Q4 2023 State Street Corp Earnings Call

January 19, 2024

Thank you for watching!

Good morning and welcome to State Street Corporation's fourth quarter and full year

Good morning and welcome to State Street Corporation's fourth quarter and full year results. Today's discussion is being broadcast live on State Street's website at investors.statestreet.com. The conference call is also being recorded.

Good morning, and welcome to State Street Corporation's fourth quarter, and full year 2023 earnings conference call and webcast.

Today's discussion is being broadcast live on State Street's website at investors.statestreet.com.

Today's discussion is being broadcast live on state Street's website at investors got State Street Dot Com. This conference call is also being recorded for replay.

The conference call is also being recorded.

Speaker Change: Thank you for watching.

Speaker Change: Thank you for watching. This call may not be recorded for rebroadcast or future reference. The only authorized broadcast of this call will be housed

State Street's conference call is copyrighted and all rights are reserved.

Speaker Change: This call may not be recorded for rebroadcast or...

This call may not be recorded for rebroadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation.

Speaker Change: Thank you.

Speaker Change: The only authorized broadcast of this call will be housed

Only authorized broadcast of this call will be housed on the state.

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Speaker Change: Now, I would like to introduce...

Speaker Change: Now, I would like to introduce... Faisal.

Now I would like to introduce Eileen <unk> Bieler global head of Investor Relations at State Street.

Speaker Change: Faisal

Faisal: Global Head of Investor Relations

Ilene Fiszel Bieler: Good morning, and thank you all for joining us on our call today, our CEO Ron Hanley will speak first then Eric <unk>, our CFO will take you through our fourth quarter.

Faisal: Good morning, and thank you all for joining us. On our call today, our CEO, Ron O'Hanley, will speak to you.

Faisal: Good morning, and thank you all for joining us. On our call today, our CEO, Ron O'Hanley, will speak to you. Then Eric Aboaf, our CFO, will take you through our fourth...

Faisal: Then Eric Aboaf, our CFO, will take you through our fourth...

Eric Aboaf: This is your 2023 earnings slide presentation.

Eric Aboaf: This is your 2023 earnings slide presentation, which is available for download in the Investor Relations section of our website, investors.statestreet.com. Afterward, we'll be happy to take questions. During the Q&A, please limit yourself to two questions and then re-queue. Before we get started, I would like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our slide presentation. Also available in the IR section of our website.

Eric: Our 2023 earnings slide presentation, which is available for download in the Investor Relations section of our web site investors that fifth Street Dot com.

Eric Aboaf: which is available for download in the Investor Relations section of our website, investors.statestreet.com. Afterwards, we'll be happy to take questions.

Eric: Afterwards, we'll be happy to take questions. During the Q&A. Please limit yourself to two questions and then re queue before we get started I would like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available on.

Eric Aboaf: During the Q&A, please limit yourself to two questions and then re-queue. Before we get started, I would like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our slide presentation.

Eric: The appendix to our slide presentation also available in the IR section of our web site.

Eric Aboaf: In addition, today's presentation will contain forward-looking statements. Actual results may differ materially from those statements due to a variety of important factors, such as those factors referenced in our discussion today and in our SEC filings, including the risk factors in our Form 10-K. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them, even if our views change.

Eric Aboaf: Also available in the IR section of our website.

Eric: In addition, today's presentation will contain forward looking statements actual results may differ materially from those statements due to a variety of important factors such as those factors referenced in our discussion today and in our SEC filings, including the risk factors in our Form 10-K, our forward looking statements speak only as of today and we disclaim any obligation to update them, even if our views change now.

Eric Aboaf: Now, let me turn it over to Ron.

Eric: Now, let me turn it over to Ron.

Thank you Eileen and good morning, everyone earlier today, we released our fourth quarter and full year 2023 financial results.

Ron O'Hanley: Thank you, Ilene, and good morning, everyone. Earlier today, we released our fourth quarter and full year 2023 financial results.

Ron O'Hanley: Thank you, Ilene, and good morning, everyone. Earlier today, we released our fourth quarter and full year 2023 financial results. As I reflect on 2023, the operating environment was dynamic with a complex set of challenges for the world's investors and for our industry, and I am proud of how we carefully navigated state streets for various headwinds while continuing to execute against our strategic agenda. We focused and delivered on that agenda in three key areas. Achieve strong sales wins across our businesses, drive strategic change in our investment services business, and remain disciplined on productivity and broader cost management.

Ron O'Hanley: As I reflect on 2023, the operating environment was dynamic with a complex set of challenges for the world's investors and for our industry, and I am proud of how we carefully navigated state streets for various headwinds while continuing to execute against our strategic agenda.

As I reflect on 2023, the operating environment was dynamic with a complex set of challenges for the world's investors and for our industry and I am proud of how we carefully navigated state street's, where various headwinds while continuing to execute against our strategic agenda.

Ron O'Hanley: We focused and delivered on that agenda in three key areas.

Eric: We focused and delivered on that agenda in three key areas achieved strong sales wins across our businesses drive strategic change in our investment services business and remain disciplined on productivity and broader cost management.

Ron O'Hanley: Achieve strong sales wins across our businesses, drive strategic change in our investment services business, and remain disciplined on productivity and broader cost management.

Ron O'Hanley: Further on that last point, during 2023, we implemented key productivity actions and announced additional efficiency measures that will enable us to enhance the productivity of our operating model in 2024 and the years ahead. We took these many actions, all while investing in our business and returning substantial capital to our shareholders, which helped to drive full-year earnings growth, excluding notable items.

Eric: Further on that last point during 2023, we implemented key productivity actions and announced additional efficiency measures that will enable us to enhance the productivity of our operating model in 2024 and the years ahead.

Ron O'Hanley: We took these many actions, all while investing in our business and returning substantial capital to our shareholders, which helped to drive full-year earnings growth, excluding notable items.

Eric: We took these many actions all while investing in our business and returning substantial capital to our shareholders, which helped to drive full year earnings growth excluding notable items.

Ron O'Hanley: The world's investors, state streets, and our industry faced a host of significant market events and macroeconomic forces in 2023. In the first quarter, turmoil in the banking sector ultimately led to the resolution of several banks, which was a catalyst for some of the largest fixed-income market moves seen in decades. In the second quarter, anticipation grew about the potential economic benefit from artificial intelligence helping to drive equity markets higher. However, as we progressed into the third quarter, and as the Federal Reserve raised interest rates to the highest level in 2022 years in July, the prospect of higher rates for longer rates led to a substantial sell-off in the bond market. With the U.S. 10-year Treasury yield exceeding 5% in October for the first time since the global financial crisis, great uncertainty and an increasing number of geopolitical concerns caused equities to struggle.

Eric: The worlds investors State Street, and our industry faced a host of significant market events and macroeconomic forces in 2023, and the first quarter turmoil in the banking sector. Ultimately led to the resolution of several banks, which was a catalyst for some of the largest fixed income market moves seen in decades in the second.

Ron O'Hanley: In the second quarter, anticipation grew about the potential economic benefit from artificial intelligence helping to drive equity markets higher.

Eric: Quarter anticipation grew above the potential economic benefit from artificial intelligence, helping to drive equity markets higher how's.

Ron O'Hanley: However, as we progressed into the third quarter, and as the Federal Reserve raised interest rates to the highest level in 2022 years in July, the prospect of higher for longer rates led to a substantial sell-off in bond market.

Eric: However, as we progressed into the third quarter as the federal reserve raised interest rates to the highest level in 2022 years in July the prospect of higher for longer rates led to a substantial selloff and bond markets with the U S 10 year treasury yield exceeding 5% in October for the first time since the global financial crisis.

Ron O'Hanley: With the U.S. 10-year Treasury yield exceeding 5% in October for the first time since the global financial crisis,

Ron O'Hanley: Great uncertainty and an increasing number of geopolitical concerns caused equities to struggle. Then, during the fourth quarter, the equity market rallied vigorously as inflation receded and investors grew increasingly optimistic about a soft landing, with positive sentiment gaining further momentum in the last month as the Federal Reserve signaled a pivot to lower interest rates this year.

Eric: Great uncertainty and an increasing number of geopolitical concerns across equities to struggle.

Eric: Then during the fourth quarter, the equity market rally vigorously as inflation receded and investors grew increasingly optimistic about a soft landing with positive sentiment gaining further momentum in the last month, the federal reserve signaled a pivot to lower interest rates this year.

Ron O'Hanley: In sum, while our full year overall financial results benefited from higher interest rates globally last year, and despite the strong market appreciation in the fourth quarter, daily average global equity markets only increased by low single digits in 2023, providing just a modest tailwind to our fee revenue, while client activity was muted as investors stayed on the sidelines for much of the year.

Eric: In sum, while our full year overall financial results benefited from higher interest rates globally last year and despite the strong market appreciation in the fourth quarter Daily average global equity markets only increased by low single digits in 2023 <unk>.

Eric: Providing just a modest tailwind to our fee revenue while client activity was muted as investors stayed on the sidelines for much of the year.

Ron O'Hanley: And even in such an eventful year, equity and FX market volatility continued to contract, creating revenue headwinds for our trading business.

Ron O'Hanley: And even in such an eventful year, equity and FX market volatility continued to decline, creating revenue headwinds for our trading business.

Eric: And even in such an eventful year equity and FX market volatility continued to contract creating revenue headwinds for our trading businesses.

Eric: Slide three of our Investor presentation provides some of our highlights for the year.

Ron O'Hanley: Slide three of our investor presentation provides some of our highlights for the year.

Ron O'Hanley: Slide three of our investor presentation provides some of our highlights for the year. Beginning with our financial performance, full-year earnings per share was 558 or 766, excluding notable items. Year over year, excluding notable items, EPS growth was supported by $3.8 billion of common share repurchases, a record level of NII, continued growth of our front office software and data business, and higher securities finance revenues, the combination of which more than offset the impact of lower servicing and management fees and underlying expense growth, which was still well-controlled. We continue to build business momentum and position states for longer-term success. To that end, we achieved a number of important accomplishments in 2023, as you can see on slide three.

Ron O'Hanley: Beginning with our financial performance, full year earnings per share was 558 or 766, excluding notable items.

Eric: Beginning with our financial performance full year earnings per share was <unk> five eight or 706 six excluding notable items.

Ron O'Hanley: Year over year, excluding notable items, EPS growth was supported by $3.8 billion of common share repurchase.

Eric: Year over year, excluding notable items EPS growth was supported by $3 8 billion of common share repurchases a record level of NII continued growth of our front office software and data business and higher Securities Finance revenues, the combination of which more than offset the impact of lower servicing and management fees.

Ron O'Hanley: A record level of NII, continued growth of our front office software and data business, and higher securities finance revenues, the combination of which more than offset the impact of lower servicing and management fees and underlying expense growth, which was still well-controlled.

Eric: And underlying expense growth, which was still well controlled.

Ron O'Hanley: We continue to build business momentum and position states for longer-term success.

Eric: We continued to build business momentum position states longer term success.

Ron O'Hanley: To that end, we achieved a number of important accomplishments in 2023, as you can see on slide three.

Ron O'Hanley: A key highlight of today's results is the clear progress we are making on innovation and advancing product capabilities, which in turn contributes to stronger sales momentum across our broad franchise aimed at generating better fee revenue growth in the year ahead. Within the investment services business, we are intensely focused on ensuring better execution against our strategy and revenue goals. We unveiled a sharpened execution plan last year, underpinned by a number of measurable actions aimed at driving servicing opportunities across key regions and product areas.

Eric: To that end, we achieved a number of important accomplishments in 2023 as you can see on slide three.

Ron O'Hanley: A key highlight of today's results is the clear progress we are making on innovation and advancing product capabilities.

A key highlight of today's results as the clear progress, we're making on innovation and advancing product capabilities, which in turn contributes to a stronger sales momentum across our broad franchised into generating better fee revenue growth in the year ahead.

Ron O'Hanley: which in turn contributes to stronger sales momentum across our broad franchise aimed at generating better fee revenue growth in the year ahead.

Ron O'Hanley: Within the investment services business, we are intensely focused on ensuring better execution against our strategy and revenue goals.

Eric: Within the investment services business, we are intensely focused on ensuring better execution against our strategy and revenue goals.

Ron O'Hanley: We unveiled the sharpened execution plan last year, underpinned by a number of measurable actions aimed at driving servicing opportunities across key regions and product areas.

Eric: We unveiled the sharpened execution plan last year underpinned by a number of measurable actions aimed at driving servicing opportunities across key regions and product areas. Realizing the full potential of our alpha value proposition and accelerating sales and revenue growth, particularly.

Ron O'Hanley: Realizing the full potential of our alpha value proposition and accelerating sales and revenue growth, particularly in our core back office custody.

Eric: Yes.

Eric: Particularly in our core back office custody.

Ron O'Hanley: Encouragingly, as I just noted, today's results demonstrate our proven ability to deliver the level of sales required for attractive organic servicing fee revenue growth in the future, as we built upon the $91 million of new servicing fee sales in third quarter by recording $103 million of new servicing fee wins in 4Q, which is the highest level of quarterly new servicing fees in recent years.

Eric: Encouragingly as I just noted today's results demonstrate our proven ability to deliver the level of sales required for attractive organic servicing fee revenue growth in the future as we built upon the $91 million of new servicing fee sales in the third quarter by recording $103 million of new servicing fee wins in <unk>, which is the <unk>.

Ron O'Hanley: From its inception, we have noted that Alpha will further establish, broaden, and deepen client relationships, positioning State Street as our client's essential partner. Alpha distinctively enables us to grow and tie together the full breadth and depth of State Street's capability as a true one-stop solution for our clients, from front to back.

Eric: This level of quarterly new servicing fees in recent years.

Ron O'Hanley: From its inception, we have noted that Alpha will further establish, broaden, and deepen client relationships, positioning State Street as our client's essential partner.

Eric: From its inception, we have noted the alpha will further establish broaden and deepen client relationships positioning state Street as our clients with central partner.

Ron O'Hanley: Alpha distinctively enables us to grow and tie together the full breadth and depth of State Street's capability as a true one State Street solution for our clients.

Eric: Alpha distinctively enables us to grow and tied together the full breadth and depth of state Street's capability as a true one state street solution for our clients.

Ron O'Hanley: from front to back.

Eric: From front to back two.

Ron O'Hanley: 2023 was an important year for Alpha software delivery. The last two quarters of the year included the significant development of the fixed income portfolio management module, which propels CRD and Alpha capabilities and competitiveness forward. In 3Q, we recorded our first Alpha for Private Markets client, and in the fourth quarter, we continued Alpha's momentum by deepening relationships with a number of key existing mandates and recording four new Alpha wins. Meanwhile, our front office software and data business had a record quarter of new bookings in 4Q, both demonstrating our ability to drive stronger sales.

<unk> 2023 was an important year for alpha software delivery.

Eric: Two quarters of the year included the significant development of the fixed income portfolio management module, which propelled CRD and alpha capabilities and competitiveness forward.

Ron O'Hanley: In 3Q, we recorded our first Alpha for Private Markets client, and in the fourth quarter, we continued Alpha's momentum by deepening relationships with a number of key existing mandates and recording four new Alpha wins.

Eric: In <unk>, we recorded our first alpha for private markets client and in the fourth quarter. We continued our momentum by deepening relationships with a number of key existing mandates and recording four new Alpha wins, while our front office software and data business had a record quarter of new bookings in <unk> both demonstrating.

Ron O'Hanley: While our front office software and data business had a record quarter of new bookings in 4Q, both demonstrating our ability to drive stronger sales.

Ron O'Hanley: Within our global markets business, even as low volatility created a headwind, we continued to see proof points of our very strong market position.

Our ability to drive stronger sales.

Ron O'Hanley: Within our global markets business, even as low volatility created a headwind, we continued to see proof points of our very strong market position.

Eric: Within our global markets business, even as low volatility created a headwind we continued to see proof points of our very strong market position.

Ron O'Hanley: For example, in its 2023 FX Awards, Euromoney Magazine named State Street as the winner across four important categories, including the best FX bank for real money clients.

Ron O'Hanley: For example, in its 2023 FX Awards, Euromoney Magazine named State Street as the winner across four important categories, including the best FX bank for real money clients. We also continue to innovate and strategically expand our product capabilities and geographic reach, including the planned acquisition of outsourced trading firm CF Global Trading.

Eric: For example in its 2023 FX Awards Euromoney magazine named State Street as the winter across four important categories, including the best FX Bank for real money clients. We also.

Ron O'Hanley: We also continue to innovate and strategically expand our product capabilities in geographic reach.

Eric: To innovate and strategically expand our product capabilities and geographic reach.

Ron O'Hanley: including the planned acquisition of outsourced trading firm CF Global Trading.

Eric: Including the planned acquisition of outsource trading firms CF global trading.

Ron O'Hanley: At Global Advisors, we undertook targeted strategic actions aimed at gaining market share and driving growth in the coming year.

Ron O'Hanley: At Global Advisors, we undertook targeted strategic actions aimed at gaining market share and driving growth in the coming year. As a result, we saw encouraging business momentum, with GA setting a number of growth records in 2023. A number of key performance indicators make us optimistic as we look ahead. For example, in Q4, GA recorded the best-ever quarter of aggregate total flows, including record quarterly flows within our SPDR ETF franchise, amounting to a capture of 21% of total global ETF flows in Q4, and ending 2023 with a record level of total ETF assets under management.

At Global Advisors, we undertook targeted strategic actions aimed at gaining market share and driving management fee growth in the coming years. As a result, we saw encouraging business momentum with GAA setting a number of growth records in 2023.

Ron O'Hanley: As a result, we saw encouraging business momentum with GA setting a number of growth records in 2023.

Ron O'Hanley: A number of key performance indicators make us optimistic as we look ahead.

Eric: A number of key performance indicators make us optimistic as we look ahead for.

Ron O'Hanley: For example, in Q4, GA recorded the best-ever quarter of aggregate total flows, including record quarterly flows within our SPDR ETF franchise, amounting to a capture of 21% of total global ETF flows in Q4, and ending 2023 with a record level of total ETF assets under management.

Eric: For example in Q4 <unk> recorded the best ever quarter of aggregate total flows including record quarterly flows within our Spider ETF franchise amounting to a capture of 21% of total global ETF flows in Q4, and ending 2023 with a record level level of total ETF assets under.

Ron O'Hanley: Our cash business had an exceptional year, delivering record annual flows in 2023, with institutional money market fund AUM also reaching a record. Overall, we gained market share in a number of key areas, including institutional money market funds and U.S. low-cost equity and fixed income ETFs.

Eric: Management.

Ron O'Hanley: Our cash business had an exceptional year, delivering record annual flows in 2023, with institutional money market fund, AUM, also reaching a record.

Eric: Our cash business had an exceptional year delivering record annual flows in 2023.

Eric: Institutional money market fund AUM also reaching a record.

Ron O'Hanley: Overall, we gain market share in a number of key areas, including institutional money market funds and U.S. low-cost equity and fixed income ETFs.

Eric: Overall, we gained market share in a number of key areas, including institutional money market funds and U S low cost equity and fixed income Etfs.

Speaker Change: Thank you.

Speaker Change: Turning to our efficiency and productivity efforts, underlying expense growth was well controlled in 2023, with full-year expenses increasing 3%, excluding notable items. Q4 expenses, excluding notable items, rose just 1% quarter-on-quarter, reflecting the impact of our ongoing expense action. Transforming our operations to improve effectiveness and efficiency and realize productivity growth remains a key priority for us. To that end, we announced important steps in our multi-year productivity efforts aimed at improving our operating model. As we previously announced, we are streamlining our operations in India. We have now assumed control of one of our joint ventures in that country, with a second joint venture consolidation expected to close in the spring. We expect these actions will accelerate the transformation of State Street's global operations, improve service quality and client experience, and enable us to achieve productivity savings as part of our plans to deliver positive fee operating leverage in 2024.

Eric: Turning to our efficiency and productivity efforts underlying expense growth was well controlled in 2023 with full year expenses, increasing 3%. Excluding notable items Q4 expenses. Excluding notable items rose just 1% quarter on quarter, reflecting the impact of our ongoing.

Speaker Change: Turning to our efficiency and productivity efforts, underlying expense growth was well controlled in 2023, with full-year expenses increasing 3%, excluding notable items.

Speaker Change: Q4 expenses, excluding notable items, rose just 1% quarter-on-quarter, reflecting the impact of our ongoing expense action.

Eric: Actions.

Eric: Transforming our operations to improve effectiveness and efficiency and realized productivity growth remains a key priority for us.

Speaker Change: Transforming our operations to improve effectiveness and efficiency and realize productivity growth remains a key priority for us.

Speaker Change: To that end, we announced important steps in our multi-year productivity efforts aimed at improving our operating model.

Eric: To that end, we announced important steps in our multi year productivity efforts aimed at improving our operating model.

Speaker Change: As we previously announced, we are streamlining our operations in India. We have now assumed control of one of our joint ventures in that country, with a second joint venture consolidation expected to close in the spring.

Eric: As we previously announced we are streamlining our operations in India. We have now assumed control of one of our joint ventures in the country with a second joint venture consolidation expected to close in the spring we.

Speaker Change: We expect these actions will accelerate the transformation of State Street's global operations, improve service quality and client experience, and enable us to achieve productivity savings as part of our plans to deliver positive fee operating leverage in 2024.

Eric: We expect these actions will accelerate the transformation of state Street's global operations improved service quality and client experience.

Eric: Enable us and enable us to achieve productivity savings as part of our plans to deliver positive fee operating leverage in 2024.

Eric: Yeah.

Speaker Change: Turning to slide four of our presentation, you can see our fourth quarter financial highlights and business momentum indicators, which Eric will shortly take you through in more detail. Before I conclude my opening remarks, I would like to touch on our continuing balance sheet strength, which has enabled us to return a substantial amount of excess capital in recent quarters. For example, over the last five quarters to the end of December, we have returned $6.4 billion of capital to our shareholders. As we pivot to a more normalized level of capital return, in 2024, it is currently our intention to return approximately 100% of earnings in the form of common share dividends and share repurchases, subject to market conditions. Accordingly, as we announced this morning, our Board of Directors has authorized a new common share purchase program of up to $5 billion with no set expiration date.

Eric: Turning to slide four of our presentation, you can see our fourth quarter financial highlights and business indicators, which Eric will shortly take you through in more detail.

Eric: Before I conclude my opening remarks, I would like to touch on our continuing balance sheet strength, which has enabled us to return a substantial amount of excess capital in recent quarters for.

Speaker Change: Before I conclude my opening remarks, I would like to touch on our continuing balance sheet strength, which has enabled us to return a substantial amount of excess capital in recent quarters.

Speaker Change: For example, over the last five quarters to the end of December, we have returned $6.4 billion of capital to our shareholders.

Eric: For example over the last five quarters to the end of December we have returned $6 4 billion of capital to our shareholders.

Speaker Change: As we pivot to a more normalized level of capital return, in 2024, it is currently our intention to return approximately 100% of earnings in the form of common share dividends and share repurchases subject to market conditions.

Eric: As we pivot to a more normalized level of capital return in 2020 forward is currently our intention to return approximately 100% of earnings in the form of common share dividends and share repurchases subject to market conditions.

Eric: Accordingly, as we announced this morning, our board of Directors has authorized a new common share purchase program of up to 5 billion with no set exploration date.

Speaker Change: Accordingly, as we announced this morning, our Board of Directors has authorized a new common share purchase program of up to $5 billion with no set expiration date.

Speaker Change: To conclude, while 2023 was an eventful year, we finished strongly in 4Q, which creates an encouraging starting point for our businesses into 2024. This year, we remain highly focused on both the execution of our strategy and accountability for results. Our goals are clear. We must continue the improvement in our sales performance that we demonstrated in the second half of 2023, continue to implement a set of productivity initiatives and product enhancements that will drive longer-term improvements in our operating model efficiency and effectiveness, and deliver positive fee operating leverage in 2024, all while returning capital to our shareholders.

Eric: To conclude while 2023 was an eventful year, we finished strongly and <unk>, which creates an encouraging starting point for our businesses into 2024.

Speaker Change: To conclude, while 2023 was an eventful year, we finished strongly in 4Q, which creates an encouraging starting point for our businesses into 2024.

Speaker Change: This year, we remain highly focused on both the execution of our strategy and the accountability for results.

Eric: This year, we remain highly focused on both the execution of our strategy and the accountability for results.

Speaker Change: Our goals are clear. We must continue the improvement in our sales performance that we demonstrated in the second half of 2023, continue to implement a set of productivity initiatives and product enhancements that will drive longer-term improvements in our operating model efficiency and effectiveness, and deliver positive fee operating leverage in 2024, all while returning capital to our shareholders.

Our goals are clear we must continue the improvement in our sales performance that we demonstrated in the second half of 2023 continue to implement a set of productivity initiatives and product enhancements that will drive longer term improvements in our operating model efficiency and effectiveness and deliver positive fee operating leverage in 2024.

Eric: All while returning capital to our shareholders. We are laser focused on these goals.

Speaker Change: We are laser focused on these goals.

Speaker Change: Now, let me hand the call over to Eric, who will take you through the quarter in more detail.

