Q3 2020 Bank of New York Mellon Corp Earnings Call
Ladies and gentlemen, good morning, and welcome to the 2023rd quarter Earnings Conference call hosted by Ellen.
Time, all participants are in a listen only mode. Later, we will conduct a question and answer session.
Please note that this conference call and webcast will be recorded and will consist of copyrighted material you may not record or rebroadcast these materials without being why mellon's consent.
I will now turn the call over to my double Chin Scott.
And why not whats global head of Investor Relations. Please go ahead.
Good morning, welcome to be in $1 third quarter Twentytwenty earnings Conference call today, we will reference our financial highlights presentation available on the Investor Relations page of our website one no one dot com.
Okay, then being one that would see O will lead the call today.
And most importantly, our CFO will take you through our earnings presentation.
Following these prepared remarks, there will be a key when they session.
Before we begin please note that our remarks include forward looking statements and non-GAAP measures. It for me.
Information about these statements and non-GAAP measures are available in the earnings press release.
No just stuff summit and financial highlights presentation, all available on the Investor Relations page of our website.
<unk> looking statements made on this call speak only as of today October 16 to 2020 and below the updated.
I will hand over to Todd.
Thank you Mary and good morning, everyone first.
First of all I want to welcome families to her first results call.
No.
Most of you are just getting to know Emily and as you spend more time with her I think you'll agree that having been a number of business leadership roles as well as having had experience in the finance function that really brings a perspective that conditions are exceptionally well for the school so well.
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Before handing it over to review the financials in more detail, let me touch on some highlights in terms of our performance.
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For the third quarter, we reported revenue of 3.85 billion earnings per share Nike insights at a solid return on tangible common equity of 17%.
Our operating margin was resilient at 3% despite the impact of low interest rates and I remain as money market fee waivers.
And with our share repurchase is suspended now for two consecutive quarters, we have created significant capital increasing our common equity tier one ratio to 13%.
During the third quarter volumes and volatility continued to normalize.
At the same time interest rates trended a bit lower.
As we look into next year I believe the underlying strength of our franchise will become more apparent as we expect to have most of the run rate impact of lower rates and associated with money market fee waivers or earnings.
That's why we can start to more clearly demonstrate the progress we're making around our key priorities of driving organic growth.
While you're going to balance sheet and executing our vision two parties.
Notwithstanding the challenging current environment. This is smoking.
There's a smoke continues to generate significant excess capital.
We look forward to refinancing share buybacks as soon as regulators and market conditions, which we expect to be meaningfully accretive yes.
Now there are many opportunities across our business to differentiate ourselves with clients, while addressing a broader set of their needs the crisis.
The crisis, it's increased the frequency and intensity in my conversations with clients as we help them navigate related issues.
They're adapting to a rapidly changing environment, that's are assessing what they do across their operations. They want to know how we can help them.
And optimize their data.
How to be more efficient and effective in what they do on a day to day basis.
Servicing where there wasn't any more deals in our pipeline is stronger than it was at this time last year I didn't get the reflection of the quality of our service as well as the unique set of capabilities that we can deliver for the front middle and back office.
This is of course in addition to providing more capacity and securities London.
This is a year ago, we are seeing positive trends and went on retention rates and in our pipeline.
Those are becoming more complex across product and solution space.
For example, we have recently been selected to provide a range of services.
Financial burden, that's one of Canada's largest insurance and wealth management group.
75 billion Canadian dollars and assets under management the bad.
The bad they encompass it's funny accounting into ministration custody foreign exchange and a full data and analytics suite of solutions, incorporating but they default and do the studio performance measurement and reporting and Middle Office services, we're continuing to invest in building out our cloud based data and analytics offerings integrated that into our.
Subservicing core business clients.
Clients Trust us with 30 trillions of dollars of data.
Assets on our software, including trillions, where assets are saying it's elsewhere.
And over 20% of our pipeline deals now include data and analytics products. Just one example, which I mentioned last quarter is our new D.S.G. Ah that allows portfolio managers to create investment portfolios customized individuals yesterday preferences using multiple data sources the support from crowdsource guidance around that for you.
She factors and priorities, let's be real data that's out there that doesn't quite an active trials that were just in discussions with over 100 more well.
We're also thinking about how we can integrate capabilities like this when developing holistic solutions for our clients.
In person the bulk of money market fee waivers is being absorbed by this business masking the underlying good performance as the core long term drivers remain intact. The pipeline is robust and the underlying performance of the business is strong.
They are critically assessing their business model and their cost structures. This is particularly true self clearing capital markets firms that are increasingly looking to reduce cost and free up capital by outsourcing their trade settlement in clearing and turning it to us as a result of that.
Year to date, new assets on an annualized basis, our strong at over 4% our pipe.
Our pipeline has further improved with an increase of almost 50% and newly signed business from our idea is increasingly value are made to be platform, especially at the custodian industry consolidation, where traditionally serve larger already practices that are now expanding our addressable market to grow this client base and we're maintaining our leading market share in the book.
Or dealers.
Parents, and collateral management and service 3.4 trillion dollars and Tri party assets globally.
Ongoing digital enhancements should continue to drive revenue growth from our existing client base as well as from new clients that are entering the platform.
They accelerate their needs to automate operations access access real time data and focus on process optimization and digitalization in this challenging operating environment.
Our offerings, which include collateral optimization and advanced analytic solutions allow clients to move a manual to automated straight through processing fees, while optimizing their global securities inventory, which is proven for them to reduce funding and operating costs and enhance their available liquidity.
We also expect more plans to convert balances from the bilateral repo and securities lending markets to our Tri Party platform as the <unk> the batteries and remain tied to global asset quality and operational efficiencies that they've got a Tri party.
Investment in wealth management had solid revenue growth positive long term flows and good performance this quarter.
Cost of 30 top strategies by revenue, which accounts for about 60% of plans long term annualized revenue, 74% of those peer rankings that are the top two quartiles on a three year basis.
Well I guess that's out there she started her role as CEO of investment management.
We also recently appointed John de Simone as CEO about central what is the world's largest managers are part of the credit.
I'm excited to work with them to accelerate our growth by leveraging of centers drags in Europe, and increasing their market position or the less.
There's an opportunity to grow this manager quite a bit faster.
Across investment management were also investing in technology and developing offerings in the T.S.U.S.G. and alternatives to align our investment capabilities are evolving client demands and I think.
And I think it's gonna nicely complement our leading positions in for example, LDR active fixed income global cinematic equity as well as private credit.
In wealth management client acquisition and started to pick up again with the resumption of the socially distance in person meetings, we're investing in talent initiatives, such as strengthening our family office, offering and technology and digital tools to support advisors and their clients.
We often speak about the importance of controlling expenses. This is especially critical in this low rate environment. We continue to identify opportunities to improve automation operational enhancements our approach to deciding between reinvesting expense savings and allowing them to fall to the bottom line is based on a rigorous amount.
Losses, including investments and prioritizing them.
The ones with the most attractive our lives as well as taking a careful look at their payback periods. We're also assessing the long term structural opportunities kind of this current work environment. There's no question, we're going to have a meaningful impact and how we work on the future and we will need to be agile.
We expect it will impact our real estate footprint our location strategy.
The need for convention, besides marketing and business development as it is.
The acceleration of our Digitization efforts with our clients.
