Q2 2022 Citigroup Inc Earnings Call
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Please standby your program is about to begin if you need assistance during the conference today. Please press star zero.
Hello, and welcome to city second quarter 2022 earnings review with Chief Executive Officer, James Frazer and Chief Financial Officer, Mark Mason today's call will be hosted by Gen. Lantus head of Citi Investor Relations.
We ask that you. Please hold all questions until the completion of the formal remarks at which time, you'll 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 Ms. Lantus you may begin.
Thank you operator, good morning, and thank you all for joining us I'd.
I'd like to remind you that today's presentation, which is available for download on our website Citigroup dotcom may contain forward looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances.
Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings.
With that I'll turn it over to Jane.
Thank you Jen and thank you everyone for joining us today when.
When we last spoke we set the macro and geopolitical outlook with complex and uncertain. So in one sense little has changed however, the headwinds upset crystallized and it's against that backdrop that I'm proud of the results. Our team delivered this quarter as we execute on our strategy and transformed.
The mounting cost to the series of supply shocks, we've experienced and now we need to pay attention to and additional F. In ESG and that is security.
In addition to energy and cyber security food Security has also come into sharper focus threatening to spread the humanitarian costs of the war well beyond Europe .
Resiliency is the new priority for governments and corporates alike.
All of this is adding to inflationary pressures, which arent ton being met with a more hawkish response from the fed and other central banks, all contributing to shop, the lower U S consumer confidence.
Higher rates in Q T will keep volatility high.
That said, while sentiment has shifted and that's sort of the data I see tells me. The U S is on the cost of a recession.
Consumer spending remains well above pre COVID-19 levels with household savings, providing a cushion for Pete just stress and as any of them call I will tell you the job market remains very tight.
Similarly, our corporate card see robust demand and healthy balance sheet with revenue softness attributed to supply chain constraints so far.
So while the recession could indeed take place over the next two years in the U S. It's highly unlikely to be a sharper downturn as others in recent memory.
I'm just back from Europe .
It's a different story.
We expect a very difficult winter is coming and that's due to disruptions in the energy supply. There is also increasing concern about second order effects on industrial production and how that will affect economic activity across the continent.
And the mood is of course further darkened by the belief that the war in Ukraine will not end anytime soon.
In Asia, a rebound in China also faces some constraints given the potential for future lockdowns the amount of leverage in the Chinese economy and stress in that property sector.
Given this uncertain environment I'm quite pleased with our overall performance. We reported net income of $4 5 billion and EPS of $2 19, and then I'll ROE TCE of 11, 2%.
We grew revenues, 11% year over year, whilst remaining on track to meet our expense guidance for the year.
Services continued to show excellent momentum with revenues up 28% year over year.
Well some of that growth is a result of the rate environment, we had double digit fee growth consistent with the strategy. We presented to you in March TTS in particular fired on all cylinders.
<unk> took advantage of our global network, leading to the best quarter. This business has had in a decade.
The market volatility that we saw in the first quarter continued into the second driving corporate clients in particular to be more active in risk management contributing to revenue growth of 25% in market.
The volatility we saw in foreign exchange rates commodities and equity derivatives favorite mix.
And we were more efficient in our capital usage.
Now while this level of activity is related to where we are in the current cycle, rather than a new baseline and market.
I believe we are helping our clients navigate this environment quite well.
And it shows how our emphasis on our corporate clients globally, given that consistent trading needs is a differentiating one for us in market.
On the flip side that same environment continues to put a great deal of pressure on the investment banking wallet without revenues down 46%.
However, we are seeing an increase of lending as our clients have been less inclined to obtain financing through the debt markets given the recent swings.
In U S personal banking the positive drivers we saw in our two credit card businesses over the last few quarters converted into solid revenue growth this quarter, most notably 10% growth in branded card.
And you can see how resilient the consumer is in the U S through the elevated payment rates and the low level of credit losses. They have however shifted their spend far more to travel and entertainment, which are now outpacing 2019 levels.
While volatility can be an opportunity for our trading desks know where asset prices are a headwind for wealth management.
Asia again was hit harder than other regions, leading to flat year over year wealth management revenues overall.
That said, we continue to execute our wealth strategy across a number of fronts, including building our base of client devices, expanding our private bank physical footprint to reach 20 countries with the additions of Germany, and France, and increasing referrals from our branch network in the U S.
Yes.
So the underlying strategic drivers for the long term growth of this business continue to advance.
Overall, while we did have a slight build in reserves given the increasing possibility of a recession, we are operating from a position of strength.
Capital liquidity credit quality and reserve levels are strong and our diversified business mix also positions us well for the choppy waters on the horizon.
Well, while the World has changed since we presented our Investor day to you in March our strategy has not.
We have continued to execute with discipline and with urgency.
Quarterly report card on slide three should help you hold us accountable for our progress.
We are laser focused on the long term goals, we set out in March and I see this quarter's performance is validating that we are indeed on the right path simplifying the foam is a high priority and we made good progress executing on our divestitures such as closing the sale of Australia during the call.
Uh huh.
We went into the sales process in Mexico, working through the regulatory and legal dynamics. It can be expected in a transaction of this nature in terms of Russia. We continue to shrink the size of our business and take steps to reduce our financial exposure.
Given the complex environment, we are considering the full range of possibilities to exit all consumer and commercial banking businesses, including portfolio sale.
I have divestitures, such as Australia progress, we're beginning to eliminate stranded costs and simplify our model and this discipline is critical to ensuring we have the resources to invest in the businesses, where we want to gain or maintain a competitive advantage and to ensure the success.
<unk> of our transformation to that point, we were particularly pleased the AML consent order was lifted by the OCC in April .
We are committed to ensuring all technology controls and processes are up to the standards, our regulators expect of us.
And we expect of ourselves.
And on capital.
We increased our CET one ratio to 11, 9% this quarter.
After returning $1 $3 billion in capital, including a rather modest level of buybacks, a tangible book value per share now exceeds $80.
Despite the strength of our balance sheet and reserve I'll stress capital buffer is set to increase to 4% in the fourth quarter as a result of this year's stress test scenario.
So over.
Over the near term, we plan to build to a CET one ratio of approximately 13%, including a 100 basis point management buffer.
Over the medium term off CET, one target remains at 11, 5% to 12%.
We are prioritizing our dividend and pausing our share repurchases as we build capital we have a management buffer, which we can use to help ensure a smooth path to all required levels.
Mark will walk you through our approach in a few minutes.
We'll generate significant capital given our earnings power and the completion of pending divestitures.