Speaker Change: Now, I will hand the call over to Eric, who will take you through the quarter in more detail.

Eric: Now, let me hand, the call over to Eric who will take you through the quarter in more detail.

Eric Aboaf: Thank you, Ron, and good morning, everyone.

Eric Aboaf: Thank you, Ron, and good morning, everyone. Before I begin my review of our fourth quarter and full year 2023 results, let me briefly discuss the notable items we recognized in the quarter on slide 5, which collectively totaled $620 million pre-tax, or $1.49 EPS. First, we recognize an FDIC special assessment of $387 million, which is reflected in other expenses. Second, we recognize $203 million of net repositioning charges to enable the next phase of our productivity program. As we had indicated in December, the bulk of this action primarily relates to the severance of around 1,500 employees.

Thank you Ron and good morning, everyone.

Before I begin my review of our fourth quarter and full year 2023 results. Let me briefly discuss the notable items, we recognized in the quarter on slide five which collectively totaled $620 million pre tax or $1 49 of EPS.

Eric: First we recognized an FDIC special assessment of $387 million, which is reflected in other expenses.

Eric Aboaf: First, we recognize an FDIC special assessment of $387 million, which is reflected in other expenses.

Eric Aboaf: Second, we recognize $203 million of net repositioning charges to enable the next phase of our productivity program.

Eric: Second we recognized $203 million of net repositioning charges to enable the next phase of our productivity program.

Eric: As we had indicated in December the bulk of this action primarily relates to severance of around 500 employees.

Eric Aboaf: As we had indicated in December, the bulk of this action primarily relates to the severance of around 1,500 employees.

Eric Aboaf: Our initiative to streamline and de-layer our operations, technology, and staff functions and improve efficiency will allow us to sustainably reduce expenses. We expect these actions collectively to have a payback of roughly six quarters and begin this quarter, with roughly two-thirds of the benefit occurring in 2024. These actions and the related savings will contribute to our fee operating leverage goal for 2024 and in subsequent years.

Eric Aboaf: Our initiative to streamline and de-layer our operations, technology, and staff functions and improve efficiency will allow us to sustainably reduce expenses.

Eric: Our initiative to streamline and de layer, our operations technology and staff functions and improve efficiency will allow us to sustainably reduce expenses.

Eric Aboaf: We expect these actions collectively to have a payback of roughly six quarters and begin this quarter with roughly two-thirds of the benefit occurring in 2024.

Eric: We expect these actions collectively to have a payback of roughly six quarters and begin this quarter with roughly two thirds of the benefit occurring in 2024.

Eric Aboaf: Turning to slide six.

Eric Aboaf: These actions and the related savings will contribute to our fee operating leverage goal for 2024 and in subsequent years.

Eric: These actions and the related savings will contribute to our fee operating leverage goal for 2024 and in subsequent years.

Eric: Yes.

Eric Aboaf: Turning to slide six.

Eric: Turning to slide six.

Eric Aboaf: I will begin my review of both our fourth quarter and full year 2023 financial results.

Eric Aboaf: I will begin my review of both our fourth quarter and full year 2023 financial results. As you can see on the table, total fee revenue was flattish for all periods of comparison, quarter on quarter, the year on year quarter, and for the full year. The slight market appreciation notwithstanding, the combination of muted volatility, central bank pivots, and geopolitical concerns pushed investors to the sidelines for much of the year. In terms of our more durable revenues, we continue to benefit from strong momentum in our front office software and data business, which was up 5% on a full year basis and 13% on a year-on-year quarter.

I will begin my review of both our fourth quarter and full year 2023 financial results.

Eric Aboaf: As you can see on the table, total fee revenue was flattish for all periods of comparison, quarter on quarter, the year on year quarter, and for the full year.

Eric: As you can see on the table total fee revenue was flattish for all periods of comparison quarter on quarter, the year on year quarter and for the full year.

Eric Aboaf: The slight market appreciation notwithstanding, the combination of muted volatility, central bank pivots, and geopolitical concerns pushed investors to the sidelines for much of the year.

Eric: The slight market appreciation notwithstanding the combination of muted volatility central bank pivots, and geopolitical concerns pushed investors to the sidelines for much of the year.

Eric: In terms of our more durable revenues, we continued to benefit from strong momentum in our front office software and data business, which was up 5% on a full year basis and 13% on the year on year quarter.

Eric Aboaf: In terms of areas that have begun to rebound, management fee performance was down for the full year at minus 3%, but it has begun to rebound with an up 5% result for the year-on-year quarter as flows picked up and we gained share. Back-office servicing fees were challenged for much of the year as client transaction activity was muted, but they have started to turn positive and are up 1% this quarter as we've seen a recent lift in equity markets

Eric Aboaf: In terms of areas that have begun to rebound, management fee performance was down for the full year at minus 3%, but has begun to rebound with an up 5% result for the year-on-year quarter as flows picked up and we gained share.

Eric: In terms of areas that have begun to rebound management fee performance was down for the full year at minus 3%, but has begun to rebound within up 5% result for the year on year quarter as flows picked up and we gained share.

Back office servicing fees was challenged for much of the year as the client transactional activity was muted but has started to turn positive and is up 1%. This quarter as we've seen a recent lift in equity markets.

Eric Aboaf: Back-office servicing fees was challenged for much of the year as the client transaction activity was muted, but has started to turn positive and is up 1% this quarter as we've seen a recent lift in equity markets.

Eric Aboaf: And, of course, we continue to be affected by industry-wide headwinds in our global markets businesses, given the low levels of volatility in the FX markets and special activity in agency lending throughout the year.

Eric Aboaf: And of course, we continue to be affected by industry-wide headwinds in our global markets businesses, given the low levels of volatility in the FX markets and specials activity in agency lending throughout the year.

Eric: And of course, we continue to be affected by industry wide headwinds in our global markets businesses, given the low levels of volatility in the FX markets and specials activity in agency lending throughout the year.

Eric: NII has been tough to predict and surprise to the positive this quarter compared to third quarter I will turn to that in a few minutes.

Eric Aboaf: NII has been tough to predict and surprised to the positive this quarter compared to third quarter. I'll turn to that in a few minutes.

Eric Aboaf: NII has been tough to predict and surprised to the positive this quarter compared to the third quarter. I'll turn to that in a few minutes. Expenses were well controlled in the quarter as we continue to thoughtfully allocate resources across the franchise and to areas where we see the greatest opportunities for top-line growth. Relative to the year ago, total expenses ex-notables were up 2% year-on-year and reflect intensifying cost management in a tough environment as the year progressed.

Eric Aboaf: Expenses were well controlled in the quarter as we continue to thoughtfully allocate resources across the franchise and to areas where we see the greatest opportunities for top-line growth.

Eric: Expenses were well controlled in the quarter as we continue to thoughtfully allocate resources across the franchise and to areas, where we see the greatest opportunities for topline growth.

Eric Aboaf: Relative to the year ago, total expenses ex-notables were up 2% year-on-year and reflect intensifying cost management in a tough environment as the year progressed.

Eric: Relative to the year ago total expenses ex notables were up 2% year on year and reflect intensifying cost management in a tough environment as the year progressed.

Eric Aboaf: This expense control, coupled with the repositioning actions I just mentioned, will prepare us to deliver productivity savings and positive fee operating leverage in 2024.

Eric Aboaf: This expense control, coupled with the repositioning actions I just mentioned, prepare us to deliver productivity savings and positive fee operating leverage in 2024.

Eric: This expense control coupled with a repositioning actions I just mentioned prepare us to deliver productivity savings and positive fee operating leverage in 2024.

Eric: Finally, despite a dynamic and challenging operating environment, we delivered full year 2023, EPS growth of 3% excluding notable items.

Eric Aboaf: Finally, despite a dynamic and challenging operating environment, we delivered full-year 2023 EPS growth of 3% excluding notable items.

Eric Aboaf: Finally, despite a dynamic and challenging operating environment, we delivered full-year 2023 EPS growth of 3% excluding notable items. This was supported by share repurchases, a record level of NII, and the growth of our front office software and data business, which is less exposed to macroeconomic conditions.

Eric Aboaf: This was supported by share repurchases, a record level of NII, and the growth of our front office software and data business, which is less exposed to macroeconomic conditions.

Eric: This was supported by share repurchases a record level of NII and the growth of our front office software and data business, which is less exposed to macro economic conditions.

Eric: Turning now to slide seven.

Eric Aboaf: Turning now to slide seven.

Eric Aboaf: Turning now to slide seven, we saw period end AUCA increase by 14% on a year-on-year basis and 4% sequentially. Year on year, the increase in AUCA was largely driven by higher period and market levels and net new business. Quarter on quarter, AUCA increased primarily due to higher period and market levels. At Global Advisors, period and AUM increased 19% year-on-year and was up 12% sequentially, largely reflecting higher period and market levels and strong net inflows.

Eric: We saw period end <unk> increased by 14% on a year on year basis, and 4% sequentially.

Eric Aboaf: We saw period end AUCA increase by 14% on a year-on-year basis and 4% sequentially.

Eric Aboaf: Year on year, the increase in AUCA was largely driven by higher period and market levels and net new business.

Eric: On year the increase in <unk> was largely driven by higher period end market levels and net new business.

Eric: Quarter on quarter, AUC increased primarily due to higher period end market levels.

Eric Aboaf: Quarter on quarter, AUCA increased primarily due to higher period and market levels.

Eric Aboaf: At Global Advisors, period and AUM increased 19% year-on-year and was up 12% sequentially, largely reflecting higher period and market levels and strong net inflows.

Eric: At Global Advisors period end, AUM increased 19% year on year and was up 12% sequentially, largely reflecting higher period end market levels and strong net inflows.

Speaker Change: Notably, as Ron mentioned earlier, and I'll describe momentarily, in fourth quarter, GA recorded the best ever quarter of aggregate net flows of $103 billion, which sets us up well for 2024.

Speaker Change: Notably, as Ron mentioned earlier, and I'll describe momentarily, in the fourth quarter, GA recorded the best ever quarter of aggregate net flows of $103 billion, which sets us up well for 2024.

Eric: Notably as Ron mentioned earlier and I'll describe momentarily in fourth quarter <unk> recorded the best ever quarter of aggregate net flows of 103 billion, which sets us up well for 2024.

At the center right. We've also added a table with market volatility indices, which we believe can be useful indicators of client transactional activity that drives servicing fees specials activity in agency lending and flows and margins and FX trading.

Speaker Change: At the center right, we've also added a table with market volatility indices, which we believe can be useful indicators of client transactional activity that drives servicing fees, specials activity in agency lending, and flows and margins in FX trading.

Speaker Change: To the center right, we've also added a table with market volatility indices, which we believe can be useful indicators of client transactional activity that drives servicing fees, special activity in agency lending, and flows and margins in FX trading.

Eric: <unk>.

Eric: Sure.

Eric: Okay.

Eric: On slide eight now.

Speaker Change: On slide eight now.

Speaker Change: On slide eight now, on the left side of the page, you'll see fourth quarter total servicing fees up 1% year-on-year, primarily due to higher average equity markets, partially offset by pricing headwinds, lower client activity and adjustments, and a previously disclosed client transition. sequentially, total servicing fees were down 2%, primarily as a result of the pricing headwinds and a previously disclosed net client transition, partially offset by higher client activity and adjustments, which was nice to see as clients started to come off the sidelines.

Speaker Change: On the left side of the page, you'll see fourth quarter total servicing fees up 1% year-on-year, primarily from higher average equity markets, partially offset by pricing headwinds, lower client activity and adjustments, and a previously disclosed client transition.

Eric: On the left side of the page Youll see fourth quarter total servicing fees up.

Eric: 1% year on year, primarily from higher average equity markets, partially offset by pricing headwinds lower client activity and adjustments in our previously disclosed client transition.

Speaker Change: Sequentially, total servicing fees were down 2%, primarily as a result of the pricing headwinds and a previously disclosed net client transition, partially offset by higher client activity and adjustments, which was nice to see as clients started to come off the sidelines.

Eric: Sequentially total servicing fees were down 2%, primarily as a result of the pricing headwinds and a previously disclosed net client transition, partially offset by higher client activity and adjustments, which was nice to see as clients started to come off the sidelines.

Speaker Change: On the bottom left of the slide, we summarize some of the key performance indicators of our servicing business.

Speaker Change: On the bottom left of the slide, we summarize some of the key performance indicators of our servicing business. We were quite pleased to see new servicing fee revenue wins of $103 million this quarter, the highest in many recent years, primarily reflecting the enhancements of our sales processes and product offerings, including in North America, where we saw strong outcomes after a period of underperformance. These servicing wins contributed to the total full-year fee revenue win of $301 million and underscores the progress we're making towards stronger sales performance. Recall, our goal for 2024 is even higher at $350 to $400 million in servicing fee sales for the year. Finally, we had $270 million of servicing fee revenue to be installed at quarter end, up $57 million year-on-year and $15 million quarter-on-quarter. We expect about half of this to be installed in 2024. We also had $2.3 trillion of AUCA to be installed at period end.

Eric: On the bottom left of the slide we summarize some of the key performance indicators of our servicing business.

Speaker Change: We were quite pleased to see new servicing fee revenue wins of $103 million this quarter, the highest in many recent years, primarily reflecting the enhancements of our sales processes and product offerings, including in North America, where we saw strong outcomes after a period of underperformance.

Eric: We were quite pleased to see new servicing fee revenue wins of $103 million. This quarter. The highest in many recent years, primarily reflecting the enhancements of our sales processes and product offerings, including in North America, where we saw strong outcomes after a period of underperformance.

Speaker Change: These servicing wins contributed to the total full-year fee revenue wins of $301 million and underscores the progress we're making towards stronger sales performance.

Eric: The servicing wins contributed to the total full year fee revenue wins of $301 million and underscores the progress, we're making towards stronger sales performance.

Speaker Change: Recall, our goal for 2024 is even higher at $350 to $400 million in servicing fee sales for the year.

Eric: Recall, our goal for 2024 is even higher at $350 million to $400 million in servicing fee sales for the year.

Speaker Change: Finally, we had $270 million of servicing fee revenue to be installed at quarter end, up $57 million year-on-year, and $15 million quarter-on-quarter.

Finally, we had $270 million of servicing fee revenue to be installed at quarter end up $57 million year on year and $15 million quarter on quarter.

Speaker Change: We expect about half of this to install in 2024.

Eric: We expect about half of this to install in 2024.

Eric: We also had $2 three trillion of <unk> to be installed at period end.

Speaker Change: We also had $2.3 trillion of AUCA to be installed at period end.

Speaker Change: Thank you.

Speaker Change: Turning to slide nine.

Speaker Change: Turning to slide nine, fourth-quarter management fees were $479 million, up 5% year-on-year, primarily reflecting higher average equity market levels and some performance fees, partially offset by a previously described shift of certain management fees into NII and the impact of a strategic product suite repricing initiative that has aided ETF flows. Related to the third quarter, management fees were flat, mainly driven by higher performance fees offset by a previously described shift of certain management fees into NII and the impacts of this strategic ETF product suite repricing initiative. As you can see on the bottom right of the slide, our investment management franchise remains well positioned with very strong and broad-based business momentum across each of its businesses.

Eric: Turning to slide nine.

Speaker Change: Fourth quarter management fees were $479 million, up 5% year-on-year, primarily reflecting higher average equity market levels and some performance fees, partially offset by a previously described shift of certain management fees into NII and the impact of a strategic product suite repricing initiative that has aided ETF flows.

Eric: Fourth quarter management fees were $479 million up 5% year on year, primarily reflecting higher average equity market levels and some performance fees, partially offset by a previously described shift of certain management fees and NII and the impact of our strategic product suite repricing initiative that has aided ETF flows.

Speaker Change: Related to the third quarter, management fees were flat, mainly driven by higher performance fees offset by a previously described shift of certain management fees into NII and the impacts of this strategic ETF product suite repricing initiative.

Eric: Relative to the third quarter management fees were flat, mainly driven by higher performance fees offset by a previously described shift of certain management fees into NII and the impacts of this strategic ETF product suite of our pricing initiative.

Speaker Change: As you can see on the bottom right of the slide, our investment management franchise remains well positioned with very strong and broad-based business momentum across each of its businesses.

Eric: As you can see on the bottom right of the slide our investment management franchise remains well positioned with very strong and broad based business momentum across each of its businesses.

Speaker Change: In ETFs, we had record quarterly net inflows of $68 billion, driven by record net inflows into SPY as well as the SPDR portfolio U.S. low-cost suite experiencing consistent market share gains. In our institutional business, we saw quarterly net flows of $6 billion, primarily driven by defined contribution products. And lastly, across our cash franchise, we saw quarterly cash net inflows of $29 billion, primarily into money market funds, which contributed to the record total full-year 2023 cash net inflows of $76 billion and Institutional Money Market Fund Market Share Gains.

Eric: And Etfs, we had record quarterly net inflows of 68 billion driven by record net inflows into <unk> as well as the Spider portfolio U S low cost suite experiencing consistent market share gains.

Speaker Change: In ETFs, we had record quarterly net inflows of $68 billion driven by record net inflows into SPY as well as the SPDR portfolio U.S. low-cost suite experiencing consistent market share gains.

Speaker Change: In our institutional business, we saw quarterly net flows of $6 billion, primarily driven by defined contribution products.

Eric: In our institutional business, we saw quarterly net flows of 6 billion, primarily driven by defined contribution products.

Speaker Change: And lastly, across our cash franchise, we saw quarterly cash net inflows of $29 billion, primarily into money market funds, which contributed to the record total full year 2023 cash net inflows of $76 billion.

Eric: And lastly across our cash franchise, we saw quarterly cash net net inflows of 29 billion primarily into money market funds, which contributed to the record total full year 2023 cash net inflows of 76 billion.

Speaker Change: and Institutional Money Market Fund Market Share Gains.

Eric: And institutional money market fund market share gains.

Speaker Change: Turning now to slide 10.

Speaker Change: Turning now to slide 10. Fourth quarter FX trading services revenue was down 11% year-on-year, excluding X notables, and 2% sequentially. Related to the period a year ago, the decrease was mainly due to lower FX spreads for muted market volatility offset by slightly higher volumes. Quarter on quarter, the decrease primarily reflects lower direct FX revenues from muted volatility. Fourth quarter securities finance revenues were down 6% year-on-year due to lower agency balances partially offset by higher agency spreads, higher specials activity, and prime services revenue.

Eric: Turning now to slide 10.

Speaker Change: Fourth quarter FX trading services revenue was down 11% year-on-year, X notables, and 2% sequentially.

Eric: Fourth quarter FX trading services revenue was down 11% year on year ex notables and 2% sequentially.

Speaker Change: Related to the period a year ago, the decrease was mainly due to lower FX spreads for muted market volatility offset by slightly higher volumes.

Eric: Relative to the period a year ago. The decrease was mainly due to lower FX spreads for muted market volatility offset by slightly higher volumes.

Speaker Change: Quarter on quarter, the decrease primarily reflects lower direct FX revenues from muted volatility.

Eric: Quarter on quarter, the decrease primarily reflects lower direct FX revenues from muted volatility.

Fourth quarter Securities Finance revenues were down 6% year on year due to lower agency balances, partially offset by higher agency spreads higher specials activity and prime services revenue.

Speaker Change: Fourth quarter securities finance revenues were down 6% year-on-year due to lower agency balances partially offset by higher agency spreads, higher specials activity, and prime services revenue.

Speaker Change: Moving on to software and processing revenues, fourth quarter fees were up 10% year-on-year and 26% sequentially, largely driven by CRD, which I'll turn to shortly.

Speaker Change: Moving on to software and processing revenues, fourth-quarter fees were up 10% year-on-year and 26% sequentially, largely driven by CRD, which I'll turn to shortly. Finally, other fee revenue for the quarter increased $15 million year-on-year, primarily due to a mid-year tax credit investment accounting change, partially offset by the impact associated with the devaluation of the Argentinian peso.

Eric: Moving onto software and processing revenues fourth quarter fees were up 10% year on year, and 26% sequentially, largely driven by CRD, which I'll turn to shortly.

Speaker Change: Finally, other fee revenue for the quarter increased $15 million year-on-year, primarily due to a mid-year tax credit investment accounting change, partially offset by the impact associated with the devaluation of the Argentinian peso.

Eric: Finally, other fee revenue for the quarter increased $15 million year on year, primarily due to a mid year tax credit investment accounting change, partially offset by the impact associated with the devaluation of the Argentinean peso.

Eric: Sure.

Eric: Alright.

Speaker Change: Moving to slide 11.

Speaker Change: Moving to slide 11, you'll see on the left panel that fourth quarter front office software and data revenue increased 13% year-on-year, primarily as a result of the continued SaaS implementations and conversions driving software-enabled and professional services revenue growth. sequentially, front office software and data revenue was up 38%, primarily driven by higher on-premise renewals and go-live implementations.

Eric: Moving to slide 11.

Speaker Change: You'll see on the left panel that fourth quarter front office software and data revenue increased 13% year-on-year, primarily as a result of the continued SaaS implementations and conversions driving software-enabled and professional services revenue growth.

Eric: Youll see on the left panel that fourth quarter front office software and data revenue increased 13% year on year, primarily as a result of the continued SaaS implementations and conversions driving software enabled and professional services revenue growth.

Thank you for watching! Good morning and welcome to State Street Corporation's fourth quarter and full year. Today's discussion is being broadcast live on State Street's website at investors.statestreet.com. The conference call is also being recorded. Thank you for watching. This call may not be recorded for rebroadcast or...

Speaker Change: Sequentially, front office software and data revenue was up 38%, primarily driven by higher on-premise renewals and go-live implementations.

Eric: Sequentially front office software and data revenue was up 38%, primarily driven by higher on premise renewals and go live implementations.

Eric: Turning to some of the Alpha business metrics in the right panel. We were pleased to report for more alpha mandate wins in the quarter, which means seven wins for the full year of 2023.

Speaker Change: Turning to some of the alpha business metrics on the right panel, we were pleased to report four more alpha mandate wins in the quarter, which means seven wins for the full year of 2023. State Street Alpha continues to be an important differentiator of our business and creates an attractive value proposition for our clients, with contractual terms usually covering 5 to 7 to 10 years. We've also gone live with three more Alpha clients, which brings us to six for the year, which sets us up well for 2024, and added significant new functionality for fixed income portfolio managers.

Speaker Change: State Street Alpha continues to be an important differentiator of our business and creates an attractive value proposition for our clients, with contractual terms usually covering 5 to 7 to 10 years.

Eric: State Street Alpha continues to be an important differentiator of our business and creates an attractive value proposition for our clients with contractual terms, usually covering five to seven to 10 years.

Speaker Change: We've also gone live with three more Alpha clients, which brings us to six for the year, which sets us up well for 2024.

We've also gone live with three more alpha clients.

Faisal: Thank you. The only authorized broadcast of this call will be housed here. Now, I would like to introduce... Faisal, Global Head of Investor Relations. Good morning, and thank you all for joining us.

Eric: Which brings us to six for the year, which sets us up well for 2024.

Speaker Change: and added significant new functionality for fixed income portfolio managers.

Eric: And added significant new functionality for fixed income portfolio portfolio managers.

Speaker Change: Fourth quarter ARR increased 16% year-over-year driven by 20-plus SaaS and client implementations and conversions, and we had a record quarter for front office new bookings at $32 million.

Eric: Fourth quarter, IRR increased 16% year over year, driven by 20, plus SaaS client implementations and conversions and we had a record quarter for our front office, new bookings at $32 million.

Faisal: On our call today, our CEO, Ron O'Hanley, will speak to you. Then Eric Aboaf, our CFO, will take you through our fourth... This is your 2023 earnings slide presentation, which is available for download in the Investor Relations section of our website, investors.statestreet.com. Afterward, we'll be happy to take questions. During the Q&A, please limit yourself to two questions and then re-que

Speaker Change: Turning to slide 12, fourth quarter NII increased 14% year-on-year, but increased 9% sequentially to $678 million.

Speaker Change: Turning to slide 12, fourth quarter NII increased 14% year-on-year, but increased 9% sequentially to $678 million. The year-on-year decrease was largely due to lower average deposit balances and deposit mix shift, partially offset by the impact of higher interest rates. sequentially, the increase in NII performance was primarily driven by the impact of interest rates and the full quarter impact of the third quarter investment portfolio repositioning, as well as higher deposits and loan balances. The NII results on a sequential quarter basis were better than we had previously expected, as both interest-bearing and non-interest-bearing deposits increased, and certain client repricings were further delayed.

Turning to slide 12 fourth quarter, NII increased 14% year on year, but increased 9% sequentially to $678 million.

Speaker Change: The year-on-year decrease was largely due to lower average deposit balances and deposit mix shift, partially offset by the impact of higher interest rates.

Eric: The year on year decrease was largely due to lower average deposit balances and deposit mix shift partially offset by the impact of higher interest rates.

Ilene: Before we get started, I would like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our slide presentation. Also available in the IR section of our website. In addition, today's presentation will contain forward-looking statements. Actual results may differ materially from those statements due to a variety of important factors, such as those factors referenced in our discussion today and in our SEC filings, including the risk factors in our Form 10-K. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them, even if our views change. Now, I turn it over to Ron. Thank you, Ilene, and good morning, everyone.