Now building, a scalable and resilient operating model as a core part of our strategy.
It will enable us to optimize and streamline the interactions across our businesses technology and operations all in the interest of serving clients and driving growth.
That's what we've got to drive an advanced agenda more rapidly. We recently made the decision to bring operations and technology together originated <unk> leadership.
More directly connecting operations and technology into a single operating model, we're taking a holistic approach brings together, but that still both functions and I think it's going to give us the ability to share enterprise capabilities prioritize investments reengineering digitized processes more quickly to drive scale and agility as well as doing better.
Innovation and automation across end to end try in Germany, and create more agile client centric teams.
Now, let me turn to capital returns on September 17th the Federal Reserve release scenario for a second round of tying stress test and that was followed by September thirtyth announcement that share buyback and dividend increase restrictions have been extended for the fourth quarter.
We are now working through the analysis and the modeling as we're giving them 45 days from the date of receipt of this matters to submit our plan.
We continue to believe that our low risk highly capital generative model positions us very well through this test.
We will commence buybacks as soon as possible with the decision to be informed by the economic and regulatory environment cotton as well as the outcome of the resubmitted capital plans based on the new scenarios in the meantime, we continue to accrete significant amounts of capital.
Stress capital buffer I'll, just remind you gives us flexibility in terms of capital return policy and so it is a matter of when and not a moderate.
As a reminder, we also opportunistically issued $1 billion for stock during the second quarter and that will probably it provides the opportunity to restock our capital once we kind of recommence buybacks.
We are committed to attractive levels of shareholder returns and we continue to aim to return at least 100% of earnings to shareholders over time.
Before I conclude my comments I want to welcome Robin bed. So its just joined US as Vice Chairman Bill I know it and CEO of global market infrastructure with oversight of clearance and collateral management Treasury services markets and Persian.
Bringing these complimentary businesses together under his experienced leadership will better position us to become the central facilitator, and our clients' capital markets ecosystems across markets asset classes and geographies I'm excited to have Robin with US. She is an accomplished and respected leader in the industry, who has held a number of leadership positions at Goldman Sachs.
Including serving as our Chief risk Officer Treasurer head of operations at the global money market as CEO of the international back.
I'm also very pleased with how the leadership team has come together, it's a highly talented energize and diverse group that is willing to truly challenge each other to make it was all stronger.
To wrap up well by uncertainty certainly lives in terms of how the pandemic involved and its impact on the on the global economy.
We have also significant uncertainty about the size and form of future stimulus programs as well as political developments, but given that I am certain that the team we have in place we'll continue to navigate these challenges by executing on our strategic priorities.
I'm also proud that our employees across the company and work diligently throughout this unprecedented time to provide great client service. We entered this crisis from a position of strength and have an unwavering focus on building ever greater value for stakeholders going forward. So.
So with that I'll turn it over to <unk>.
Thank you Todd and the kind introduction and good morning, everyone.
I'm going to be candid myself and acquire all comparisons will be on a year over year basis, unless I specify otherwise.
Getting on kids shoe and financial highlights document.
In the third quarter of 20 trucking, we reported revenue of 3.8 billion down less than 1% yeah.
Yeah, I mean I hate that.
As expected revenues were negatively impacted a little interest rate and associated dining Mcafee manners.
Great any marketer factors underlying fees when it then.
I think good momentum across many of our businesses.
Expenses were up.
4%. However, it is important to note that 3% of the increase was driven by the tax related reserve release in the third quarter of 2019.
Pre tax margin of 30% and we posted ROTC, a 16.7% and RMB 8.7%.
Okay, Anthony office when nine nine.
We continue to create substantial excess capital and are in a good position to radian buybacks and regulators and market conditions allow corn on corn, both our ski T. One and tier one leverage ratio improved meaning a fight at 40 and 30 basis points respectively.
Take three steps out of trend analysis, the main driver of the quarterly results and.
Services revenue was 2.9 billion down 4% net interest revenue was down 11%, while scheme turned down 2%, including the impact of money market fee waivers.
Healthy underlying growth across asset servicing or Jane Treasury services, and corporate Trust, which I will discuss later.
Investment and wealth management revenue increased 3% largely driven by higher market value only outcomes and you just see strong investment performance and our largest strategies with positive long term flows this quarter.
The impact of money market fee waivers on our consolidated fee revenue net of distribution and servicing expenses, but the 101 million and acquire.
Slightly better than the 100 times 125 million that we previously guided kit.
An increase of 22 million quarter on quarter.
We provided you detailed the impact I did that.
<unk> expense in the appendix at the tie back.
Finally, despite the contraction in high margin revenue this year and lower interest rates and more recently the absence of share buyback how are you.
Pretax income margin and he asks are healthy although down versus a year ago.
But I want to summarize the piano and notable items in the year ago period in order to largely offsetting items, but relevant as we look at various components of the Keno Hill.
One of the least inheriting negatively impacting and I are in the third quarter of 2019.
There is a net reduction of reserves that benefited I admit that in the prior year quarter turn.
Turning to slide five.
Capital and liquidity ratios remain strong and well above internal target and regulatory.
How about equity tier one capital totaled just over 21 billion at September 30, and.
And our CK, one ratio was 13% under the advanced approach and search and a half percent under the standardized approach.
As a reminder, under the new stress capital buffer law that became effective on July 1st we are required to maintain standardized EG one ratio on 8.5%, including the 2.5% stress capital buffer floor and a 1.5% GCIB surcharge.
Q1 Library currently our binding constraint you did the buffers, we need to hold for potential growth in our deposit base given balance sheet.
Were comfortable operating the ratio of around 5.5% to 6% versus the 4% regulatory Atlanta I think.
6.5%, our tier one leverage ratio is well above our target and we expect to accrete more capital in the fourth quarter.
Finally, our average LCR, the third quarter and then 111%.
In terms of shareholder capital return.
Third quarter, we continued our suspension of share repurchases and will do so again in the fourth quarter underlying that federal reserve restrictions for Chicago banks.
We continue to pay our quarterly cash dividend, which totaled 279 million.
[laughter].
And believe we have ample capacity to continue to pay dividends under a variety of economic scenarios.
Turning to page six my comments on net interest revenue well highlight the sequential change it.
Net interest revenue of 703, Diana was down 10%.
Within the range, we provided for the second quarter results despite rates coming in a little lower and when the time over to kind of at the time.
The other impact through implementation of balance sheet optimization strategy.
A full quarter of lower livewatch as well as lower rates in general well use the yield on the securities portfolio Boeing.
Earning assets for example.
During the one and three month LIBOR levels were down 20, and 36 cents respectively.
Although asset yield impacts were partially offset by the related benefit of lower funding costs.
The rate environment also girls MBS prepayment activity slightly higher than expected that acquire as I.
As I said, we were able to offset some of that might head away through the deploying that cash into a larger securities portfolio.
More of our deposit balances I see that Additionally, we benefited from the high end long term debt outstanding.
Turning to slide seven summarizes deposit and security is China.
Average deposit balances remained strong at 279 million up 23% versus the third quarter of 2019.
Positive growth reflects the success of our deposit initiatives that kicked fee generating transaction activity that we've had in place for a year now across treasury services assets.
Good day and wealth management.
And also partly attributable to central bank balance sheet expansion, which results in excess liquidity in the system.
