Q4 2023 PNC Financial Services Group Inc Earnings Call
Well good morning, and welcome to today's conference call for the PNC Financial Services Group I'm, Brian <unk> director of Investor Relations for P&C and participating on this call are Pnc's, Chairman, President and CEO, Bill Demchak, and Rob Reilly Executive Vice President and CFO today's presentation.
<unk> contains forward looking information cautionary statements about this information as well as reconciliations of non-GAAP measures are included in today's earnings release materials as well as our SEC filings and other investor materials. These are all available on our corporate website PNC Dot com under Investor Relations. These statements speak only as of January 16 2024.
<unk> and PNC undertakes no obligation to update them now I'd like to turn the call over to Bill. Thank you, Brian and good morning, everyone. During the challenging and volatile operating environment for the banking industry PNC performed well during 2023 and delivered a solid finish in the fourth quarter for the full year 2023, adjusting for the fourth quarter impact.
Bill: The FDIC special assessment and expenses related to a staff reduction initiatives that we completed in the fourth quarter, we earned $14.10 per diluted share compared to $13 85 per diluted share in 2022.
Bill: Throughout the year, but amidst all the disruption.
Bill: We continue to grow our customer base and deepen our relationships across our coast to coast franchise importantly, we generated record revenue in controlled core expenses, which allowed us to deliver a modest amount of positive adjusted operating leverage for the fourth quarter, we reported $883 million and net income of $1 85 diluted per share and $3.
Bill: And 16 cents per share on an adjusted basis, Rob is going to take you through the financials in a moment, but I'd like to highlight a few points first as we announced in early October we closed on the acquisition of the capital commitment loans from signature, which is immediately accretive to earnings secondly, as we expected we saw meaningful growth for noninterest income.
Bill: And during the fourth quarter, driven primarily by a rebound in capital markets and advisory fees third we completed the actions to reduce our workforce and we are positioned to realize $325 million of expense savings. In 2024. This is an addition to our CIP savings target for 2024, there Brad will discuss in a few minutes expense discipline.
Bill: It remains a top priority for us and accordingly, we are targeting stable expenses for 'twenty 'twenty four even as we continue to invest in key growth initiatives for us our credit quality remains strong during the quarter, reflecting our thoughtful approach to growing our balance sheet. While we continue to expect credit charge offs to increase over time, particularly in the CRE.
Bill: The office segment, we're adequately reserved.
Bill: Finally during the fourth quarter, we increased our capital position saw solid improvement in our a O C I intangible book value and repurchased a modest amount of shares.
Bill: In summary, we run our company with a focus on delivering through the cycle performance and feel very good about our strategy our capabilities and the strength of our balance sheet as we enter 2024, and we believe we are well positioned to drive growth and deliver shareholder value in the coming year and beyond as always I want to thank our employees for everything they do to meet the needs of our.
Speaker Change: <unk> and make our success possible and with that I'll turn it over to Rob.
Rob: Thanks, Bill and good morning, everyone. Our balance sheet is on slide three and it's presented on an average basis and compared to the third quarter.
Rob: Loans were up 2% and averaged $325 billion, which includes the acquired signature capital commitment loans.
Rob: Investment Securities declined $2 billion or 2%.
Rob: Cash balances at the Federal reserve increased $4 billion to $42 billion and deposits increased $1 $4 billion in average $424 billion.
Rob: Borrowed funds increased $5 billion to $73 billion, driven by higher F. H L B borrowings and parent company senior debt issuances.
Rob: At year end PMT was fully compliant with the proposed holding company long term debt requirements.
Rob: And we expect to reach compliance with the bank level metrics through our normal course of funding well in advance of the phase in period.
Rob: Aoc I improved $2 $6 billion to negative $7 $7 billion at quarter end, primarily reflecting the impact of favorable interest rate movements during the quarter.
Rob: Accordingly, tangible book value increased to $85.08 per common share up 9% linked quarter and 18% compared to the same period a year ago.
We remain well capitalized with an estimated CET one ratio of nine 9% as of December 31st, which increased 10 basis points linked quarter.
Rob: Our estimated fully phased and expanded risk based CET one ratio based on the new proposed capital rules would be approximately eight 2% at year end, which is well above our current requirement of 7%.
Rob: We continue to be well positioned with capital flexibility.
During the quarter, we resumed modest share repurchase activity of approximately $100 million or roughly half a million shares.
Rob: And when combined with $600 million of common dividends, we returned a total of $700 million of capital to shareholders.
Rob: Slide four shows our loans and more detail.
Rob: Compared to the third quarter average loan balances increased 2% driven by higher commercial loan balances and modest growth in consumer.
Rob: Commercial loans were $223 billion, an increase of $5 billion driven by the acquisition of the signature capital commitment portfolio.
Rob: Excluding the 8 billion dollar full quarter average impact from the signature loan portfolio commercial loans declined $3 billion or 1% driven by lower utilization in soft loan demand.
Rob: Consumer loans grew approximately $130 million driven by higher residential mortgage balances, partially offset by lower home equity and credit card balances.
Rob: And loan yields increased 19 basis points to 594% in the fourth quarter.
Rob: Slide five covers our deposits in more detail average.
Rob: Average deposits grew $1 $4 billion to $424 billion during the quarter has.
Rob: As seasonal growth in commercial deposits was partially offset by a decline in consumer deposits.
Rob: In regard to mix consolidated noninterest bearing deposits were 25% in the fourth quarter down slightly from 26% in the third quarter and consistent with our expectations.
Rob: We continue to expect the noninterest bearing portion of our deposits to stabilize near current levels.
Rob: Our current rate paid on interest bearing deposits increased to 2.48% during the fourth quarter.
Rob: Up from 2.26% in the prior quarter.
Rob: As of December 31st our cumulative deposit beta was 44% and in line with our expectation for the quarter.
Rob: As we stated previously we expect betas to drift modestly higher while interest rates remain at current levels and our current forecast calls for the first rate cut to occur in mid 2024 at which point, we believe the rate paid on deposits will begin to decline.
Slide six details our investment security and swap portfolios.
Rob: Average investment securities of $137 billion decreased 2% has curtailed purchase activity was more than offset by portfolio Paydowns and maturities.
Rob: The securities portfolio yield increased two basis points to 259%.
Rob: Reflecting the run off of lower yielding securities.
As of December 31, the duration of the investment Securities portfolio was four one years.
Rob: Our receive fixed swaps pointing to the commercial loan book totaled $33 billion on December 31.
The weighted average received fixed rate of our swap portfolio increased three basis points to two 1% and the duration of the portfolio was two three years.