We know how important buybacks out of shareholder value creation in particular, when we are trading at these levels and are committed to restarting them as soon as it is prudent to do so we will make every effort to optimize our capital, especially in businesses such as market.
So we balance the needs of our clients, our investors and our regulators.
Overall in a challenging macro and geopolitical environment. Our team delivered solid results and the bank is in a very strong position to weather uncertain times, whilst playing to our strengths.
I'm confident about the path ahead, and I'm pleased with all the progress.
Now I'd like to turn it over to Mark and then we'd be delighted as always to take your questions.
Thank you Jane and good morning, everyone I'm going to start with the firm wide financial results focusing on year over year comparisons for the second quarter unless I indicate otherwise that's been a little more time on expenses capital in Russia, and then turn to the results of each segment and end with 2022 guidance.
On slide four we show financial results for the full for.
As Jane mentioned earlier in the second quarter, we reported net income of $4 5 billion and EPS of $2 19.
With an oral TCE of 11, 2% or $19 $6 billion of revenues.
In the quarter total revenues increased 11% with growth in both net interest income as well as noninterest revenues net interest income grew 14% driven by higher rates as well as strong volumes across ICD and PWM.
Noninterest revenue grew 5% driven by fixed income and services, which more than offset lower noninterest revenue in investment banking and PWM.
Total expenses of $12 4 billion increased 8% largely driven by transformation business led investments and volume related expenses.
On a year to date basis expenses were up 12%, but excluding divestiture related impacts were up 9% also driven by the factors I just mentioned.
Cost of credit was $1 3 billion driven by net credit losses of $850 million in an ACL build of approximately $400 million.
At the end of the quarter, we had approximately $18 $3 billion in total reserves with a reserve to funded loan ratio of 244%.
And are well capitalized with a CET one ratio of 11, 9%.
On slide five we show an expense walk for the second quarter with the key underlying drivers as I mentioned earlier expenses increased by 8%.
3% of the increase was driven by transformation investments with about two thirds related to risk controls data and the finance programs and approximately 25% of the investments in those programs are related to technology and.
And as of today, we have over 9000 people dedicated to the transformation.
About 2% of the expense increase was driven by business led investments as we continue to hire commercial and investment bankers as well as client advisors in well and.
And we continue to invest in the client experience as well as front office Onboarding and platforms.
2% was due to higher revenue and volume related expenses largely in markets in cards, and approximately 1% was driven by compensation as well as other risk and control investments, partially offset by productivity savings and the impact of foreign exchange translation.
Across all of these buckets, we continued to invest in technology, which is up 14% for the quarter.
Before we move on from expenses, we wanted to provide some tangible examples of what we're working on regarding our transformation and some of the benefits we expect to see over time.
The transformation is designed to improve our governance and processes enhance our policies and leveraged technology to strengthen our controls we've been actively investing in technology to improve automation and hiring people to stand up. These efforts to this end, we are enhancing our risk management processes and capabilities across a number of <unk>.
<unk> for example in banking, we've gone live with a new platform and now begun to consolidate our 37 loan processing systems to one loan servicing platform.
And we've continued to build out our infrastructure to enhance our stress testing capabilities across the firm, particularly useful in this market.
Given the power and importance of data we are redesigning our data governance and data organization, which will help us improve the timeliness and quality of our data.
These foundational data related changes will allow us to simplify and improve client onboarding and deepening product development as well as enhance our data analytics for every function.
And we are streamlining our financial planning process to allow for multiple scenarios with greater frequency, including more agile capital planning.
And we signed with a major software provider to begin a multi year process of modernizing and moving our 16 ledger platforms deployed across 121 instances to one cloud based ledger.
And while we are in the early stages of these initiatives, we expect the efficiencies from these investments to be key in helping us meet our investor day commitments.
On slide six we show net interest income loans and deposits in the second quarter net interest income increased by approximately $1 $1 billion on a sequential basis, driven by higher rates day count growth in loans as well as the impact of the European dividend season on our markets business.
On a year over year basis, net interest income increased by approximately $1 $5 billion, driven by higher interest rates as well as volumes across businesses.
And we grew average loans by approximately 3% in ICD, mainly in trade finance and 4% and PWM.
Legacy franchises loans declined largely driven by the reclassification of loans to held for sale.
And sequentially the gross yield on our loans increased by 35 basis points and the cost of our interest bearing deposits increased by 20 basis points.
On slide seven we show, our summary balance sheet and key capital and liquidity metrics.
We maintained a very strong balance sheet about $2 four trillion dollars of assets about 22% or $531 billion or high quality liquid assets or <unk> and we maintained total liquidity resources of approximately $964 billion.
Our end of period deposits increased by 1% largely driven by TTS and well.
On a sequential basis deposits decreased by 1%, including the impact of seasonality and well.
From an <unk> perspective, we saw both advanced and standardized <unk> come down both year over year and sequentially as we continued to optimize our ws.
We ended the quarter with a standardized CET one ratio of approximately 11, 9%.
And standardized remains the binding requirement.
And our tangible book value per share was $80 25.
3%.
On slide eight we show a sequential CET one ratio walk to provide more detail on the drivers this quarter and our goals over the next few quarters.
First we generated $4 $3 billion of net income to common which added 34 basis points.
Second we returned $1 $3 billion in the form of dividends and buybacks, which drove a reduction of about 10 basis points.
Third the interest rate impact on OCI through our investment portfolio drove a 12 basis point reduction.
Fourth the decrease in disallowed DTA drove a five basis point increase.
And finally, the remainder was driven by a combination of our net RW way optimization efforts as well as the 12 basis point benefit from the closing of the Australia sale.
We ended the quarter with a CET one ratio of 11, 9%.
The basis points higher than the first quarter and well above the regulatory requirement of 10, 5%.
We expect a regulatory requirement to increase to 11, 5% in October of 2022 to account for the increase in our stress capital buffer from 3% to 4%.
In January a regulatory requirement will increase to 12% as a result of an increase in our G SIB surcharge.
Combination of our earnings generation closing of divestitures and continued <unk> optimization efforts will be important tools as we manage towards our CET one requirement.
And our management buffer, which was designed to temporarily address volatility will allow us to build gradually while continuing to support our clients.
Given all that we do expect to build to our CET one target of approximately 13% by midyear 2023, which accounts for the increased regulatory requirement and assumes a 100 basis point management buffer.
However, consistent with what we said at Investor Day, our medium term target remains at 11, 5% to 12%.
And while we are pausing buybacks for now as I've said before we remain committed to returning excess capital to our shareholders over time.