Eric: Sequentially the increase in NII performance was primarily driven by the impact of interest rates and the full quarter impact of the third quarter investment portfolio repositioning as well as higher deposits and loan balances.

Speaker Change: Sequentially, the increase in NII performance was primarily driven by the impact of interest rates and the full quarter impact of the third quarter investment portfolio repositioning, as well as higher deposits and loan balances.

Eric: The NII results on a sequential quarter basis were better than we had previously expected as both interest bearing and noninterest bearing deposits increased and certain client replace re pricings, where further delayed.

Speaker Change: The NII results on a sequential quarter basis were better than we had previously expected, as both interest bearing and non-interest bearing deposits increased, and certain client repricings were further delayed.

Speaker Change: Some of the higher deposit balances may have been seasonal, but the Fed's quantitative tightening appears to have been offset by the reduction in the Fed's reverse repo operation, which seems to have resulted in inflation leaving higher bank deposit balances. It's hard to know how deposits will trend, but we're pleased with this higher step-off going into the first quarter of 2024.

Speaker Change: Some of the higher deposit balances may have been seasonal, but the Fed's quantitative tightening appears to have been offset by the reduction of the Fed's reverse repo operation, which seems to have resulted in inclines leaving higher bank deposit balances.

Eric: Some of the higher deposit balances may have been seasonal but the feds quantitative tightening appears to have been offset by the reduction of the fed's reverse repo operation, which seems have resulted in clients, leaving higher bank deposit balances.

Ron O'Hanley: Earlier today, we released our fourth quarter and full year 2023 financial results. As I reflect on 2023, the operating environment was dynamic with a complex set of challenges for the world's investors and for our industry, and I am proud of how we carefully navigated state streets for various headwinds while continuing to execute against our strategic agenda. We focused and delivered on that agenda in three key areas.

Speaker Change: On the right side of the slide, we show our average balance sheet during the fourth quarter. Average deposits increased 4% quarter-on-quarter, with non-interest-bearing deposits up 3% for the quarter.

Speaker Change: It's hard to know how deposits will trend, but we're pleased with this higher step-off going into the first quarter of 2024.

Eric: It's hard to know how deposits will trend, but we're pleased with this higher step off going into the first quarter of 2024.

Eric: On the right side of the slide we show our average balance sheet during the fourth quarter average deposits increased 4% quarter on quarter with noninterest bearing deposits up 3% for the quarter.

Speaker Change: Thank you.

Yes.

Speaker Change: Turning to slide 13.

Speaker Change: Turning to slide 13, fourth quarter expenses excluding notable items increased 2% year-on-year or 1% XFX. sequentially, fourth-quarter expenses were up only 1% as we actively managed expenses and continued our productivity and optimization savings efforts, all while carefully investing in strategic elements of the company, including alpha, private markets, core custody, and tech and ops process improvements and automations.

Ron O'Hanley: Achieve strong sales wins across our businesses, drive strategic change in our investment services business, and remain disciplined on productivity and broader cost management. Further on that last point, during 2023, we implemented key productivity actions and announced additional efficiency measures that will enable us to enhance the productivity of our operating model in 2024 and the years ahead. We took these many actions, all while investing in our business and returning substantial capital to our shareholders, which helped to drive full-year earnings growth, excluding notable items. The world's investors, state streets, and our industry faced a host of significant market events and macroeconomic forces in 2023. In the first quarter, turmoil in the banking sector ultimately led to the resolution of several banks, which was a catalyst for some of the largest fixed-income market moves seen in decades.

Eric: Turning to slide 13.

Speaker Change: Fourth quarter expenses excluding notable items increased 2% year-on-year or 1% XFX.

Eric: Fourth quarter expenses, excluding notable items increased 2% year on year or 1% ex FX.

Eric: Sequentially fourth quarter expenses were up only 1% as we actively managed expenses and continued our productivity and optimization savings efforts all while carefully investing in strategic elements of the company, including Alpha private markets core custody and tech and ops process improvements and automation.

Speaker Change: Sequentially, fourth quarter expenses were up only 1% as we actively managed expenses and continued our productivity and optimization savings efforts, all while carefully investing in strategic elements of the company, including alpha, private markets, core custody, and tech and ops process improvements and automations.

Speaker Change: On a line-by-line basis and year-over-year, X Notables.

Speaker Change: On a line-by-line basis and year-over-year, X Notables: Compensation and employee benefits increased 1%, primarily driven by higher salaries and employee benefits, partially offset by lower contractor spend and performance-based incentive comp. Information systems and communications expenses increased 4%, mainly due to higher technology and infrastructure investments, partially offset by the benefits from ongoing optimization efforts, insourcing, and vendor credits. Transaction processing expenses increased 1%, mainly reflecting higher brokerage costs. Occupancy increased 24% largely due to the absence of an episodic sale-leaseback transaction in the prior period, and other expenses were up 3% sequentially, flat year on year, mainly reflecting higher marketing expenses and professional fees.

On a line by line basis and year over year ex notables comp.

Speaker Change: Compensation and employee benefits increased 1%, primarily driven by higher salaries and employee benefits, partially offset by lower contractor spend and performance-based incentive comp.

Eric: Compensation employee benefits increased 1%, primarily driven by higher salaries and employee benefits, partially offset by lower contractor spend and performance based incentive comp.

Speaker Change: Information systems and communications expenses increased 4%, mainly due to higher technology and infrastructure investments, partially offset by the benefits from ongoing optimization efforts, insourcing, and vendor credits.

Eric: Information systems, and communications expenses increased 4%, mainly due to higher technology and infrastructure investments, partially offset by the benefits from ongoing optimization efforts in sourcing and vendor credits.

Speaker Change: Transaction processing increased 1%, mainly reflecting higher brokerage costs.

Eric: Transaction processing increased 1%, mainly reflecting higher brokerage costs.

Ron O'Hanley: In the second quarter, anticipation grew about the potential economic benefit from artificial intelligence helping to drive equity markets higher. However, as we progressed into the third quarter, and as the Federal Reserve raised interest rates to the highest level in 2022 years in July, the prospect of higher rates for longer rates led to a substantial sell-off in the bond market. With the U.S. 10-year Treasury yield exceeding 5% in October for the first time since the global financial crisis, great uncertainty and an increasing number of geopolitical concerns caused equities to struggle.

Speaker Change: Occupancy increased 24% largely due to the absence of an episodic sale-leaseback transaction in the prior period.

Eric: Occupancy increased 24% largely due to the absence of an episodic sale leaseback transaction in the prior period.

Speaker Change: and other expenses were up 3% sequentially, flat year on year, mainly reflecting higher marketing expense and professional fees.

Eric: And other expenses were up 3% sequentially flat year on year, mainly reflecting higher marketing expense and professional fees.

Speaker Change: Lastly, let me spend a moment on headcount.

Eric: Fees.

Eric: Lastly, let me spend a moment on head count.

Speaker Change: Lastly, let me spend a moment on headcount.

Speaker Change: As we discussed in the third quarter, as part of our ongoing transformation and productivity initiatives, we've streamlined our operating model in India and have now assumed full ownership of one of our operations in joint ventures, and we recently announced that we intend a similar undertaking with a second consolidation in the country this spring. This consolidation continues the transformation of State Street's global operations and will enable us to unlock productivity savings, which we expect to start this quarter, through a reduction in contractor services and in the years ahead as we simplify our fragmented operating model.

Eric: As we discussed in the third quarter as part of our ongoing transformation productivity initiatives. We've streamlined our operating model in India and have now assumed full ownership of one of our operations joint ventures, and we recently announced that we intend to a similar undertaking with a second consolidation in the country. This spring.

Ron O'Hanley: Then, during the fourth quarter, the equity market rallied vigorously as inflation receded and investors grew increasingly optimistic about a soft landing, with positive sentiment gaining further momentum in the last month as the Federal Reserve signaled a pivot to lower interest rates this year. In sum, while our full-year overall financial results benefited from higher interest rates globally last year and despite the strong market appreciation in the fourth quarter, daily average global equity markets only increased by low single digits in 2023, providing just a modest tailwind to our fee revenue, while client activity was muted as investors stayed on the sidelines for much of the year. And even in such an eventful year, equity and FX market volatility continued to decline, creating revenue headwinds for our trading business. Slide three of our investor presentation provides some of our highlights for the year. Beginning with our financial performance, full-year earnings per share was 558 or 766, excluding notable items.

Speaker Change: This consolidation continues the transformation of State Street's global operations and will enable us to unlock productivity savings, which we expect to start this quarter, through a reduction in contractor services and in the years ahead as we simplify our fragmented operating model.

Eric: This consolidation continues the transformation state Street's global operations and will enable us to unlock productivity savings, which we expect to start this quarter through a reduction in contractors services and in the years ahead as we simplify our fragmented operating model.

Speaker Change: As you would expect, consolidating the first joint venture increased our FDE headcount by roughly 4,400 in the quarter as we sourced global capabilities. However, these costs were already in our expense base and reported historically under the comp and benefits line. These actions are contributing to our higher productivity savings targets for 2024.

As you would expect consolidating the first joint venture increased our FTE head count roughly 4400 in the quarter as we in source global capabilities.

Speaker Change: As you would expect, consolidating the first joint venture increased our FDE headcount roughly 4,400 in the quarter as we insource global capabilities.

Speaker Change: However, these costs were already in our expense base and reported historically under the comp and benefits line.

Eric: However, these costs were already in our expense base and reported historically under the comp and benefits line.

Speaker Change: These actions are contributing to our higher productivity savings targets for 2024.

Eric: These actions are contributing to our higher productivity savings targets for 2024.

Speaker Change: Thanks for watching!

Speaker Change: Moving to slide 14.

Speaker Change: Moving to slide 14, on the left side of the slide, we show the evolution of our Set 1 and Tier 1 leverage ratios, followed by our capital trends on the right side of the slide. As you can see, we continue to navigate the operating environment with very strong capital levels, which came in above both our internal targets and the regulatory minimums. As of quarter end, our standardized set-one ratio of 11.6% was up 60 basis points quarter-on-quarter, largely driven by episodically lower RWA and improvement in AOCI, partially offset by the continuation of common share repurchases.

Eric: Moving to slide 14.

Speaker Change: On the left side of the slide, we show the evolution of our Set 1 and Tier 1 leverage ratios, followed by our capital trends on the right of the slide.

On the left side of the slide we show the evolution of our set one and tier one leverage ratios followed by our capital trends on the right of the slide as.

Speaker Change: As you can see, we continue to navigate the operating environment with very strong capital levels, which came in above both our internal targets and the regulatory minimums.

Eric: As you can see we continue to navigate the operating environment with very strong capital levels, which came in above both our internal targets and our regulatory minimums.

Ron O'Hanley: Year over year, excluding notable items, EPS growth was supported by $3.8 billion of common share repurchases, a record level of NII, continued growth of our front office software and data business, and higher securities finance revenues, the combination of which more than offset the impact of lower servicing and management fees and underlying expense growth, which was still well-controlled. We continue to build business momentum and position states for longer-term success. To that end, we achieved a number of important accomplishments in 2023, as you can see on slide three.

Speaker Change: As of quarter end, our standardized set-one ratio of 11.6% was up 60 basis points quarter-on-quarter, largely driven by episodically lower RWA and improvement in AOCI, partially offset by the continuation of common share repurchases.

As of quarter end, our standardized set one ratio of 11, 6% was up 60 basis points quarter on quarter, largely driven by Episodically lower <unk> and improvement in a OCI, partially offset by the continuation of common share repurchases.

Speaker Change: The decrease in interest rates during December after the completion of our buyback contributed about 20 basis points to our CET1 ratios, and some market factors over the last week of December conveniently contributed roughly another 50 basis points to the RWA end-of-period print. Going forward, I would expect RWA to run at higher levels to support our various businesses.

Eric: The decrease in interest rates during December after the completion of our buyback contributed about 20 basis points to our CET, one ratios and some market factors over the last week of December conveniently contributed roughly another 50 basis points to the art W. A end of period print.

Speaker Change: Going forward, I would expect RWA to run at higher levels to support our various businesses.

Eric: Going forward I would expect <unk> to run at higher levels to support our various businesses.

Speaker Change: Our LCR for State Street Corporation was a healthy 106% and 122% for State Street Bank and Trust.

Speaker Change: Our LCR for State Street Corporation was a healthy 106% and 122% for State Street Bank and Trust. In the quarter, we were quite pleased to return over $700 million to shareholders, consisting of $500 million of common share repurchases and over $200 million in common stock dividends. Lastly, as we announced earlier today, our board authorized a new multi-year common equity repurchase program of up to $5 billion with no expiration date.

Eric: Our LCR for stage II Corporation was a healthy 106% and 122% for State Street Bank and trust.

Speaker Change: In the quarter, we were quite pleased to return over $700 million to shareholders, consisting of $500 million of common share repurchases and over $200 million in common stock dividends.

Eric: In the quarter, we're quite pleased to return over $700 million to shareholders, consisting of $500 million of common share repurchases and over $200 million in common stock dividends.

Speaker Change: Lastly, as we announced earlier today, our board authorized a new multi-year common equity repurchase program of up to $5 billion with no expiration date.

Eric: Lastly, as we announced earlier today, our board authorized a new multiyear common equity repurchase program of up to $5 billion with no expiration date.

Ron O'Hanley: Realizing the full potential of our alpha value proposition and accelerating sales and revenue growth, particularly in our core back office custody business. Encouragingly, as I just noted, today's results demonstrate our proven ability to deliver the level of sales required for attractive organic servicing fee revenue growth in the future, as we built upon the $91 million of new servicing fee sales in the third quarter by recording $103 million of new servicing fee wins in 4Q, which is the highest level of quarterly new servicing fee wins in recent years. From its inception, we have noted that Alpha will further establish, broaden, and deepen client relationships, positioning State Street as our clients' essential partner. Alpha distinctively enables us to grow and tie together the full breadth and depth of State Street's capability as a true one-stop State Street solution for our clients, from front to back. 2023 was an important year for Alpha software delivery.

Speaker Change: Turning to slide 15, before I start, let me first share some of the assumptions and underlying our current views for the full year.

Speaker Change: Turning to slide 15, before I start, let me first share some of the assumptions underlying our current views for the full year. Then, I will cover our full year 2024 outlook, as well as provide some thoughts on the first quarter, both of which have more potential for variability than usual, given the macroeconomic environment we're operating in. In terms of our current macro expectations, as we stand here today, we expect global equity markets to be flat point to point in 2024, which equates to the daily average being up about 10% year over year. Our interest rate outlook for 2024 largely aligns with the forward curve as of year end 2023, which I would note continues to move.

Eric: Turning to slide 15, before I start let me first share some of the assumptions underlying our current views for the full year.

Speaker Change: Let me cover our full year 2024 outlook, as well as provide some thoughts on the first quarter, both of which have more potential for variability than usual, given the macroeconomic environment we're operating in.

Eric: Let me cover our full year 2024 outlook as well as provide some thoughts on the first quarter, both of which have more potential for variability than usual given the macroeconomic environment. We're operating in.

In terms of our current macro expectations as we stand here today, we expect global equity markets to be flat point to point in 2024, which equates to a daily average being up about 10% year over year.

Speaker Change: In terms of our current macro expectations, as we stand here today, we expect global equity markets to be flat point to point in 2024, which equates to the daily average being up about 10% year over year.

Speaker Change: Our interest rate outlook for 2024 largely aligns with the forward curve as of year end 2023, which I would note continues to move.

Eric: Our interest rate outlook for 2024, largely aligns with the forward curve as of year end 2023, which I would note continues to move.

Speaker Change: We expect to see a modest increase in FX and equity volatility, which should support slightly higher FX trading services fees this year, though we are still seeing muted volatility in the first quarter. And we expect currency translation to have less than a half a percentage point impact on revenues and expenses due to dollar depreciation, and I would remind you that a weaker U.S. dollar has a favorable impact on revenues and an unfavorable impact

Speaker Change: We expect to see modest increase in FX and equity volatility, which should support slightly higher FX trading services fees this year, though we are still seeing muted volatility in the first quarter.

Eric: We expect to see modest increase in FX and equity volatility, which should support slightly higher FX trading services fees. This year, though we are still seeing muted volatility in the first quarter.

Speaker Change: And we expect currency translation to have less than a half a percentage point impact on revenues and expenses due to dollar depreciation, and I would remind you that a weaker U.S. dollar has a favorable impact on revenues and an unfavorable impact on expenses.

Eric: And we expect currency translation to have less than a half a percentage point impact on revenues and expenses due to dollar depreciation.

Ron O'Hanley: The last two quarters of the year included the significant development of the fixed income portfolio management module, which propels CRD and Alpha capabilities and competitiveness forward. In 3Q, we recorded our first Alpha win for a Private Markets client, and in the fourth quarter, we continued Alpha's momentum by deepening relationships with a number of key existing mandates and recording four new Alpha wins. While our front office software and data business had a record quarter of new bookings in 4Q, both demonstrating our ability to drive stronger sales. In our global markets business, even as low volatility created a headwind, we continued to see proof points of our very strong market position. For example, in its 2023 FX Awards, Euromoney Magazine named State Street as the winner across four important categories, including the best FX bank for real money clients.

Eric: Remind you that a weaker U S. Dollar has a favorable impact on revenues and an unfavorable impact on expenses.

Speaker Change: Thank you for watching!

Eric: So we currently expect that full year total fee revenue will be up approximately 3% to 4% ex notable items with servicing fee and management fee growth driven by higher market levels and continued business momentum and continued strong growth in front office software and data.

Speaker Change: So, we currently expect that full-year total fee revenue will be up approximately 3-4% ex-notable items, with servicing fee and management fee growth driven by higher market levels and continued business momentum, and continued strong growth in front office software and data.

Speaker Change: So, we currently expect that full-year total fee revenue will be up approximately 3-4%, ex-notable items, with servicing fee and management fee growth driven by higher market levels and continued business momentum, and continued strong growth in front office software and data. This includes a headwind of a little less than one percentage point to fee growth from the expected previously disclosed client transition. Regarding the first quarter of 2024, we currently expect revenue from fees to be up 2% on a year-over-year basis, with servicing fees expected to be up 1%, management fees up 7% to 8%, and front office software and data expected to be up over 20%, largely due to increased SaaS, new business, and conversions, and on-premise renewals.

Speaker Change: This includes a headwind of a little less than one percentage point to fee growth from the expected previously disclosed client transition.

Eric: This includes a headwind of a little less than one percentage point to fee growth from the expected previously disclosed client transition.

Speaker Change: Regarding the first quarter of 2024, we currently expect fee revenue to be up 2% on a year-over-year basis, with servicing fees expected to be up 1%, management fees up 7% to 8%, and front office software and data expected to be up over 20%, largely due to increased SaaS, new business, and conversions and on-premise renewals.

Eric: Regarding the first quarter of 2024, we currently expect fee revenue to be up 2% on a year over year basis with servicing fees expected to be up 1% management fees up 7% to 8% and front office software and data are expected to be up over 20% largely due to increased SaaS new business and conversions.

Ron O'Hanley: We also continue to innovate and strategically expand our product capabilities and geographic reach, including the planned acquisition of outsourced trading firm CF Global Trading. At Global Advisors, we undertook targeted strategic actions aimed at gaining market share and driving growth in the coming year. As a result, we saw encouraging business momentum, with GA setting a number of growth records in 2023. A number of key performance indicators make us optimistic as we look ahead. For example, in Q4, GA recorded the best-ever quarter of aggregate total flows, including record quarterly flows within our SPDR ETF franchise, amounting to a capture of 21% of total global ETF flows in Q4, and ending 2023 with a record level of total ETF assets under management.

Eric: And on premise renewals.

Speaker Change: We expect full-year 2024 NIR to be down about 10% on a year-over-year basis compared to a record 2023. This is dependent on the outcome of global rate cuts and deposit mix and levels, which are obviously difficult to predict. Regarding the first quarter of 2024, after a significant step up in 4Q23, we expect 1Q24 NAI to be flat to down 3% on a sequential quarter basis given current deposit mix expectations.

Eric: We expect full year 2020 for NII to be down about 10% on a year over year basis compared to a record 2023.

Speaker Change: We expect full-year 2024 NIR to be down about 10% on a year-over-year basis compared to a record 2023.

Eric: This is dependent on the outcome of global rate cuts and deposit mix and levels, which are obviously difficult to predict.

Speaker Change: This is dependent on the outcome of global rate cuts and deposit mix and levels, which are obviously difficult to predict.

Speaker Change: Regarding the first quarter of 2024, after a significant step up in 4Q23, we expect 1Q24 NAI to be flat to down 3% on a sequential quarter basis given current deposit mix expectations.

Eric: Regarding the first quarter of 2024 after a significant step up in <unk> 'twenty three we expect <unk> 'twenty for NII to be flat to down 3% on a sequential quarter basis, given current deposit mix expectations.

Speaker Change: Turning to expenses, as you can see on the walk on page 16,

Speaker Change: Turning to expenses, as you can see on the walk on page 16, we expect full-year expenses ex-notables to be up about 2.5% on a nominal basis in 2023, driven largely by our continued investment in the business, which we expect to largely offset through greater productivity savings worth half a billion dollars, which is approximately 1.7 times last year's gross savings level. Regarding the first quarter of 2024, we expect expenses ex-notable As a reminder, we expect to achieve positive fee operating leverage, excluding notable items, for full year 2024 given the projected growth in fee revenue and well-controlled expenses. Finally, we expect taxes to be in the 21-22% range for 2024.

Eric: Turning to expenses as you can see on the walk on page 16 weeks.

Speaker Change: We expect full-year expenses ex-notables will be up about 2.5% on a nominal basis in 2023, driven largely by our continued investment in the business, which we expect to largely offset through greater productivity savings worth half a billion dollars.

Eric: We expect full year expenses ex notables will be up about two 5% on a nominal basis in 2023, driven largely by our continued investment in the business, which we expect to largely offset through greater productivity savings with half a billion dollars.

Speaker Change: which is approximately 1.7 times last year's gross savings level.

Eric: Which is approximately one seven times last year's gross savings level.

Speaker Change: Regarding the first quarter of 2024, we expect expenses ex notable items to be up 1% to 1.5% on a year-over-year basis, keeping in mind that seasonal expenses usually occur in the first quarter.

Eric: Regarding the first quarter of 2024, we expect expenses ex notable items to be up one to one 5% on a year over year basis, keeping in mind, the seasonal expenses usually occur in the first quarter.

Ron O'Hanley: Turning to our efficiency and productivity efforts, underlying expense growth was well controlled in 2023, with full-year expenses increasing 3%, excluding notable items. Q4 expenses, excluding notable items, rose just 1% quarter-on-quarter, reflecting the impact of our ongoing expense action. Transforming our operations to improve effectiveness and efficiency and realize productivity growth remains a key priority for us. To that end, we announced important steps in our multi-year productivity efforts aimed at improving our operating model. As we previously announced, we are streamlining our operations in India. We have now assumed control of one of our joint ventures in that country, with a second joint venture consolidation expected to close in the spring.

As a reminder, we expect to achieve positive fee operating leverage excluding notable items for full year 2024, given the projected growth in fee revenue and well controlled expenses.

Speaker Change: As a reminder, we expect to achieve positive fee operating leverage, excluding notable items for full year 2024 given the projected growth in fee revenue and well-controlled expenses.

Speaker Change: Finally, we expect taxes should be in the 21-22% range for 2024.

Finally, we expect taxes should be in the 'twenty, one 'twenty, 2% range for 2024.

Speaker Change: And with that, let me hand the call back to Ron.

Eric: And with that let me hand, the call back to Ron.

Eric: Yes.

Ron O'Hanley: Thank you, Eric. Operator, we can now open the call for questions.

Ron Hanley: Thank you Eric operator, we can now open the call for questions.

Ron Hanley: Yes.

Speaker Change: Thank you, ladies and gentlemen. We will now begin the question and answer session.

Speaker Change: Thank you, ladies and gentlemen. We will now begin the question and answer session. If you have a question, please press star followed by the number on your touchtone. You will hear a three-tone prompt acknowledging your request, and your questions will be answered in the order they are received.

Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone you will hear three told Paul acknowledging your request and your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed by the Q.

Speaker Change: If you have a question, please press star followed by the one on your touchtone.

Speaker Change: You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received.

Speaker Change: Client from Napoleon

Speaker Change: A client from Napoleon

Speaker Change: Star followed by the

Speaker Change: If you are using a speakerphone, please put the hands up.

Speaker Change: If you are using a speakerphone, please put your hands up. One moment, please.

Speaker Change: If you are using a speaker phone please.

Speaker Change: Pressing any key one moment. Please for your first question.

Speaker Change: One moment, please.

Speaker Change: Your first question comes from Alex <unk> with Goldman Sachs. Please go ahead.

Speaker Change: My first question comes from Alex Blostein with Goldman Sachs. Please go ahead.

Alex Blostein: Hey, good morning, everybody. Thanks. Thanks for all the details. I was hoping we could start with unpacking some of the NII dynamics and I guess appreciate the uncertainty when it comes to deposits. But Eric, maybe talk a little bit about what drove the upside in the fourth quarter in deposit levels. And if you have a view on what's sort of seasonal versus more kind of core client franchise driven, and maybe give us some insight on where you expect balances to ultimately stabilize in the back half of the 24th.