<unk> average rates paid on interest bearing deposits declined very modestly negative five basis points during the quarter and they like it so I think I'm Gonna nation energy [laughter].
That's why we generally feel that we've now reached the low point for deposit pricing they called it a negative rate paid reflects our business mix approximately 25% of our deposits are non U.S. dollar and we charge negative rates on euro denominated.
Turning to the securities portfolio on average the portfolio increased approximately 9 billion versus the second quarter I went around 37 billion over the prior year or nearly 30% higher and we deployed the growing deposit base.
Average non enjoy securities, including trading assets were 33 billion in the third quarter up from 22 billion a year ago, and we've got a nice incremental nice AAA securities twin creeks yield while maintaining a conservative risk profile.
Maybe he can take eight let's provide some color on our asset mix and our loan portfolio.
Our average interest, earning assets were relatively stable at 358 billion, but as I mentioned, we can redeploy some cash ensure investment securities this quarter.
The loan portfolio represents just 15% of our interest earning assets.
We continue to feel good about our credit exposures and the portfolio continues to perform well.
Zero net charge offs. This year, we will continue to closely monitor the portfolio, particularly the commercial real estate exposure and other sectors more acutely impacted by the current environment.
Provision for credit losses reflected a fairly consistent macroeconomic outlook a portion of the prior quarter and a modest yes, I will take your reserves primarily related to our CRT portfolio.
Good nine provides an overview of expenses.
<unk> expenses of 2.7 billion were up 4%, 3% of the increase was driven by the tax related reserve reduction last year and investment management.
The remainder of the increase or like the result of continued investments in technology and the impact of a weaker U.S. dollar, partially offset by lower staffing business development expenses, namely travel and marketing.
Turning to page 10.
Total investment services revenue declined 4% as almost all business revenue growth rates were impacted by year over year lower net interest revenue.
Assets under custody and administration increased 8% year over year to 38.6 trillion and we continue to see organic growth with new and existing clients as well as the benefit from higher market values and the impact of a weaker U.S. dollar.
And then you should have been done fine discussion I will focus my comments on fees.
We then asset servicing overall fees increased slightly primarily on organic growth from existing clients and higher market levels.
These increases were partially offset by lower securities lending revenue due to tighter spreads as well as marginally lower foreign exchange revenue on the back of lower industry volumes by higher volatility in FX markets.
Other trading revenue was down driven by fixed income trading activity, which about that.
Our.
Encouraging feedback on your decreased and the impact of fee waivers more than offset but organic growth transaction mine clearing accounts mutual fund assets and sweep balances all increased and net new assets were 12 billion in the quarter.
Year to date, a pipeline has further <unk> business continues to gain momentum.
Issuer services fees revenue decreased by 9% driven by depository receipts, they've done as far down in cross border settlement as well as seasonal dividend and other corporate action activity due to macro uncertainty.
Trends IDR mass good underlying momentum in corporate trust as demonstrated by name business plan on high deposit growth and corporate trust fees were modestly higher.
Treasury services fee revenue was up 9%, despite the tough macroeconomic environment and lower overall payment activity, primarily due to higher liquidity balances, which grew over 45% year over year net new business and then.
And an improvement in product mix.
They I think collateral management fees were impacted by lower revenue of 12 million driven by the divestiture of an equity investment in the fourth quarter of last year.
Well, it's a deal activity and he loves treasury market, despite higher issuance levels and secondary trading and then for settlement activity was lower.
Having headwinds were partially offset by higher non U.S. dollar collateral management fees.
Page 11 summarizes the drivers that affect the year over year revenue comparison for each of our investment services businesses.
Turning to our investment and wealth management on page 12.
Well, our best friend to all management revenue was up 3%.
Oh, well assets under management have two trillion up 9% year over year, primarily due to higher market. They impact can be less dollar weakening and cash inflows from earlier this year.
We had net outflows of 5 billion in the quarter. So long term strategies had net inflows of 5 billion, including significant LD I have heard from targeted plan.
And that's a nice revenue went up 5% driven mainly by higher market values the fan.
The favorable impact of a weaker U.S. dollar and kicking butt pharmacies and the absence of the impact of hedging activity that occurred a year ago.
It's offset higher money market fee waivers.
Wealth management revenue was down 1% year over year, well see sort of flat and higher market levels were offset by net outflows, partially due to higher tax payments and a shift I tie it to lower fee products.
In the quarter, there were $21 million a seed capital hedging losses that were more than offset by gains on seed capital there.
The net of these items affected in other fee revenue in this segment.
As a reminder, in the consolidated financial statement. There was also the seed capital hedges on foreign exchange and other training and the seed capital gains are reflected in income from consolidated investment and fed funds and investment in other income.
In the third quarter last year. They went all players having unhedged and one of the investment manager be cheap, which has since been owning it.
Now turning to our other segment on page 13.
The year over year revenue comparison was primarily impacted by the lease remain an impairment of $70 million recorded in the third quarter of last year on expenses declined primarily due to lower staff expense.
And now a few comments about the fourth quarter.
First I would note that the macroeconomic environment remains fluid.
Although we are expecting higher volatility in the fourth quarter around the election. It is difficult to predict why this will translate into higher transaction volumes or whether it will be a risk off environment.
Looking ahead at net interest revenue, we expect an Irish declined sequentially by 3% to 5%.
As we look into next year, we expect the quarterly <unk> run rate to be slightly less than the fourth quarter level. It's just based on a few factors.
First the forward curve indicates a fairly stable rate environment I'm here, implying that the war should be behind us.
Second we continue to take action and optimize the securities on loan portfolio as an harvest season generating marginally higher yield.
Third the unrealized gains associated with the higher yielding long term security will take some time to roll off.
Fourth we do not expect further de leveraging and additionally, our deposit balances remain strong and are slightly higher than the third quarter average, we expect that trend at these levels.
In the fourth quarter, we continue to spend money market fee waivers net distribution access to being there.
To be in the original range indicated at 135 to 150 million as we look into the next year, we expect labor to be fully incorporated into our run rate at the higher end of that range labor.
Labors will also start to impact investment services businesses aside from person to a greater extent.
And now in full year expenses, excluding notable items, we expect the trade name essentially flat versus 2019, including the 15 basis points on a year over year impact from higher pension expense.
Well, maybe up slightly if there is a weakening of the U.S. dollar, but this of course will be largely offset on the revenue line, which would benefit from only thing I start.
[noise] credit cost will be highly dependent on individual credits and other macroeconomic it out and in turn.
In terms of our effective tax rate, we still had to be approximately 20% for the full year, although it was lower this quarter.
With that operator can you. Please open the line for questions.
Thank you.
I would like to ask a question. Please press star one on your telephone keypad.
As a reminder, we ask that you please limit yourself to one question and one related follow up question.
We will take our first question from Alex Blostein with Goldman Sachs. Please go ahead.
Great. Good morning, Thanks, like saga and walk them anyway. So.
So first question for you guys I was hoping to go back to opening comments around how the challenging rate rate backdrop, and obviously more of a challenge and beginning of your perhaps masking some of the growth initiatives that are taking place underneath.
It sounds like talk to you a little bit more optimistic about that into next year. So can you help us contextualize, Oh, which specific initiatives from a topline perspective, you expect to be the most material contributors to sort of talk like rose to 21 and over time again, given numerous things you mentioned, what do you see the reasonable organic.