On slide nine we provide an update on our exposure to Russia.
In <unk>, we reduced our exposure by $3 $1 billion and local currency terms, which was more than offset by the ruble appreciation.
As of today the mix of our exposure has changed and is now reflecting a higher proportion of stronger credit ne.
Additionally, our net investment in our Russian entity is now approximately $1 2 billion up from about $700 million.
Due to the ruble appreciation.
As a result of the actions that we've taken to reduce our risk. We now believe that under a range of severe stress scenarios, our potential capital impact is estimated to be approximately $2 billion down.
Down from the two and a half to $3 billion last quarter.
On slide 10, we show the results for our institutional clients group.
Revenues increased by 20% largely driven by TTS markets security services as well as a gain on loan hedges, partially offset by a decrease in investment banking revenues.
Expenses increased 10% driven by transformation.
This led investments and volume related expenses, partially offset by productivity savings.
Cost of credit was a benefit of $202 million with a net ACL release of $220 million and net credit losses of only $18 million.
<unk> was largely driven by a reduction in Russia related risk, partially offset by a build due to increased global macro uncertainty.
This resulted in net income of approximately $4 billion.
Up 16%.
We grew average loans by 3% largely driven by TTS loans, which were up 17%.
Average deposits grew 1% driven by the deepening of existing client relationships and new client acquisition.
And ICD deliberate in our OTC E up 16, 6%.
On Slide 11, we show revenue performance by business and the key drivers we laid out at Investor Day, which we will show you each quarter.
In services, we continue to see a very strong new client pipeline and deepening with our existing clients and expect that momentum to continue.
And Treasury and trade solutions revenues were up 33% driven by 42% growth in net interest income as well as 17% growth in NII or as we saw strong growth with both mid and large corporate clients.
And we continue to see healthy underlying drivers in TTS that indicate continued strong client activity with U S dollar clearing volumes up 2%.
Ross border flows up 17% in commercial card volumes up 61%.
Again, these metrics are indicators of client activity and fees and on a combined basis drive approximately 50% of total TTS fee revenue.
Securities Services revenues grew 16% as net interest income grew 41% driven by higher interest rates across currencies.
And I are grew 8% largely reflecting elevated activity levels and issuer services.
Overall market revenues were up 25%.
The macro environment play to our strengths with the volatility leading to elevated corporate client activity.
Fixed income markets revenues were up 31% driven by FX rates and commodities due to active engagement with our corporate clients as we help them manage risk associated with volatile markets.
Equity markets revenues were up 8% driven by strong equity derivative performance, partially offset by less client activity in cash and a net decrease in prime balances as lower asset valuations more than offset new client balance.
Banking revenues, excluding gains and losses on loan hedges were down 28% driven by investment banking as heightened geopolitical uncertainty and the overall macro backdrop impacted client activity, partially offset by higher revenue and corporate lending.
So we feel very good about the progress we are making here as we continue to deepen existing client relationships as well as acquire new clients.
Now turning to slide 12, we show the results for our personal banking and wealth management business.
Revenues were up 6% as net interest income growth was partially offset by a decline in noninterest revenue largely driven by partner payments and retail services.
Expenses were up 12% driven by transformation business.
This led investments and higher volume driven expenses, partially offset by productivity savings.
Cost of credit of $1 4 billion was up as we added reserves given the increase in overall uncertainty in the macro environment compared to a net ACL release last year.
Npls were down 19% as we continue to see strong credit performance across the portfolios.
Average loans grew 4% driven by strong growth in branded cards as well as growth across retail services and well.
Average deposits grew 6% driven by growth across retail and well.
We continue to maintain a strong reserve to loan ratio of seven 5% and our U S cards business.
<unk> delivered an ROE TCE of six 8%.
While a low return this was driven by the ACL build and an increase in expenses in the quarter.
On slide 13, we show PWM revenues by product as well as key business drivers and metrics branded cards revenues were up 10% driven by higher interest on higher loan balances, we're seeing encouraging underlying drivers with new accounts and card spend volumes both up 18%.
And average loans up 11%.
Retail services revenues were up 7% also driven by higher interest on higher loan balances, partially offset by higher partner payments.
Spike payment rates remaining elevated the investments we've been making have driven growth in interest, earning balances of 3% in branded cards and 2% in retail services and we believe we will continue to grow these balances in the second half of the year.
Retail banking revenues were up 6%, primarily driven by deposit spreads and volumes.
<unk> revenues were flat as investment fee headwinds offset NII growth driven by deposit and loan volumes, excluding Asia revenues were up 4%.
We're starting to see the leading indicators pick up with average deposits up 7% and client advisors up 8%.
And we're seeing strong new client acquisition, having added 800 private bank clients and over 50000 city gold clients since last year.
On Slide 14, we show results for legacy franchises.
<unk> declined 15% largely driven by the closing of the Australia consumer sale, the Korea wind down and muted investment activity in Asia.
As we mentioned this quarter, we closed the sale of the Australia consumer business, which was a benefit of up to $1 $5 billion of capital.
On Slide 15, we show results for corporate other.
Revenues increased largely driven by higher net revenue from the investment portfolio and expenses were down.
On slide 16, we briefly touch on our full year 2022 outlook.
At this point, we continue to expect full year revenues to be up in the low single digit range.
Relative to Investor day, the rate curve is certainly giving us a tailwind from an NII perspective and markets revenues were up for the first half of the year How's.
However, as we mentioned earlier, we're seeing much lower levels of investment banking activity and this will likely continue for the remainder of the year.
In terms of expenses, we still expect to grow expenses by 7% to 8% excluding the impact of divestitures. While we are seeing some impact from inflation. We believe the efficiencies that we're executing against and the impact of foreign exchange translation should offset these headwinds.
With that said Jane and I would be happy to take your questions.
Thank you at this time, if you would like to ask a question. Please press star one on your Touchtone phone.
They remove yourself from the queue at any time by pressing star two as a reminder, we are allowing analyst one question and one related follow up today, you will be allowed to re queue for additional questions. As time allows again that is star one to ask a question, we will pause for a moment to allow questions to queue.
Thank you. Our first question will come from John Mcdonald with Autonomous Research. Your line is now open.
Hi, Good morning, Mark was hoping that maybe you could unpack the guidance for 2022, a little bit more it seems like you've got more good guys and bad guys maintain the guidance, but maybe within that could you give us a little bit more color on what you're expecting on net interest income were the trends teams. It seemed strong and then.
Maybe what youre assuming for markets in the back half of the year. Thank you.
Yeah. Thank you John and good morning to you.