Rob: Aoc I improved by $2 $6 billion in the fourth quarter, reflecting lower interest rates.
Rob: Importantly, as lower rate securities and swaps roll off we expect a continued meaningful improvement to tangible book value from OCI accretion.
Rob: Turning to the income statement on slide seven.
Rob: Fourth quarter net income was $883 million or $1 85 per share, which included pre tax non core expenses of $665 million or $525 million after tax related to the FDIC special assessment and a workforce reduction charges incurred in the fourth quarter.
Rob: Excluding noncore expenses adjusted EPS was $3 16.
Rob: Total revenue of $5 $4 billion increased to $128 million or 2% compared to the third quarter of 2023.
Rob: Net interest income declined modestly by $15 million.
Rob: And our net interest margin was 266% a decline of five basis points.
Noninterest income increased $143 million or 8%.
Noninterest expense of $4 $1 billion increased $829 million or 26% and included $665 million of noncore expenses.
Rob: Core noninterest expense was $3 $4 billion, an increase of $164 million or 5%.
Rob: Provision was $232 million in the fourth quarter.
Rob: And our effective tax rate was 16, 3%.
Rob: Full year 2023 revenue grew 2% compared to 2022.
Rob: Core noninterest expense was well controlled and grew 1%.
Rob: Importantly, our disciplined expense management and CIP savings allowed us to deliver modest positive operating leverage and P. PNR growth of 2% on an adjusted basis.
Rob: Turning to slide eight we highlight our revenue trends.
Rob: Fourth quarter revenue was up $128 million or 2% compared with the third quarter driven by strong fee income as net interest income of $3 $4 billion was down modestly.
Rob: Fee income was $1 8 billion had increased $99 million or 6% linked quarter.
Rob: Looking at the detail capital markets and advisory fees rebounded as expected and increased $141 million or 84% driven by higher M&A advisory fees.
Rob: Asset management, and brokerage revenue grew $12 million or 3%, reflecting favorable market conditions.
Rob: And residential and commercial mortgage revenue declined $52 million or 26%, primarily due to a decrease in evaluation of net mortgage servicing rights.
Rob: Other noninterest income of $138 million increased $44 million or 47% and included favorable valuation adjustments and gains on sales.
Rob: Fourth quarter also included a $100 million negative visa fair value adjustment compared to a $51 million negative adjustment in the third quarter.
Rob: As a reminder, at December 31st PNC owned $3 5 million visa class B shares with an unrecognized gain of approximately $1 $5 billion.
Rob: Turning to slide nine our fourth quarter noninterest expense of $4 $1 billion was up $829 million and included $665 million of non core charges.
Rob: Core noninterest expense of $3 4 billion increased $164 million or 5% linked quarter.
Rob: Selecting higher business activity seasonality and asset impairments.
Rob: During the quarter, we incurred $42 million of impairment charges, which were largely related to building write offs, notably in 2023, we reduced our non branch footprint by 2 million square feet or approximately 17%.
Rob: For the full year core noninterest expense of $13 $3 billion increase a $177 million or 1%.
Rob: Expense growth was well controlled due in part to the $50 million mid year increase in our CIP goal to $450 million, which we exceeded as.
Rob: As a result, we generated 41 basis points of adjusted positive operating leverage for the full year.
Rob: Looking forward to 2024, our annual CIP target is $425 million.
Rob: This program funds, a significant portion of our ongoing business and technology investments.
Rob: And as of year end, we completed actions related to the workforce reduction that will drive $325 million of cost savings in 2024.
Rob: Taken together, we're implementing $750 million of expense management actions all of which are reflected in our 2024 guidance that I will cover in a few minutes.
Rob: Our credit metrics are presented on slide 10.
Rob: While overall credit quality remains strong across our portfolio, we did see a slight uptick in npls and delinquencies.
Rob: Nonperforming loans increased $57 million or 3% linked quarter and included a $12 million increase in CRE.
Rob: Total delinquencies of $1 $4 billion increased $97 million or 8% linked quarter the.
Rob: The increase included seasonally higher consumer delinquencies, the majority of which have already been resolved.
Net loan charge offs were $200 million in the fourth quarter and came in at the low end of our expectations. Our annualized net charge offs to average loans ratio was 24 basis points.
Rob: And our allowance for credit losses totaled $5 $5 billion or one 7% of total loans at December 31.
Rob: Stable with September 30th.
Rob: The CRE office portfolio is where we continue to see the most stress in fourth quarter net loan charge offs were $56 million.
Rob: We continue to expect future losses on this portfolio. However, we believe we are adequately reserved for those potential losses.
Rob: As of December 31st our reserves on the office portfolio were eight 7% of total office loans and inside of that 12, 9% on the multi tenant portfolio.
Rob: Importantly, our overall CRE office portfolio declined, 6% or approximately $550 million linked quarter, reflecting a higher level of payoffs Chris.
Rob: Criticized office loans were flat and nonperforming loans increased 2% linked quarter.
Naturally we will continue to monitor and review our assumptions to ensure they reflect current market conditions.
Rob: And a full update of this portfolio is included in the appendix slides.
Rob: In summary, PNC reported a solid fourth quarter and full year 2023.
Rob: In regard to our view of the overall economy, we're expecting a mild recession, starting in mid 2024 with a contraction in real GDP of less than 1%.
Rob: We expect the federal funds rate to remain unchanged between 5.25% and five 5% through mid 2024, when we expect the fed to begin to cut rates we expect.
Rob: A reduction of 75 basis points in 2024 with a 25 basis point decrease in July and November and December.
Looking ahead.
Rob: Our outlook for full year 2024, compared to 2023 results is as follows.
Rob: We expect spot loan growth of 3% to 4%, which equates to average loan growth of approximately 1%.
Rob: Total revenue to be stable to down 2% inside of that our expectation is for net interest income to be down in the range of 4% to 5% and noninterest income to be up 4% to 6%.
Rob: Core noninterest expenses to be stable and we expect our effective tax rate to be approximately 18, 5%.
Rob: Our outlook for the first quarter of 2024 compared to the fourth quarter of 2023 is as follows.
Rob: We expect average loans to be stable net.
Rob: Net interest income to be down 2% to 3%.
The income to be down 6% to 8% due to seasonally lower first quarter client activity as well as elevated fourth quarter capital markets and advisory levels.
Rob: Other noninterest income to be in the range of $150 million and $200 million exclude.
Rob: Excluding visa activity.
