount of liquidity for the firm. We want to have diversification of those liquidity resources.

Those liquidity resources, when I think about the issuance program, we won a broad investor base, but that being said you heard me talk a lot about optimization.

David Brown: When I think about the issuance program, we want a broad investor base. With that being said, you heard me talk a lot about optimization of our funding sources. And that optimization is about both liquidity management, but ensuring that we're also being smart and economical about those sources of liquidity. So we certainly do think about the economics and certainly manage the balance sheet in a way that is facilitating our client needs, but also optimization with a focus on returns too. And again, when you look at how we've issued over the past couple of years by running out just from dollars to overseas currencies, again, there's a play there to broaden our investor base, but also looking at the economics associated with issuing in foreign currency and swapping back to dollars. So a number of factors will play in.

When I think about the issuance program, we want a broad investor base. With that being said, you heard me talk a lot about optimization of our funding sources. And that optimization is about both liquidity management, but ensuring that we're also being smart and economical about those sources of liquidity. So we certainly do think about the economics and certainly manage the balance sheet in a way that is facilitating our client needs, but also optimization with a focus on returns too. And again, when you look at how we've issued over the past couple of years by running out just from dollars to overseas currencies, again, there's a play there to broaden our investor base, but also looking at the economics associated with issuing in foreign currency and swapping back to dollars. So a number of factors will play in.

Our funding sources and that optimization is about both liquidity management, but ensuring that we're also being smart an economical about those sources of liquidity. So we certainly do think about the economics.

And certainly manage the balance sheet in a way odd that is facilitating our client needs, but also optimization with a focus on returns to and again when you look at how we've issued over the past couple of years.

By broadening out just from dollars to overseas currencies.

Again, there's a play there to broaden our investor base, but also looking at the economics associated with issuing in foreign currency and swapping back to dollar. So a number of factors will play in a but returns is something of course that we are optimizing is wells, we think about our funds.

David Brown: But returns is something, of course, that we are optimizing as well as we think about our funding. All right. I appreciate the comments. Thank you. Our next question comes from Dev Garner of Wilbanks Smith & Thomas. Hi. Yeah. Can you just clarify on the legacy liability structure for the legacy preferreds? Would it be your preference to exchange or amend that on the capital trust securities? And secondarily, can you just review historically the last couple of years, given where capital levels are, the strategic rationale for maintaining these capital trust securities? Thank you. Yeah. I think you're talking about the trusts. And as we've said before, it doesn't make sense at this time. And I think some time ago, we said, "We'll never say never." But at this time, that's just not something that we are looking to pursue.

But returns is something, of course, that we are optimizing as well as we think about our funding. All right.

Okay.

I appreciate the comments thank you.

Scott Frost: I appreciate the comments. Thank you.

Our next question comes from one of stuff going on there as well thanks nothing Thomas.

Operator: Our next question comes from Dev Garner of Wilbanks Smith & Thomas.

Hi, Yes can you just clarify on the legacy Livewatch structure for the legacy preferred would it be your preference to exchange or amend that on the capital Trust Securities and secondarily can you just review like historically the last couple of years given more capital.

[Analyst 4]: Hi. Yeah. Can you just clarify on the legacy liability structure for the legacy preferreds? Would it be your preference to exchange or amend that on the capital trust securities? And secondarily, can you just review historically the last couple of years, given where capital levels are, the strategic rationale for maintaining these capital trust securities? Thank you.

Levels are.

The strategic rationale for maintaining these capital Trust securities. Thank you.

Mike Verdeschi: Yeah. I think you're talking about the trusts. And as we've said before, it doesn't make sense at this time. And I think some time ago, we said, "We'll never say never." But at this time, that's just not something that we are looking to pursue.

Yeah, I think on I think you're talking about the ends and as we've said before it doesn't.

Make sense at this time and I think sometime ago, We said, we'll never say never but at this time, that's not just not something that we're looking to pursue.

[noise] and ladies and gentlemen.

David Brown: And ladies and gentlemen, we have time for one more question. Our final question will come from Ilana of Barnkill, of MacKay Shields. Hey. Good morning again. Just in terms of the Treasury's plan to issue a 20-year bond, is that an area that you would like to issue at? And also, if you were to issue a 20-year, would that mean that you would reduce issuance at a 10-year or reduce issuance at the 30-year part of the curve, or does it really function of what's on the other side of the balance sheet? Thank you. Yes. Thanks, Mark. Thanks for that question again. And when we look at issuance, as we've done in previous years, we're going to look at a variety of tenors. Ideally, we're not issuing in just a few different tenors, but are issuing across the curve.