As you said, we have seen the benefits certainly in the in the quarter here of the pickup in in rates and certainly all indicators are that the rate increases will likely continue.
Through the balance of the year and as you've heard me say before I do expect that we will see continued growth in loans, particularly on the card side and we saw some of that start to play in sooner than expected because I had talked about it being in the back half of the year. We saw some of that even here in the second quarter. So we do continue to think we'll get some lift there.
We also expect to see continued momentum on the services side, both in TTS and likely in security services as well and that growth is more than just rates, but certainly a portion of that does come from rates.
As well, where the pressure is going to come is in the noninterest revenue.
And we saw that certainly in the quarter here on the on the investment banking side.
We saw that obviously in some of the wealth businesses, particularly in Asia, and Thats, where some of the offset is that we'd expect against that NII momentum now the reality I think is that we will.
To see how this plays out as it relates to markets all the uncertainty that's out there in the environment. Thus far have played is play to our favor given our focus on corporate clients and what have you, but I would tell you that as I look at the full year based on what we know now and with the uncertainty that's out there I continue to feel comfortable with that guidance probably to the higher Ed.
And of that of that low single digit growth that I've talked about.
Okay, and then maybe as a follow up just to remind US where you are on net interest income sensitivity you've updated the way I think you'd look at it relative to peers and relative to rates just remind us where you are on that and what kind of deposit pricing assumptions are embedded in that.
Sure so important to kind of just level set John Great question. We got I think there are a couple of drivers that kind of come into play when we think about the sensitivity. So one is obviously the mix and so in our case, we've got about two thirds of our of our deposits or wholesale about a third are our consumer.
We've got obviously, a 70% of ours are.
Are in U S denominated and the rest are kind of non U S and that mix is important when you think about betas. When you think about sensitivity and how they play out, particularly in a rising rate environment at the pace that we've seen and that pays varies for both the U S versus the non U S currencies and so that's all that it.
Be a factor and kind of how we think about it youre right when our disclosure, we we forecast our IRB disclosure based on <unk>.
Based on our run off balance sheet assumption and what I've been describing the past couple of quarters and approach that is an approach that is more consistent with peers, which assumes a static balance sheet and under that analysis. If we were to look at and assumption for 100 basis point parallel shift in rates cross currency.
We think that would generate roughly a two $5 billion increase in NII now for us that's going to skew towards non U S dollars about 80% of that.
Would be non U S dollar about 20% U S dollar and that shift is impart because we've seen already a significant increase in the U S.
Seen some increase in non U S, but nowhere near the magnitude that we've seen in the U S. So I'll stop there hopefully that addresses your question.
Thank you. Our next question will come from Glenn Schorr with Evercore ISI. Your line is now open.
Thanks, very much mark.
I Wonder if you could just elaborate on the.
The headwind in noninterest revenue with NPV Wm and retail services. It sounds to me like you extended a contract for a part or something like that and then maybe bigger picture.
In card you just mentioned rising card loans, we all want rising loans, but in the backdrop and the economic outlook. We're facing how do you decipher, what's good ryzen and card loans versus a little concerning Verizon card loans.
Sure Let me, let me take the FERC they take them in that order. So on the on the retail services side. It has nothing to do with kind of an extension of a contract or anything like that what what I'm describing is that it is a it is a partner business that we have there in retail services and what that means is that there is a sharing of the profits associate.
Good with the business that we generate and so what happens is in this rising rate environment, we've seen and the activity from a volume point of view, we've seen an increase in the net interest income that we've generated and what that means is that theres more fortunately more profits to share with our partners the share.
Bring over those profits play through the noninterest revenue loss. So it comes out of it comes out as a fee of a contra revenue as we share those with clients. So that's the driver of of the swing.
That you see happening there or the pressure that we have and PWM as it relates to as it relates to retail services in terms of the card growth the cards growth, we feel very good about it.
There certainly is a an environmental dynamic that's playing out.
As it relates to consumers and corporates, but what I would say is as you've also heard us describing more marketing spend more advertising spend more acquisitions, 18% growth in acquisitions, we've been targeting growing our customer base there.
While staying within our risk appetite and the parameters that we've set and been very disciplined about and that's started to pay off and that is a that is part of what I described in terms of the loan growth that is materializing theres nothing that we see of significance as we grow these loans that would suggest one that they are outside of the focus that we've had to.
Because theyre not nor.
Nor that there's any material risk in terms of outsized losses. If you look at our loss rates are loss rates are for branded cards, one 5% retail services to 6% those are 50% of what we would normally what we used to describe as a normal loss rate NCL rate.
Through a cycle and so we feel very good about the loans that were growing there is obviously risk, but we also feel very good about the reserves that we have.
Thank you as a reminder, please limit yourself to one question and one related follow up our next question will come from Erika Najarian with UBS. Your line is now open.
Yes, Hi, My first question is actually off.
Follow up to John's question, Mark I think that.
It's always been more challenging to forecast net interest income for.
For Citigroup and you know the net interest income and net interest margin certainly surprised to the upside.
I guess, let me re ask the question.
Appreciate that $2 5 billion for each 100 basis point parallel shift.
As we think about the U S forward curve.
How should we think about the trajectory of net interest income from that 10.58 from here and.
And clearly as we think about a deposit base. Its two thirds wholesale how should we think about both.
Deposit.
A slow deposit growth and deposit beta.
Now as we think about the second half of the year in other words.
The rate of change quarter over quarter accelerate.
It's flattened out or decelerate.
There's a lot there, but I mean, I think what I, what I'd say is a couple of things. One is we've obviously seen a rapid increase in rates.
And that's the speed at which rates increases matters, a lot as it relates to to the betas and so particularly on the wholesale corporate side and so we have seen betas.
Increase there, they're probably at about two slightly a little bit better than than we would've expected.
But we would expect that momentum to continue in the back half of the year given the forecast for continued rate increases.
The other thing that I'd point out just given your point around the ability to forecast from our city point of view. If you look at the first half of the of the year. We did about I think it was 1 billion eight or so over the prior year ex markets. So NII ex markets.
1 billion a year over year first half to give you a bit more guidance on how we're thinking about it in light of the rate curve and in light of our mix I would tell you that I expect about another 1 billion eight or so in.
In the back half. So that's you know probably year over year.
<unk> percent or show for on a full year basis based on again, our mix our assumption around betas.
And our current assumptions around how the curve would likely play out let me pause there and see if Jay wants to add anything to that yeah. I I'd also add in our institutional deposits account for about 65% of cities deposit base, but 55% of them are operational deposits.