Rob: <unk> taken the component pieces of revenue together, we expect total revenue to be down 3% to 4%.
Rob: We expect total core noninterest expense to be down 3% to 4% we.
Rob: We expect first quarter net charge offs to be between 200 and $250 million.
Speaker Change: And with that Bill and I are ready to take your questions.
Speaker Change: Thank you.
Speaker Change: If you would like to register a question. Please press the one four on your telephone.
Speaker Change: You will hear a three ton problem to acknowledge your request. If your question has been answered and you would like to draw your registration. Please press the one followed by the three.
Speaker Change: One moment please for the first question.
Speaker Change: Our first question comes from John Mcdonald with Autonomous Research. Please proceed.
John Eamon McDonald: Good morning.
John Eamon McDonald: Wanted to ask Robyn Bill about the loan growth outlook for 2020 for the spot guidance of up 3% to 4% seems a bit better than what we're seeing in H. Eight currently thought you could give some color on the drivers of your outlook there. Thank you.
John Eamon McDonald: Yes.
John Eamon McDonald: Sure Hey, John Good morning, it's Rob.
Rob: Yeah on the outlook, so average loans up 1% spot three to four as you mentioned.
Rob: We see most of that being on the commercial side and most of that being on the back end of the year.
Rob: Consumer we do have some growth throughout the year, but.
Rob: Yes pretty modest.
Speaker Change: Okay, and Rob on the net interest income guidance.
Rob: It sounds like Youre, assuming three rate cuts.
Speaker Change: A little bit less than what the forward curve has just kind of wondering what would be the sensitivity. If the forward curve played out and we still have more rate cuts.
And then what you're assuming is that is that helpful to the NII outlook all else equal a relatively neutral could you update us on the sensitivity there. Please.
Speaker Change: Sure John Yes, the short answer is it's relatively neutral.
Speaker Change: Because as you know we've worked we have worked hard to get our balance sheet into neutral sensitivity position. So.
Speaker Change: Not a lot of variance in terms of the forwards and our own expectations in terms of the impact on NII.
The Big question, obviously is going to be on deposit pricing and how that behaves as the year plays out but we.
Speaker Change: We don't expect a lot of areas.
Speaker Change: Okay. Thank you.
Speaker Change: Sure.
Speaker Change: Our next question comes from John Kerry with Evercore. Please proceed.
John Kerry: Good morning, all.
John Kerry: Capital markets revenue the numbers certainly came in.
John Kerry: All of this quarter.
John Kerry: As you look into 2024 and in the context of your up 4% to 6% noninterest income guidance for the full year, how are you thinking about capital markets.
John Kerry: Trajectory through the year off of this level.
Speaker Change: Yeah, Hey, John Good morning.
John: Yes, so with capital markets, we did get the rebound that we were expecting in the fourth quarter and the bulk of that is in our Harris Williams, our M&A advisory.
John: Business.
John: As far as 24 guidance goes we expect that the pipelines are good we expect a.
John: Sort of the fourth quarter and the first quarter of 'twenty three to be the the range of what we would see on a quarterly basis going through and.
John: 2024, the anomalies, where the soft quarters in Q2, and Q3 and 2023, so take a look at the first quarter of 'twenty three the fourth quarter at 23, and that's that's the range of what we would expect the quarterly run rate to be through 'twenty four.
Speaker Change: Got it alright, thanks for that and then separately I'll, even help me there John.
Speaker Change: That's about it's up about 20% year over year.
Speaker Change: I'll save you the math right.
Speaker Change: Alright.
Speaker Change: Thanks for that and then on the your guidance for 2024 implies about 100 basis points negative operating leverage using the mid point guidance.
Speaker Change: Which actually screens relatively well versus your peers.
Speaker Change: How sustainable is that.
Speaker Change: If the rate environment does not pan out as you're modeling.
Speaker Change: Or better put if your revenue outlook is worse do you think he can so.
Speaker Change: Sustain that that expected negative 100 basis points of operating leverage or could it be worse.
Speaker Change: Right.
Speaker Change: We're we're fairly neutral.
Speaker Change: Natural.
Speaker Change: And for our NII forecast tour is a function of rate cuts or not.
Speaker Change: So the outcome ought to be the same.
Yeah, well I would add to that John.
Speaker Change: Yeah. We've worked hard we took some actions to position ourselves at stable expenses year over year, So thats that slot.
Speaker Change: And then as Bill pointed out on the revenue side the NII.
It's fairly predictable on a relative basis.
Speaker Change: Outside of rates and then the fees, we feel good about the guidance.
That's what we think is going to occur I think theres variance anywhere it's going to be on our assumptions.
Speaker Change: As it relates to.
Speaker Change: Deposit betas, the continued shift to interest bearing versus noninterest bearing and ultimately the steepness of the yield curve.
Speaker Change: The rates at the long end of the curve as opposed to the front end of the curve.
Speaker Change: We've tried to be to the best of our ability a little bit on the conservative side of all of those things.
And we feel pretty good about where our forecast is.
Speaker Change: Great Alright, thank you.
Okay.
Speaker Change: Our next question comes from Scott <unk> with Piper Sandler. Please proceed.
Scott: Good morning, everybody. Thanks for taking my question.
Scott: I was hoping you might be able to share just some updated thoughts on sort of where and when it might bottom and I think perhaps more importantly magnitude of rebound that it might see thereafter, I know you'd sort of suggested last month's debt.
Scott: And I ultimately could be.
Scott: Our record in 2025, I guess I'd just be curious for any updated context around your thoughts there.
Scott: Okay.
Speaker Change: Yes, sure Scott good morning.
Speaker Change: Yes, so as we pointed out we do see NII going down in the first half of the year trough ing around the time of the cuts and then growing from there.
Speaker Change: And beyond so.
Speaker Change: You have to think about where we are now go down a bit and then grow back to where we are now and then in 2025.
Speaker Change: It gives us a lot of confidence around record NII is we will get the compounded effect of the repricing of our fixed rate assets as that continues into 'twenty. Five so that is what we laid out a month ago and that's still what we think.
Speaker Change: Perfect. Okay. Thank you Bill and then I guess just on the <unk>.
Speaker Change: Deposit pricing it sounds like Youre expecting.
Speaker Change: Deposit costs to ease right around the time the fed starts cutting your what's your what's your sense for the sort of the pace of.
Speaker Change: Deposit betas on the way down vis vis what they were on the way up.
Well I would say on the commercial and.
High net worth side fast.
Speaker Change: Alright.