Operator: And ladies and gentlemen, we have time for one more question. Our final question will come from Ilana of Barnkill, of MacKay Shields.

We have time for one more question. My final question will come from the line of Park Hill of Mackie shales.

[Analyst 5]: Hey. Good morning again. Just in terms of the Treasury's plan to issue a 20-year bond, is that an area that you would like to issue at? And also, if you were to issue a 20-year, would that mean that you would reduce issuance at a 10-year or reduce issuance at the 30-year part of the curve, or does it really function of what's on the other side of the balance sheet? Thank you.

Hey, good morning, again, just in terms of that the treasuries plan to issue, a 20 or more with that it's not an area that you'd like to shot on goal. So if you were to issue 20 or would that mean that you would reduce the issuance of the tenure R&D should reduce issues at the 30 are part of the curve artillery a function of what's on the outside of the promise you. Thank you.

Yeah. Thanks, Mark Thanks for that question again and.

Mike Verdeschi: Yes. Thanks for that question again. And when we look at issuance, as we've done in previous years, we're going to look at a variety of tenors. Ideally, we're not issuing in just a few different tenors, but are issuing across the curve.

When we look at issue and says we've done in previous years, what were going to look at a variety of [laughter] ideally would not issuing in just a few different tenors, but our issuing across the curve Ah that's going to be informed by a desire to keep a good amount observed.

David Brown: That's going to be informed by a desire to keep a good amount of diversification across the tenors and not have it concentrated in one area. Again, it's going to be a function of where that investor demand is. You saw us start off the year with an 11 non-call 10. That 10-year part of the curve has traded quite well. There's been good demand there. So that's where we started the year. In terms of 20, that is, again, a tenor point that we will evaluate. Again, we'll be looking at how good of a demand we have for that tenor point. But it's hard to know what we would do. I think your question also was if we did some 20s, would that take away from 10s? Again, I think we're going to try to issue across a variety of tenors.

David Brown: That's going to be informed by a desire to keep a good amount of diversification across the tenors and not have it concentrated in one area. Again, it's going to be a function of where that investor demand is. You saw us start off the year with an 11 non-call 10. That 10-year part of the curve has traded quite well. There's been good demand there. So that's where we started the year. In terms of 20, that is, again, a tenor point that we will evaluate. Again, we'll be looking at how good of a demand we have for that tenor point. But it's hard to know what we would do. I think your question also was if we did some 20s, would that take away from 10s? Again, I think we're going to try to issue across a variety of tenors.

Certification across the tenders and not having a concentrated in one area and again, it's going to be a function of where that investor demand is and you saw start off the year with 11 non call 10 that 10 year part a curve.

Has traded quite well there has been good demand there so thats, where we started the year in terms of 20.

That is again they tend to point that we will evaluate.

But again, we'll be looking at how good of a have a demand we have for that 10 or points, but it's hard to know what we would do I think your question also was if we did some twentys would that take away from tens.

Again, I think we're going to try to issue across a variety of tenders, but it's hard to know exactly right now what.

David Brown: But it's hard to know exactly right now how far out we will go and then what impact that may have on other tenors. That does conclude the question and answer session for today. Mr. Rogers, do you have any closing remarks? I just wanted to thank everyone for joining the call today. Of course, if you have any follow-up questions, please feel free to reach out to us in investor relations. Thank you. Thank you, ladies and gentlemen. This does conclude today's call. You may now disconnect and have a wonderful day.

But it's hard to know exactly right now how far out we will go and then what impact that may have on other tenors.

How far out we will go and then what impact that may have on other tenders.

Operator: That does conclude the Q&A session for today. Mr. Rogers, do you have any closing remarks?

And that does conclude the question and answer session for today Mr. Roger do you have any closing remarks.

Tom Rogers: I just wanted to thank everyone for joining the call today. Of course, if you have any follow-up questions, please feel free to reach out to us in investor relations. Thank you.

Hi, good morning, everyone for joining the call today and of course, if you have any follow up questions. Please feel free to reach out to us Investor relations. Thank you.

Operator: Thank you, ladies and gentlemen. This does conclude today's call. You may now disconnect and have a wonderful day.

Thank you ladies and gentlemen, this does conclude today's call you may now disconnect and have a wonderful day.