Gross from excluding sort of the market dynamics.
Sure Alex Good morning, good to hear from you.
I think probably the most impactful one is around Persian.
And so and we did call out the details around Pershing shows we've been investing in the advisory space and we are seeing some good growth and some good wins there.
Yes, we saw it as on us on a year over year basis, a decline in fees, but there's about $73 million of fee waivers that are reflected there. So if you adjust for that there was actually pretty healthy growth. So we continue to see that as a as a potential a potential upside and it'll be it'll be good to get these fee waiver.
Is behind us because they know that the the masking it looks like other diesel fuel will go away.
Secondly in asset servicing we're seeing you know we're seeing the same.
In fact.
Where we're starting to see a little bit of fee waivers, obviously, we're seeing a lot of net interest income impact.
There's a little bit of other noise I mean, we had divested of an asset that was driving that.
Driving that she wanted a year ago, we took a big game of fourth quarter, but there were some income related to that that we would have enjoyed in the third quarter. That's no longer there, but when we look at what a what we see going on there we do see some some traction around our data and analytics space. We you know I mean, one of them and also one of the important things there and one of our.
Our key strategies is quality of service and the thing that the quality of our service and the feedback that we're getting from clients continues to improve it helps not only the retention of business, but new business, especially with existing clients and we're starting to see that come through the one instead of instead of that.
This is Matt on the fund the clearing a collateral management space, we're making significant investments in what we're calling the future collateral which will make.
Make that business much more interoperable and beneficial to our clients.
We see some we see some growth opportunities. This particular quarter it was pretty soft for that.
Again, we had the benefit of an asset that was reflected in that.
Reflected in that line. We also and this is kind of surprising just declaring of volumes in India.
In the treasury market. Despite the massive increases in issuance by the U.S. government. They were down it was kind of a it was kind of quiet quarter. When it came to Oh when it came to.
When it came to the clarity photo management business and the clearing business in particular, we saw a very modest increase in global collateral, but domestic collateral management was down a little bit as we saw some de leveraging so there there are a number of things I'm asking that I think we'll be able to pick up market share in the future and I think we'll also be able to pick up.
Movement from bilateral to Tri party because of the efficiencies that they're going to get on our platform. So I think those are a couple of a couple of key points.
Got it and I guess, just putting it all together now to pinpoint you know 21 or 22 as you think about the collection of businesses that you guys have.
What do you think is the reasonable organic fee growth of that we should anticipate from being lined out over time.
Yeah, you know I don't think I want to put out a guidance at this point, but when we look we look to this year. There's there's a modest amount you know a one or 2% underlying kind of organic fee growth lot of it not matched by all those things I just described.
Got it thanks very much.
We will take our next question from Betsy Graseck with more Morgan Stanley. Please go ahead.
Hi, good morning, Todd Nonetheless.
Good morning.
Todd you mentioned the buyback when the gates are lifted from the fed and I just wanted to understand how quickly you would be willing to buy back the stock down to the tier one leverage ratio of what I think its a 6% that you're using as your cellphone.
Well its minimum there.
Well first of all we'd like to get started as obviously as soon as we as soon as we can see the guidance that that Emily gazes as a target, but right now our constraint is the tier one leverage ratio as.
As we go through the Oh, the stress test that's historically, what is bad and we gave guidance.
We think we should target somewhere between five and a half in the 6% range and we're currently at 6.5% growing.
That being said the reason we give guidance in that range is right now are but as you know our balance sheets loaded because oh liquidity.
Put in place so in this kind of environment, where we've always felt leading the sharp increase in deposits that come with the market environment. We wouldn't expect another course, so we'd probably be willing to move toward the middle or lower end of that target. So so that being said it will have to look at market conditions at the time when the fed.
Lifts the restrictions she would be what the economy is always going to be going on with the balance sheet and we absolutely be willing to start a start moving aggressively.
Okay. So if there was another you know physical plan that came through that doesn't really impact your deposits, obviously as much as the fed increase besides the balance sheet. So.
You know another round of fiscal stimulus doesn't really drive up your deposits you don't have to worry about that too much. It's a that's one of the take away so but.
But I think that's right.
Uh huh.
Okay. Thanks, and then on the follow up question just on how were thinking about reinvesting. The cash you have on the balance sheet, maybe only speak to how you're thinking about redeploying that I'm. Just curious you talked about having you know NIM next year or I should say early next year be running at you know a little.
At less than before Q run rate, so I'm I'm I'm expecting that some of that cash redeployment will be occurring maybe if you give us some color as to how you're thinking about that you know the pace and.
How much of your cash you're willing to redeploy into securities.
Sure.
Good to hear it.
I see actually I mean that the.
Ultimately I've been talking about for some time, we have and are looking to redeploy I'd add any excess cash that we have and of course as and deposits do you begin to season, we haven't nobody can do that we have been.
We have been increasing and you know.
Now does a high quality non each really in the portfolio I I am you know marginally on a quarter on quarter and actually up year over year and that's up about 29, that's up about that 10 billion sorry.
And like an extra week of growing the portfolio I investing in and growing the that the non each rally around the around the edges I extending duration and the only other thing I would say in.
We are not just on the securities portfolio, but it's also about the loan portfolio. So we are redeploying some of our our hottest in into our loan portfolio, which of course also helps with the client type services and client relationships.
Okay. Thank you.
We will take our next question from Glenn Schorr with Evercore ISI.
Hi, Thanks.
Just to follow up on the Cabo and we've talked about this a little bit in the past, but I.
I get it you got tons, and you keep making more and the buyback awfully enticing and accrue yet.
I'm curious on how you guys balance that with the potential to deploy capital into something else that could accelerate.
Accelerate growth cool and or improve the overall mix of the company.
Thanks, Yeah, Okay fine yeah. Thanks. Thanks for the question, we're constantly looking at what what opportunities lie out there for us and.
We take but what I'd say go out as we take a very oh.
A very careful look at it and I think a very disciplined approach to how we would look at something.
Got it we're certainly not opposed to it.
From time to time, we see certain types of actions that lift outs that that might make sense.
That might make some sense to us, but frankly, we compare them to a to a capital return and they should be able to be a long term EPS growth that would otherwise get buying back our shares over sells very very strictly to that to that to discipline. There maybe as you know we did things.
Through the financial crisis, there may be opportunities here to do something we've got a team that's constantly evaluating whether it's in the fintech space, whether it's you know extending the market what the weather is it always doing something at adjacent cheating what we're what we're currently looking at so we're absolutely willing to.
You have to consider things, but they have to make sense.
For the long term growth of the company.
[laughter], Okay I appreciate that.
Maybe just one quickie on issuer services.
Well I know, it's hard with the Crystal ball, but.
We've had a big surgeon in in debt issuance this year.
I'm curious on how you think about just the overall business growth going into next year.
You know what you see is pulled forward versus just a still good issuing environment. Thanks.
Sure. So in our issuer services was actually got two businesses and so.
So we've got.
We've got to corporate trust business, which you're referring to but we also see a yard depositary receipt.
The dealer business was as you might expect each party. That's all for a lot of that is international it related to international equities, obviously, and ER and ER volume.
Volume of dividends.
Josh or wage.
Oh sure we generate a lot of revenue off of the corporate actions third quarters, typically a pretty good quarter. It was still up sequentially.