Talked about on the consumer sort of the core consumer we could and this is what bill was alluding to there earlier, we could continue to see some dressed up and rate paid even though we get some cuts. So that's a big variable obviously and now we will have to play it out.
Speaker Change: Okay.
Speaker Change: Okay. Thank you very much.
Speaker Change: Our next question comes from Manan <unk> with Morgan Stanley. Please proceed.
Manan: Hey, good morning.
Manan: Thanks for outlining the macro assumptions behind the outlook and I appreciate your comments on loan growth being more backend loaded.
But can you can you give us some more color on how you are thinking about it because you also mentioned a mild recession midyear. So is it really a big uptick in C&I.
Manan: And maybe like <unk> as rates begin to come down and as we come out of that mild recession. So I was hoping you could give us some more color on both.
Manan: Both commercial and consumer there.
Manan: Okay.
I would just say just to follow up on that back back half of the year on the commercial side, we see the uptake in the third and the fourth quarter, a big part of that being expected increase in utilization, which is a little bit lower right now.
Manan: And then just a pickup in general economic activity.
Manan: A lot, 3% to 4% spot to average up 1% and then on the consumer just sort of slow steady growth not nothing big there, maybe a little bit more in card and auto and a little bit less in resi.
Speaker Change: Got it.
Speaker Change: And then just on the credit side.
Speaker Change: Last quarter, you had some CRE loans move from criticized into Npls and it looks like things have been pretty steady this quarter on both criticized and Npls. So do you think at this stage.
Speaker Change: You guys have scrubbed the books and it.
Speaker Change: It should remain steady over the next few quarters, which is <unk>.
Speaker Change: And so you're always thinking up or is it likely to be lumpy.
Speaker Change: Yeah.
Speaker Change: Question is more you know given the new outlook for rates to come down do you think that the worst is behind us.
Speaker Change: Well not on charge offs, we think were.
Reserved correctly, but you have to remember that as these loans go to NPL and eventually if we have charges against.
Speaker Change: We will charge them off that won't run through P&L, because we've already.
Speaker Change: <unk> created a reserve for it but the work set to actually.
Speaker Change: Maturing the loans and dealing with the outcome is yet to come.
Speaker Change: Yes, and I would just add to that.
Speaker Change: The key number to look at there is the criticized percentage, which has not changed much to Bill's point, that's the first bucket.
Speaker Change: The movement of that to nonperforming or charge offs will occur, but it's that criticized number that's the key number.
Speaker Change: Got it thank you.
Speaker Change: As a reminder to register a question. Please press star one four on your telephone.
Our next question comes from Gerard Cassidy with RBC. Please proceed.
Gerard Cassidy: Good morning, Bill Good morning, Rob.
Gerard Cassidy: Sure.
Gerard Cassidy: Okay can you guys share with us.
Speaker Change: You had talked Rob about the commercial loan growth in the quarter. When you ex out the signature purchase was down slightly I know you have prospects for growth here in 2024 as you pointed out but can you share with US do you guys see much competition from the private credit market the private <unk>.
Speaker Change: Guys that had been much more aggressive recently in lending and the second part of that do you have them as customers as well. So do you have to balance in them as competitors is one of those customers.
Speaker Change: Well, we don't compete with them head to head with the types of loans that are typically and because we don't.
Play that much.
Speaker Change: Unsecured leverage space.
Speaker Change: Most of the.
Speaker Change: Decline signature we saw was in utilization.
Speaker Change: Yes.
Speaker Change: As we go forward more and more of the lending markets are moving into private hands. So the longer term.
Speaker Change: That is of a concern if they kind of move up scale on what they do we do serve them.
Speaker Change: Say that you know.
Speaker Change: Our.
Speaker Change: Client base with just call it private equity or private managers at large probably our largest clients between what we do.
Speaker Change: With and for them from Harris, Williams, and sold Bay area business credit and Treasury management with their portfolio of companies.
Speaker Change: On and on and on.
Speaker Change: So they are good clients that I guess at the margin, we could end up competing with them in certain things, but not so much today.
Speaker Change: I see okay. Thank you and then Rob to follow up with your comments you gave us the visa ownership in the unrealized gain if I recall correctly I think first quarter of 'twenty for the owners of those shares are permitted to monetize can you give us your updated thoughts on what you guys are thinking with your positioning.
Speaker Change: Sure.
Yeah sure Gerard so our position is we have $1 five an unrealized gains of $3 5 million B shares.
Speaker Change: As you pointed out there's a vote by the visa shareholders at the end of this month to approve it.
Speaker Change: And action to enable the b holders to monetize maybe up to 50%. So we don't control that.
Speaker Change: We say that we see when the vote is scheduled.
Speaker Change: Should it be approved then we will move forward with.
Our monetization plans that would be allowed under whatever is approved.
Speaker Change: Great. Thank you.
Speaker Change: Our next question comes from Bill Kirk Kashi.
Speaker Change: Research. Please proceed.
Speaker Change: Thank you and good morning, Bill and Rob.
Speaker Change: Following up on a credit if we play out with the soft landing scenario could look like in the fed starts cutting rates in mid 'twenty. Four would you expect to be in a position to possibly start releasing reserves or or or the.
Speaker Change: Sort of likely to still be late cycle concerns that would lead you to want to maintain the reserve levels that you've already established.
Speaker Change: Well, Hey, Bill it's Rob So first our reserves are appropriate for what we expect to see.
Bill: To occur.
Speaker Change: <unk>.
So that's number one number two if things should substantially improve.
Speaker Change: Sure.
Speaker Change: Yes, we're running at one 7% right now, which historically, it's on the high side.
Speaker Change: So if things normalize out in your definition of normal.
Speaker Change: We could be lower.
Got it and then bill following up on your comment about feeling good about your reserve levels, but that we haven't necessarily seen peak charge off rates yet if we were to go down the mild recession scenario path should we expect there to be some lag between when those charge offs would actually hit.
Bill: The P&L and when the corresponding reserves would get released or would the releases kind of occur concurrent with the increase in charge offs.
Bill: So remember the charge offs don't.
Bill: There seems to be a lot of confusion on that the provisions we take hit P&L and we've provided for our best expectation of future charge offs.
In a scenario that assumes some mild recession.
Bill: Alright.
Bill: As far as scenario comes true.
Bill: We're fully reserved for everything that might happen to us.
Charge offs will flow through.
Bill: Not hit our P&L, because theyre effectively neutralized against the debit to the provision.
Bill: Yeah.
Bill: Understood.
Bill: Yes.
Bill: I'm sorry.
Bill: Worth pointing out that is worth pointing out there's always seems to be some confusion.