And the TTS deposits have increased by 134 billion since pre COVID-19, but the operational deposits increased by $141 billion and the non operating decreased so.
Qt on the horizon.
And expect the amount of deposits in the system to shrink we anticipate this would primarily impact non operating balances I think we feel very good about the stickiness.
At the deposit basis.
Particularly internationally.
These are operating account.
The Dol extremely sticky.
Frankly in.
All environments.
Good point.
Yeah.
And just my follow up question is that was really an impressive capital build this quarter, particularly since it's been an issue with investors since especially since the Seb came out.
I think a piece that we may be missing as we think about the continued build to 13% is sort of what the CET. One benefit is from slide 19, so similar to the sort of the I guess it was 12 basis points.
Accreted from the Australian sale is there any way you could give us a range on as the deals close for the Philippines, Thailand brain on Malaysia in the second half of the year, how that could boost your CET, one and get you closer.
To that 13% bogey.
Yes, I guess, let me, let me kind of answer it in a more fulsome way. If you don't mind and then I'll certainly make sure that I give you a sense for the contribution of what we expect from divestitures to the capital impact. So again there are a couple of drivers there that are going to be important to us.
Building to ultimately the 13 for as long as that is in place given the Seb. One is obviously the income generation and we had a very strong quarter as it relates to income generation.
I feel good about the back half of the year as I've just given you some guidance on the other is don't forget we've had 160 basis points on the two year since the beginning of the year to the end of the first quarter in terms of rate increases. Another 60 in the second quarter and Theres going to be there were AC OCI impacts from that.
<unk> four in the first quarter and as we pointed out here. Another 12 in the second there is a pull to par that we expect to start to play out and continue to play out in the balance of the year, that's going to be an important factor. The third as you've heard US mention is we've been working very hard to optimize our <unk> and we will continue to do that we paused the <unk>.
Buy backs, that's a factor and then as you mentioned the divestitures to close to 1 billion and a half or so in Australia I've talked about in the past about $4 billion for the year in terms of capital impact I'm not about three and a half with Australia is what I'm currently expecting and so a little bit less than what I talked about before.
In part because of some of the movement in terms of the timing of some of these closings still feel good about it just it's a difficult market that we're managing through so that three and a half total should give you a sense for.
How that translates into a CET one impact that we're expecting at least through the balance of this year and obviously it will be more to come as we continue to close out and signing close out some of the remaining deals.
Yeah I mean.
I rather suspect at the end of all of this we're going to have an overabundance of capital and I. It's I really feel good that city is already very well positioned for any environment and as Mark said, we have a confluence of various factors going on some of which are temporary.
That are causing this rapid buildup of capital for the industry.
But.
We are extremely well positioned for that lies ahead in terms of strong capital ratios total liquidity resources portfolio credit quality is extremely high well reserved on that and so are we.
We're very much looking forward to resuming share buybacks as I said.
Once we've we've achieved this build particularly given where we're trading and I want you to hear loud and clear that commitment.
Thank you. Our next question will come from Mike Mayo with Wells Fargo Fargo Securities. Your line is now open.
Hi.
I'm trying to figure out if you're lucky or smart and the reason I say that is at your Investor day.
I mean right up front you said you have five core interconnected businesses led by services led by TPS and then a few months later you have your best quarter in a decade and it just seems so coincidental that you highlight that as a growth area and then just a couple of quarters later boom here, we are so how much.
<unk> of that.
TTS growth.
Is it simply because of one off factors in the market. So in other words it wont repeat how much of it is due to a higher baseline because let's say interest rates and how much of that is due to market share gains and just remind us what TTS security.
Security services is again, because I think you've got everyone's attention with this quarter.
So what that was.
Why don't I kick off and then I'll pass it to Mark and Dan.
Can you hear of how long you have Mike because there's a lot to talk about so I would encourage you to sit at the beach. This weekend and have an excellent REIT. If the supplement because we've provided you with a lot of good facts and proof points and information both around the services businesses and the other is about.
The early progress on the strategy.
TTS was able to far as I said on all cylinders this quarter.
Sure.
About two thirds of the performance was driven by business actions.
One side with buy rates.
And as Mark said very active management of the deposit base.
Beta discipline across all the regions and the Nio growth that you saw was driven by card by payments by receivables and bitrate.
When you look at the strategic drivers, we laid out at Investor Day, This quarter cross border transaction value up 17% year over year clearing volume up 2% in U S. Dollar commercial card spend up 62% is that business recover.
Average trained trade loan balances up 14% average deposit balances up 2% so that two sets.
Was not rates related.
It has a very broad and substantive set of drivers behind that.
And that as Mark said puts us into a very strong position for continued momentum here.
This level of year over year growth is very pleasing.
But we would expect to see it revert to the medium term guidance. We gave you at Investor day over time, but.
But no. This was this was across the board all elements firing and I will give a shoutout to <unk> I'm the head of TTS as well as to our security services team, but he has really instituted a culture of intensity of tremendous folk.
Discipline and how he is running the business as well.
And I think that is also a contributing factor to the confidence that you are hearing.
From us about this mark do you want to explain with TTM.
As you've heard us describe the TTS franchise is core to our business. It provides obviously.
It works at a large multinational clients in over 90 countries, we manage the full swath of their working capital and cash management needs. We also provide trade financing for them and the vendors and partners.
This is essentially in many ways, what differentiates our franchise from others and not only is it in and of itself a core growing high returning business. What is one of the businesses that is well connected to the rest of the franchise. When you think about the the markets business. The business that we have in the FX that we match.
On behalf of clients.
And so and this is a particularly relevant time for us to be engage with those partners as they manage through supply chain issues and we're there to again help them work through those things and provide them alternatives to to their production and operations in similar type services, we provide to our investors.
Client base.
From a security services point of view look the strike the strategy here did not start with Investor day that as we obviously spent time with you talking about that but this has been a part of the franchise that we've been investing in on an ongoing basis and it's important that we continue to do that investments in technology investments in.
Onboarding of new clients and the services, we provide and enhanced digital capabilities and the operations. So all of those things and some of that what you see here is those investments starting to pay off and the same is exactly true and security services. So.
I think the answer to your question is no. We're just being very disciplined yes, well said.
Thank you and the interest of time, we now ask to please limit yourself to one question only we will allow you to re queue by pressing star one for additional questions. As time allows our next question will come from Ken Houston with Jefferies. Your line is now open.
Hi, there. Thank you good morning, just a follow up on the <unk>.
When you talk about the premium of the $3 5 billion and can you help us just just discern between what is a numerator impact and what's the <unk> impact of the sales that have been announced and.