Alex Blostein: Hey, good morning, everybody. Thanks. Thanks for all the details. I was hoping we could start with unpacking some of the NII dynamics, and I guess I can appreciate the uncertainty when it comes to deposits. But Eric, maybe talk a little bit about what drove the upside in the fourth quarter in deposit levels, and if you have a view on what's sort of seasonal versus more kind of core client franchise driven, and maybe give us some insight on where you expect balances to ultimately stabilize in the back half of the 24th. Sure, Alex. It's Eric. Let me share with you the texture we have, but I'll just say, you know, deposits and deposit levels continue to be volatile.

Alex: Hi, good morning, everybody. Thanks, Thanks for thanks for all the detail.

Alex: I was hoping we could start with unpacking some of the NII dynamics and I guess I appreciate the uncertainty when it comes to deposits, but Eric maybe you talk a little bit about what drove the upside in the fourth quarter and deposit levels and if you have a view on what sort of seasonal versus more kind of core client franchise, driven and maybe give us some insight on where you expect.

Ron O'Hanley: We expect these actions will accelerate the transformation of State Street's global operations, improve service quality and client experience, and enable us to achieve productivity savings as part of our plans to deliver positive fee operating leverage in 2024. Turning to slide four of our presentation, you can see our fourth quarter financial highlights and business momentum indicators, which Eric will shortly take you through in more detail. Before I conclude my opening remarks, I would like to touch on our continuing balance sheet strength, which has enabled us to return a substantial amount of excess capital in recent quarters. For example, over the last five quarters to the end of December, we have returned $6.4 billion of capital to our shareholders. As we pivot to a more normalized level of capital return, in 2024, it is currently our intention to return approximately 100% of earnings in the form of common share dividends and share repurchases subject to market conditions. Accordingly, as we announced this morning, our Board of Directors has authorized a new common share purchase program of up to $5 billion with no set expiration date.

Alex: Balances to ultimately stabilize in the back half of 'twenty four.

Alex Blostein: Sure, Alex. It's Eric. Let me share with you the texture we have, but I'll just say, you know, deposits and deposit levels continue to be volatile. They surprise to the upside. You know, and in particular, we saw, you know, a nice uptick in deposits, you know, into September, October. We actually saw on the NIB side a downtick in November, and then a, you know, large uptick again in December. So, you know, the averages came in up for the quarter, which made a big difference, you know.

Speaker Change: Sure Alex.

Speaker Change: It's Eric let me share with you the texture, we have but I'll, just say deposits and deposit levels continue to be.

Speaker Change: Volatility they surprised to the upside.

Alex Blostein: They surprise to the upside. You know, and in particular, we saw, you know, a nice uptick in deposits into September and October. We actually saw on the NIB side a downtick in November and then a, you know, large uptick again in December. So, you know, the averages came in higher for the quarter, which made a big difference, you know.

Eric: And in particular, we saw a nice.

Eric: Sure.

Eric: Ill take in deposits into September October we actually saw on the NII side, a downtick in November and then.

Eric: Large uptick again in December so the averages came in.

Eric: For the quarter.

Eric: Which made a made a big difference.

Eric Aboaf: Billion dollars of NIB for a month is worth five million bucks and you kind of multiply through and, you know, that quickly adds up as we had a, you know, a spread in December of, you know, five, six billion dollars, you know, relative to our expectations.

Eric Aboaf: A billion dollars of NIB for a month is worth five million bucks, and you kind of multiply through, and, you know, that quickly adds up as we had a, you know, a spread in December of, you know, five, six billion dollars, relative to our expectations. And, you know, at the same time, we also saw interest-bearing deposits go up. Now, some of that is just our regular way of engagement with clients. Some of that is they're leaving, you know, more deposits with us. And I think you did see, in the Fed reports, the banking system deposits are up, you know, one, two percent, quarter on quarter from the third quarter to the fourth quarter.

Eric: $1 billion of Niv for a month is worth $5 million box and you kind of multiply through and.

Eric: That quickly quickly adds up is we had a spread in December of $5 $6 billion relative to our expectations.

Eric Aboaf: And, you know, at the same time, we also saw interest bearing deposits up. Now, some of that is just our regular way engagement with clients. Some of that is they're leaving, you know, more deposits with us. And I think you did see, you know, in the Fed reports, the banking system deposits are up, you know, one, two percent, you know, quarter on quarter from third quarter to fourth quarter. So it does seem like there's something happening in the market that's creating a little more stability, a little bit of buoyancy. There's some amount of seasonality that we always tend to see at the end of the year as folks accumulate cash, sometimes to pay dividends and ETFs, you know, in the next year. So it's just hard to read. But that's what played out. And it played out better through the quarter. And through through the end.

Eric: And at the same time, we also saw.

Interest bearing deposits up now some of that is just our regular way engagement with clients some that as they're leaving more.

Eric: More deposits with us and I think you did see in.

Eric: The fed reports the banking system deposits are up one 2% quarter on quarter from third quarter to fourth quarter. So it does seem like there is something happening in the market, that's creating a little more.

Eric Aboaf: So it does seem like there's something happening in the market that's creating a little more stability, a little bit of buoyancy. There's some amount of seasonality that we always tend to see at the end of the year as folks accumulate cash, sometimes to pay dividends and ETFs, you know, in the next year. So it's just hard to read. But that's what played out. And it played out better through the quarter and through the end. If I then try to, you know, look forward, it's very hard to look forward to the year. You know, we'd like to operate and expect to operate in a deposit range of $200 to $210 billion.

Stability, a little bit of buoyancy.

Ron O'Hanley: To conclude, while 2023 was an eventful year, we finished strongly in 4Q, which creates an encouraging starting point for our businesses into 2024. This year, we remain highly focused on both the execution of our strategy and accountability for results. Our goals are clear.

Eric: So amount of seasonality that we always tend to see in <unk>.

Eric: At the end of the year as folks.

Eric: Accumulate cash sometimes to pay dividends in Etfs.

Eric: And the next year. So it's just it's just hard to read but that's what that played out and it played out.

Eric: Better through.

Eric: Through the quarter and through through the end.

Eric Aboaf: If I then try to, you know, look forward, it's very hard to look forward for the year. You know, we'd like to operate and expect to operate in a deposit range of $200 to $210 billion. That's our kind of goal. A lot of that is just client engagement and helping put, you know, their cash to work. And sometimes they put cash to work in deposits, in repo, in money market sweeps. But there's a category, each one of those is an important category and outlet for clients. And what we're seeing is clients using, you know, all the, I'll call it all the above, right, including just holding treasury securities. So that we expect to continue and we think deposits will be, you know, roughly in this zone in the first quarter. What's a little harder to read is just how non-interest bearing, you know, deposits play out. We do expect those to continue to flow downward. They tend to flow downward for our clients. Clients with the largest funds, those are the ones that have been, you know, floating down over the last two years. So we continue to see that expectation. There continues to be a little bit of repricing that plays out into the, you know, into the first quarter or two as well. And that's why I guided, you know, on an NII basis to, you know, flat to down 3% for the first quarter, just to give you a little bit of an indication. But we expect that. That's what we expect. We expect that to be roughly on flattish, the positive.

If I then.

Ron O'Hanley: We must continue the improvement in our sales performance that we demonstrated in the second half of 2023, continue to implement a set of productivity initiatives and product enhancements that will drive longer-term improvements in our operating model efficiency and effectiveness, and deliver positive fee operating leverage in 2024, all while returning capital to our shareholders. We are laser focused on these goals. Now, I will hand the call over to Eric, who will take you through the quarter in more detail. Thank you, Ron, and good morning, everyone.

Eric: Try to look forward, it's very hard to look forward for the for the year.

Eric: We'd like to operate and expect to operate in a deposit range of $200 billion to $210 billion. That's our kind of goal a lot of that is just client engagement and helping them put their cash to work and sometimes they put cash to work in deposits and repos and money market sweeps, but theres a category each one of those an important category.

Eric Aboaf: That's our kind of goal. A lot of that is just client engagement and helping put, you know, their cash to work. And sometimes they put cash to work in deposits, in repo, in money market sweeps. But there's a category; each one of those is an important category and outlet for clients. And what we're seeing is clients using, you know, all the, I'll call it, all the above, right, including just holding treasury securities. So that we expect to continue, and we think deposits will be, you know, roughly in this zone in the first quarter. What's a little harder to read is just how non-interest bearing, you know, deposits play out.

Eric: Outlet for clients and what we're seeing is clients.

Eric: Using all of the I'll call it all the above right, including just holding.

Treasury Securities. So that that we expect to continue and we think deposits will be roughly in the zone in the in the first quarter, what's a little harder to read is just how noninterest bearing deposits play out we do expect those to continue to full downward they tend to flow downward for our.

Eric Aboaf: Before I begin my review of our fourth quarter and full year 2023 results, let me briefly discuss the notable items we recognize in the quarter on slide 5, which collectively totaled $620 million pre-tax, or $1.49 of EPS. First, we recognize an FDIC special assessment of $387 million, which is reflected in other expenses. Second, we recognize $203 million of net repositioning charges to enable the next phase of our productivity program. As we had indicated in December, the bulk of this action primarily relates to the severance of around 1,500 employees. Our initiative to streamline and de-layer our operations, technology, and staff functions and improve efficiency will allow us to sustainably reduce expenses.

Eric Aboaf: We do expect those to continue to flow downward. They tend to flow downward for our clients. Clients with the largest funds, those are the ones that have been, you know, floating down over the last two years. So we continue to see that expectation. There continues to be a little bit of repricing that plays out into the first quarter or two as well. And that's why I guided, you know, on an NII basis to, you know, flat to down 3% for the first quarter, just to give you a little bit of an indication. But we expect that. That's what we always expect. We expect that to be roughly on flattish, the positive side.

Eric: Clients with our largest funds those are the ones that have been.

Eric: Floating down over the last two years, so we continue to see that.

Eric: That expectation there continues to be a little bit of repricing that plays out into the.

Eric: And to the first quarter or two as well and that's why I guided.

Eric: On an NII basis.

Eric: Flat to down 3% for the first quarter just to give you a little bit of an indication, but we expect that to be roughly flattish deposits.

Speaker Change: I got it. It's very helpful. My follow-up sticking with deposits is around just deposit beta as we start to sort of enter the rate cutting cycle. So hoping you could articulate maybe what you're assuming for deposit beta on the way down in your 24 and AI guidance, and then broadly how we should think about sort of the cadence of deposit betas as we progress through the rate cutting cycle into the back half 24, 25 maybe. But just curious to know kind of high of the upper at the beginning, lower towards the end, or the opposite.

Speaker Change: I got it. It's very helpful. My follow-up sticking with deposits is around just deposit beta as we start to sort of enter the rate cutting cycle. So, hoping you could articulate maybe what you're assuming for deposit beta on the way down in your 24 and AI guidance and then broadly how we should think about sort of the cadence of deposit betas as we progress through the rate cutting cycle into the back half of 24, 25, maybe. But just curious to know the kind of high of the upper at the beginning, lower towards the end, or the opposite.

Speaker Change: Got it that's very helpful. My follow up sticking with deposits is around just deposit beta as we start to set our endo the rate cutting cycle. So hoping you could articulate maybe what youre assuming for deposit beta on the way down in your 24 NII guidance and then broadly how we should think about sort of the cadence.

Eric Aboaf: We expect these actions collectively to have a payback of roughly six quarters and begin this quarter, with roughly two-thirds of the benefit occurring in 2024. These actions and the related savings will contribute to our fee operating leverage goal for 2024 and in subsequent years. Turning to slide six.

Speaker Change: Deposit betas as we progress through the rate cutting cycle into the back half 'twenty four 'twenty five maybe but just curious to know kind of higher the upward at the beginning lower towards the end or the opposite.

Speaker Change: Alex it's.

Speaker Change: Alex, it's an important topic because it's how we interact with our clients, it's how we price our products, it's how the industry has operated for many years. I think you know that our deposit betas on a cumulative basis have climbed quite a bit in the U.S. They're 75% or so cumulatively since the start of the cycle. In euros, it's around 60% cumulatively, and in pounds sterling, closer to 30% to 35%. So they're clearly moved up. What certainly happens as, and I'll say when, if and when rates fall, is the deposit betas reverse. There's some amount of symmetry. Now, does it reverse instantaneously? We want to be... We're careful with our clients, we want to be fair, but we do think that over multiple quarters and certainly over any realistic timeframe, the Fed cots, and there's got to be an adjustment. Now, part of that happens because we have a good bit of our deposits that are indexed to markets, right? They're indexed to market indicators. There are quite a few that are indexed with a spread. And then there's... And there is a smaller amount now that has a transactional kind of, I'll call it administered feature. But you'll generally see a broad amount of symmetry in deposits down versus up. I think what you do need to keep in mind is that our asset sensitivity and liability sensitivity, though, are somewhat different between international markets and in the U.S., right? In international markets, because those cumulative betas are still in the 30% to 60% range... We're still asset sensitive, so we make more money with increases in rates. And we actually, NII will trim down, you know, with decreases in rates. And that's where we're most... That's our interest rate sensitivity today. On the U.S., we have a slight positive bias towards being liability sensitive, but it's still relatively slight. I'd almost call it neutral. So, you know, part of what we're doing is just... Navigating this interest rate environment, it's not exactly clear when the rates come. It's not clear whether the U.S. cuts before Europe or vice versa. And part of what we'll do is, you know, actively manage our portfolio to try to take advantage of what's coming. At the same time, we'll price our deposits fairly and prudently.

Speaker Change: It's an important topic, because it's how we interact with our clients and that's how we price our products. That's how the industry has has operated in.

Speaker Change: For many years I think you know that our deposit betas on accumulative basis have climbed.

Speaker Change: Quite a bit in the U S. There.

Speaker Change: 75% or so cumulatively since the start of the cycle in euros.

Speaker Change: Around 60% cumulatively in pound Sterling closer to 30.

Speaker Change: 30% to 35% so they are clearly moved up.

Speaker Change: But certainly happens as.

Eric Aboaf: In terms of our more durable revenues, we continue to benefit from strong momentum in our front office software and data business, which was up 5% on a full year basis and 13% on a year-on-year quarter. In terms of areas that have begun to rebound, management fee performance was down for the full year at minus 3% but has begun to rebound with an up 5% result for the year-on-year quarter as flows picked up and we gained share. Back-office servicing fees were challenged for much of the year as client transaction activity was muted, but have started to turn positive and are up 1% this quarter as we've seen a recent lift in equity markets. And, of course, we continue to be affected by industry-wide headwinds in our global markets businesses, given the low levels of volatility in the FX markets and special activity in agency lending throughout the year. NII has been tough to predict and surprised to the positive this quarter compared to the third quarter. I'll turn to that in a few minutes.

And I'll say, when if and when rates fall is the deposit beta is reverse.

Speaker Change: Now, does it reverse instantaneously? We want to be... We're careful with our clients, we want to be fair, but we do think that over multiple quarters and certainly over any realistic timeframe, the Fed cots, and there's got to be an adjustment. Now, part of that happens because we have a good bit of our deposits that are indexed to the markets, right? They're indexed to market indicators. There are quite a few that are indexed with a spread. And then there's... And there is a smaller amount now that has a transactional kind of, I'll call it, administered feature.

Speaker Change: There is some amount of cemetery now does it reverse instantaneously, we want to be.

Speaker Change: Therefore, with our clients, we want to be fair, but we do think that over.

Speaker Change: <unk>.

Speaker Change: Multiple quarters and certainly.

Speaker Change: Over over any realistic timeframe.

Speaker Change: The fed cuts and Theres got to be an adjustment now part of that happens because we have a good bit of our deposits that are indexed to markets right their index to market indicators.

Speaker Change: There are quite a few that are index with a spread and then there are is a smaller amount now that that has a transactional kind of all.

Speaker Change: But you'll generally see a broad amount of symmetry in deposits down versus up. I think what you do need to keep in mind is that our asset sensitivity and liability sensitivity, though, are somewhat different between international markets and in the U.S., right? In international markets, because those cumulative betas are still in the 30% to 60% range... We're still asset sensitive, so we make more money with increases in rates. And we actually, NII will trim down, you know, with decreases in rates. And that's where we're most... That's our interest rate sensitivity today. In the U.S., we have a slight positive bias towards being liability sensitive, but it's still relatively slight.

Speaker Change: Call it administered feature but you'll you'll generally see a broad amount of cemetery in deposits at <unk>.

Speaker Change: Down versus up I think what you do need to keep in mind is that our asset sensitivity and liability sensitivity, though are somewhat different between international markets and in the U S. Right in international markets, because those cumulative betas are still in the 30% to 60% range, we're still asset.

Speaker Change: Sensitive so we make more money with increases in rates and we actually.

Speaker Change: <unk>.

Ron O'Hanley: Expenses were well controlled in the quarter as we continue to thoughtfully allocate resources across the franchise and to areas where we see the greatest opportunities for top-line growth. Relative to the year ago, total expenses ex-notables were up 2% year-on-year and reflect intensifying cost management in a tough environment as the year progressed. This expense control, coupled with the repositioning actions I just mentioned, will prepare us to deliver productivity savings and positive fee operating leverage in 2024. Finally, despite a dynamic and challenging operating environment, we delivered full-year 2023 EPS growth of 3% excluding notable items. This was supported by share repurchases, a record level of NII, and the growth of our front office software and data business, which is less exposed to macroeconomic conditions. Turning now to slide seven.

Speaker Change: NII will trend down.

Speaker Change: With decreases in rates and that's where we're most.

Speaker Change: That's our interest rate sensitivity today on the U S. We have a slight.

Speaker Change: Positive bias towards being liability sensitive, but it's still relatively slight I'd almost call it neutral so.

Speaker Change: I'd almost call it neutral. So, you know, part of what we're doing is just... Navigating this interest rate environment, it's not exactly clear when the rates will go. It's not clear whether the U.S. will cut before Europe or vice versa, and part of what we'll do is, you know, actively manage our portfolio to try to take advantage of what's coming. At the same time, we'll price our deposits fairly and prudently.

Speaker Change: Part of what we're.

Speaker Change: Doing is just navigating this interest rate environment, it's not exactly clear when the rates come not clear whether the U S cuts before Europe or vice versa, and part of what we'll do is actively manage our portfolio too.

Speaker Change: Two.

Speaker Change: Two to.

To try to take advantage of what's common at the same time, we'll price our deposits fairly and prudently.

Speaker Change: Great very helpful. Thanks, very much.

Speaker Change: Great. Very helpful. Thanks very much.

Speaker Change: Your next question comes from Brennan Hawken with UBS. Please go ahead.

Brennan Hawken: Thank you for watching!

Brennan Hawken: Good morning. Thanks for taking my questions. I think maybe some of what you just said on the non-U.S. side might explain this, but when we think about triangulating the minus 10% to the fact that one Q is either going to be flat, totally down a little on NII, it sort of suggests that your exit rate by the time you get to 4Q24, based on what you can see today, is probably going to be, you know, rather low. So, you know, am I reading correctly in thinking that it's that non-U.S. piece, and that's going to drive some of that weakness, and am I extrapolating the comments correctly to think that we could see a little bit more back-end weighted decline for NII?

Brennan Hawken: Good morning. Thanks for taking my questions. I think maybe some of what you just said on the non-U.S. side might explain this, but when we think about triangulating the minus 10% to the fact that one Q is either going to be flat, totally down a little on NII, it sort of suggests that your exit rate by the time you get to 4Q24 is probably going to be, you know, rather low. So, you know, am I reading correctly in thinking that it's that non-U.S. piece that's going to drive some of that weakness, and am I extrapolating the comments correctly to think that we could see a little bit more back-end weighted decline for NII?

Good morning, Thanks for taking my questions I think maybe some.

Eric Aboaf: We saw a period end AUCA increase by 14% on a year-on-year basis and 4% sequentially. Year on year, the increase in AUCA was largely driven by higher period and market levels and net new business. Quarter on quarter, AUCA increased primarily due to higher period and market levels. At Global Advisors, period and AUM increased 19% year-on-year and was up 12% sequentially, largely reflecting higher period and market levels and strong net inflows. Notably, as Ron mentioned earlier, and I'll describe momentarily, in the fourth quarter, GA recorded the best ever quarter of aggregate net flows of $103 billion, which sets us up well for 2024. At the center right, we've also added a table with market volatility indices, which we believe can be useful indicators of client transactional activity that drives servicing fees, special activity in agency lending, and flows and margins in FX trading. I'm on slide eight now.

Speaker Change: <unk>.

Speaker Change: What you just said on the non U S side might explain this but when we think about triangulating the minus 10% to the fact that <unk> is either going to be flat toned down a little on NII.

Speaker Change: Suggests that your exit rate by the time, you get to <unk> 24 based on what you can see today.

Speaker Change: Probably going to be.

Speaker Change: Rather low.

Speaker Change: Am I reading correctly in thinking that it's that non USP.

Speaker Change: And that's going to drive some of that weakness and extrapolating the comments correctly.

Speaker Change: We could see a little bit more backend weighted decline for NII.

Brennan Hawken: Brennan, it's Eric. I think you've got the right general pattern framed in the area of NII. You know, clearly, we have a very strong step-off, in particular in December, but, you know, in the fourth quarter, which will flow into the first quarter. And then we expect a trending down. You know, we had a couple, well, probably earlier this, earlier last year, so a couple of quarters ago, you know, we described an NII range of 550 to 600 million. And we think we'll get into that range, the top end of that range by around the third quarter.

Speaker Change: Brennan, it's Eric I think <unk> got the right.

Brennan Hawken: Brennan, it's Eric. I think you've got the right general pattern framed in the area of NII. You know, clearly we have a very strong step off in particular in December, but, you know, in the fourth quarter, which will flow into first quarter. And then we expect a trending down. You know, we had a couple, well, probably earlier this, earlier last year, so a couple of quarters ago, you know, described an NII range of 550 to 600 million. And we think we'll get into that range, the top end of that range by around the third quarter. But it's a little bit hard to know the exact shape. We just, but you've got the right direction of travel. And then we expect some stabilization, you know, in the second quarter. Maybe around the second half of next year, maybe around the top half, the middle half of that range. Just really hard to tell exactly where and when. If you step back and ask, you know, what are the underlying drivers, there are really three drivers that continue to be important. In terms of tailwinds, we continue to have long rates playing through the portfolio and the investment portfolio balances as they recoupon at higher rates. That's particularly important in the first half of the year. A little less so in the second half of the year, but that continues through as a positive. You then have, as you mentioned, short rates starting to come down. And because of our sensitivity position across the global markets, that does start to have a headwind impact on NII, you know, as those cuts continue to come through. Now, we'll. We'll see, you know, what's the pattern and pace of U.S. versus international cuts. And I think right now we've pegged to the forwards, which shows a lot of consistency and symmetry. But we'll see if that really, really happens, because, you know, you can see inflation expectations keep moving around literally daily, weekly. And then the third feature is just client deposits and mix. And, you know, while we expect client deposits to be in that zone of, you know, 200, 210, they might bump up above that, a little below that. But they'll be. In that broad zone, you know, the mix will continue to shave down out of non-interest bearing, you know, over the next quarter or two, we think. It's hard to, again, to predict. And then there's the, you know, we're working through the final stages of some of our interest bearing deposit, you know, repricings. Those seem to have taken a little longer in some cases than we expected. That's OK. That means we accrete income. You know, but those continue to come through. And they'll play. They'll play through in the first quarter or two as well. And then that's what kind of brings us to some level of, you know, reasonable stability in the back half of the year.

Eric: General pattern.

Framed in the in the <unk>.

Eric: The area of of NII, clearly, we have a very strong step off and in particular in December but in the fourth quarter, which will flow into first quarter.

Eric: And then we expect the trending down we had.

Eric: A couple.

Eric: Well probably earlier this earlier.

Eric: Earlier last year. So a couple of quarters ago described in NII range of $550 to $600 million and we think we'll get into that range. The top end.

Eric Aboaf: On the left side of the page, you'll see fourth quarter total servicing fees up 1% year-on-year, primarily due to higher average equity markets, partially offset by pricing headwinds, lower client activity and adjustments, and a previously disclosed client transition. sequentially, total servicing fees were down 2%, primarily as a result of the pricing headwinds and a previously disclosed net client transition, partially offset by higher client activity and adjustments, which was nice to see as clients started to come off the sidelines. In the bottom left of the slide, we summarize some of the key performance indicators of our servicing business.

Brennan Hawken: But it's a little bit hard to know the exact shape. We just, but you've got the right direction of travel. And then we expect some stabilization, you know, in the second quarter. Maybe around the second half of next year, maybe around the top half, the middle half of that range. It is just really hard to tell exactly where and when. If you step back and ask, you know, what the underlying drivers are, there are really three drivers that continue to be important. In terms of tailwinds, we continue to have long rates playing through the portfolio and the investment portfolio balances as they recoupon at higher rates.

That range by around the third quarter, but it's a little bit hard to know the exact shape, we just but you've got the right.