Bill: So it makes sense.
Yes.
Bill: I understand I guess, where I was going with that is that some have sort of alluded to youre, allowing as if the credit environment does indeed deteriorate, allowing.
Some of those losses to flow through with without necessarily releasing reserves and so even though they've established reserves. They would kind of maintain those reserves and allow the higher charge offs to flow through before before ultimately releasing.
Speaker Change: Just hoping to get your thoughts on kind of the timing of those different pieces.
Speaker Change: So it's a mechanical calculation that's dependent on our view of the economy at that time. So if you got to a place where the.
Speaker Change: The charge offs occur and somehow we thought the economy was worse than our current expectation, we would be providing for the remainder of the portfolio at a higher level than we are today.
Speaker Change: But right now we don't expect that to happen. So if the economies worse simply put if the economy is worse than a mild recession than you would expect our total reserve to increase.
Because it's forward looking.
Speaker Change: Cecil.
Understood.
Speaker Change: If I could squeeze in one last one on capital return I. Appreciate slide 19 can you speak to how youre thinking about that 150 basis point impact from Basel III end game in light of some of the pushback that it's received and is that eight 2% of the level you'd feel comfortable running at or.
Speaker Change: Would you target a slightly higher buffer and then sort of underlying all of that.
Speaker Change: Are you thinking how are you thinking about buybacks in light of all the moving pieces.
Speaker Change: I'll answer the.
Speaker Change: Easy question first 8.2 would be too low I think in this new environment, assuming Basel III coaster, so we'd run it.
Speaker Change: Some higher number than that for sure.
Speaker Change: There does appear to be.
Speaker Change: Substantial commentary on the proposal such that I would expect that if it isn't re proposed there still would be some relief in certain asset categories on our risk weighted assets and maybe.
Speaker Change: Operating risk capital, we'll see.
Speaker Change: Having said that we don't know so at the moment. What we know is we're going to continue to grow earnings we're going to accrete, a OCI back into our capital base and work on a pull that eight 2% up when we think we have flexibility inside of that.
Speaker Change: Active in the share repurchase market between now and then in the more certainty we have the board.
Speaker Change: Certain will be explicit on what we might buyback during a given period of time.
Speaker Change: And I would just add to that you saw we did we bought just under $100 million Seth.
Speaker Change: Right.
Speaker Change: Share repurchases in the fourth quarter and the first quarter.
Speaker Change: We would expect to do at least that maybe a little bit more depending on.
Speaker Change: Market conditions.
Speaker Change: Very helpful. Thank you for taking my questions.
Speaker Change: Our next question comes from Erika Najarian with UBS. Please proceed.
Erika Najarian: Hi, Good morning, I just wanted to ask one follow up question on NII, If I may.
Erika Najarian: A lot of investors are really excited about the graphic.
Erika Najarian: You put together at Goldman the Nike Swoosh, if you will.
Erika Najarian: That had sort of the first rate cut embedded under the Nike swoosh.
Erika Najarian: Five basis points, and <unk> 24, and I completely understand this is abstract art in a way, but I just wanted to put together everything that you guys said.
Erika Najarian: Think it surprises investors that when you overlay the forward curve that it is neutral.
Erika Najarian: To this outcome.
Erika Najarian: At least for 'twenty, four, but it's but it just looking back at the slides Rob.
Erika Najarian: On slide six of this earnings.
Erika Najarian: Earnings season, it does seem like a lot of your receive fixed swaps don't really meaningfully mature until <unk> 24.
So I guess in terms of like the mechanical repricing that you keep talking about it.
Erika Najarian: The way I really asked his question is it sounds like it is possible to have potentially a lower trough than people expected in 'twenty four and still have that record net interest income and 25 because of those fixed rate dynamics and you know who knows what can happen on the liability side and the deposit repricing side.
Erika Najarian: If the fed cuts sooner, but it feels like.
Erika Najarian: That swap maturity is part of why that Nike swoosh could be deeper my thinking about it the right way.
Erika Najarian: I don't know that we would expect it to be deeper when we purposefully drew the line to be a little bit thick, because we don't know exactly when that might occur I.
Erika Najarian: I think all of the commentary on 25 is in some ways mechanical it's simply taking our fixed rate assets and repricing them at market.
Erika Najarian: And we know what the maturities of those assets or.
Erika Najarian: So.
Erika Najarian: It's short form one of the reasons, we highlight that also.
Erika Najarian: I'll show the steepness of the curve as our balance sheet the fixed rate assets on our balance sheet are shorter than virtually all of our peers in that a yield level.
Erika Najarian: It is somewhat lower so we have a big pick up fixed rate, earning yield sugar.
Erika Najarian: But I think the market expects switches turn what gives rise to that the slope of that curve, whether it troughs in the second quarter or the first week in the third quarter or the fourth week.
Who knows but Phil.
Erika Najarian: The perfect timing, though that investors are worried about in terms of second quarter and third quarter. It's just that your new guidance would imply sort.
Erika Najarian: Sort of after the first quarter that your average NII it'd be like slate 337, or something like that right. So to get to a record net interest income we would have to be a pretty significant progression from there. So that's sort of I'm trying to.
Im trying to.
Erika Najarian: <unk> set the stage for you guys to build that bridge, because I think that investor.
Erika Najarian: You can reach that.
Yes.
Erika Najarian: I think that that sort of call. It a soc I think the swish is still accurate.
Erika Najarian: Yeah.
Yes.
Erika Najarian: What else to say it is consistent with our guidance and it is still accurate.
Speaker Change: Perfect. Thank you.
Speaker Change: Our next question comes from Ken <unk> with Jefferies. Please proceed.
Ken: Hey, guys. Good morning, just a follow up on the on that swaps book on page six of the deck a.
Ken: A couple of billion dollars decline in the.
Ken: And the receive fixed changes this quarter.
Ken: Whether terminations or new adds and any thoughts in terms of like how you change and utilize that in terms of last answer of trying to move that forward.
Speaker Change: I don't know that we had changes this quarter going into Q1, 'twenty four but that's a question Ken.
Ken: No Jeremy.
Speaker Change: Determinate any swaps this quarter and add any new and just kind of remind us of the understanding of what's still yet to go.
Speaker Change: No.
Yeah, Yeah, we terminated some we added some.
Speaker Change: Net down.
Speaker Change: But that's all in the.
Speaker Change: Yeah normal course.
Speaker Change: I think we're missing your question.
Speaker Change: What are we what are you trying to get at.