Just as it related just how far are you through the <unk> optimization efforts how much more could you could you really should be doing there. Thank you.
So the thank you the $3 $5 billion I referenced is all capital. So all numerator impact is what I'm describing its both the any premium that we get our impact gain from sale as well as the <unk> that we have allocated as part of that business and so that all kind of flows through.
From a numerator point of view in the case of Australia. For example that would include both the <unk> that we had attributed that to that business as well as the the Cta impact coming back into into capital. So remember we took a hit when we signed the deal associated with the Cta I kept.
Communicating that that would would neutralize at when the deal was closed in fact, it did and that contributes to the roughly one and a half there in terms of <unk> optimization efforts.
It's a continuous effort.
We are constantly working through the balance sheet to make sure that it's allocated to.
To clients, who generate the highest prospect for growth and.
And leverage the breadth of the franchise and we're going to continue to do that and I think the team did a very good job in ICD and particularly in markets this quarter and making sure that we've made progress against the revenue to <unk> metric that they've been using which is a proxy for returns they worked very closely with with.
Clients two to manage the recycling of trading inventory and a optimal way to optimize collateral positions that and postings that.
We have to increase initial margins on derivative trading where that makes sense and so they've been actively working the balance sheet and we're going to continue to do that we want to be there to serve our clients, but we want to make sure that we are generating an appropriate return for the use of capital and it's part of the shift that we're we've been institute.
Teng, <unk>, and Andy and in markets and across ICT and across the firm.
Our commitment to Akshay helped us to be more returns focused and to be managing the business differently that way.
This is a very obvious example of that.
Because it's multi dimensional.
Yeah.
Thank you. Our next question will come from Ebrahim <unk> with Bank of America. Your line is now open.
Good morning, guys morning.
Capital Mark just a two part question one Avi am I hearing you right that you're not going to leave the door open for buybacks until you get to 13%.
Initiating what gene said about some of the transitory impacts on the OCI is why not be a bit more opportunistic and just tied to that what's the risk that some of these deals get pushed out I see slide 19, where you've extended the timeline for a few deals given just the macro backdrop is that risk or are you do you feel pretty good about the updated timelines. Thank you.
Yeah sure. So look I mean, we are we.
We are obviously going to take it quarter by quarter as it relates to buybacks and from a capital point of view.
Again without going through all of the things that reflect the environment that we're in you can see the uncertainty that's out there obviously the capital requirements with this seb for the industry are higher that's unfortunate we feel as though the right amount of capital.
Was in the industry already we've got to manage to that as a REIT requirement, we're going to do that but we'll seb gives us the opportunity to take those decisions quarter by quarter. We're pausing for now and next year there'll be another DFAST process and there'll be an FCB that comes out of that.
We should have the strength of higher PNR that we've been generating to help contribute to what that outcome looks like so we'll take that quarter quarter by quarter in terms of.
Risk related to divestitures again, we did highlight we are being very very transparent.
With with you all and with the World and we do see some <unk>.
Delays that we highlighted from our original schedule that's in the back of the.
Presentation, there, but we feel very good about getting to closure there and it's not a it's not an if it's a win and we feel like we're on track with the schedule that we've highlighted for you.
Thank you. Our next question will come from that Greg <unk> with Morgan Stanley . Your line is now open hi, one more capital question. So again slide hi on slide eight you do give the medium term outlook here for what you see as Europe .
Long term goals for capital the 11, 5% to 12, and so implicit within that is an expectation that your regimens would fall to.
Somewhere 200 basis points, or so and I get that the exits will be part of that.
Is there a sense you can tell us as you get more simple simplified what the Seb benefit would be I thought it was something like 25 basis points, but I must be off there.
Yes look I mean, the 11, 5% to 12 is consistent with what we talked about at Investor day, and the medium term as you know Betsy for US is three to five years. We've got a couple of things that we're working through not the least of with which are the divestitures. They will certainly contribute to that but so will some of the.
The other things that I've mentioned and quoting utilization of the DTA.
OCI pullback.
And things of that sort the divestitures certainly will help from an SCB point of view, but I think the stronger performance that we're seeing will aid in that as well and importantly the.
The mix change that we expect to come from executing on our strategy a mix towards more sustainable predictable earnings earnings that are coming from some of the areas of growth that we demonstrated this quarter like TTS and security services et cetera et cetera. So there.
Theres time there.
Obviously, a management buffer component of that that I think is certainly an important factor in consideration as we evolve our mix and then there was the the G SIB score.
With not only a reduction in the divestitures that will impact peak to trough losses. Theres also deposits that will go away with those in balance sheet evolution that will contribute to the reduction in G SIB score as well.
Let me just underline a couple of points when we built our strategy. It wasn't 90 to generate greater returns, but it was to lower our capital requirements over time as Mark said.
And you can see how we're executing that both in terms of the shift in mix and the divestitures, obviously, we don't control the regulatory capital framework.
But we're not managing for short term shifts in Seb as you know the banks experienced considerable variability in the seb each yet very much depending on the scenario chosen.
So that's why we continue with our commitment and confidence around the medium term.
Thank you. Our next question will come from Steven <unk> with Wolfe Research. Your line is now open.
Hi, Good morning, Jane Good morning, Mark Good morning, Steven.
So I had a follow up question for.
Arguably for Mark on NII as the fed continues down the path of balance sheet normalization I just wanted to clarify whether that $1 8 billion increase in <unk>.
We started it for the back half assumes stable deposits or some qt related attrition.
And within Icd's, specifically are there any insights you can share on what drove the increase in markets NII and how that should traject. This given the historical liability sensitivity within the markets business.
Yeah on the.
On the first point.
When I think about the back half of the year and quantitative tightening.
I do expect that we will see some deposit some continued deposit growth.
As I mentioned earlier the pressure from Quant quantitative tightening I think will certainly play out over time, but again, our focus is on growing the operating deposits that we have with clients.
And we think we've got good traction and ability to continue momentum with those operating deposits and again, they put us in a position to really broaden the relationship with both those multinational clients as well as with some of our commercial clients, where we have been getting good growth and.
And momentum from so, yes likely to be an impact across the industry.
We believe we can get some continued momentum, particularly on the operating.
On the operating deposits that we have with with clients in terms of in terms of markets NII I mean, you've got.
You've got the European dividend that plays out in the second quarter. So that obviously is a factor there and again I'd point you to when we talk about markets I really like to talk about total revenues because the nature of the security and the trading and the activity that we do there.