Eric: Direction of travel and then we expect some stabilization.

Eric: In the second half of next year, maybe around the top half the middle half of that range, it's really hard to tell exactly where and when.

Eric: If you step back and ask what are the underlying drivers there are really three drivers that continue to be important.

Eric Aboaf: We were quite pleased to see new servicing fee revenue wins of $103 million this quarter, the highest in many recent years, primarily reflecting the enhancements of our sales processes and product offerings, including in North America, where we saw strong outcomes after a period of underperformance. These servicing wins contributed to the total full-year fee revenue wins of $301 million and underscores the progress we're making towards stronger sales performance. Recall, our goal for 2024 is even higher at $350 to $400 million in servicing fee sales for the year. Finally, we had $270 million of servicing fee revenue to be installed at quarter end, up $57 million year-on-year and $15 million quarter-on-quarter. We expect about half of this to be installed in 2024. We also had $2.3 trillion of UCA to be installed at period end. Thank you. Turning to slide nine.

Eric: In terms of tailwind, we continue to have long rates, playing through the portfolio and the investment portfolio balances as the.

Brennan Hawken: That's particularly important in the first half of the year, and a little less so in the second half of the year, but that continues through as a positive. You then have, as you mentioned, short rates starting to come down. And because of our sensitive position across the global markets, that does start to have a headwind impact on NII, you know, as those cuts continue to come through. Now, we'll see, you know, what the pattern and pace of U.S. versus international cuts are. And I think right now we've pegged ourselves to the forwards, which shows a lot of consistency and symmetry.

Eric: As they are re coupon it at higher rates, that's particularly important in the first half of the year a little less so in that second half of the year, but that continues through is a positive you then have.

Eric: As you mentioned short rates, starting to come down and because of our.

Eric: Sensitivity position across the global markets that does start to have a headwind.

Eric: Impact on <unk>.

Eric: NII.

Eric: As those those cuts continue to come through and that we will see whats the pattern and pace of U S versus international card. So I think right now we've pegged to the forwards which shows a lot of consistency in cemetery, but we'll see if that really really happens because you can see inflation expectations keep moving around.

Brennan Hawken: But we'll see if that really, really happens because, you know, inflation expectations keep moving around literally daily and weekly. And then the third feature is just client deposits and mix. And, you know, while we expect client deposits to be in that zone of, you know, 200, 210, they might bump up above that, or a little below that. But they'll be. In that broad zone, you know, the mix will continue to shave down out of non-interest bearing bonds over the next quarter or two, we think. It's hard to, again, predict. And then there's the, you know, we're working through the final stages of some of our interest-bearing deposit repricings.

Eric: Literally daily weekly and then the third features just client deposits and mix.

Eric Aboaf: Fourth quarter management fees were $479 million, up 5% year-on-year, primarily reflecting higher average equity market levels and some performance fees, partially offset by a previously described shift of certain management fees into NII and the impact of a strategic product suite repricing initiative that has aided ETF flows. Relative to the third quarter, management fees were flat, mainly driven by higher performance fees offset by a previously described shift of certain management fees into NII and the impacts of the strategic ETF product suite repricing initiative. As you can see on the bottom right of the slide, our investment management franchise remains well positioned with very strong and broad-based business momentum across each of its businesses. In ETFs, we had record quarterly net inflows of $68 billion, driven by record net inflows into SPY as well as the SPDR Portfolio U.S. low-cost suite experiencing consistent market share gains.

Eric: And while we expect client deposits to be in that zone of.

Eric: 200, 210, they might bump up above that a little below that but they'll be in that broad zone.

Eric: The mix will continue to shave down out of noninterest bearing over the next quarter or two we think it's hard to again to predict.

And then there is there is the one.

Brennan Hawken: These seem to have taken a little longer in some cases than we expected. That's OK. That means we accumulate income. You know, but those continue to come through. And they'll play. They'll play through in the first quarter or two as well. And then that's what kind of brings us to some level of, you know, reasonable stability in the back half of the year.

Eric: We're working through the final stages of some of our interest bearing deposit re pricings.

Eric: Those seem to have taken a little longer in some cases than we expected. That's okay that means we accrete income, but those continue to come through and they'll play through in the first quarter or two as well.

And then Thats, what kind of brings us to some level of reasonable stability in the in the back half of the year.

Speaker Change: Thanks for all that texture, Eric. It's very, very helpful. And by the way, I apologize about any background noise here. Second question, a bit more strategic. So we saw a flurry of Bitcoin ETF launches here recently. But it didn't seem like you all actually landed any of those servicing opportunities, so I want to confirm whether my early read on that is right. And given the magnitude of the investment and the focus you've made on digital assets, you know, what did you learn if you guys missed that? And is that what led to the restructuring of the digital asset groups? And what should we see as a change from that restructuring?

Speaker Change: Thanks for all that texture, Eric that's very very helpful.

Speaker Change: <unk>.

Speaker Change: By the way I apologize for any background noise. Thank you second question a bit more strategic.

Speaker Change: So we saw a flurry of bitcoin ETF launches.

Eric Aboaf: In our institutional business, we saw quarterly net flows of $6 billion, primarily driven by defined contribution products. And lastly, across our cash franchise, we saw quarterly cash net inflows of $29 billion, primarily into money market funds, which contributed to the record total full year 2023 cash net inflows of $76 billion and Institutional Money Market Fund Market Share Gains. Turning now to slide 10.

Speaker Change: Recently.

Speaker Change: It didn't seem like you all actually landed any of those servicing opportunities, so I want to confirm whether my early read on that is right. And given the magnitude of the investment and the focus you've made on digital assets, you know, what did you learn if you guys missed on that? And is that what led to the restructuring of the digital asset groups? And what should we see as a change from that restructuring?

Speaker Change: You didn't seem like you all.

Speaker Change: Actually landed any of those servicing opportunities. So I want to confirm whether my early read on that is right and given the magnitude of the investment and the focus that you've made on digital assets.

Speaker Change: What did you learn.

Speaker Change: If you guys missed on that and is that what led to the restructuring of the digital asset groups and what should we see.

Speaker Change: <unk> is a change from that restructuring.

Speaker Change: So Brendan.

Speaker Change: So, Brennan, there were 11 launched on the day after the SEC gave approval, and we actually serviced three of them.

Speaker Change: So, Brennan, there were 11 launched on the day after the SEC gave approval, and we actually serviced three of them. And I think we're the only ones that service across three different digital custodians. So we help three of the major players make this happen. So we're quite active in the space, and as you'd expect, we do everything for each of those three except for actual custody for the reasons that I think you know. So no, we're very active in space.

Brendan: 11 launched on the day that the or the day. After the FCC gave approval, we actually service three of them.

Eric Aboaf: Fourth quarter FX trading services revenue was down 11% year-on-year, excluding X notables, and 2% sequentially. Relative to the period a year ago, the decrease was mainly due to lower FX spreads from muted market volatility offset by slightly higher volumes. Quarter on quarter, the decrease primarily reflects lower direct FX revenues from muted volatility. Fourth quarter securities finance revenues were down 6% year-on-year due to lower agency balances partially offset by higher agency spreads, higher specials activity, and prime services revenue.

Speaker Change: And I think we're the only ones that's servicing across three different digital custodians. So we help three of the major players make this happen. So we're quite active in the space.

Brendan: And I think we're the only ones with servicing across three different digital custodian. So we hope three of the major players make this happen. So we are quite active in the space.

Speaker Change: and as you'd expect, we do everything for each of those three except for the actual custody for the reasons that I think you know. So no, we're very active in the space.

Brendan: And.

Brendan: As you would expect.

Brendan: Do everything for each of those three except for the actual comes through.

Brendan: For the reasons that I think you know.

Brendan: So no we're very active in this space.

Brendan: It was.

Speaker Change: What did we learn? I mean, it's early. What I think everybody's watching out for is there are a lot of players that have gone into the market, some of them with existing high levels of assets. What will be interesting to see over time is whether it actually consolidates, and how does it work in terms of who the buyers are, institutional versus retail versus intermediary? But these are early days, and it was good to get the uncertainty cleared up and for all this to get launched, and we're keen to be part of it.

Yes.

Speaker Change: What did we learn? I mean, it's early. What I think everybody's watching out for is there's a lot of players that went into the market.

Brendan: What did we learn.

Brendan: <unk> early.

Brendan: So I think everybody is watching out for us.

Eric Aboaf: Moving on to software and processing revenues, fourth quarter fees were up 10% year-on-year and 26% sequentially, largely driven by CRD, which I'll turn to shortly. Finally, other fee revenue for the quarter increased $15 million year-on-year, primarily due to a mid-year tax credit investment accounting change, partially offset by the impact associated with the devaluation of the Argentinian peso. Moving to slide 11.

Brendan: A lot of players that went into the market.

Speaker Change: Some of them with some existing high levels of assets. What will be interesting to see over time is, does it actually consolidate? How does it work in terms of who the buyers are, institutional versus retail versus intermediary? But these are early days, and it was good to get the uncertainty cleared up. And for all this to get launched, and we're keen to be part of it.

Brendan: Some of them with some.

Brendan: The existing high levels of <unk>.

Brendan: What will be interesting to see.

Brendan: Over time as.

Brendan: Does that actually consolidate.

Brendan: And how does it work in terms of.

Who the buyers are institutional versus retail versus intermediate or it but these are early days.

Brendan: It was good to get the uncertainty cleared up.

Brendan: And for all this.

Eric Aboaf: You'll see on the left panel that fourth quarter front office software and data revenue increased 13% year-on-year, primarily as a result of the continued SaaS implementations and conversions driving software-enabled and professional services revenue growth. Additionally, sequentially, front office software and data revenue was up 38%, primarily driven by higher on-premise renewals and go-live implementations. Turning to some of the alpha business metrics on the right panel, we were pleased to report four more alpha mandate wins in the quarter, which means seven wins for the full year of 2023. State Street Alpha continues to be an important differentiator of our business and creates an attractive value proposition for our clients, with contractual terms usually covering 5 to 7 to 10 years.

To get launched and we're on we're keen to be part of it.

Speaker Change: Yes, Ron, thanks for clarifying pure custody versus a servicing. Very, very helpful.

Speaker Change: Yes, Ron, thanks for clarifying pure custody versus a service. Very, very helpful.

Speaker Change: Yes, Brian Thanks for clarifying pure custody versus the servicing very very helpful.

Ron O'Hanley: Yeah, and just to clarify, it's, I mean, I think everybody knows this, but, I mean, right now, it's extremely difficult for a bank to do pure custody because of the capital requirements that are imposed on a bank. I mean, it's basically 100% capital. So, therefore, virtually everybody is working with some kind of digital custodian, a non-bank digital custodian, but all of the other parts of the ecosystem were...

Speaker Change: Yes, and just to just to clarify it.

Speaker Change: I think everybody knows this but right now it's.

Speaker Change: It's extremely difficult for our bank.

Speaker Change: Do pure <unk> III the capital requirements that are imposed on our bank covenants basically 100% capital. So therefore virtually every product.

Speaker Change: Working with some kind of digital custodian of nonbank digital custodian.

All of the other parts of the ecosystem, which.

Ron O'Hanley: were quite familiar with we are participating

We're quite familiar with.

Speaker Change: We are participating in.

Speaker Change: Your next question comes from Glenn Schorr with Evercore. Please go ahead.

Glenn Schorr: Thanks very much.

Eric Aboaf: We've also gone live with three more Alpha clients, which brings us to six for the year, which sets us up well for 2024, and added significant new functionality for fixed income portfolio managers. Fourth quarter ARR increased 16% year-over-year driven by 20-plus SaaS and client implementations and conversions, and we had a record quarter for front office new bookings at $32 million. Turning to slide 12, fourth quarter NII increased 14% year-on-year, but increased 9% sequentially to $678 million. The year-on-year decrease was largely due to lower average deposit balances and deposit mix shift, partially offset by the impact of higher interest rates.

Glenn Schorr: Thanks very much.

Glenn Schorr: So so big flows in <unk>, which was great to see.

Glenn Schorr: So, so big flows in SSEA, which is great to see, you know, these things aren't predictable, but I am curious on if you had any thoughts towards sustainability and maybe it would be the colors of what, what clients are buying, what clients.

Glenn Schorr: These things are unpredictable, but I am curious on.

Glenn Schorr: If you had any thoughts towards sustainability, maybe it would be the color.

Glenn Schorr: What what clients are buying what clients.

Glenn Schorr: I'm sorry, what flavors of ETF are they, the average fee, and what you're specifically doing differently on the distribution front and education front to get at those flows? Thanks.

Glenn Schorr: I'm sorry, what flavors of ETF are they, the average fee, and what are you specifically doing differently on the distribution front and education front to get at those flows? Thanks.

Glenn Schorr: <unk>.

Speaker Change: I'm, sorry, what flavors of Etfs are though the average fee on what.

Speaker Change: You're specifically doing differently on the distributions on the education front.

Speaker Change: To get at those flows.

Speaker Change: Yeah, so there are a number of things going on there in the fourth quarter, Glenn, and throughout 2023. I think as we've noted, and certainly you all would have observed, it was most of the year, with some episodic exceptions, it was a risk-off environment. That changed in fourth quarter somewhat as predicted, once investors got a sense of where interest rates were going, as they did when the Fed communicated in the third quarter, more or less, a pause. I think that started activity going. So much of the activity late in the year would have been the kind of classic risk-off. Let's put positions on it quickly, benefiting the highly liquid SPDR core SPY in the sector ETFs. But underlying it and throughout the year, the low-cost ETFs, which represent different investors, these would be the ultimate holders here tend to be individuals. They're often advised by an intermediary like an RIA. It's very sticky. And we have continued to build share there, both in equity and fixed-income low-cost. Across the board,

Speaker Change: Yeah, so there are a number of things going on there in the fourth quarter, Glenn, and throughout 2023. I think, as we've noted, and certainly you all would have observed, for most of the year, with some episodic exceptions, it was a risk-off environment. That changed in the fourth quarter somewhat, as predicted, once investors got a sense of where interest rates were going, as they did when the Fed communicated in the third quarter, more or less, a pause. I think that started activity going. So much of the activity late in the year would have been the kind of classic risk-off.

Speaker Change: Yes so.

Speaker Change: There were a number of things going on there.

Speaker Change: In the fourth quarter, Glenn and throughout 2023.

Speaker Change: I think as we've noted certainly you all would have observed.

Speaker Change: It was most of the year.

Eric Aboaf: sequentially, the increase in NII performance was primarily driven by the impact of interest rates and the full quarter impact of the third quarter investment portfolio repositioning, as well as higher deposits and loan balances. The NII results on a sequential quarter basis were better than we had previously expected, as both interest-bearing and non-interest-bearing deposits increased, and certain client repricings were further delayed. Some of the higher deposit balances may have been seasonal, but the Fed's quantitative tightening appears to have been offset by the reduction in the Fed's reverse repo operation, which seems to have resulted in inflation leaving higher bank deposit balances.

Speaker Change: With some episodic exceptions, it was a risk off environment.

Speaker Change: That changed in fourth quarter somewhat as predicted.

Speaker Change: Once investors got a sense of.

Speaker Change: Where interest rates were going.

Speaker Change: As they did when the fed communicated in the third quarter more or less a pause I think thats started activity going.

Speaker Change: So.

Speaker Change: Much of the activity late in the year would have been.

Speaker Change: Kind of classic risk on let's put positions on quickly.

Speaker Change: Let's put positions on it quickly, benefiting the highly liquid SPDR core SPY in the sector ETFs. But underlying it and throughout the year, the low-cost ETFs, which represent different investors, these would be the ultimate holders here, tend to be individuals. They're often advised by an intermediary like an RIA. It's very, very sticky. And we have continued to build share there, both in equity and fixed-income low-cost. Across the board,

Speaker Change: Benefiting the.

Speaker Change: The highly liquid Spider core spy.

Speaker Change: In the arm.

Speaker Change: The sector Etfs.

Underlying it in throughout the year.

Eric Aboaf: It's hard to know how deposits will trend, but we're pleased with this higher step-off going into the first quarter of 2024. On the right side of the slide, we show our average balance sheet during the fourth quarter. Average deposits increased 4% quarter-on-quarter, with non-interest-bearing deposits up 3% for the quarter. Turning to slide 13, fourth quarter expenses excluding notable items increased 2% year-on-year or 1% XFX.

Speaker Change: The low cost Etfs, which represent different investors. These would be the ultimate holders here tend to be individuals.

Speaker Change: Theyre often advised by an intermediary like an <unk>.

Very sticky and we have continued to build share there both in equity and fixed income low cost.

Speaker Change: Across the board.

Speaker Change: Thanks for joining us. It's been a long time coming. As you know, it's been...

Speaker Change: Thanks for joining us. It's been a long time coming. As you know, it's been... Over a decade since we knew how this was actually going to play out, and it's ironic how it's playing out and that everybody's just taking their standard investment strategy and putting it in an active ETF. We benefit from some of that. On the GA side, in terms of what they're doing in fixed income, but we benefit from it greatly on the servicing side because we're very, very, not to overuse the word, active in the active ETF servicing space. And we believe you'll see a lot more growth there as core funds and core offerings of well-known asset managers either get converted to ETFs or launched as ETFs.

Speaker Change: Fixed income is seeing dramatic.

Speaker Change: Dramatic growth I think there is increasing.

Speaker Change: Substance.

Speaker Change: Both by retail investors and institutional investors that the ETF as a as a.

Ron O'Hanley: Sequentially, fourth-quarter expenses were up only 1% as we actively managed expenses and continued our productivity and optimization savings efforts, all while carefully investing in strategic elements of the company, including alpha, private markets, core custody, and tech and ops process improvements and automations. On a line-by-line basis and year-over-year, X Notables Compensation and employee benefits increased 1%, primarily driven by higher salaries and employee benefits, partially offset by lower contractor spend and performance-based incentive compensation. Information systems and communications expenses increased 4%, mainly due to higher technology and infrastructure investments, partially offset by the benefits from ongoing optimization efforts, insourcing, and vendor credits.

Speaker Change: Is a good vehicle to hold.

Speaker Change: To hold fixed income and Youre just seeing that.

Speaker Change: Asset allocation moving that way and then finally.

Active Etfs are all sort.

Speaker Change: You're seeing growth in.

It's been a long time coming.

As you know it's been.

Speaker Change: Over a decade on how was this actually going to play out and it's ironic how it's playing out and that everybody's just taking their standard investment strategy and putting it in an active ETF. We benefit from some of that.

Speaker Change: Over a decade on how was this actually going to play out it's ironic how it's playing out.

Speaker Change: Everybody is just taking their standard.

Speaker Change: <unk> strategy and putting it in an active ETF we benefit.

Speaker Change: Some of that.

Speaker Change: On the GA side, in terms of what they're doing in fixed income, but we benefit from it greatly on the servicing side because we're very, very, not to overuse the word, active in the active ETF servicing space. And we believe you'll see a lot more growth there as core funds and core offerings of well-known asset managers either get converted to ETFs or launched as ETF.

On the G&A side in terms of what Theyre doing in fixed income, but we benefit greatly.

Speaker Change: <unk> greatly on the servicing side, because we're very very well.

Speaker Change: Overuse the word active in the VTS servicing space.

Speaker Change: So we're really pleased on the GA side. In terms of what drove it, I think the next part of your question. I mean, part of it was much more focus and resources dedicated to the various intermediary channels. I mean, our roots are in the institutional channels, but lots of growth is in the intermediary channels, so that's part of it.

Speaker Change: We believe youll see a lot more growth there is core fund.

<unk> and core offerings.

Speaker Change: Moen asset managers, either converted to Etfs were launched with Etfs. So we're really pleased on the on the Gi side.

Speaker Change: So we're really pleased on the GA side. In terms of what drove it, I think was the next part of your question, I mean, part of it was much more focus and resources dedicated to the various intermediary channels. I mean, our roots are in the institutional channels, but lots of the growth is in the intermediary channels, so that's part of it. And then, as we talked about, I believe, last quarter, we took a hard look at pricing, particularly in the so-called low-cost ETFs, and recognizing their durability.

Speaker Change: What drove it I think it was the next part of your question.

Speaker Change: Part of it was.

Speaker Change: Much more focus and resources dedicated to the to the various intermediary channels.

Ron O'Hanley: Transaction processing increased 1%, mainly reflecting higher brokerage costs. Occupancy increased 24% largely due to the absence of an episodic sale-leaseback transaction in the prior period, and other expenses were up 3% sequentially, flat year-on-year, mainly reflecting higher marketing expenses and professional fees. Lastly, let me spend a moment on headcount. As we discussed in the third quarter, as part of our ongoing transformation and productivity initiatives, we've streamlined our operating model in India and have now assumed full ownership of one of our operations during ventures, and we recently announced that we intend a similar undertaking with a second consolidation in the country this spring. This consolidation continues the transformation of State Street's global operations and will enable us to unlock productivity savings, which we expect to start this quarter, through a reduction in contractor services and in the years ahead as we simplify our fragmented operating model. As you would expect, consolidating the first joint venture increased our FDE headcount by roughly 4,400 in the quarter as we insource global capabilities. However, these costs were already in our expense base and reported historically under the comp and benefits line. These actions are contributing to our higher productivity savings targets for 2024. Thanks for watching!

Speaker Change: And then, as we talked about last quarter, we took a hard look at pricing, particularly for the so-called low-cost ETFs, and recognizing their durability, felt that it was worth the investment to reprice them to continue to gain market share because they tend to be very, very sticky.

Speaker Change: I mean, we're our roots were in the institutional channels, but the lots of the growth is in the intermediary channel. So.

Speaker Change: That's part of it and then as we've talked about I believe last quarter, we took a hard look at pricing, particularly.

The so called low cost Etfs and recognizing their durability.

Speaker Change: felt that it was worth the investment to reprice them to continue to gain market share because they tend to be very, very sticky.

Speaker Change: Felt that it was worth the investment to reprice them to continue to gain market share.

Speaker Change: And to be very very sticky.

Speaker Change: A lot of detail. It's perfect. I appreciate it. I'll go quickly on the follow-up. It's the same question, just different on the servicing front. I'm happy with the wins you noted. Maybe we could just drill down. I know it's not huge yet, but the private market piece of the servicing wins, I'm curious if you want to tell us how much it was, but more importantly, what it is and how. Is it one client or is it multiple clients? I'm curious on how that private market servicing space is developing. Thanks.

Speaker Change: A lot of detail. It's perfect. I appreciate it. I'll go quickly on the follow-up. It's the same question, just different on the servicing front. I'm happy with the wins you noted. Maybe we could just drill down. I know it's not huge yet, but the private market piece of the servicing wins, I'm curious if you want to tell us how much it was, but more importantly, what it is and how. Is it one client, or is it multiple clients? I'm curious how that private market servicing space is developing. Thanks.

Speaker Change: There's a lot of details perfect I appreciate it I'll go quickie on the solid it's the same question just different on the servicing front I'm happy with the wins you noted.

Speaker Change: Maybe we could just drill down I know, it's not huge yet, but the private markets piece of the servicing wins I'm curious if you want to tell us how much it was but more importantly, what it is and how one client or is it multiple times and curious on how that market servicing spaces developing thanks.

Speaker Change: No, no, it's, well, to answer the last part of it first, Glenn, it's certainly not one client. I mean, this is a space that we've invested in and we're well known in, and we see a secular trend here where so many of these operations are held inside firms. They're highly bespoke, often sitting in very expensive locations. And as the product sets have become more complicated, I mean, it's following a path that the active long-only industry followed 10, 15 years ago. It was fine to do all this stuff inside when it was just a couple of products.

Speaker Change: No no.

Speaker Change: To answer the last part of it first Glenn it's certainly not one client I mean this is a space that we've invested in.

Speaker Change: And we're well known and weeds.

Secular trend here, where.

Speaker Change: It's so many of these operations are held inside firms. They're highly bespoke, often sitting in very expensive locations. And as the product sets have become more complicated, I mean, it's following a path that the active long-only industry followed 10, 15 years ago. It was fine to do all this stuff inside when it was just a couple of products. They were fairly straightforward. That's not what's happening now. Products are more complicated as you start to think about the structures that enable high net worth individuals to participate in it. You've got that added complexity, and then oftentimes there's side investments that are permitted, et cetera. So it's very complicated. It lends itself to outsourcing. It's still very complicated. It's very much an in-source business, so we see lots of potential growth in it. Its fee characteristics are different, positive in the sense that the fees are higher, but also the fees get fully recognized when the fund is fully invested.

Speaker Change: It's so many of these operations were held inside firms are highly bespoke.

Speaker Change: Often sitting in very expensive locations.

Speaker Change: As the products become more complicated.

Speaker Change: It's following a.

Speaker Change: Path that the active one.

Speaker Change: Only industry, followed 10 15 years ago.

Speaker Change: Trying to do all this stuff inside when it.

Speaker Change: Just a couple of products that are fairly straightforward.

Speaker Change: They were fairly straightforward, but that's not what's happening now. Products are more complicated as you start to think about the structures that enable high net worth individuals to participate in them. You've got that added complexity, and then oftentimes there's side investments that are permitted, et cetera. So it's very complicated. It lends itself to outsourcing.

Speaker Change: What's happening now.