Speaker Change: Yes, I was just trying to get at just what changes you've made inside the portfolio outside of the normal maturity schedule, which I think we see them.
Speaker Change: Disclosures quarterly just wondering did.
Speaker Change: Determinate swaps could you add some new ones and then just remind us.
Speaker Change: Thanks.
Speaker Change: We terminated $3 six.
Speaker Change: And added some.
Speaker Change: And just to remind you when you terminate you basically locking that lasts through the life of the.
Speaker Change: Our original contract.
Speaker Change: And we will do that at times simply to reposition where we have exposure.
Speaker Change: Yeah exactly Okay got it second question just on the fee outlook.
Speaker Change: Good to see first of all in the fourth quarter at the capital markets improvement that you saw it just wondering how much of a driver is that of your expected fee growth next year, your pipelines and Harris Williams et cetera.
Speaker Change: What other pieces do you expect to see growth in this year. Thanks.
Speaker Change: Yeah, Hey, Ken just as I said earlier on the capital markets.
Speaker Change: And a nice rebound in our Harris Williams activity pipelines are good they support.
Speaker Change: <unk> over year growth close to 20%.
Speaker Change: Which is what I mentioned earlier.
Speaker Change: In terms of the other fee categories asset management flattish up a bit that'll be market dependent.
Speaker Change: Card and cash management up low to mid single digits.
Ending in deposit services that will be down mid single digits.
Speaker Change: And that's reflective of anticipated lower service charges on deposits.
Speaker Change: There was a number of items that we did in 'twenty three to reduce overdraft charges for our clients. So thats good for our clients, but that will be some lower fees about mid single digit down.
Speaker Change: And then mortgage outside of hedge gains flattish down if you include the hedge gains.
Speaker Change: Alright, thank you for that.
Speaker Change: Sure.
Speaker Change: Our next question comes from Mike Mayo with Wells Fargo. Please proceed.
Mike Mayo: Alright, Hey, Bill.
Mike Mayo: December 5th your words.
Mike Mayo: Scale matters today more than ever has prior to March and the mini crisis, we knew the technology mattered, when new scale and brand mattered to just eliminated tailoring and regulation for all intents and purposes.
Mike Mayo: Et cetera et cetera.
Mike Mayo: You just go on to say.
Mike Mayo: But this will never be reversed scale is more important than ever.
Mike Mayo: I can give the whole speech, but it was it seemed like a pass no speech Morton more than I've ever heard you say before so why now.
And along those lines I mean, if you had better scale when you get positive operating leverage in 2024 with a chance you could do that but I think youre talking further out I think youre talking about organic and maybe inorganic.
Mike Mayo: Expansion, but help me out there.
Speaker Change: Yes, no I was.
Look if you just.
Speaker Change: Look back at what happened this year.
Speaker Change: Top of.
Speaker Change: Kind of eight or nine years of history post the financial crisis, we have seen.
Your words Goliath.
Speaker Change: When in terms of organic deposit share growth that trend line has accelerated.
Speaker Change: As a function of the mini crisis in March where corporates.
Speaker Change: Bluntly.
Speaker Change: Not necessarily trust the regulatory environment to ensure that their deposits at our bank are safe.
Speaker Change: So we've seen those deposits flow uphill and if you aren't a primary relationship with our corporate deeply embedded with Treasury management and other services.
Speaker Change: Net lose corporate deposits.
I think when you combine that with the cost of technology.
Speaker Change: The removal of some deterioration in regulation and capital requirements and liquidity scale matters.
Speaker Change: I think we are.
Speaker Change: We.
Speaker Change: Net benefited.
Speaker Change: Oh.
From the mini crisis, but just barely.
Speaker Change: And I think below us people struggle with that conversation with corporate clients.
Speaker Change: Above us, perhaps it's easy, but I think we need to move into that next level.
Speaker Change: Such that.
Speaker Change: We are seeing.
Speaker Change: Coast to coast is a ubiquitous standard brand.
Speaker Change: With the quasi support that the giant banks have in terms at times of crisis I think it's critical.
Speaker Change: So what does that mean, okay. So.
Speaker Change: Identified.
Speaker Change: Need and desire so what does that mean does it mean.
I think that.
Speaker Change: Yeah.
Speaker Change: Yes, so naturally over time.
We are gaining share on our newer markets at a rapid pace, we see that in client acquisition growth.
Speaker Change: Growth in all forms from deposits to loans to fees to so forth.
I think.
Speaker Change: Through time, you're going to see it clear differentiation of this dynamic played out across the market.
Speaker Change: But I think theres going to be banks that are looking for strong partners. So I think we are a strong partner, but kind of force that issue.
Speaker Change: But I think longer term, we are a natural natural player in the consolidation.
Speaker Change: Of an industry where scale matters.
Speaker Change: And if you can't get the deals done.
Speaker Change: <unk> been opportunistic with national city, and et cetera. Since then.
Speaker Change: Organic.
Speaker Change: Ubiquity, how could you get there do we start seeing you advertise during the Super Bowl, you double or Triple your marketing spend.
Speaker Change: What do you do then.
Speaker Change: You just you just have to execute.
Speaker Change: There is a.
Speaker Change: Which.
Speaker Change: Simplifies the process, if you think about what's happening in the banking industry today, there is a couple.
Or some other issues with the large banks, but on the deposit share side. There's a couple of clear winners theres, one that probably should be over time.
Speaker Change: There are some people neutral theres people, losing their 5000 banks in the country that I can take from and grow.
Speaker Change: Right, that's just a longer period of time.
Speaker Change: Which we will pursue.
Then what we might see if there is inorganic opportunities when people come to the realization that there are kind of writing something down.
Speaker Change: You know in a deteriorating franchise.
Speaker Change: I cant got it.
Speaker Change: See the trends I know, how we would react to opportunities and the trends I know, we'll do to execute on our own and I'm confident in that.
Speaker Change: But I go all the way back scale matters.
Speaker Change: We're going to have to play that.
Speaker Change: Just wanted to follow up I got several emails from people, saying well I don't know if I want to own P&C stocked I'm afraid of what kind of deal they might do or what do you say to that.
Speaker Change: I think they should look at our history.
Speaker Change: Because my simplest.
Speaker Change: Explanation I think somebody asked that question once before and I'm sure everybody I still know how to do math.
Speaker Change: And I think the opportunities will come our way.
Speaker Change: I don't think we will have to chase one of the reasons people.
Say why am I is local about this as I am and part of the reason is to make.
Speaker Change: The public aware the public being regulators politicians.
Speaker Change: Words of other banks are aware.