And have an impact on NII, and NII or and what really matters is is the total revenues that were driving and generating.
Out of that franchise and as you can as you can see.
Did 25%.
Growth in markets revenue year over year, so very good very good quarter for them, but the market's team for sure.
Thank you. Our next question will come from Matt O'connor with Deutsche Bank. Your line is now open.
Hi can you elaborate on your comment about.
Why the Russia exposure.
Is kind of less of a risk or a better mix than it was a few months ago, and then maybe related to that quantify how much of an $8 4 billion.
As to subsidiaries of <unk>.
Does seem like it'd be much much lower revenue. Thank you.
Sure. So look the what we've been doing very actively since the beginning of the year and certainly in the quarter as well has been working we've been working to bring down our exposure in Russia, and specifically with the clients that we that we serve there and so that direct exposure.
On a local currency dollars, we brought down by some $900 million or so in the quarter, we brought down and reduce the cash and deposits that we have by another $1 billion seven or so and then continued to bring down third party.
Related exposure by another $400 million and thats been through working with clients to pay those exposures and loans down and in some instances given them incentives to do so.
And incentives to move their deposits out as well so very active.
Engagement from the team as it relates to that.
Happened.
With that is the mix of the exposure that we have where that remains skewed has skewed towards the higher quality names.
Names and towards.
The global subsidiaries that we have.
In the country, and so with that mix shift to better quality names and the reduction in exposure.
That's allowed for us to take down the reserves that we had related to the direct exposure in the quarter and so that has been.
I think good very good progress in terms of that reduction it gets overshadowed.
A bit with the with the ruble impact, but we've we've made good progress and we're going to continue to actively do that approximately.
Jay do you want to jump in on it yeah.
I was going to jump in in terms of just overall lets be very clear we are systematically crunching down the size of our franchise and as Mark says the severe stress loss.
Scenario is probably the best indicator of that which is now around about the 2 billion are materially reduced them.
And we completely changed the nature of our exposure.
Particularly when you think about today most of our clients are multinationals.
Many of the exposures that have parent guarantees against them, which is very helpful.
Are we doing.
With them many of them that we're helping them with the X with the exits from the countries and that obviously as you can all appreciate take some time.
So for those that are able to exit swiftly.
That's another factor that can help us reduce down.
Suppose Europe presence and indeed, our operations. There are also others. So that it is hard.
We've all seen how difficult it is to disconnect the Russian economy from the west and a couple of key sectors.
In particular food and in particular energy and as you can imagine.
Given the nature of our bank we've been in the middle of some of those players that are essential for the west.
And then.
The multinationals that are supporting it.
And so you get it you have a bit of a blended story here and tons of Yep, we're helping those that connects to exit but we're also still playing the role that we have to and have been off too.
Maintaining some of those suppliers, we anticipate that they will continue to reduce over time as the energy and food security issues get addressed.
But it's a complex environment and bottom line you can hear US we are pleased with how this is being managed by our teams.
Thank you. Our next question will come from Gerard Cassidy with RBC. Your line is now open.
Thank you Hi, Mark.
Mark Mark can you share with US your both both of you addressed in your opening remarks about the impact of the market conditions had on the investment banking and your peers have seen it as well.
If the market conditions remain this way in the second half of the year and into 2023 just for investment banking.
Markets Youre trading business.
Do you guys. When do you guys have to take a sharper pencil to the expenses in that division or do you just let it run.
Maybe I kick off and then pass it over to Mark.
Yep strategic advice as Central's vision to being the preeminent banking partner for multinational firms.
We are continuing to strategically invest in talent and then the platform you can expect us to continue doing so with a particular focus on the tech health care and financial services sectors, because those are ones, where it is a decade long shifts that were kind of see and theyre important.
We've brought in some very strong bankers that it always takes a few years to build chair built out the client relationships.
And to see the fruit of those investments.
We're also focused on the broader opportunity.
Leveraging investments in commercial banking I'm sure Marc will talk about that as well.
Market and the connectivity that so I think youre going to see us take a strategic look at this on a long time ago, rather than just a shooting from the hip on the expenses side, because we're building the firm for the long term here will suddenly be incredibly disciplined around expenses, you've seen that with us.
This quarter.
We've talked about what we'll do on expenses across the board in the Sun as we come to become simpler impacting stranded costs.
Our organization structure et cetera.
But we're very serious about the investments that we're making into some of the core talent in these areas and you shouldn't be expecting us to make any significant material shifts right or left on this one we're deadly serious mountain Jane I think Thats well said the only thing I'd add is that the business is capital light.
And as high returning through the cycle and so we see a lot of value there.
We want to be prepared to to ramp up when activity starts again and as you said, it's quite strategic.
For us since you kind of wound me up on the commercial banking activity.
I have to jump at it we had as you know Jay and a very strong quarter in commercial banking when I look at the revenue momentum there just kind of leveraging the breadth of the franchise, we're probably up 25% to 30% and revenues.
And that part of the business and I know Thats part of our as you know that's part of our core growth strategy that we talked about at Investor day. So a good momentum in that part of the franchise as well and obviously now having benefits for our investment banking colleagues as well that those synergies synergy yep.
Thank you. Our next question will come from Vivek Tunisia.
J P. Morgan your line is now open terminated thank you.
James a question for you on Mexico.
Given the comments of the Mexican president.
Would that limit the price that a buyer would be willing to pay and what's your sort of minimum price that youre willing to accept.
What's plan B, if the prices being bid don't meet that hurdle.
Vivek.
I'm I'm not going to want to see your question.
But I'll.
I'll give you a few comments on Mexico Nonetheless, so.
We're pleased with the interest in our Mexican franchise based on the discussions with the with the buyers.
And if it's the franchise is performing well, it's more than maintaining its value is contributing nicely to our financial results.
But it's still very early in this process. So when we have we have news for you. We will we will obviously conveyed that to you.
Swiftly, but it's early days and as you'd expect with a transaction of this nature, we need to work through a variety of regulatory and legal proceedings. We are actively doing so we're working hard on separating.
Market, leading institutional franchise, which is a key part of our global network, taking the time necessary to do that the right way.
And.
We have a variety of different options that we can always look at but it's far too early in the process here to speculate on but so far so good.
Thank you. Our next question will come from Andrew Lim with Society Generale. Your line is now open.
Hi, good morning, Thanks for taking my question.
I guess I'd like to have a better view from you on your outlook Couldnt recession, it's difficult to reconcile how investors feel about recession.
So quite negative.
Seemingly a little more negative than it was about of course, okay, but when we look at you and some of your peers.