Actually you are we are so that kind of mask the underlying performance.
Trust within corporate Trust continues to.
Picked up a little bit of market share and sort of the core business is frankly, we lost or Mojo a couple years ago.
Got it back and wish where we're seeing some growth there.
And the <unk> and the opportunity and issuance that has taken place.
Significant was not the highest yielding type of change, but as we start to see more structured part of it.
The credit quality.
We think we're well positioned to capture that.
There's a little you know this is another one of the businesses that does is impacted by fee waiver. So little bit of that will be will be best fund fee waivers over the next quarter or two and that's why you know in in my opening remarks are sort of looking forward to getting that reach a done deal having the fee waivers fully though.
Just intuitively makes the runway as well as lower interest rates are that interesting.
We expect to see that probably sometime early next year.
Thanks Todd.
Excellent.
We will take our next question from Mike carrier with Bank of America.
Good morning, and thanks for taking the questions.
First just given the nature.
The nature of your labor pressures just curious if there's any other efficiency initiatives possible to reduce expenses heading in just 21 I'm just thinking.
Just like some of the investments that you guys you talked about you need to be to drive.
I'll take that and.
So.
Yes, we are we do have many I shouldn't see initiatives, there actually ongoing and and Oh, I might or anything that can be as previous that in previous four on whether it's that investment that we've made in terms of automating high inquiry.
Hands free that and various other owner and you shouldn't dessert. Those are all things that are coming mostly you expect they already are coming through our cost line.
And they will continue to come through the top line and the other thing I would just say is that in that this year, we probably not probably we reached their peak out investments in resiliency that doesn't mean, we're going to stop that we have and we will continue to invest and resiliency, but we reached the peak investment that will I be a big ticket I sat in a sense.
And likewise.
We have you know ultimately various different than a initiatives across the business from a structural perspective, and we're looking at the potential impact of that I've called it our real estate footprint as well as a sales and marketing expenses and other good to see Janice just hesitation.
Efforts are accelerating when our clients.
If I can add one of the things that are that we did in the quarter is I named Richard angles of attack and off she was previously head of technology and by bringing check cut offs together and office covers most of the operations of the company I think the opportunity to automate to work more closely together to really target word at where we're going to invest.
Yeah. They are in our automation processes, we still do that.
There's still lots of fruit on low lying fruit trees, we still do it.
Fortunately a lot of manual processes things that we can do more efficiently survived by putting a second altogether and a budget and are working with our head of operations going forward or you got a much more closely I think we'll be able to identify and execute more quickly on some of these efficiencies are we've been moving pretty well.
Oh, it's just basically funded the increase or significant increase or.
All expenses.
Over the last few years, we do think those increases are going to update you're not going to be the same way is probably going to 10% compounded annual growth rate for a number of years your and show that puts us in a position to keep keep writing short.
All right. That's helpful. And then just a follow up just given some of the noise you know with the leaders and even volatility levels throughout the year, just curious how pricing yes. The training in asset servicing you know over the past six or so months and then you can turn he wants board any expected changes or any expected.
Yeah kind of still using you contract negotiation you that you move it one way or another.
Sure Mike I'll take that.
Yeah, I mean, obviously after everything is a pretty mature business. So repricing is just see a continual headwind, although it is pretty modest and we have not seen a change.
In that Indian out really from a percentage basis and impact on revenues for for several years. So it's it's not any any worse I was in it and it has been a as you.
As you rightly point out, though it is lumpy and as you know bigger contracts do come come up for renewal you know that that can be lumpy.
[laughter] pipe Nexterone, yes, the pipeline is strong.
When we look at the pipeline a very high percentage of that though I think over 20% of its looking at our data and analytics offerings. So we're really starting to see.
To see that pick up and when you look at it I mean, I think the best way to evaluate the businesses from operating margins and then operating margins are under pressure because of pricing pressure. This is cyclical nature of interest rates and that business.
Got it thanks a lot.
We will take our next question from Mike Mayo with Wells Fargo Securities.
Hi, well I guess, there's some factors you have difficulty controlling some factors that you can control you mentioned you know once interest rates settle down well see some more of the benefits are guided for lower and I I had though so.
First question is when do you think they could.
They get to see the full negative impact of interest rates you know in the run rate. So we can see the the underlying progress come through and then I'll ask a second question.
Sure.
Sure I am I thinking of anyway and so.
I tried to call the market or are hanging on the trough and right, but if you ask me again.
Yeah, and again I, just fine and our prepared remarks, we think that the fourth quarter and I are probably be anywhere from 3% to 5% down from our next corner and ultimately we do think it's probably a pretty good estimate she used slightly lower than what the fourth quarter's net studying or what we expect it to be a tempered checkout.
A raft of next year.
So it so basically we're saying like there's something.
Something slightly under the fourth quarter run rate, but that's that's making the assumption that the.
The forward yield curve is reflective of what actually happens.
And just to add to that and so.
No improvement in rates.
This reflects where the market is going.
Okay. There's only so much you can do about that I guess the only yeah.
The other question you ask.
Assets under custody, you're up 8% year over year.
On your investment servicing revenues are down 4% year over year and this is not a new issue for you or any other trust banks, but Uh huh.
How can you grow the investment servicing business, while also growing investment servicing revenues you mentioned.
Gainshare in the trust business, but there seems to be a disconnect between Asian growth and the revenues related to that is that just competition and like that.
I couldn't change your your speed model or how you charge your customers. It seems like your customers are getting better at the arrangement.
The arrangement.
Yes, sometimes it feels that way [laughter], there's little bit of noise, Mike and that is that right.
In the when we look at the asset servicing fees in the corporate line rather than to say that reflects the declaring in CLO management business as well.
Clearing and collateral management business in the third quarter Didnt have a very very good quarter.
It was a divestiture that took place or lost a significant amount really that or whether that be the activity was actually it was actually pretty depressed.
Or just kind of a surprise because even though the U.S. government change.
Additional treasuries the actual trading around that.
A little bit less than we would have anticipated there were so similar impact here.
Other thing of that line is the securities lending and securities lending again volumes, Rob that's another interest rate and market related tissue.
The reinvestment rates are significantly down so the spreads are down like we did.
We didnt she doesn't make things more specials or there was a little bit of a.
De leveraging so if you adjust for that we don't see anything substantially different and the pricing or the operating margins underlying operating margin except for some of the cyclical.
So I just pointed out that being said it puts us in a position should reprice to assume that those are the those cyclical pressures are going to remain forever. Unfortunately price maintain the optionality that we're going to have on the outside and then competition will help.
Then competition will always drive.
To do what we think will be long term interests.
With a flourish.
Okay, and I guess that leads to why you're putting so much effort on the efficiency I mean, we don't have the the earnings from investments are saying you don't break it out that detail, but we still get even after adjusting for securities lending because of the factors that there's still you know you see is growing faster than the revenues from it.
Right. So that's why you're trying to improve efficiency anything about the earnings related to that business is it.
Keeping pace because again, we don't have it at that level and that's you know core function of what you guys do.
Yeah, No I think we just didn't know if it was a meaningful contributor to the overall performance of the company.
We are continuing to do a.
I get more efficient, but weve.
But we also have some other you know other.
Other investments so that we can expand the revenue stream as we provided more capabilities around data management. For example, we're starting to see a little bit attraction. There are some of the applications I described a prescribed one on.