Speaker Change: What's happening in the banking industry and the need for consolidation doesn't mean I'm going to do something stupid in the pursuit of it.
Speaker Change: I, just think it's going to happen.
Speaker Change: Alright, thank you.
Speaker Change: Our next question comes from Ebrahim <unk> with Bank of America. Please proceed.
Hey, Good morning, I guess, just maybe one follow up on your discussion with Mike around M&A.
Speaker Change: I guess do you think the regulatory backdrop today is conducive for doing M&A or do we need a very defensive.
Speaker Change: Doj.
Speaker Change: Philosophical approach towards larger bank deals before we could see a pickup in deal activity.
Speaker Change: I don't think there's a simple answer to that because I think.
Speaker Change: If you listen carefully to.
Speaker Change: The various speeches that have been let Phil talk about.
Speaker Change: The recognition of the need for M&A.
Speaker Change: But I'll also talk about good mergers and bad mergers good outcomes about outcomes along several metrics so put differently.
Speaker Change: Think certain deals will get approved and others would.
Speaker Change: I think we have proven as an acquirer.
Speaker Change: That we know what we're doing.
Speaker Change: And that the resultant institution is in fact stronger.
Speaker Change: Then the one we might acquire.
Speaker Change: Okay.
Speaker Change: Understood.
Speaker Change: Yes.
Speaker Change: Just taking a step back around your view around the my session I'm just wondering how much of that is just theoretical informing your.
Speaker Change: Reserving model versus the weak weakness that youre seeing across your customers and that lead you to believe that we will have a recession in the middle of the year because once we go down that path, who knows how bad things could get so just would love to hear.
Speaker Change: The decision assumption of just your conservatism or are you seeing weakness across your customers.
Speaker Change: It's not.
Speaker Change: As to the credit metrics. It is not a concern in terms of customers. So we've seen you know at the margin profit margins.
Speaker Change: Decrease.
Speaker Change: With certain clients.
Speaker Change: A few if you look at soft inputs surveys and so forth that are coming out of the fed districts.
Speaker Change: The economy is definitely weakening.
Speaker Change: To date.
Speaker Change: <unk> pace.
Speaker Change: What we had expected given how tight the fed has got with monetary policy.
Speaker Change: So you know, we kind of see a mild recession, we actually see employment.
Speaker Change: <unk> strong through that which ultimately.
Speaker Change: Is the thing that keeps the economy from going deeply into recession, just strength of the labor market and consumer spending.
So this is kind of following the path of of what we thought for some period of time now.
Speaker Change: Got it and one quick follow up.
Speaker Change: Yes.
Speaker Change: Yes, I was just going to look.
Speaker Change: Yes go ahead.
Speaker Change: I was just going to add to that to bills. I mean, we can we can have a slowdown continue and technical hit a recession without adding a whole lot of credit risk or increased credit structure.
Speaker Change: Understood and just one thing that all of you mentioned.
That you expect noninterest bearing deposits to stabilize from here.
Speaker Change: Just playing Devil's advocate why should they stabilize from here.
Speaker Change: I mean, if you add in the 3% plus fed funds world should we not expect the mix of deposits to move towards interest bearing towards more Cds or.
Speaker Change: Is your view different.
Speaker Change: Well I think and obviously, we've been watching that for the better part of the year here in terms of the decline in noninterest bearing in absolute terms and relative percentages.
Speaker Change: Why do we think it's largely happened is because it's been so long and <unk>.
Speaker Change: And much of that base is our businesses and individuals that run on noninterest bearing deposits.
Speaker Change: So theyre not necessarily shopping for a higher rate.
Speaker Change: There's something around the institution in terms that they pay for their services through deposits.
Speaker Change: Or on the consumer side small transaction accounts.
Speaker Change: Alright, thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Matt O'connor with Deutsche Bank.
Please proceed.
Matt Burnell: Hi, guys.
Matt Burnell: Just wondering your thoughts on kind of medium term loan growth a bit of a bigger picture question. You. Obviously gave details for this year, but as you think about like the next couple of years.
Matt Burnell: Are you in the camp that there needs to be some structural deleveraging with the loan growth might be below GDP or where it normally would be or just any thoughts that you have on that right.
Matt Burnell: Okay.
Speaker Change: I think there's going to be any structural structural delevering here, we're obviously seeing a lot of banks kind of at my prior point coming to the conclusion that some of the ancillary and lending activities. They took on.
Speaker Change: On the back of the big stimulus don't make sense anymore. So theres deleveraging maybe across the industry by certain groups, but not here.
Speaker Change: And I guess I meant from customers right, even if rates go down a little bit they are still structurally a lot higher than they've been for the last almost 15 years.
Speaker Change: If you just think about like the London demand Thats out there, let's say, there's lots of factors, but just thoughts on if higher rates structurally have a meaningful impact or not thank you.
Speaker Change: Alright on loan growth.
Speaker Change: Correct, Brian as you think about corporate borrowers right. They just can't afford potentially to borrow as much with rates higher obviously same for consumer mortgages, most obvious thinking more like on the commercial side.
Speaker Change: Well I think.
Speaker Change: At the end of the day.
Speaker Change: Our generic corporate client need to redo their facilities.
On the <unk>.
Speaker Change: This has gone up.
Speaker Change:
Speaker Change: And that will occur I think some of the activity that we saw on the back of just really low cost of capital in the private equity markets kind of Leverages free that's going to take.
Speaker Change: By the way side at a higher rate environment.
Speaker Change: But if you look at the composition of our book.
Speaker Change: We're kind of the bread and butter of America, So I wouldn't expect.
Speaker Change: We wouldn't necessarily see a decline in loan growth simply because the front end of the.
Speaker Change: So for rate is higher.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Dave Rochester, with Compass point. Please proceed.
Dave Rochester: Hey, good morning, guys.
Dave Rochester: Back on the M&A discussion I know you mentioned building in a bigger buffer than that eight 2% you have on your adjusted CET one ratio today, but it is the plan to also maybe retain more capital than you normally would better position you for taking advantage of any order inorganic opportunities, which might keep the buyback expecting more muted this year.
Just curious to get your thoughts there.
Dave Rochester: How you might balance that.
Speaker Change: Well there.
Speaker Change: I mean, both of those thoughts are consistent eight two is too low so we're going to grow.
Speaker Change: Whether where we are.
Speaker Change: And to be in faster compliance are growing because maybe something shows up we could do some we're still going to grow and it's going to mute.
Speaker Change: Our capital return below what it otherwise might be absent that Basel III end game changes.
Speaker Change: Okay.