Delta on the recession now look it seems I need a little bit worse than it was one quarter ago.
So I was just wondering how you think about recession.
Because you know some of the investments that we talked to you.
They look at the savings ratio is back to pre pandemic levels. They look at.
Mortgage affordability and it should be quite dire.
Sure.
And the perception that you have is also the perhaps inconsistent with the way you're going to collect recession. So perhaps you can give us a bit of color as to how you were thinking about things.
Yeah.
I'll kick it off pass it to Mark look that is as we've talked about the current macro environment is kind of shaped by the three oz, Russia rates and recession and it depends where in the world you are as to which ones prevailing in the U S were more concerned about rates, an imminent recession, the consumer and the corporate a healthy labor market is.
Feeding the tight.
We are increasingly concerned about the possibility of a recession next year, but.
What you're hearing from us quite loud and clear is that we think the economy is quite well positioned to withstand it.
Europe different story for agility of their energy supply to any further shocks makes it more valuable and it's kind of at the center of the storm. So we do believe that the continent is heading into a recession under the most likely scenario and could be as early as this fall.
Asia.
And our concerns are largely focused around China scope. It theoretically paid policy economies bouncing back, but you could have another wave that could be more problematic that so you put all these different factors. So it's a little bit depends on where in the world that you are.
When I think about jaw.
<unk>.
Look we're prepared for a variety of scenarios.
Absolutely ready, we run stress tests, all the time given the unique set of risks facing the global economy right. Now we have a set of playbooks honed over many years, they can get instituted as necessary.
And what matters for our bank heading into recession capital liquidity credit quality and reserve and we feel very good about all four of them very strong capital ratios that you've seen ending Q total liquidity resources, just shy of a trillion dollars over 80% of our corporate exposures are investing.
Great all consumer clients are heavily prime and let's just talk a little bit about that.
ICT NCL. This this quarter when you look at the numbers it was $18 million.
The health of the corporate is entering into the chop people just is extremely strong.
We have we've got a very well reserved reserve to funded loan ratio of two four so we have the we have a lot of flexibility here. If we have a severe recession I think youll see some actions taken other ones being slower but.
As a bank, we're ready for a whole variety of different scenarios, Marc Jean just to your point on on reserves just in the quarter. You saw we took a reserve build that reserve build was in part driven by our view on the potential for.
Some downside in light of everything that we're seeing and the concerns around recession. So we.
We did take a bit of a build from a seasonal point of view on reserves and as Jane mentioned, we feel very good about our reserve levels in the $18 billion that we have associated with our franchise, yeah, I think that if they consume it.
It's just an unusual situation.
Entering into this choppy environment.
When you have a consumer with strong health.
And such a tight labor market and I think that's why you hear so many of us not so much concerned about an imminent recession in the states.
Thank you. Our next question will come from Mike Mayo with Wells Fargo Securities. Your line is now open.
We're down 6% quarter.
Can you hear me yes.
Yes, we can Mike Halloran again.
Hi, before I have my might be reading, thank you for that.
Look to regain investor credibility you've mentioned.
Meeting various proof points.
And can you remind us which first points you've met.
But which proof points, we should hold you accountable to looking ahead and the next.
Quarter and year.
I think you hope hold us accountable for all the different proof points. We laid out we were we went through a very thoughtful process to come up with a different kpis for this strategy.
And if those all transparency transparently put into the materials, we're trying to make it as shareholder and <unk>.
Investor friendly as possible in that respect.
And it.
You can see this quarter the drive has exceeded expectations in some places.
Headwinds in others, we laid them out very clearly.
You saw as we talked about services, so I don't need to cover that one again in markets, we talked about optimizing our Wi driving the business for stronger capital productivity also driving more of the Alpha trade solution business you see that.
Personal banking.
Turning to IEP and revenue growth from customer acquisition purchase sales being important metrics investment banking its progress on key hires in that.
That we've been making that's obviously been a tough market to do so but I've been pleased with the talent we brought him.
And delighted with the talent that we have.
<unk> was more challenged with Lockdowns in Asia, understandably slowing some progress some client acquisition.
And some of the key strategy to drive a Z, but synergies more disciplined tighter processes reinforced by additional metrics on the scorecard, you'll be hearing us talking more and more about the delivery of those synergies. So it's not really any different from exactly what we laid out on investor day.
Right we've laid out.
<unk>, we have a lot of conviction around we've laid out the different metrics to hold us accountable to.
It should provide you a sense of progress along the way.
And we've also talked about what we're doing to get this cultural change.
Accountability.
Didn't see intensity and excellent.
And we'll give you as many different indicators of where that's working well and where it's not as we go along and just add one thing to that Jamie.
I think you have to keep in mind that this is.
A very strong quarter for us we feel very good about it but it's just a quarter yeah, right and we talked about at Investor Day, a long term strategy and we gave you a sense for medium term targets and those things are going to be things that you hold us accountable between now and then right and so this is one quarter, we feel great about it.
Certainly glad that youre recognizing it.
But theres a lot more wood to chop, we're making a lot of investments in the franchise that we know we're going to pay dividends in the future and we look forward to kind of talking through continued progress in these kpis. It won't always be a straight line, but we remain confident that we're going to get there, yes I am.
We fully recognize the magnitude of what we have to do.
We are determined to get this done.
Thank you. Our next question will come from Vivek <unk> with Jpmorgan. Your line is now open.
Hi, This is mark.
Hygiene don't worry I won't trip you up on another one that you'll count on so hopefully.
Well I didn't say I said what is it okay. Okay.
<unk>.
Hopefully this one you will mark your 8% NII growth for full year.
Is there something in the second quarter that was unusually high that we should not carryforward I'm just trying to reconcile that with.
The guide that you've given because if we just.
Take that forward it would be above the <unk>.
8%, so trying to reconcile what's the difference.
Look I mean, each of the quarters, obviously have different dynamics different rate moves different volume levels of volume growth and what have you and and so there is certainly different volume levels between quarter, one and quarter, two and I describe kind of how rates have moved between the quarters as well and so to simplify it and.
And because there is appropriate interest in how we think about it on our next market spaces I just gave you.
The annualized <unk> of the half and what it would mean for the full year. So so nothing that I would point out beyond what you would notice which is differences in rates and volumes across the businesses.
Thank you there are no further questions at this time I will now turn the call over to Jim Landers for closing remarks.
Thank you all for joining today's call.
You have any follow up questions reach out to IR have a great day.
<unk>.
Yeah.
Thank you. This concludes cities second quarter earnings call you may now disconnect.
Okay.
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Bob.
Yes.
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