Described one on me and my earlier remarks, where we've got ideas.
He's really starting to gain a gain some traction.
We've got 12 clients now operating on it.
Got it maybe 100 demos, though.
Give us very good take up on that if another another out.
The other out.
Distribution analytics, which I think it really help our clients.
And then there's that's how you really go out of the way.
Sure. So there's there's things that we're trying to to generate more revenues as we take on work.
Well the operational burden from our from our clients.
But at the same time.
The throughput people are talking about.
Free shipping costs are yes, we are dry.
We are driving down our per unit cost meaningfully.
Great. Thank you.
We will take our next question from Brennan Hawken with you yes.
Good morning, Thanks for taking my question just wanted to follow up on and I EW and we thank you for providing taken a stab at 2021.
And I appreciate that you're using the forward curve. So just was curious about what assumptions are also embedded for MBS prepayment activity in that it seems as though more recently that was a bit of a surprise versus some of maybe what the third parties.
But still pretty data sources had been expecting are you expecting that that will continue to accelerate and then when you talk about the lending and and some balance sheet.
Balance sheet optimization into lending.
Is that on the margin side margin loan side or is that elsewhere, because it looks like the margin loan yield is holding up better than the pires or period. So curious if that's sustainable is that because that's a mix or or some color on that front. Thanks sure sure I'll take that take both of those in Cambodia prepayments I just.
Ah I went as far as they where we haven't had any color and about 5% more than we originally expected and that's part of the answer that in part as a a head went on and I are at least in the third quarter and trends and as we think about as we go through next year, we do expect it to smile modestly Oh.
Ethanol production.
And then I guess in terms of your question with regard to lending Oh, we actually isn't evident in our lending portfolio, which is relatively flat at 55 billion, you'll see probably growth in that as we get into next year again more more on marginally we don't need me wondering if that is certainly something that we do to strengthen relationship.
Ah that we have with our clients.
Hi, This is where we really see a lot of or some opportunities in that the 40 Act lending space.
Well, obviously mortgage isn't in wealth and also supply trade finance.
Treasury services.
Yeah, and you know I would add to that Oh.
Brendan interestingly in the in the <unk> Big draw Downs that we had on the corporate committed facility, 70% of those have been paid back. So it seemed that low part of the loan portfolio go down. So I think that's kind of the noise associated with that if this thing does stabilize but.
But we would we would like to continue to grow and we'll do it.
Prudently or the margin lending business, it's a very low risk gets a decent return.
We'd like to see some more 40, I plain English something it looks like that can do that as well.
Supply chain and mortgages and also you talked about.
All right. That's a that's really helpful. Thanks for that color and then.
It would seem like taking a step back here right.
Rates are are tough and clearly.
More environmental than than something that's specifically you guys are doing but.
A big part of your economic.
Model is embedded within rates because of the deposit spreads embedded within your the returns that you generate from your your clients. So.
[laughter], there's certain this or period fields, you know sort of different than when we went into the last one the last one was viewed as temporary Oh, it's just something we need to get through and then we're going to come out on the other side you will return to a quote unquote normal environment and that.
That that's that positions come under pretty significant question. So I guess, what I would say is what are you. How are you thinking about making adjustments to the pricing model. How are you thinking about <unk> re considering some of the economic considerations you know when you assess.
Clients and and what are your assumptions for where deposit spreads would return to.
You know just to ensure that you know the new business that that you win the assessment of existing relationships remains reasonably calibrated to what is the likely environment. Unfortunately, we're going to be actually walk, though I know, it's a tough one but just curious your thoughts.
No. So so yeah I think that's the general feeling that ours is as well is that rates are lower for longer by the way. The last cycle. They were low for a fairly substantial period of time.
But that being said, we see the light at the end of the tunnel for the full fully baked in the impact of interest rates are today is from there that we have that will grow. So we will take into consideration what with what the market implies an interest rates as we price activity going forward and that's that's reflect.
And all of our pricing assumptions and Weve.
And we've also got a whole series of initiatives that we think we'll we'll we'll give us deeper relationships or that the revenue streams as we as we look look look there also we do see the potential for before for some margin expansion, we see the potential for some revenue growth, we see we see the better.
But so far all of our operating efficiencies it really it really just point back to our key priorities. There's a handful of Ah Ah organic growth initiatives that we've got in place, they're not all going to pay off but some of them some of them will.
And the activity levels are still high what we do is important and it's growing I mean, if you look at if you look at the at the Parisian marketplace. The advisory business is growing rapidly.
We think we can capture more of that there's been a consolidation amongst custodians, that's an interesting opportunity for us. So you know it's not always us we understand we've got as interest rates had when we want to get it behind us and move off of it and grow the company from there.
Okay, Thanks to the Gulf.
We will take our next question from Brian Bedell with Deutsche Bank.
Oh, great. Thanks, good morning folks.
You first of all thanks for the extra color scores.
Disclosure on the money market fee waivers and then only on the on the balance sheet strategies, that's with definitely very helpful.
Maybe going into purging to do you know.
Serving with that last with your last answer today.
Within that opportunity.
In the or a subsidy in states.
It is the first one I missed one number you quoted earlier and remember it was the 12 billion of net new assets in that business, but it is it something different.
Pizza and then the question really is is it.
It's more of the opportunity going forward on that I guess the timeline of the are you have you benefited from that significantly already or do you think that's we're in the early innings of the GE already.
Marketshare team are there and are you doing anything differently than he had.
In that business decided when does that answer for you other than.
Yeah, No you're gonna number was was correct and yes, we are investing more significantly in the business where best anymore.
Both sales marketing as well as the as well as the platform that supports the advisory business and Oh God, We've got plans to do more and to continue capturing market share.
Market share with one the pipeline strong you know there's a there's another space that I really didn't even.
Invention that is institutional Twitter is something that were is uniquely positioned to do and we're seeing more and more as fast as you can break their broker dealers looked outsourced trying to reduce some of the capital requirements balance sheet requirements as well as just getting these gaining efficiencies and the connectivity that pershing has to our own clearing.
Plateau Tri Party business is unique offerings. So we see you know we see opportunities there as well.
Is it too is there some confidence that you can weigh the fee waiver from that segment over the next few quarters potentially from organic growth.
You know it is it's going to be it's going to be difficult.
In the short term, that's why I want to get them behind us as I as I just indicated Brian on a year over year basis that fee waiver was $74 million in the quarter $73 million in the quarter for Pershing.
Yeah. Once we once we got absolutely once we get that set them does that were working back to recover.
Yes that makes sense and then you did hear your comments on the data offering.
So when you when you sort of the pipeline can you just talk about.
Can you just talk about the role of OLED and within that I know youve integrated that.
Service personnel as much as you have seen.
That that's obviously certain or it's still in early days, but.
But maybe you can talk about what you're doing there or is that aggregating data from the other services are you actually put any proprietary analytical engine on you. When you see that that you that might generate some some additional growth and are you beginning to Turkey that yet.
Yeah. So so so Brian you want to focus on yesterday on first so it's a little bit of both so basically the clients bring installations to us. So we have integrated or will come back to as many as 100 different DSG data providers.
Uh huh.
We filled the hole.
Use the evaluation factors or will also kind of customize factors that are most frequently frequently used and so you can you can run your own analytics against against those factors, probably the neatest thing that we've done I guess as we build the crowd sourcing.