Speaker Change: So you would expect buyback activity maybe to remain muted for the rest of the year.
Speaker Change: Not just the first quarter.
Speaker Change: There's too much up in the air I mean, it's yes.
Speaker Change: And then what the fed does look they could have to re propose that it could go through the elections that could change it materially.
Speaker Change: We don't know.
Speaker Change: Alright, all we know is all else equal eight 2% is probably too low.
Speaker Change: We're still burning through our LCI, we don't think thats going to change so we stay the course.
Speaker Change: And we'll adapt based on what we learn.
Speaker Change: Okay, and then back on your deposit betas, you're assuming in the guide are you thinking you can move those commercial rates down materially more.
Speaker Change: Like right out of the gate with the first cut or are you baking in some sort of a lag.
Speaker Change: Yes.
Speaker Change: Thanks, guys.
Speaker Change: It would be pretty fast.
Speaker Change: Okay.
Speaker Change: Great Alright, thanks, guys.
Speaker Change: Our next question comes from Vivek June Asia with J P. Morgan. Please proceed.
Speaker Change: Eric.
Speaker Change: Yeah.
Vivek. Your line is open. Please proceed with your question.
Vivek: Do we have any more calls.
Vivek: Questions.
Vivek: We do have a question from Mike Mayo with Wells Fargo. Please proceed.
Mike Mayo: Yes, just a follow up on your commercial loan growth like why you're.
Mike Mayo: Punching your weight in the growth rate and which areas of commercial loan growth and I know you've deployed teams to all these cities near the Nashville Main Street bank and you're trying to gain share in all of that.
Mike Mayo: Is it is.
Is it that effort the market share by city is it.
Mike Mayo: Smaller middle market is at that effect, you talked about scale versus the smaller competitors.
And how much we put in each bucket as far as your delta versus tier when it comes to commercial loan growth.
Mike Mayo: Look I would tell you that we're winning more than we're losing on pitches.
And that's more true today than it was.
Mike Mayo: Pre March.
Mike Mayo: We're winning.
And a and a higher percentage just because theres more shots on goal in the new markets than we are in the oil.
Mike Mayo: So the growth there.
Mike Mayo: Is higher and that's.
Mike Mayo: Those new markets and the fact that we have them fully staffed including products, Mike differentiates us in a world where total loan growth may be somewhat tepid.
Mike Mayo: And importantly.
Mike Mayo: We said this for years as we go into new markets, we are not leading with credit in these new markets.
Fee based growth actually outpaces, our loans based growth.
Mike Mayo: And those markets as we cross sell into <unk> and other products and services.
Mike Mayo: So.
Mike Mayo: We look at pipelines, we look at line of sight into what we have in each market I don't know that theres any particular product that stands out as something that's growing faster than another one.
Mike Mayo: We're winning clients.
Mike Mayo: How much last follow up how much faster would your commercial loan growth be if there were no private capital competitors right now.
Mike Mayo: I think the only way.
Mike Mayo: That impacts us directly maybe at the margin may be something in business credit as you know we partner with a lot of the private credit guys inside of that business.
Mike Mayo: And then to the extent companies or take it private which I think is going to slow down given the cost of capital.
Mike Mayo: We sometimes will lose a client to a leverage lender because they were taken private but that's kind of what kind of structure a structure.
Speaker Change: Right, Yeah, Yeah, that'd be the March is that that wasn't available that would otherwise be a conventional loan.
Speaker Change: Alright, Thanks again.
Thanks, Mike.
Speaker Change: The next day.
And we have a question from Vivek <unk> with Jpmorgan. Please proceed.
Sorry about that.
Speaker Change:
Vivek: I don't know what happened there, but bill question for you.
Bill: When your.
Bill: Deposits as the fed keep growing.
Bill: At what point are you thinking about putting some of that locking some of the yields on that what's your thinking there, especially.
Given all the commentary about theater rates, peaking mild recession.
Bill: Loan growth et cetera, Triangulating all of those factors.
Bill: Well in the near term, we think the market's got ahead of itself.
Bill: I think.
Bill:
Bill: Until we are clear of the outcome here.
Bill: We're clear.
Bill: Inflation in fed actions.
Bill: Happy to kind of stay neutral.
Bill: My own expectation here that is notwithstanding what the fed does.
Bill: Through the course of 'twenty four with the fed funds rate and my expectation is youre not going to see a lot of action in the longer.
Bill: It's simply because of the supply calendar and the fact that inflation will have a tail and while the fed could ease somewhat.
Bill: Inflation is still going to be running I guess versus our goal of a lot of issues. So long story short, we don't see a burning desire to put money to work here, because we think that opportunity is going to remain.
Bill: And the durations, we typically invest in and probably get a little bit better just given how hot the market got post the last fed meetings.
Speaker Change: Thanks Seth.
Speaker Change: Second one.
Speaker Change: Talked about a lot of companies going into private hands.
Speaker Change: See that creating competition from private credit for for loans.
Speaker Change: But on the other hand, you've got increasing capital requirements.
So which is translating into higher spread so as to maintain returns.
Speaker Change: How do you balance that out on the one hand not losing.
Speaker Change: Losing share to the private market and on the other hand, maintaining that <unk> given that do you see.
Speaker Change: Spreads staying high or do you think that.
Tons of course, the other way.
Speaker Change:
Speaker Change: So.
Speaker Change: Again, we're kind of talking about two different universes of credit, but having said that.
Speaker Change: I'm sure you've heard this inside of your own shop lending money for the sake of lending money.
Speaker Change: It doesn't give us an adequate return on capital did it before it doesn't know.
Speaker Change: So it gives us a return on capital as the relationship the annuity like fees you get from <unk>.
Speaker Change: The additive fees, you get from capital markets related activity.
Speaker Change: And prices kind of a third or third order effect on the return on capital, we get with that client relationship.
Private credit.
Speaker Change: <unk> sees a return.
Speaker Change: Yes.
Speaker Change: And private credit because they can put some leverage on it and theres not a big opportunity in private equity and yields are high.
Speaker Change: I will chase for a period of time I don't know that Thats, a particularly great investment through the cycle and we don't try to compete with it.
Speaker Change: And that in that lending environment.
Speaker Change: Okay. Thank you.
Speaker Change: There are no further questions at this time.
Speaker Change: Okay, well. Thank you very much for participating on the call and if you have any follow ups feel free to reach out to the entertain thank you Ann.
Speaker Change: Good luck this quarter. Thanks, everybody. Thank you.
Speaker Change: That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your line have a great day everyone.