Speaker Change: Products for more complicated as you start to think about structures that enable high net worth individuals to participate in it.

Eric Aboaf: Moving to slide 14, on the left side of the slide, we show the evolution of our Set 1 and Tier 1 leverage ratios, followed by our capital trends on the right side of the slide. As you can see, we continue to navigate the operating environment with very strong capital levels, which came in above both our internal targets and the regulatory minimums. As of quarter end, our standardized set-one ratio of 11.6% was up 60 basis points quarter-on-quarter, largely driven by episodically lower RWA and improvement in AOCI, partially offset by the continuation of common share repurchases.

Speaker Change: You've got that added complexity and then often times there is.

Speaker Change: Despite investments that are permitted et cetera. So.

Speaker Change: Very complicated lends itself to outsourcing it still very much an in source business. So we see lots of lots of potential growth there.

Speaker Change: It's still very complicated. It's very much an in-house business, so we see lots of potential growth in it. Its fee characteristics are different, positive in the sense that the fees are higher, but they get fully recognized when the fund is fully invested.

Speaker Change: It's fee characteristics are different.

Positive in the sense that the fees are higher but also the.

Speaker Change: These to fully recognized when the fund is fully invested.

Speaker Change: No.

Speaker Change: Part that we pay a lot of attention to is what's the expected actual money raise and then drawdown, and how do we do our best to match our expenses to that. But we're very excited about the business. Much of the new investment, product investment that Eric talked about in the 2024 guide includes further strengthening of our position there. There's innovation in there, and our goal is to continue to set moats around us so we can continue to excel at it.

Speaker Change: The part that we pay a lot of attention to is what's the expected actual money raise and then drawdown, and how do we do our best to match our expenses to that. But we're very excited about the business. Much of the new investment and product investment that Eric talked about in the 2024 guide includes further strengthening of our position there. There's innovation in it, and our goal is to continue to set moats around us so we can continue to excel at it. And Glenn, it's Eric. I'd just add, you know, privates have been a real strong area of growth for us. We've described it as, you know, up 10, 15 percent in different quarters. So it's a big part of our growth agenda as we did this past year.

Speaker Change: Part of that we pay a lot of attention to is whats the expected.

Eric Aboaf: The decrease in interest rates during December after the completion of our buyback contributed about 20 basis points to our CET1 ratios, and some market factors over the last week of December conveniently contributed roughly another 50 basis points to the RWA end-of-period print. Going forward, I would expect RWA to run at higher levels to support our various businesses. Our LCR for State Street Corporation was a healthy 106% and 122% for State Street Bank and Trust. In the quarter, we were quite pleased to return over $700 million to shareholders, consisting of $500 million of common share repurchases and over $200 million in common stock dividends.

Speaker Change: Sure.

Speaker Change: <unk> raised and then draw down.

Speaker Change: And how do we do.

Speaker Change: Do we do our best to match our expenses to that but we're.

Speaker Change: We're very excited about the business.

Speaker Change: Much of the investment.

Investments that Eric talked about them in the 2024 guide includes further strengthening of our position there.

Speaker Change: <unk> in there.

Speaker Change: Our goal is to continue to slip moats around dose. So we can continue to tour.

Speaker Change: To access a wider.

Speaker Change: And Glenn, it's Eric. I'd just add, you know, privates has been a real strong area of growth for us. We've described it as, you know, up 10, 15 percent in different quarters. So it's a big part of our growth agenda as we, you know, this past year. And then, you know, this coming year, as we take our sales goals up to $350 to $400 million, you know, at least a quarter of that plus, you know, is going to be around privates. And that's what's going to help us continue to drive privates growth, we think, in the, you know, 15 percent plus range in terms of year-on-year revenues. So it's an area that I think we've actually broadly with both large and small. And mid-size. It's actually well distributed, and it's got a good mix of U.S., Europe, and Asia sales coming through as well. Yeah. As well as, Glenn, it's not just private equity. It's private equity venture. Private credit is booming. And, you know, for every bank that complains about what's going to happen with regulation and, you know, the fact that it's a private equity venture, it's a private equity venture. It's pushing activity out of the banking system. That's going right into the private credit area, and we should be the beneficiary of that growth.

Speaker Change: And Glenn it's Eric I'd, just add privates has been a real.

A strong area of growth for US we've described it as up 10%, 15% in different quarters.

Speaker Change: So it's a big part of our growth agenda.

Speaker Change: And then, you know, this coming year, as we take our sales goals up to $350 to $400 million, at least a quarter of that plus is going to be around privates. And that's what's going to help us continue to drive private growth, we think, in the 15 percent plus range in terms of year-on-year revenues. So it's an area that I think we have covered broadly with both large and small. And mid-size. It's actually well distributed, and it's got a good mix of U.S., European, and Asian sales coming through as well.

Speaker Change: As we.

Speaker Change: This past year and then this.

Speaker Change: Coming year as we take our sales goes up to $350 million to $400 million.

Eric Aboaf: Lastly, as we announced earlier today, our board authorized a new multi-year common equity repurchase program of up to $5 billion with no expiration date. Turning to slide 15, before I start, let me first share some of the assumptions and underlying our current views for the full year. Let me cover our full-year 2024 outlook, as well as provide some thoughts on the first quarter, both of which have more potential for variability than usual, given the macroeconomic environment we're operating in. In terms of our current macro expectations, as we stand here today, we expect global equity markets to be flat point to point in 2024, which equates to the daily average being up about 10% year over year.

Speaker Change: At least a quarter of that plus.

Speaker Change: It's going to be around privates, and Thats whats going to help us continue to drive private growth, we think in the 15% plus range in terms of year on year revenue. So it's an area that I think we've actually.

Speaker Change: Broadly with both large and small and mid size, it's actually well distributed and it's got a good mix of.

Speaker Change: Yeah. As well as, Glenn, it's not just private equity. It's a private equity venture. Private credit is booming. And, you know, for every bank that complains about what's going to happen with regulation and the fact that it's a private equity venture, it's a private equity venture. It's pushing activity out of the banking system. That's going right into the private credit area, and we should be the beneficiary of that growth.

Speaker Change: U S Europe and Asia.

Speaker Change: Sales sales coming through as well as.

As well as Glenn.

Speaker Change: It's not just private equity private equity venture private credit.

Speaker Change: Is booming.

Speaker Change: For every bank complains about what's going to happen with regulation.

Speaker Change: The fact that it's pushing activity out of the banking system, that's going right into the private credit area.

We should be the beneficiary of that growth.

Speaker Change: We appreciate all that. Thank you.

Speaker Change: We appreciate all of that thank you.

Speaker Change: Your next question comes from Gerard Cassidy with our

Speaker Change: Your next question comes from Gerard Cassidy with RBC. Please go ahead.

Eric Aboaf: Our interest rate outlook for 2024 largely aligns with the forward curve as of year end 2023, which I would note continues to move. We expect to see a modest increase in FX and equity volatility, which should support slightly higher FX trading services fees this year, though we are still seeing muted volatility in the first quarter. And we expect currency translation to have less than a half a percentage point impact on revenues and expenses due to dollar depreciation, and I would remind you that a weaker U.S. dollar has a favorable impact on revenues and an unfavorable impact on expenses. Thank you for watching!

Gerard Cassidy: Thanks for watching!

Gerard Cassidy: Hey, Eric. Hey, Ron.

Speaker Change: Arun.

Speaker Change: Gerard.

Speaker Change: Thanks, Gerard.

Speaker Change: Eric, can you share with us, I know you and Ron Warren at State Street 10 years ago, but...

Speaker Change: Eric, can you share with us? I know you and Ron Warren were on State Street 10 years ago, but...

Speaker Change: Eric can you share with us.

Speaker Change: You and Ron worn stage, III 10 years ago, but.

Eric Aboaf: Your comments about the net interest income outlook and just how volatile it is due to what's going on in the bond market with the Federal Reserve and their balance sheet, are there any... Indicators you're monitoring that we could look at that might be able to give us a better insight into when net interest income for State Street might be more predictable on a go-forward basis? Oh, Gerard. It's Eric. I take a sigh when I think about this question. I think predictability is partly around Fed actions, right? This is the highest rate of unemployment that we've seen in 22 years.

Speaker Change: Your comments about the net interest income outlook and just how volatile it is.

Speaker Change: Due to what's going on.

Speaker Change: The bond market with the federal reserve and their balance sheet are there any.

Eric Aboaf: Indicators you're monitoring that we could look at that might be able to give us a better insight to when net interest income for State Street might be more predictable on a go-forward basis?

Speaker Change: Indicators, you're monitoring that we could look at that might be able to give us a better insight to win net interest income for state Street might be more predictable on a go forward basis.

Eric Aboaf: So, we currently expect that full-year total fee revenue will be up approximately 3-4%, ex-notable items, with servicing fee and management fee growth driven by higher market levels and continued business momentum, and continued strong growth in front office software and data. This includes a headwind of a little less than one percentage point to fee growth from the expected previously disclosed client transition. Regarding the first quarter of 2024, we currently expect fee revenue to be up 2% on a year-over-year basis, with servicing fees expected to be up 1%, management fees up 7% to 8%, and front office software and data expected to be up over 20%, largely due to increased SaaS, new business, and conversions and on-premise renewals. We expect full-year 2024 NIR to be down about 10% on a This is dependent on the outcome of global rate cuts and deposit mix and levels, which are obviously difficult to predict.

Eric Aboaf: Oh, Gerard, it's Eric. I take a sigh when I think about this question. I think the predictability is partly around Fed actions, right? This is the highest rate level that we've seen in 22 years. And

Eric: Gerard it's Eric.

Assai.

Eric: When I when I think about this question I think I think the predictability is.

Eric: Partly around fed actions right. This is the highest rate level that we've seen in 22 years.

Eric Aboaf: Also, the, you know, if I go back a couple years, the lowest rate level we've probably seen in two decades as well, right? So we've kind of, we're at these wide bookends relative to, you know, relative to really the, you know, since the, you know, since the, I want to say the turn of the century, right? Right, right. We have even more volatility. If you have to take too much duration on the asset side of the portfolio, you've got more AOCI risk. And so, you know, our tools to stabilize work up to a point and then have some negative implications. So I don't, I don't really see a way to, you know, turn what, what we'd like to have. I don't, I don't see a way to turn this into, you know, just a flywheel, a metronome. That moves at a certain pace. And it's just, just a feature of what we do. And part of it is, you know, our institutional deposits have somewhat more asset sensitivity or liability sensitivity to, you know, to rates relative to a very, you know, simple, you know, regional bank. So, you know, we'll tend to have a little more, but that's, that's part of the industry. That's, that's, you know, I think we're in line with peers.

Eric: Also the.

Eric: If I go back a couple of years, the lowest rate level, we've probably seen in two decades as well right. So we've kind of whereas these wide bookends relative to.

Eric Aboaf: And Also, if I go back a couple years, the lowest rate level we've probably seen in two decades as well, right? So we kind of, we're at these wide bookends relative to, you know, relative to really the, you know, since the, you know, since the, I want to say, turn of the century, right? Right, right. We have even more volatility. If you have to take too much duration on the asset side of the portfolio, you've got more AOCI risk. And so, you know, our tools to stabilize work up to a point and then have some negative implications.

Eric: Relative to.

Eric: Really the since since the.

Eric: Since that.

I want to say that the turn of the century right.

Eric: Alright.

That's really created this volatility can we.

Eric: Can we.

Eric: Manage that and mitigate well we did try to.

Eric: Sure.

Eric: Okay.

Eric: On a regular basis match off deposit deposit tenor.

Eric: <unk> characteristics with.

Eric: The asset side of the portfolio and we do that with duration. The challenge is if you. If you take too little duration, you have even more volatility if you had to take too much duration on the asset side of the portfolio, you've got more OCI risk and so.

Eric Aboaf: So I don't, I don't really see a way to turn what we'd like to have into, you know, just a flywheel, a metronome. That moves at a certain pace. And it's just, just a feature of what we do. And part of it is, you know, our institutional deposits have somewhat more asset sensitivity or liability sensitivity to, you know, rates relative to a very, you know, simple, you know, regional bank. So, you know, we'll tend to have a little more, but that's, that's part of the industry. That's, that's, you know, I think we're in line with peers.

Eric Aboaf: Regarding the first quarter of 2024, after a significant step up in 4Q23, we expect 1Q24 NAI to be flat to down 3% on a sequential quarter basis given current deposit mix expectations. Turning to expenses, as you can see on the walk on page 16, we expect full-year expenses ex-notables to be up about 2.5% on a nominal basis in 2023, driven largely by our continued investment in the business, which we expect to largely offset through greater productivity savings worth half a billion dollars, which is approximately 1.7 times last year's gross savings level. Regarding the first quarter of 2024, we expect expenses excluding notable items to be up 1% to 1.5% on a year-over-year basis, keeping in mind that seasonal expenses usually occur in the first quarter. As a reminder, we expect to achieve positive fee operating leverage, excluding notable items, for full year 2024 given the projected growth in fee revenue and well-controlled expenses. Finally, we expect taxes to be in the 21-22% range for 2024. And with that, let me hand the call back to Ron.

Eric: Our tools to stabilize.

Eric: <unk> work up to a point and then have some negative implications. So I don't I don't really see a way to turn what what we'd like to have.

Eric: I don't I don't see a way to turn this into.

Eric: Just a flywheel metronome.

Eric: That.

Eric: At a certain pace.

And it just just a feature of what we do and part of it is.

Eric: Our institutional deposits.

Eric: Somewhat more asset sensitivity or liability sensitivity to <unk>.

Eric: To rates relative to a very.

Eric: Simple regional bank. So we will tend to have a little more but thats part of the industry.

I think we are in line with peers.

Speaker Change: Very good. Ron, in your prepared remarks, you talked about the success and the momentum you're having with the Alpha product in the servicing business, in the investment services business, I should say. Is there any capacity constraints that you've got to be careful about if the momentum continues, or is it almost no, you've got plenty of bandwidth to handle future growth?

Speaker Change: Very good, Ron. In your prepared remarks, you talked about the success and the momentum you're having with the Alpha product in the servicing business, in the investment services business, I should say. Is there any capacity constraints that you've got to be careful about if the momentum continues, or is it almost no, you've got plenty of bandwidth to handle future growth?

Speaker Change: Very good.

Speaker Change: Ron in your prepared remarks, you talked about the success and the momentum you are having with the alpha product in the servicing business.

Speaker Change: In the investment services business I should say is there any capacity constraints.

Speaker Change: <unk> got to be careful about if the momentum continues or is it almost no pledge.

Plenty of bandwidth to handle future growth.

Ron: Yeah, I would say that the capacity constraint has been

Ron: Yeah, I would say that the capacity constraint has been particularly with these large, complicated clients, the really large ones, some of which are, well, most of which are still being onboarded. The capacity strength has been around onboarding. In terms of the past year in particular, we've gotten better at that. If you just look at that number, we were roughly at about, as I recall, $3.6 trillion in assets to be onboarded, and we're now down to $2.3 trillion. So you can see we're getting better at that. The real constraint, to be specific about it, tends to be how quickly you onboard the middle office element to that because that often requires engineering, and by that, I mean engineering with the client.

Speaker Change: Yes.

Speaker Change: Would say that the capacity constraint.

Ron O'Hanley: Thank you, Eric. Operator, we can now open the call for questions. Thank you, ladies and gentlemen. We will now begin the question and answer session. If you have a question, please press Star, followed by the number on your touchtone.

Speaker Change: It has been.

Ron: Particularly with these large complicated clients, the really large ones,

Speaker Change: Particularly with these large complicated clients the really large ones.

Speaker Change: Some of which are.

Ron: Some of which are, well, most of which are still being onboarded. The capacity strength has been around onboarding.

Speaker Change: Well most of which are still being on boarded the capacity strength has been around onboarding.

Speaker Change: <unk>.

Ron: In terms of past year in particular, we've gotten better at that. If you just look at that number, we were roughly at about, as I recall, $3.6 trillion in assets to be onboarded, and we're now down to $2.3 trillion. So you can see we're getting better at that. The real constraint, to be specific about it, tends to be in how quickly do you onboard the middle office element to that, because that often requires engineering, and by that I mean engineering with the client.

Past year in particular, we've gotten better at that.

Eric Aboaf: You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Client from Napoleon, Star followed by the, If you are using a speakerphone, please put your hands up. One moment, please. My first question comes from Alex Blostein with Goldman Sachs. Please go ahead. Hey, good morning, everybody.

Speaker Change: Just look at that number.

Speaker Change: We were roughly at about as I recall three six trillion.

Speaker Change: In.

In.

To be on boarded and we're now down to two three trillion. So you can see we're getting better at that the real constraint.

To be specific about it tends to be and how quickly do you onboard the middle office element to that.

Eric Aboaf: Thanks. Thanks for all the details. I was hoping we could start by unpacking some of the NII dynamics, and I guess I appreciate the uncertainty when it comes to deposits. But Eric, maybe talk a little bit about what drove the upside in the fourth quarter in deposit levels. And if you have a view on what's sort of seasonal versus more kind of core client franchise driven, and maybe give us some insight on where you expect balances to ultimately stabilize in the back half of the 24th. Sure, Alex. It's Eric.

Speaker Change: Does that often requires.

Speaker Change: Engineering and.

Ron: Because ultimately, that's a client, and it's like any other kind of industrial outsourcing. A client has an operation, does things in a particular way, and wants to outsource that element of it to us. We're not interested in taking somebody's mess for less. I mean, we need to actually work with them to engineer it in a way where as much of it as possible is standardized, and that the customization is limited to the kinds of user interfaces or how things are actually applied. And we've just gotten better at that over time. So I would say, looking forward, we don't see that as being a meaningful constraint.

Speaker Change: I thought I mean engineering with the client.

Ron: Because ultimately, that's a client, and it's like any other kind of industrial outsourcing. A client has an operation, does things in a particular way, wants to outsource that element of it to us. We're not interested in taking somebody's mess for less. I mean, we need to actually work with them to engineer it in a way where as much of it as possible is standardized and that the customization is limited to the kinds of user interfaces or how things are actually applied. And we've just gotten better at that over time. So I would say, you know, looking forward, we don't see that as being a meaningful constraint.

Speaker Change: Because ultimately.

That's.

Speaker Change: The client and it's like any other kind of industrial outsourcing.

Speaker Change: Client has an operation those things in a particular way.

Speaker Change: Wants to outsource that element of it to us.

Speaker Change: We're not interested in taking somebody's mess for less I mean, we need to actually work with them too.

Eric Aboaf: Let me share with you the texture we have, but I'll just say, you know, deposits and deposit levels continue to be volatile. They surprise to the upside. You know, and in particular, we saw, you know, a nice uptick in deposits into September and October. We actually saw on the NIB side a downtick in November and then a, you know, large uptick again in December. So, you know, the averages came in higher for the quarter, which made a big difference, you know.

Speaker Change: To engineer it in a way where as much of it.

Speaker Change: As possible as standardized and customization is limited to the kinds of user interfaces or how things are actually applied.

Speaker Change: And we've just gotten better at that over time, So I would say looking forward, we don't see that as being a meaningful constraint.

Speaker Change: Very good. Thank you.

Speaker Change: Very good thank you.

Speaker Change: This question comes from Jim Mitchell with...

Speaker Change: Your next question comes from Jim Mitchell with Seaport Global. Please go ahead.

Jim Mitchell: Global. Please go ahead.

Jim Mitchell: Global. Please go ahead. Good afternoon. Just maybe a follow-up on the Outside of sort of the private markets you've had, you've ramped up pretty quickly in terms of getting to your $400 million in net new servicing fee wins. And maybe if private markets are a quarter, can we talk a little bit about the other three quarters, where you've seen success, what's worked, what hasn't worked, and what kind of opportunity set do you see, maybe even getting above the $100 million?

Eric: A billion dollars of NIB for a month is worth five million bucks, and you kind of multiply through, and, you know, that quickly adds up as we had a, you know, a spread in December of, you know, five, six billion dollars, relative to our expectations. And, you know, at the same time, we also saw interest-bearing deposits go up. Now, some of that is just our regular way of engagement with clients. Some of that is they're leaving, you know, more deposits with us. And I think you did see, in the Fed reports, the banking system deposits are up, you know, one, two percent, quarter on quarter from third quarter to fourth quarter. So it does seem like there's something happening in the market that's creating a little more stability, a little bit of buoyancy. There's some amount of seasonality that we always tend to see at the end of the year as folks accumulate cash, sometimes to pay dividends and ETFs, you know, in the next year. So it's just hard to read. But that's what played out.

Jim Mitchell: Good afternoon. Just maybe a follow-up on the...

Jim Mitchell: Good afternoon.

Jim Mitchell: Just maybe a follow up on the.

Jim Mitchell: Outside of sort of the private markets, you've had, you've ramped up pretty quickly in terms of getting to your $400 million of net of new servicing fee wins. And maybe if private markets are a quarter, can we talk a little bit about the other three quarters, where you've seen success, what's worked, what hasn't worked, and what kind of opportunity set do you see maybe even get above the $100 million?

Jim Mitchell: Outside of sort of the private markets, you've had you've ramped up pretty quickly in terms of getting to your $400 million of net.

Jim Mitchell: Of new servicing fee wins, and maybe if private markets for a quarter, what can we talk a little bit about the other three quarters, where you've seen success. What's worked what hasn't worked and what kind of opportunity set do you see maybe even get above the $100 million.

Ron: Jim, it's Ron.

Ron Hanley: Yes, Jim it's Ron.

Ron Hanley: Yeah.

Ron: It's no one thing, but a lot of really important things across the board to ramp up our execution. Where we're seeing it, to answer the first part of your question,

Ron: It's not just one thing, but a lot of really important things across the board to ramp up our execution. Where we're seeing it, to answer the first part of your question, is

Ron Hanley: It's no one thing, but a lot of.

Ron Hanley: Really important things across the board too.

Ron Hanley: Ramp up our execution, where we're seeing it to answer the first part of your question.

Ron: is

Ron Hanley: <unk>.

Ron Hanley: Is.

Ron: The core investment manager segment still remains strong and active for us.

Ron: The core investment manager segment still remains strong and active for us. As some of those firms are facing the same kind of market that everybody else is, they're more interested in actually trying to do more with us and do different things with us. A little bit of a resurgence in the asset owner marketplace, and in particular amongst asset owners that aren't just pure asset allocators, meaning they're managing some assets themselves or truly actively asset allocating, not just listening to a consultant tell them what to do, but either managing money or at a strategic and tactical level allocating assets.

Ron Hanley: The core investment managers segment.

Ron Hanley: <unk> remains strong and active for us and.

Ron: As some of those firms are facing the same kind of market that everybody else is, they're more interested in actually trying to do more with us and do different things with us. A little bit of a resurgence in the asset owner marketplace, and in particular amongst asset owners that aren't just pure asset allocators, meaning they're managing some assets themselves or truly actively asset allocating, not just listening to a consultant tell them what to do, but either managing money or at a strategic and tactical level allocating assets. Which, again, requires support. But in all cases, what we're doing is we're really focused on ensuring that the back office part of all this comes with it and comes with it in a timely fashion, right? Because as I was saying earlier when I was talking to Gerard, the thing that takes a long time or a longer time to onboard, would be the middle office, the outsourcing element of it, onboarding back office is pretty easy, pretty straightforward, and in almost all instances comes on in a pretty healthy incremental margin given the scale activities to it. And then finally, I should just talk about

Ron Hanley: As such.

Ron Hanley: Some of those firms are.

Ron Hanley: Facing the same kind of market that everybody else's, they're more interested in actually trying.

Eric: And it played out better through the quarter and through the end. If I then try to, you know, look forward, it's very hard to look forward to the year.

Ron Hanley: Trying to do more with us and do different things with us.

Ron Hanley: A little bit of a resurgence in.

In the asset owner marketplace.

Eric Aboaf: You know, we'd like to operate and expect to operate in a deposit range of $200 to $210 billion. That's our kind of goal. A lot of that is just client engagement and helping put, you know, their cash to work. And sometimes they put cash to work in deposits, in repo, in money market sweeps. But there's a category, each one of those is an important category and outlet for clients. And what we're seeing is clients using, you know, all the, I'll call it, all the above, right, including just holding treasury securities. So that we expect to continue, and we think deposits will be, you know, roughly in this zone in the first quarter. What's a little harder to read is just how non-interest bearing deposits play out. We do expect those to continue to flow downward. They tend to flow downward for our clients.

Ron Hanley: And in particular amongst asset owners that aren't just pure asset allocators, meaning there.

Ron Hanley: Sure managing some assets themselves or truly actively asset allocating doing not just listening to a consultant telling them what to do but.

<unk>.

Either managing money or at a strategic and tactical level.

Ron: Which, again, requires support. But in all cases, what we're doing is we're really focused on ensuring that the back office part of all this comes with it and comes with it in a timely fashion, right? Because, as I was saying earlier when I was talking to Gerard, the thing that takes a long time or a longer time to onboard would be the middle office, the outsourcing element of it. Onboarding back office is pretty easy, pretty straightforward, and in almost all instances comes on in a pretty healthy incremental margin given the scale of activities to it.