Well.
So there is a sharing of which which factors which gave us a suppliers appear to be the most trusted.
Just as it also shows you how much data there is on each of the factors that you're looking at so whether you can even trust that factor or not and when.
And when there's a in windows or a lack of information or the quality of information is challenged by the crowd.
Thing that information back to the data provider provider. So they can constantly improve it. So so we think it's pretty innovative Ah yes.
The where ignostic to weather do is they can feed it to us it was a custodian we flip the switch and turn it on for them.
So that's the that's that particular.
Did you have anything to add them.
Thank you and I say, Okay go ahead.
No we've actually seen very nice uptake in in terms of our take them I should say in terms of our our partnership with legendary doing that.
And I guess, just a reminder, asked a lot in but we had a partnership with Bloomberg Sincor CRT D as well and that doesn't see so we're really about open architecture.
And you know we think that our integration is it's it's more robust three you know truly have integrated you single sign on and the D.C. I've also got four asset classes.
And Ah you know ultimately you know when it had only beneficial to us and it's also beneficial to those service providers and are asking I. Just mentioned an open architecture is not just about the front end, it's actually about you know throughout the entire life cycle of the indefinite life cycles. We've got also.
Also a agreements and partnerships with midnight and tax easy out milestones, he feels and and others.
Great. That's very helpful. Thank you.
Hi, Brian.
We will take our next question from Ken Usdin with Jefferies.
Hi, Good morning, Thanks for taking my questions. Todd you mentioned earlier that a couple of the businesses. We're just kinda quiet this quarter I wanted to ask you just a bigger question when you think across the businesses.
Nobody driven businesses.
Versus the really strong first quarter things have kind of settled down do you get it you get a sense that we kind of are now at normal levels.
The levels of activity when you think across the more transactional parts of the company bags.
Yeah, Hey, Ken So so I'd say the answer to that is yes, and I'd also say the third quarter was to me typically it's a little bit of a seasonal quarter to slow down in the syndication, we actually saw that this quarter.
Versus a year ago.
Let the repo markets and some unusual things and some unusual.
The revenues related to that we didn't see we didn't see that this this looks more like the seasonality that we would typically see in the quarter. So it feels at least for the time being that there is a level of normalcy around volumes of activity.
Okay, and a follow up on the buyback Todd Okay.
Loud and clear that you're ready to go or would there be anything you know if the fed were to lift to the buyback restriction. After for Q is it just onto your own decisioning from there is there anything either politically or regulatory that could get in the way of you guys. Just ready duck, you know pop plowed back into the buyback and related how would you start to think about if you were able to get back in.
Do you go right back to buying back 100% you know total capital return or do you have to kind of let Dan. Thanks.
So one of the benefits of the new regime, but once it gets fully implemented the stress.
The stress capital buffer, it's no longer a program, where we submit a plan was X amount of buybacks by period and if we just we vary from that plan, we have to make and they can enjoy.
A resubmission.
As we have to maintain our stress capital buffer. So we're not restricted by both the timing and the implications.
The implications of that so we actually.
We think its a very logical approach in with them and we look forward to operating what was in it because I think it gives us more utility that you're that you're pointing to there.
Now in terms of gotten little cautious I guess, what sort of core or were there that's really outside of our of our control <unk> says is as much DNA political institutions and I think they will go through the stress tests don't make those assessments and they will they will determine what oh what actions.
They are going to.
A permit.
Got it and just one final clean up just on that to any change in your outlook for the tax rate. It can just help us understand what their outlook is thanks.
I still I think we got it already and it's still 20% for the full year.
Great. Thank you.
Thanks Kim.
We will take our next question from Steven Chubak with Wolfe Research.
Hi, good morning.
Morning, still wanted to start off with a question on capital No. Emily appreciate you're drawing a line in the sand outlining the 50, roughly 50 to 100 bips of excess tier one leverage you have today.
Admittedly like when you start to run various scenarios in terms of significant deposit uplift.
And if there is like a negative of the negative market shock. He ultimately experience, that's 5.5% to 6% target it still feels quite conservative and just wanted to get some context as to why you feel that's the appropriate level that you need to manage to.
And it now how could that potentially evolve over time, if you find that the deposits prove to be stickier and the balance sheet volatility ultimately proves to be less as the cobot pressure start to abate.
Sure I can take that and how do you know at one time I in terms that.
In terms of just worth mentioning from a deposit perspective, and our deposits that are trying to get not 3% up from where they were in the second quarter. So there you know that that just another part I'm sorry, Eric.
College [laughter] are there they are currently.
And alternately and when it comes to just thinking about the tier one leverage that you are tracking is our binding constraint having said that you know we have done very well on our stress tests, which have taken into account you know very severe market shocks.
Do you feel that you know the buffer that we've talked about is it certainly sufficient and now you are correct that were running about that and as.
As a result, our you know Pat Yeah, I can you know certainly access capital to make centers and additional surgeon hot.
Yeah, I'd add to that Steven its city.
When you look at your capital ratios you have to look at I'm kind of view and for her operating conditions, but yeah, we've got a massive.
You know that shows.
Relative to that and if you look at your point is a more stable we've already gotten a significant uptick due to the.
The activities coming out of the fed.
You know fiscal is not going to is probably I don't have anything like that to the underlying deposit base and we're really positioning us for growth, but we also have to run it through the stress test. So it's not just our normal business conditions through stress that a tier one leverage ratio.
Constrain Tonight.
What we're pointing out so the buffer reflects both what could be an increase in deposits for a particular.
Particular sharp upturn as well as what we need just to me.
It was a true traditional stress test.
Oh, Thanks for all that color and just one follow up for me regarding some of the discussion regarding that.
See the organic see green shoots of decided earlier and over the last couple of years ago. PPNR has contracted it's almost exclusively driven by Eni and interest rate pressures and of course. These had been running flattish expenses have also been running flattish and you try to maintain discipline there.
No as we think about a scenario where say in 12 months. If some of those are going to see a few green shoots that were cited if we're still running as flattish fee income I just want to get a sense as to how you're thinking philosophically about how you want to manage the expense base.
And that if we're not seeing that pick up in organic feed rose how your philosophy around that might evolve.
Oh, Okay, I make a couple of comments on that though when you look at that she grows its also absorbing that we've we've pointed to $150 million Seaway waivers.
Waivers per quarter. So that's an enormous that's an enormous number so underneath that there has to be some growth in order to sustain.
And we think we're going to be able to to continue that.
Obviously based on conditions.
Based on conditions.
And what actually happens to revenues or we will we will we'll take harder harder look at expenses and we've been able to make the investments in technology resiliency automation cyber everything that we've done to make ourselves a stronger company I got it I got it knows.
It actually is more and more important having gone through this.
Slash prices its clients to see the benefit of resiliency of our global operating model It was able to.
The huge increases in volumes and so if anything I think we'll probably see more as a result of that so we've been able to do all of that and manage the.
<unk> and <unk> and it will drop more to the more to the bottom line.
Based on what happens to a.
The revenue.
Right. Thanks for taking my questions. Thanks, David.
We will take our next question from Brian Kleinhanzl with KBW.
Great. Thanks, good morning.
Just a quick question on the asset management business I know the restructured there in the past and combining some of the boutique that you had standalone, but now what we've seen across the asset management space with <unk> Morgan Joseph.
Then consolidation so I guess, maybe address that from both sides of it like what's the opportunity to one through acquisitions and with the you know the appetite as well maybe get rid of.
So it sounds like you divest.
Somebody's doesn't says within asset management.
Sure Brian it's been it's been kind of interesting as you start to see a little more action I think is it think about the business there they're kind of really three drivers of success and that's probably the worst.
Well and that's probably what's moving some of the some of the action I think it comes down to scale.
Integrated distribution, if you have it.
Obviously performance and so if you look at it we are three trillion dollar.
So we have we have meaningful scale, our performance has actually been pretty darn. Good one of the things I cited in my opening remarks is that our service low 30 largest funds, where there are indices for them to follow and they make up about 60% of our revenues are performing.
Top one or two or first or second quarter tiles. So that's the than they've been there over the last three years. So I think we're well positioned it's and it's reflective.
We've got some pretty a pretty interesting assets. Other these are the liability drive driven investment could you know it's been growing.
And it's a business that we think we can just it's primarily in UK and Europe is something I think we get important U.S. we've.
We've got a we've got one of the world's largest credit managers.
Just oh, we just put a new CEO in place there.
This is primarily a European credit manager and I think there's significant opportunity for it to grow probably under under underperformed.
Last couple of years has done fine, but I think it missed opportunities to go to go faster and you know as you think about our our distribution were pretty interesting too because we have a wealth managers open architecture, but it delivers the doors some of our Oh, our manufacturing capabilities and Pershing is also.
Very powerful platform again open architectures.
But as a platform, where there's real estate for for some of our product and probably more potential more potential there. So we've got no.
Number of components. So you know, we're watching very carefully what's going on in the industry or something made sense on our platform that we have to give it a hard consideration.
Okay and then just the second question I mean last earnings call you talked about the potential cost saves opportunity from how you say.
Workforce or workplace in the future what the stemming from work from home that book endemic.
How far along are you rethinking the workforce or workplace other future when do you actually see some cost saves come sort of but.
Yeah. So you know as you know should we think about it is it's just going to impact real estate.
He is going to impact things like disaster recovery site.
Because we've created to do.
Amazing disaster recovery capability here.
It'll it'll certainly impact longer term what are we seeing business development travel entertainment.
Those type of costs so there.
So there's there's a number of areas throughout the throughout the organization. We've done we were starting to do a pretty deep analysis.
Needs to be in the office.
All the time, who doesn't need to be in the office any other time, who should be the office some of the time and and my view is there is there is there continues to be a compelling argument for aggregating at least innovation. It leads to building really before its cultural issues that she wants to inculcate into the company difficult not to do it.
Without sounding present meetings I do think I do think travel and shameful and she is still is still critical I think it will change a little bit.
The use of some of the technology now will be much much more frequently bought on pretty quick.
Chris do that as well.
And so you know so I think that will all change so were kind of laying out where we should go and what the implication to our real estate.
Our real estate is but that's going to before.
Before that's a real factor into the you know will take some time and ultimately as much as we might think it should go one way or the other the market is also doing it too.
Two biggest.
We have a lot of technologists is.
If the market starts to lead to more work from home, we'll we'll adjust to that.
Okay. Thanks.
And we'll take our next question from Gerard Cassidy with RBC.
Thank you good morning, Doug <unk>.
Hi, Todd.
You mentioned, obviously the binding constraint.
Capital is the leverage ratio.
And when you look at your balance sheet I think you said that maybe today.
15% from a year ago.
Can you share with us really what do you think it should be when your normal conditions.
And how long would it take to get there and what would we need to see macro environment for you guys to actually reach more normalized.
And she.
Yeah, I think our I think the balance sheet probably will grow.
You know traditionally was it was a growth in the underlying businesses, which if you think about the C and there's a relationship to that if you take it always CLO Persian payables, there's a relationship to that.
The Treasury services business for example, Gerard we took a week with women, but we went on the campaign, we said, we probably too shy and taking on deposits and there was an opportunity for great counterparty.
ER wives fathers to grow deposits or cycle. Some of that was was this core growth other needs that it's hard for me to really estimate exactly what the what is excess versus what the tradition.
The traditional growth.
Great and what would what would grow based on our own internal efforts, but I would expect there.
There certainly are some excess.
And I would expect.
If there is a change in interest rates interest rates and we don't see that in the near term that would that would contract a bit obviously, there's a lot more profitable that contract.
Very good and then come back to something you see new call about organic growth.
If you look to do turn back the clock and look at your organic growth, maybe like Julie you decide to use.
Thank you see you know between existing customers dealing more news news, which is new post <unk> <unk>. Thank you again, Dan Nichols.
Yeah. So if we let me first of all.
Existing customers are great customers, because they don't have the implementation costs and everything else.
Is less so if a new fund is apply it opens up a new fund and they've done a multiple multiple so is that where the ones wanting to do funds that's organic growth and very you know its very important or you got it goes it demonstrates the quality of our services and the capabilities that we've got.
And that's where we're seeing meaningful meaningful improvement. So we would include that as well as new customers. There are only on the asset management space only so many new customers.
Uh huh.
Thank you.
That's right.
And we will take our last question from Jim Mitchell with Seaport Global.
[noise], Oh, Hey, Hey, good morning, maybe just a big picture question on expenses Todd It seems like the biggest challenge and opportunity. Both is just sort of standardizing and automating the client interface. Just how do you think about that opportunity set where are you and cannot be sort of a longer term tailwind.
Material for expenses.
I believe as they can.
Sure.
Ultimately.
You know many of our in essence, how about improving the customer experience and making it much more seamless part and parcel of the open architecture that we've been talking about and it's all about Veda integration.
And that's you know that's that's that's going to take a while that's you know a journey fight and every every client looks and feels slightly different. So on that you were kind of falling apart from many many different outcomes, but ultimately that's part of the open architecture strategy and that we you know we want to offer best in breed and it's much faster.
Tony and Optionality to clients as they can.
The other thing, though is that you know what.
We look at our technology, there's still a lot of legacy technology Doug.
One of the you know one of the commitments and so there is just.
When you look at where we're actually being forced to investors and a lot of older systems.
And we could run those systems much more efficient way of course, the effective they run their industrial.
You know like like a lot of banks in just about all banks have is the same the same issues as we as we clouded able and make our underlying applications more and more efficient there will be there will be opportunity long term opportunity to get rid of a lot.
To get rid of a lot of that way. She technology does so this just so we don't see this as a water.
One or two.
I think it was just and it's just making a commitment to constantly reinvest actually.
Yes, it does take investment to make the transition. So we're trying to incorporate that into our investment activities. So that we can get to it we knew that stack.
So it's a combination of both whats going on in the operations, how efficiently, we can be operating or corporate functions as well as how efficiently we can operate our technology.
Okay, great. Thanks for the color.
Thanks, Jim.
So I believe operated that was our last question.
Yes, and I would like to turn the conference back to talk given for any additional or closing remarks.
Thanks, everybody for your call. Please reach out to to Magda at our best with an investor relation team. If you have any follow up questions.
Have a good day.
Thank you. This concludes today's conference call and webcast a replay of this conference call and webcast will be available on the B and my Melon Investor Relations website at two PM Eastern time today have a good day.
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