Ron Hanley: Allocating assets, which again requires support but in all cases, what were doing is.

Ron Hanley: We're really focused on ensuring that the back office part of all this.

Ron Hanley: Comes with it and it comes with it.

With it.

Ron Hanley: Yes.

Ron Hanley: In a timely fashion right because.

As I was saying earlier when I was talking to Gerard.

The thing that takes a long time or a longer time to onboard would be the middle office outsourcing element of it.

Ron Hanley: Onboarding back office is pretty easy pretty straightforward.

Eric Aboaf: Clients with the largest funds, those are the ones that have been, you know, floating down over the last two years. So we continue to see that expectation. There continues to be a little bit of repricing that plays out into the first quarter or two as well. And that's why I guided, you know, on an NII basis to, you know, flat to down 3% for the first quarter, just to give you a little bit of an indication. But we expect that. That's what we always expect. We expect that to be roughly on flattish, the positive side. I got it.

Ron Hanley: And it.

Ron Hanley: In almost all instances comes on at a pretty healthy incremental margin given the scale activities tour.

Ron: And then, finally, I should just talk about

Ron Hanley: And then finally just talked about.

Ron: Regions, we have invested heavily in the capabilities in all of our regions where you see probably the most impact from that over the last couple of years has been just the very good growth that we're seeing in Asia-Pacific, and really all parts of Asia-Pacific, from, you know, Australia north to Japan and everything in between. The U.S., as we talked about in the past, we were not pleased with where we were in this past year, particularly the second We're actually reasonably pleased with how we've done. Europe has always been strong for us.

Regions.

Ron Hanley: We have invested heavily in the capabilities.

Ron Hanley: All of our regions.

Ron Hanley: See the probably the most impact from that over the last couple of years.

Eric Aboaf: It's very helpful. My follow-up to sticking with deposits is around just deposit beta as we start to sort of enter the rate cutting cycle. So hoping you could articulate maybe what you're assuming for deposit beta on the way down in your 24 and AI guidance, and then broadly how we should think about sort of the cadence of deposit betas as we progress through the rate cutting cycle into the back half of 24, 25 maybe. But just curious to know kind of high of the upper at the beginning, lower towards the end, or the opposite.

Ron Hanley: Just a very good growth that we're seeing in Asia Pacific.

Ron: and really all parts of Asia Pacific from, you know, Australia north to Japan and everything in between. The U.S., we talked about in the past, we were not pleased with where we were in this past year, particularly the second half of the year. We're actually reasonably pleased with how we've done. Europe has always been strong to us. It was a little softer in 2023, but again, a very strong pipeline. But that regional focus where we're actually pushing.

Ron Hanley: And really all parts of Asia Pacific.

Ron Hanley: Yeah.

Ron Hanley: Australia, North to Japan and everything in between.

The U S. We talked about in the past.

Ron Hanley: We're not pleased with where we were in this past year, particularly the second half of the year.

Were actually.

Ron Hanley: Reasonably pleased with how we've done Europe has always been strong to us a little softer.

Ron: It was a little softer in 2023, but again, a very strong pipeline. But that regional focus where we're actually pushing accountability down to the country and regional level and making sure that it's very clear who's responsible for what. Sharing, obviously, not just the technology and the product but the best practices and how you move these things forward, but very much decentralizing accountability.

Alex: Alex, it's an important topic because it affects how we interact with our clients, it affects how we price our products, and it affects how the industry has operated for many years. I think you know that our deposit betas on a cumulative basis have climbed quite a bit in the U.S. They're 75% or so cumulatively since the start of the cycle. In euros, it's around 60% cumulatively, and in pounds sterling,

Ron Hanley: In 2023, but again.

Ron Hanley: Very strong pipeline, so it put that regional focus where we're actually pushing.

Ron: accountability down into the country and regional level and making sure that it's very clear who's responsible for what. Sharing, obviously, not just the technology and the product, but the best practices and how you move these things forward, but very much decentralizing the accountability.

Ron Hanley: Accountability down.

Ron Hanley: The country and regional level.

Ron Hanley: And making sure that.

Ron Hanley: It's very clear who is responsible for what sharing.

Ron Hanley: <unk> obviously not.

Ron Hanley: Not just the technology and the product.

Ron Hanley: Best practices.

Ron Hanley: And how you move these things forward.

Ron Hanley: Very much decentralizing the accountability.

Alex: So they're clearly moved up. What certainly happens as, and I'll say when, if and when rates fall, is the deposit betas reverse. There's some amount of symmetry. But does it reverse instantaneously?

Speaker Change: Okay, that's all really helpful. And maybe Eric, just a quick one on the Health and Maturity book, still yielding just a little over 2%. Can you kind of walk us through the maturity profile of that? How long will we start to see some, some pickup in or turnover and reinvestment benefits from that portfolio? Yeah, it's Eric. The way I describe it is that we've got a natural roll-off in that portfolio. It's about $5 billion a year, so it sort of plays out. That's related to the maturity of the latter. So that'll come down over the next couple of years.

Speaker Change: Okay. That's all really helpful and maybe Eric just a quick one on the held to maturity book.

Eric: Still yielding just a little over 2%.

Eric: Can you kind of walk us through the maturity profile of that how long we start to see some some pick up in turnover and reinvestment benefits from that portfolio.

Alex: We want to be... We're careful with our clients, we want to be fair, but we do think that over multiple quarters and certainly over any realistic timeframe, the Fed will cost more, and there's got to be an adjustment. Now, part of that happens because we have a good bit of our deposits that are indexed to markets, right? They're indexed to market indicators, and there are quite a few that are indexed with a spread. And then there's... And there is a smaller amount now that has a transactional kind of, I'll call it, "administered" feature. But you'll generally see a broad amount of symmetry in deposits down versus up.

Speaker Change: Yeah, it's Eric. The way I describe it is we've got a natural roll-off in that portfolio. It's about $5 billion a year, so it sort of plays out. That's related to the maturity in the latter. So that'll come down over the next couple of years. As that happens, because as you say, it's at a lower coupon relative to our average. Our average portfolio yields are in the three, three and a half range. There's real pickup that comes through that line, at least for the next couple quarters. My guess is probably for the next couple years even, because once rates stabilize. We do think that we'll also get some steepness in the yield curve, and that'll help through. So there's some benefits coming that way. It's also a portfolio that obviously will insulate us from rate moves. I don't think in the next few years this is the last down cycle versus... Up cycle and that we'll see. And so it'll serve its purpose then as well.

Eric: Yeah, it's Eric the way the way I would describe it is we've got a natural roll off in that portfolio, it's about <unk>.

Eric: <unk>.

Eric: Year, so it sort of plays out that's related to the maturity and the latter.

Eric: That will come down over the next.

Eric: Couple of years as that happens because as you say it's.

Eric: At a lower coupon relative to our average ride our average portfolio yields are.

Speaker Change: As that happens, because, as you say, it's at a lower coupon relative to our average. Our average portfolio yields are in the three, three and a half range. There's real pickup that comes through that line, at least for the next couple quarters. My guess is probably for the next couple years, even, because once rates stabilize. We do think that we'll also get some steepness in the yield curve, and that'll help through. So there are some benefits coming that way. It's also a portfolio that obviously will insulate us from rate moves. I don't think in the next few years this is the last down cycle versus... Up cycle, and we'll see. And so it'll serve its purpose then as well.

Eric: The 335 range.

Alex: I think what you do need to keep in mind is that our asset sensitivity and liability sensitivity, though, are somewhat different between international markets and the U.S., right? In international markets, because those cumulative betas are still in the 30% to 60% range... We're still asset sensitivity, so we make more money with increases in rates. And we actually, NII will trim down, you know, with decreases in rates. And that's where we're most sensitive to interest rate changes today. In the U.S., we have a slight positive bias towards being liability sensitive, but it's still relatively slight. I'd almost call it neutral.

Eric: There's real pickup that that comes through that line at least for the next couple of quarters I guess is probably for the next.

A couple of years, even because once once rates stabilize we do think that we'll also get some steepness in the yield curve and that'll that'll help through so.

Professional Services Revenue Growth Sequentially, front office software and data revenue was up 38%, primarily driven by higher on-premise renewals and go-live implementations. Turning to some of the alpha business metrics on the right panel, we were pleased to report four more alpha mandate wins in the quarter, which means seven wins for the full year of 2023. State Street Alpha continues to be an important differentiator of our business and creates an attractive value proposition for our clients, with contractual terms usually covering 5 to 7 to 10 years.

There are some there are some benefits.

Eric: Coming that way.

Eric: It's also a portfolio that obviously will be I will insulate us from from from from rate moves that will shape.

Eric: In the next few years. This is the last.

Down cycle.

Eric: Versus.

Ron O'Hanley: So, you know, part of what we're doing is just... Navigating this interest rate environment, it's not exactly clear when the rates will come. It's not clear whether the U.S. will cut before Europe or vice versa. And part of what we'll do is, you know, actively manage our portfolio to try to take advantage of what's coming. At the same time, we'll price our deposits fairly and prudently. Great. Very helpful. Thanks very much.

Eric: The up cycle.

Eric: And that we will see and so it will it will serve its purpose then as well.

Speaker Change: Alright helpful color. Thanks.

Speaker Change: All right, helpful color. Thanks.

We've also gone live with three more Alpha clients, which brings us to six for the year, which sets us up well for 2024, and added significant new functionality for fixed income portfolio managers. Fourth quarter ARR increased 16% year-over-year driven by 20-plus SaaS and client implementations and conversions, and we had a record quarter for front office new bookings at $32 million. Turning to slide 12, fourth quarter NII increased 14% year on year but increased 9% sequentially to $678 million. The year-on-year decrease was largely due to lower average deposit balances and a deposit mix shift, partially offset by the impact of higher interest rates.

Speaker Change: Your next question comes from Steven <unk> with Wolfe Research. Please go ahead.

Speaker Change: The next question comes from Steven.

Steven: Thank you, bye.

Steven: Thank you. Bye.

Speaker Change: and so on.

Speaker Change: And so on.

Steven: Hi, good afternoon. So, Eric, I wanted to start off with a question just on the fee guidance and benchmarking your historical fee performance versus the guidance.

Steven: Hi, good afternoon. So, Eric, I wanted to start off with a question just on the fee guidance and benchmarking your historical fee performance versus the guidance. You've struggled to at least meet or exceed the guide in the absence of significant equity market gains.

Steven: Hi, good afternoon, so Eric I wanted to start off with a question just on the fee guidance.

Ron O'Hanley: Your next question comes from Brennan Hawken with UBS. Please go ahead. Thank you for watching! Good morning.

Brennan Hawken: Thanks for taking my questions. I think maybe some of what you just said on the non-U.S. side might explain this, but when we think about triangulating the minus 10% to the fact that one Q is either going to be flat, totally down a little on NII, it sort of suggests that your exit rate by the time you get to 4Q24 is probably going to be, you know, rather low. So, you know, am I reading correctly in thinking that it's that non-U.S. piece, and that's going to drive some of that weakness, and am I extrapolating the comments correctly to think that we could see a little bit more back-end weighted decline for NII? Brennan, it's Eric.

Eric: Benchmarking your historical performance versus the guidance.

Steven: You've struggled to at least meet or exceed the guide in the absence of significant equity market gains.

Eric: <unk> struggled to at least meet or exceed the guide in the absence of significant equity market gains.

Speaker Change: Sorry can you guys hear me okay.

Speaker Change: Thank you guys for having me on the show.

Speaker Change: Yes.

Speaker Change: Yep.

Speaker Change: Yep. I'm sorry about that. So you have a conservative market assumption embedded in the fee guide for the coming year. And given that historical experience, I was hoping you could just provide additional granularity in terms of growth across the different fee lines that's underpinning that 3% to 4% growth assumption for this year.

Speaker Change: And I'm sorry about that so you have the <unk>.

Speaker Change: I'm sorry about that. So you have a conservative market assumption embedded in the fee guide for the coming year. And just given that historical experience, I was hoping you could just provide additional granularity in terms of growth across the different fee lines that's underpinning that 3% to 4% growth assumption for this year.

Speaker Change: <unk> market assumption embedded.

Speaker Change: Embedded in the guide for the coming year, and just given that historical experience I was hoping you could just provide additional granularity in terms of growth across the different key lines, that's underpinning that 3% to 4% growth assumption for this year.

sequentially, the increase in NII performance was primarily driven by the impact of interest rates and the full quarter impact of the third quarter investment portfolio repositioning, as well as higher deposits and loan balances. The NII results on a sequential quarter basis were better than we had previously expected, as both interest-bearing and non-interest-bearing deposits increased, and certain client repricings were further delayed. Some of the higher deposit balances may have been seasonal, but the Fed's quantitative tightening appears to have been offset by the reduction in the Fed's reverse repo operation, which seems to have resulted in inflation leaving higher bank deposit balances.

Speaker Change: Sure Let me, let me maybe describe it.

Speaker Change: Sure. Let me maybe describe it in a couple ways, because three to four is for the overall franchise. We think that there are some areas of the franchise that'll be higher, and in some cases a good bit higher than that. Asset management, very geared towards the equity markets, and the 10% tailwind in equity markets comes through on literally half of that tends to go right through the asset management fee line, and then the flows that we talked about earlier in the call provide a nice tailwind. We need to see how markets play through, but the combination of those two, which is exactly how the business is doing. You know, it's market-based and it's flow-based, you know, will be healthy. I think software and data processing, you know, we've historically said high single digits, sometimes low double digits. If you look at the last couple of years, you're at the, you know, 9%, 10% average, you know, full-year growth, and we've got good visibility there. Part of that is alpha, and part of that is outright, you know, software and data sales. And so that's... I think at the other bookend, you know, servicing fees, you know, will come in, it'll be, you know, a bit below the 3% to 4%. Now, some of that is core organic net new business that we need to drive, which is why we've reshaped and tuned that, you know, that area in particular on the sales and, you know, how we go to market. You're seeing some of the benefits there. We're seeing some of the benefits there in how we measure ourselves. We're being very conscious there. But one of the reasons that one will be lower this coming year is that we have that previously announced transition coming through, you know, which will mute some of what we'd like to see. You know, and then the markets activities we're hoping will be somewhere in the middle of the range, whether, you know, FX trading and SEC finance. I think what plays out behind... The market dependent areas and sometimes why, you know, we don't meet is around client... What we describe as client activity, how much transactional activity, whether clients are on the sidelines or whether they're all in. You know, that this past year on the servicing fees, which are half of our fees, you know, that was worth 2% to 3% points of servicing fee headwind. I mean, that literally... So, you know... You do the math, that's worth, you know, $100, $150 million of headwind because, you know, we don't have that activity, the transactional activity and derivatives in international custody, which is very, very valuable to us. So, you know, part of what plays through is these macro economic features, you know, equity bond markets on one hand, you've got a client, the kind of risk on, risk off sentiment. I think is important.

Speaker Change: Sure. Let me maybe describe it in a couple of ways, because three to four is for the overall franchise. We think that there are some areas of the franchise that'll be higher, and in some cases, a good bit higher than that. Asset management, for example, is very geared towards the equity markets, and the 10% tailwind from equity markets comes through on literally half of that tends to go right through the asset management fee line, and then the flows that we talked about earlier in the call provide a nice tailwind. We need to see how markets play out, but the combination of those two, which is exactly how the business is doing.

Speaker Change: And a couple of ways because it's three to four is for the the overall.

Speaker Change: Franchise.

Eric: I think you've got the right general pattern framed in the area of NII. You know, clearly we have a very strong step-off, in particular in December, but, you know, in the fourth quarter, which will flow into the first quarter. And then we expect a trending down. You know, we had a couple, well, probably earlier this, earlier last year, so a couple of quarters ago, we described an NII range of 550 to 600 million. And we think we'll get into that range, the top end of that range by around the third quarter. But it's a little bit hard to know the exact shape.

Speaker Change: We think that there are some areas of the franchise that will be higher and in some cases, a good bit higher than that.

Speaker Change: <unk> management very geared towards the equity markets in the 10% tailwind in equity markets.

It comes through on literally.

Half of that tends to go right through the asset management fee line and then the flows that we talked about earlier in the call I'll provide a nice tailwind so we need to see how markets play through but the combination of those two which is exactly how the business is designed.

It's hard to know how deposits will trend, but we're pleased with this higher step-off going into the first quarter of 2024. On the right side of the slide, we show our average balance sheet during the fourth quarter. Average deposits increased 4% quarter-on-quarter, with non-interest-bearing deposits up 3% for the quarter. Turning to slide 13, fourth quarter expenses excluding notable items increased 2% year-on-year or 1% XFX.

Speaker Change: You know, it's market-based, and it's flow-based, and you know, it will be healthy. I think software and data processing, you know, we've historically said high single digits, sometimes low double digits. If you look at the last couple of years, you're at the, you know, 9%, 10% average full-year growth, and we've got good visibility there. Part of that is alpha, and part of that is outright, you know, software and data sales. And so that's why...

Speaker Change: It's.

Speaker Change: Its market based and it's slow based.

We'll be healthy I think software and data processing.

Eric: We just, but you've got the right direction of travel. And then we expect some stabilization, you know, in the second quarter. Maybe around the second half of next year, maybe around the top half, the middle half of that range. Just really hard to tell exactly where and when.

We've historically said high single digit sometimes low double digits. If you look at the last couple of years here at the.

Sequentially, fourth-quarter expenses were up only 1% as we actively managed expenses and continued our productivity and optimization savings efforts, all while carefully investing in strategic elements of the company, including alpha, private markets, core custody, and tech and ops process improvements and automation. On a line-by-line basis and year-over-year, X Notables Compensation employee benefits increased 1%, primarily driven by higher salaries and employee benefits, partially offset by lower contractor spend and performance-based incentive comp. Information systems and communications expenses increased 4%, mainly due to higher technology and infrastructure investments, partially offset by the benefits from ongoing optimization efforts, insourcing, and vendor credits.

Speaker Change: 910% average full year growth and we've got good visibility there.

Part of that is alpha and part of that is outright software and data sales and so that that's strong I think at the other book end servicing fees.

Speaker Change: I think at the other bookend, you know, servicing fees will come in, and they'll be, you know, a bit below the 3% to 4%. Now, some of that is core organic net new business that we need to drive, which is why we've reshaped and tuned that area, in particular in sales and, you know, how we go to market. You're seeing some of the benefits there. We're seeing some of the benefits in how we measure ourselves. We're being very conscious there. But one of the reasons that it will be lower this coming year is that we have that previously announced transition coming through, which will mute some of what we'd like to see.

Eric: If you step back and ask, you know, what are the underlying drivers, there are really three drivers that continue to be important. In terms of tailwinds, we continue to have long rates playing through the portfolio and the investment portfolio balances as they recoupon at higher rates. That's particularly important in the first half of the year, and a little less so in the second half of the year, but that continues through as a positive. You then have, as you mentioned, short rates starting to come down. And because of our sensitive position across the global markets, that does start to have a headwind impact on NII, you know, as those cuts continue to come through. Now, we'll.

Speaker Change: We will come in it will be a bit below the 3% to 4% now some of that is core organic net new business that we need to drive which is why we've reshaped and tune that.

Speaker Change: The.

Speaker Change: That that area in particular on the sales and how.

Speaker Change: How we how we go to market Youre seeing some of the benefits there and how we measure ourselves we're being very.

Transaction processing increased 1%, mainly reflecting higher brokerage costs. Occupancy increased 24% largely due to the absence of an episodic sale-leaseback transaction in the prior period, and other expenses were up 3% sequentially, flat year-on-year, mainly reflecting higher marketing expenses and professional fees. Lastly, let me spend a moment on headcount. As we discussed in the third quarter, as part of our ongoing transformation and productivity initiatives, we've streamlined our operating model in India and have now assumed full ownership of one of our operations in joint ventures, and we recently announced that we intend a similar undertaking with a second consolidation in the country this spring. This consolidation continues the transformation of State Street's global operations and will enable us to unlock productivity savings, which we expect to start this quarter through a reduction in contractor services and in the years ahead as we simplify our fragmented operating model. As you would expect, consolidating the first joint venture increased our FTE headcount by roughly 4,400 in the quarter as we insource global capabilities. However, these costs were already in our expense base and reported historically under the comp and benefits line. These actions are contributing to our higher productivity savings targets for 2024. Thanks for watching!

Speaker Change: Conscious there.

Speaker Change: But one of the reasons that one will be lower this this coming years that we have that previously announced transition.

Speaker Change: Coming through.

Speaker Change: Which.

Speaker Change: Which which.

Speaker Change: What you will mute some of what we'd like to see and then the markets activities, we're hoping will be somewhere in the middle of the range, whether FX trading and SEC finance.

Speaker Change: You know, and then the market activities we're hoping will be somewhere in the middle of the range, whether, you know, FX trading and SEC finance. I think what plays out behind... The market-dependent areas and sometimes why, you know, we don't meet are around client activity, how much transactional activity, whether clients are on the sidelines or whether they're all in. You know, that this past year on the servicing fees, which are half of our fees, you know, that was worth 2% to 3% points of servicing fee headwind. I mean, that literally...

Speaker Change: What what plays out behind.

Speaker Change: The market dependent.

Speaker Change: Areas and sometimes why.

Speaker Change: We don't me.

Speaker Change: Is around client what we describe as client activity, how much transactional activity with our clients are on the sidelines or whether they're they're all in.

Eric Aboaf: We'll see, you know, what the pattern and pace of U.S. versus international cuts are, and I think right now we've pegged ourselves to the forwards, which shows a lot of consistency and symmetry. But we'll see if that really, really happens because, you know, inflation expectations keep moving around literally daily and weekly. And then the third feature is just client deposits and mix. And, you know, while we expect client deposits to be in that zone of, you know, 200, 210, they might bump up above that, or a little below that. But they'll be.

Speaker Change: That this past year on the servicing fees, which are half of our fees and that was worth two to three percentage points of servicing fee headwind I mean that literally so you do the math Thats worth.

Speaker Change: So, you know... You do the math, that's worth, you know, $100, $150 million of headwind because, you know, we don't have that activity, the transactional activity, and derivatives in international custody, which is very, very valuable to us. So, you know, part of what plays through is these macroeconomic features, you know, equity bond markets on the one hand, you've got a client, the kind of risk on, I think it is important.

100 $150 million of headwind because we don't have those.

Speaker Change: That activity the transactional activity in derivatives and <unk>.

Speaker Change: Our national custody, which is very very valuable to us so part of whats what plays through as these macro economic.

Eric Aboaf: In that broad zone, you know, the mix will continue to shave down out of non-interest bearing bonds over the next quarter or two, we think. It's hard to, again, predict. And then there's the, you know, we're working through the final stages of some of our interest-bearing deposit repricings, which seem to have taken a little longer in some cases than we expected. That's OK. That means we accumulate income. You know, but those continue to come through. And they'll play. They'll play through in the first quarter or two as well.

Speaker Change: Features equity bond markets on one hand, you've got a client that kind of risk on risk off sentiment I think is important.

Moving to slide 14, on the left side of the slide, we show the evolution of our Set 1 and Tier 1 leverage ratios, followed by our capital trends on the right side of the slide. As you can see, we continue to navigate the operating environment with very strong capital levels, which came in above both our internal targets and the regulatory minimums. As of quarter end, our standardized set one ratio of 11.6% was up 60 basis points quarter on quarter, largely driven by episodically lower RWA and improvement in AOCI, partially offset by the continuation of common share repurchases.

Speaker Change: You've got volatility levels in FX and, you know, agency lending, you know, and so those we have to live through and navigate through and sometimes those will come in more strongly and sometimes less. And then I think finally the piece that we do need to deliver on, Steve, is the part that we can control, which is sales, it's retention, and we've been very clear about our goals and our targets very purposely because that's where we think we need to hold ourselves particularly accountable and where you can hold us accountable. And there's a, you know, version of goals and targets and servicing. We spent a little extra time there. But if you go through our line of businesses, you know, we've got similar kinds of goals area by area, and that's on us to deliver, which will, you know, help power us through, but, you know, the six elements will still come and go.

Speaker Change: You've got volatility levels in FX and, you know, agency lending, you know, and so those we have to live through and navigate through, and sometimes those will come in more strongly and sometimes less. And then, I think, finally, the piece that we do need to deliver on, Steve, is the part that we can control, which is sales, and retention, and we've been very clear about our goals and our targets very purposefully because that's where And there's a version of goals and targets and services.

<unk> got volatility levels and FX and.

Agency lending and so those we have to live through and navigate through and sometimes those will come in more strongly in sometimes last and then I think finally, the piece that we do need to deliver on Steve is the part that we can control which is sales.

Speaker Change: Retention and we've been very clear about our our goals and.

And our target very purposely because that's where we think we need to hold ourselves, particularly accountable and where you can hold us accountable and Theres a version of goals and targets and servicing we spent a little extra time, there, but if you go through our.

Eric Aboaf: And then that's what kind of brings us to some level of, you know, reasonable stability in the back half of the year. Thanks for all that texture, Eric. It's very, very helpful. And, by the way, I apologize about any background noise here. Second question, a bit more strategic. So we saw a flurry of Bitcoin ETF launches here recently. It didn't seem like you all actually landed any of those servicing opportunities, so I want to confirm whether my early read on that is right. And given the magnitude of the investment and the focus you've made on digital assets, you know, what would you learn if you guys missed out on that? And is that what led to the restructuring of the digital asset groups?

The decrease in interest rates during December after the completion of our buyback contributed about 20 basis points to our CET1 ratios, and some market factors over the last week of December conveniently contributed roughly another 50 basis points to the RWA end-of-period print. Going forward, I would expect RWA to run at higher levels to support our various businesses. Our LCR for State Street Corporation was a healthy 106% and 122% for State Street Bank and Trust. In the quarter, we were quite pleased to return over $700 million to shareholders, consisting of $500 million of common share repurchases and over $200 million in common stock dividends.

Speaker Change: We spent a little extra time there. But if you go through our line of businesses, you know, we've got similar kinds of goals area by area, and that's on us to deliver, which will, you know, help power us through. But, you know, the six elements will still come and go.

Speaker Change: Line of businesses, we've got similar kinds of goals area by area and that's on us to deliver which will help help power is through but but.

Speaker Change: The cyclical elements will still come and go.

Speaker Change: Thanks, Eric that's really helpful color just one quick follow up for me, what's the assumed timing or the large client transition just wanted to get a sense as to whether thats reflected in the <unk> servicing key guide are you expecting that later in the year.

Speaker Change: Thanks, Eric. That's really helpful, Collar. Just one quick follow-up from me. What's the assumed timing for the large client transition? Just wanted to get a sense as to whether that's reflected in the 1Q servicing fee guide or you're expecting that later in the year?

Speaker Change: Okay.

Speaker Change: Um...

Speaker Change: <unk>.

Speaker Change: Let me try to describe this to you in a couple ways to be helpful. At this point, on a quarterly run rate basis, and I say that very specifically, we're about halfway through the transition, including a piece that came out in the fourth quarter. So we're halfway through on a quarterly run rate basis. You also, though, have to think about it on a fiscal year-on-year basis. And the way I would describe it on a fiscal year-on-year basis, remember we said this was worth about 2 percentage points of total fees. That's what we disclosed in our Qs and Ks.

Speaker Change: Let me, let me see how let me let me try to describe this to you in a couple ways and.

Lastly, as we announced earlier today, our board authorized a new multi-year common equity repurchase program of up to $5 billion with no expiration date. Turning to slide 15, before I start, let me first share some of the assumptions and underlying our current views for the full year. Let me cover our full-year 2024 outlook, as well as provide some thoughts on the first quarter, both of which have more potential for variability than usual, given the macroeconomic environment we're operating in. In terms of our current macro expectations, as we stand here today, we expect global equity markets to be flat point to point in 2024, which equates to the daily average being up about 10% year over year.

Speaker Change: Two what to be helpful. At this point on a quarterly run rate basis, and I say that very specifically, we're about halfway through the transition incur.

Speaker Change: Including a piece that came out in the fourth quarter or so.

Speaker Change: We are halfway through on a quarterly run rate basis.

Speaker Change: You also, though, have to think about it on a fiscal year-on-year basis. And the way I would describe it on a fiscal year-on-year basis, remember we said this was worth about 2 percentage points of total fees. That's what we've disclosed in our Qs and Ks. About a quarter of that fiscally has come out through the end of 23, about half of it will come out through 24, and about another quarter in 25. So it just takes time to play through. And so we did include that headwind in the first quarter 24 versus first quarter 23 guide. And it is important to that guide, and so our guide includes that, and you've got the net guide as a result.

Speaker Change: Also they will have to think about it on a fiscal year on year basis, and the way I would describe it on a fiscal year on year basis.

Brennan Hawken: So we help three of the major players make this happen. So we're quite active in the space, and as you'd expect, we do everything for each of those three except for the actual custody for the reasons that I think you know. So no, we're very active in the space. What did we learn? I mean, it's early.

Speaker Change: Remember we said this was worth about two percentage points of total fees. That's what we've disclosed in our Qs and Ks about a quarter of that fiscally has come out through the end of 'twenty three about half of it will come out through 'twenty four.

Speaker Change: About a quarter of that fiscally has come out through the end of 23, about half of it will come out through 24, and about another quarter in 25. So it just takes time to play through. And so we did include that headwind in the first quarter 24 versus first quarter 23 guide. And it is important to that guide, and so our guide includes that, and you've got the net guide as a result.

Our interest rate outlook for 2024 largely aligns with the forward curve as of year end 2023, which I would note continues to move. We expect to see a modest increase in FX and equity volatility, which should support slightly higher FX trading services fees this year, though we are still seeing muted volatility in the first quarter. And we expect currency translation to have less than a half a percentage point impact on revenues and expenses due to dollar depreciation.

Speaker Change: <unk>.

Speaker Change: Another quarter in 25, so it just it just takes time to play through and so we did include that headwind in the in the first quarter 'twenty four versus first quarter 'twenty three guy.

Brennan Hawken: What I think everybody's watching out for is there are a lot of players that have gone into the market, some of them with existing high levels of assets. What will be interesting to see over time is, does it actually consolidate? How does it work in terms of who the buyers are, institutional versus retail versus intermediary?

Speaker Change: And it is.

Speaker Change: It is important to that guidance. So our guide includes that and you've got the net guide as a result.

Speaker Change: Very helpful. Thanks for taking my questions.

Speaker Change: Very helpful. Thanks for taking that question.

Ron O'Hanley: But these are early days, and it was good to get the uncertainty cleared up and for all this to get launched. We're keen to be part of it. Yes, Ron, thanks for clarifying pure custody versus a servicing. Very, very helpful.

Speaker Change: Your next question comes from Ibrahim.

Speaker Change: Your next question comes from Ebrahim <unk>.

Ibrahim: Kevin Nwala with Bank of America. Please go ahead.

And I would remind you that a weaker U.S. dollar has a favorable impact on revenues and an unfavorable impact on expenses. transcript Emily Beynon, So, we currently expect that full-year total fee revenue will be up approximately 3% to 4%, ex-notable items, with servicing fee and management fee growth driven by higher market levels and continued business momentum, and continued strong growth in front office software and data. This includes a headwind of a little less than one percentage point to feed growth from the expected previously disclosed client transition. Regarding the first quarter of 2024, we currently expect fee revenue to be up 2% on a year-over-year basis, with servicing fees expected to be up 1%, management fees up 7% to 8%, and front office software and data expected to be up over 20%, largely due to increased SaaS, new business, and We expect full-year 2024 NII to be down about 10% on a year-over-year basis compared to a record high of 2023.

Ebrahim: <unk> with Bank of America. Please go ahead.

Kevin Nwala: Good afternoon. Just a very quick follow-up. I know the call's gone on for long, Eric. I heard you talk about just the right level of deposits between $200 and $210. Did you say that you expect the growth we saw in fourth quarter to reverse in one cue as we think about where deposits shake out?

Kevin Nwala: Good afternoon. Just a very quick follow-up. I know the call has gone on for a long time, Eric. I heard you talk about just the right level of deposits between $200 and $210. Did you say that you expect the growth we saw in the fourth quarter to reverse in one clue as we think about where deposits shake out?

Ebrahim: Hey, good afternoon.

Speaker Change: A quick follow up I know the call has gone on for longer.

Speaker Change: I heard you talk about just the right level of deposits between 200.

10.

Speaker Change: Did you say that you expect the growth we saw in fourth quarter to reverse in <unk> as we think about the deposit shakeout.

Eric: Ebrahim, it's Eric.

Ebrahim: No. What I said is that we think will operate in the $200 billion to $210 billion range in.

Ebrahim: In the first quarter second through the year, we expect that to be where we land I think in <unk>.

Ebrahim: Fourth quarter on average right remember, we also I think talked a little bit about the months. We talked there is in the period data which is very.

Ebrahim: Volatile, but on average we ended up at I think around 207.

Ebrahim: <unk> for the for the quarter in four Q and so we think roughly flattish deposits into <unk>. It's just hard to tell theres seasonality at year end. There is there tends to be.

Glenn Schorr: So, big flows in SSEA, which is great to see, you know, these things aren't predictable, but I am curious if you had any thoughts towards sustainability and maybe it would be the colors of what clients are buying, what clients. I'm sorry, what flavors of ETF are they, the average fee, and what you're specifically doing differently on the distribution front and education front to get at those flows. Thanks. Yeah, so there are a number of things going on there in the fourth quarter, Glenn, and throughout 2023. I think, as we've noted, and certainly you all would have observed, for most of the year, with some episodic exceptions, it was a risk-off environment. That changed in the fourth quarter somewhat, as predicted, once investors got a sense of where interest rates were going, as they did when the Fed communicated in the third quarter, more or less, a pause. I think that started the activity going.

Ebrahim: Low point in February and then you've got cash building for tax purposes.

Ebrahim: Into into March, but I would call it flattish in the scheme of things, but with a with a with a range of.

Ebrahim: With a range around that.

Speaker Change: And just a bigger picture question around NIB mix and NII. Do we need to get to a point where QT is shut, the Fed is done with cutting rates before we see NII stabilize and maybe the deposit mix shift?

Speaker Change: And just a bigger picture question around the NIB mix and NII. Do we need to get to a point where QT is closed, the Fed is done with cutting rates before we see NII stabilize and maybe the deposit mix shift? Do we need to get to that point, or can it happen sooner than that?

Ebrahim: And just a bigger picture question around.

Ebrahim: Niv mix NII do we need to get to a point.

This is dependent on the outcome of global rate cuts and deposit mix and levels, which are obviously difficult to predict. Regarding the first quarter of 2024, after a significant step up in 4Q23, we expect 1Q24 NAI to be flat to down 3% on a sequential quarter basis given current deposit mix expectations. Turning to expenses, as you can see on the walk on page 16, we expect full-year expenses ex-notables to be up about 2.5% on a nominal basis in 2023, driven largely by our continued investment in the business, which we expect to largely offset through greater productivity savings worth half a billion dollars, which is approximately 1.7 times last year's gross savings level. Regarding the first quarter of 2024, we expect expenses ex-notable As a reminder, we expect to achieve positive fee operating leverage, excluding notable items, for full year 2024, given the projected growth in fee revenue and well-controlled expenses. Finally, we expect taxes to be in the 21-22% range for 2024. And with that, let me hand the call back to Ron.

Ebrahim: <unk> shot the fed is done with cutting rates before we see NII stabilize and maybe the deposit mix shift.

Speaker Change: Do we need to get to that point or can it happen sooner than that?

Well stabilizes when they do we need to get to that point or can it happen sooner than that.

Speaker Change: Um, that's a fair question. My instinct on this is NIB will begin to stabilize, you know, sometime in 2024 by, we think sometime in the, you know, by the middle of the year, third quarter. You've kind of at that point, we've, we've, I'll call it burned through the, the, the, the largest accounts. Those are the ones that, you know, kind of on a, since, since, since its peak are down, you know, 75% in NIB. The smallest accounts are down by about 25% since the peak, and those we're seeing stabilize more and more. So, um, I, I think we'll see some stability in, in NIB because. Clients and funds and fund boards have made their decisions, especially the ones that have a million or 2 million in an account. You know, some of them just don't want to deal with the tax reporting and so you'll, you'll, you'll get to some, uh, stabilization. So, you know, we, we think that'll, that'll kind of, uh, uh, that'll, that'll kind of, uh, stabilize. I think the, the broader question on NII will then come with, um.

Speaker Change: Um, that's a fair question. My instinct on this is NIB will begin to stabilize, you know, sometime in 2024 by, we think, sometime in the middle of the year, third quarter. You're kind of at that point; we've, we've, I'll call it burned through the, the, the, the largest accounts. Those are the ones that, you know, kind of on a since, since, since its peak are down, you know, 75% in NIB. The smallest accounts are down by about 25% since the peak, and those we're seeing stabilize more and more. So, um, I think we'll see some stability in NIB because.

Speaker Change: It's a fair question, Mike My instinct on this is that the.

Speaker Change: <unk> will begin to stabilize.

Speaker Change: Sometime in 2024 by we think sometime in the.

Speaker Change: By the middle of the year third quarter, you've kind of at that point, we fleets I'll call it burned through.

Speaker Change: The largest accounts those are the ones that.

Speaker Change: Kind of on us since since since its peak are down.

Glenn Schorr: So much of the activity late in the year would have been the kind of classic risk-off. Let's put positions on it quickly, benefiting the highly liquid SPDR core SPY in the sector ETFs. But underlying it and throughout the year, the low-cost ETFs, which represent different investors, these would be the ultimate holders here tend to be individuals. They're often advised by an intermediary like an RIA. It's very sticky.

Speaker Change: 75% and an IV the smallest accounts are down by about 25% since the peak and those were seeing stabilized more and more so.

Speaker Change: Clients and funds and fund boards have made their decisions, especially the ones that have a million or 2 million in an account. You know, some of them just don't want to deal with the tax reporting, and so you'll, you'll, you'll get to some, uh, stabilization. So, you know, we think that'll, that'll kind of, uh, uh, stabilize. I think the broader question on NII will then come with, um. You know, how And at that point, I think deposit betas kind of tend to stabilize as well. So I think at that point in the second half of next year, the real question is, what is the direction of interest rates on the front end?

Speaker Change: I think we'll see some stability in niv, because clients and funds and fund boards have made their decisions, especially the ones that have $1 million or $2 million an account some of them just don't want to deal with the tax reporting and so youll youll get to some stabilization. So we think that'll that'll kind of.

Glenn Schorr: And we have continued to build shares there, both in equity and fixed-income low-cost. Across the board, Thanks for joining us. It's been a long time coming.

Speaker Change: That'll that'll kind of stabilized I think the broader question on NII will then come with.

Ron O'Hanley: As you know, it's been... Over a decade since we knew how this was actually going to play out, and it's ironic how it's playing out and that everybody's just taking their standard investment strategy and putting it in an active ETF. We benefit from some of that. On the GA side, in terms of what they're doing in fixed income, but we benefit from it greatly on the servicing side because we're very, very, not to overuse the word, active in the active ETF servicing space. And we believe you'll see a lot more growth there as core funds and core offerings of well-known asset managers either get converted to ETFs or launched as ETFs. So we're really pleased on the GA side. In terms of what drove it, I think the next part of your question. I mean, part of it was much more focus and resources dedicated to the various intermediary channels.

Speaker Change: You know, how...

Speaker Change: How what.

Speaker Change: Well, and at that point, I think deposit betas kind of, you know, tend to stabilize as well. So I think at that point in the second half of next year, the real question is, what is the direction of interest rates on the front end? It's a very important question, which is, where's the long end going to go? And where's the long end going to go in the U.S. versus in the international markets? And that is particularly important to the banking sector because, you know, with some amount of steepness in the yield curve, and I, you know, it's hard to remember when we've had steepness. It's been a while. You know, some amount of steepness in the yield curve is quite accretive to NII, and you expect in a good economy to have some. And so that'll be a feature. So there's a series of elements that'll come through, and it's hard to, I think, to exercise. I'll predict too precisely.

What well at that point, I think deposit betas kind of tend to stabilize as well. So I think that at that point in the second half of next year. The real question is what is the direction of interest rates.

Speaker Change: It's a very important question, which is, where is the long end going to go? And where is the long end going to go in the U.S. versus international markets? And that is particularly important to the banking sector because, you know, with some amount of steepness in the yield curve, and I, you know, it's hard to remember when we had such steepness. It's been a while. You know, some amount of steepness in the yield curve is quite accretive to NII, and you expect in a good economy to have some. And so that'll be a feature. So there's a series of elements that'll come through, and it's hard to, I think, predict. I'll predict too precisely.

Speaker Change: The front end so very important question, which is what's going to what's where's the long end going to go and whereas the long earnings Glen and go in the U S versus in the international markets and that is that is particularly important to the banking sector because with some amount of steepness in the yield curve.

Ron: Thank you, Eric. Operator, we can now open the call for questions. Thank you, ladies and gentlemen. We will now begin the question and answer session. If you have a question, please press Star, followed by the number on your touchtone.

Hard to remember when we've had steepness.

Speaker Change: It's been a while some amount of steepness in the yield curve is quite accretive to NII and you expect in a good economy to have some.

Ron: You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are read. Client from Napoleon, Star followed by the, If you are using a speakerphone, please put your hands in the air. One moment, please. My first question comes from Alex Blostein with Goldman Sachs. Please go ahead. Hey, good morning, everybody.

Speaker Change: And so that'll be that'll be a feature.

Speaker Change: Theres a series of elements that will come through and it's hard to.

Speaker Change: Two as a result predict 222 precisely.

Speaker Change: That's it. Thanks, Eric.

That's helpful color. Thanks, Eric.

Ron O'Hanley: I mean, our roots are in the institutional channels, but lots of the growth is in the intermediary channels, so that's part of it. And then, as we talked about last quarter, we took a hard look at pricing, particularly for the so-called low-cost ETFs and, recognizing their durability, felt that it was worth the investment to reprice them to continue to gain market share because they tend to be very, very sticky. A lot of detail. It's perfect.

Speaker Change: Your next question comes from Ryan <unk> with Morgan Stanley. Please go ahead.

Speaker Change: Your next question comes from Ryan Kenney with Morgan.

Ryan Kenney: Go ahead.

Ryan Kenney: Go ahead. Hi, thanks for taking my question. Just to follow up on the capital side, you had an 11.6% C to 1 ratio. That was a nice improvement sequentially, and it looks like that was driven mostly by $6 billion of lower RWA. Can you just help us impact the RWA dynamics a bit? What drove the optimization? And then you also mentioned RWA could be higher this year to support various businesses. So does that mean that the optimization was just temporary? Sure. It's Eric. Let me describe it in a couple different ways.

Ryan Kenney: Hi, thanks for taking my question. Just to follow up on the capital side, so you had an 11.6% C to 1 ratio. That was a nice improvement sequentially, and it looks like that was driven mostly by $6 billion of lower RWA. Can you just help us impact the RWA dynamics a bit? What drove the optimization? And then you also mentioned RWA could be higher this year to support various businesses. So does that mean that the optimization was just temporary?

Ryan: Hi, Thanks for taking my question.

Eric: Thanks for all the details. I was hoping we could start with unpacking some of the NII dynamics, and I guess I can appreciate the uncertainty when it comes to deposits. But Eric, maybe talk a little bit about what drove the upside in the fourth quarter in deposit levels, and if you have a view on what's sort of seasonal versus more kind of core client franchise driven, and maybe give us some insight on where you expect balances to ultimately stabilize in the back half of the year. Sure, Alex. It's Eric.

Ryan: Just a follow up on the capital side. So you had an 11, 6% CET one ratio that was a nice improvement sequentially and it looks like that was driven mostly by $6 billion of lower <unk> can you just help us impact on <unk> dynamics a bit what drove the optimization and then you also mentioned <unk> could be higher this year to <unk>.

Ron O'Hanley: I appreciate it. I'll go quickly on the follow-up. It's the same question, just different on the servicing front.

Ryan: Support various businesses does that mean that the optimization was just temporary.

Ryan: Yes.

Ryan Kenney: Sure. It's Eric. Let me describe it in a couple different ways. Every bank tries to manage RWA just because it's part of our capital requirements and returns.

Ryan: Sure.

It's Eric.

Ryan: Let me describe it in a in a couple of different ways. We're all that for every bank tries to manage our there'll be away just because it's part of our capital requirements and returns.

Ryan Kenney: Every bank tries to manage RWA just because it's part of our capital requirements and returns.

Ron O'Hanley: I'm happy with the wins you noted. Maybe we could just drill down. I know it's not huge yet, but the private market piece of the servicing wins, I'm curious if you want to tell us how much it was, but more importantly, what it is and how. Is it one client or is it multiple clients?

Eric Aboaf: And we try to report it carefully and we, you know, take advantage, we, you know, we do it, you know, fully to the rules as you'd expect. What tends to create the volatility because it's a spot measure, it's a one day of the quarter, one out of 90 day measure is the market factors, right? So if you've got a, you know, an FX or in any of the trading businesses, if you've got a forward book or even a vanilla, you know, derivative book, you've got counterparty exposures, you've got that are affected in particular by the currency pairs. And as those move around in the last, you know, week of the quarter, you might be in the money or out of the money in the, you know, in the future. So, you know, in those positions and those directly because of how the standardized RWA mathematics work just goes right through RWA. And so that could create a swing of, you know, four or five billion dollars, you know, on the size of our RWAs. You know, our RWAs is about 100, you know, we printed around 112 billion, about half of that is in the markets area. And so, you know, there's a good bit of variability. And that's literally what happens. And so, you know, sometimes we'll end up low, sometimes we'll end up high. If you look, you know, at, you know, page four, page 14 of the presentation materials, you'll see, you know, low point of 107 billion, you know, a year ago in RWA, you'll see a higher point of 118 billion, you know, last quarter. And quite a bit of that is driven by just the, those market factors playing through into the calculations that we have. And then in addition to that, if you run a loan book like we do, you'll have overdraft, overdrafts take RWA as well. And so we also saw some amount of benefit there this quarter. I think the way I would describe the go forward view is that, you know, we ended up particularly low this quarter. We said by, you know, it could be, you know, six, seven billion dollars lower than expected. You know, what would par be? You know, I mean, you know, you know, you know, you know, you know, you know, you know, you know, you know, you know, you know, you know. Maybe I'll describe it that way, you know, going forward, it might be 118, it might be, you know, 120 billion. But you've got to put a plus five, minus five billion band around that. And so we'll, you know, what we want to do is we want to take, we want to gently continue to reinvest capital into our businesses. Because, you know, these FX businesses now that we have, you know, have good returns. We've managed them. Well, they've got, you know, 10, 12 percent returns in many cases. The securities finance businesses typically are high single digit return businesses. But that's that's healthy. And it's very connected to the servicing and the administrative fee business that we have and important to our clients. And so, you know, our view is that these are these are ways for us to solidify and expand and deepen our relationship. And so we'll, we'll gently add, you know, RWA, you know, each year, you know, how much do we add? We add, you know, a few billion dollars, you know, three to five billion dollars, more RWA each year, perhaps. But there'll be there'll be some volatility around that. And, you know, that'll be a part of the way we drive our our organic growth. We're a high return. We're a high return bank. That's that's for sure. But we will we will we do want to put some of our capital to work for for a core organic growth. Thank you. Thank you very much.

Eric Aboaf: And we try to report it carefully, and we, you know, take advantage of it, we, you know, we do it fully according to the rules, as you'd expect. What tends to create the volatility because it's a spot measure, it's a one day of the quarter, one out of 90 day measure are market factors, right? So if you've got an, you know, an FX or in any of the trading businesses, if you've got a forward book or even a vanilla, you know, derivative book, you've got counterparty exposures, you've got that are affected in particular by the currency pairs.

Eric: Let me share with you the texture we have, but I'll just say, you know, deposits and deposit levels continue to be volatile. They surprise to the upside, you know, and in particular, we saw a nice uptick in deposits, you know, into September and October. We actually saw on the NIB side a downtick in November and then a, you know, large uptick again in December. So, you know, the averages came in higher for the quarter, which made a big difference, you know.

And we tried to reported carefully and we take advantage.

Ryan: We do it.

Ryan: Fully two.

To the rules as you would expect what tends to create the volatility because it's a spot measure. It's a one day of the quarter. One out of 90 day measure is the market factors right. So if you've got a and FX for and any of the trading businesses, if you've got a forward book or even.

Ron O'Hanley: I'm curious about how that private market servicing space is developing. Thanks. No, no, it's, well, to answer the last part of it first, Glenn, it's certainly not one client. I mean, this is a space that we've invested in and we're well known in, and we see a secular trend here where so many of these operations are held inside firms, they're highly bespoke, often sitting in very expensive locations, and as the product sets have become more complicated, I mean, it' It was fine to do all this stuff inside when it was just a couple of products that were fairly straightforward.

Vanilla derivative book you've got.

Ryan: Counterparty exposures you have got that are affected in particular by.

Eric Aboaf: And as those move around in the last, you know, week of the quarter, you might be in the money or out of the money in the future. So, you know, in those positions, and those directly because of how the standardized RWA mathematics work just goes right through RWA. And so that could create a swing of, you know, four or five billion dollars, you know, on the size of our RWAs. You know, our RWAs are about 100. We printed around 112 billion, and about half of that is in the markets area.

Ryan: Bye.

Ryan: By the currency pairs and as those move around in the last week of the quarter you might be in the money or out of the money in.

Ryan: In those in those positions and those directly because of how the standardized.

Ryan: RW way mathematics work just goes right through our there'll be way and so that could create a swing of.

Ron O'Hanley: That's not what's happening now. Products are more complicated as you start to think about structures that enable high net worth individuals to participate in them. You've got that added complexity, and then oftentimes there are, you know, side investments that are permitted, et cetera. So it's very complicated, and lends itself to outsourcing. It's still very much an in-source business, so we see lots of potential growth in it. Its fee characteristics are different, positive in the sense that the fees are higher, but they get fully recognized when the fund is fully invested.

Ryan: $4 $5 billion.

Ryan: On on the size of our <unk> is about about 100.

Eric Aboaf: And so, you know, there's a good bit of variability. And that's literally what happens. And so, you know, sometimes we'll end up low; sometimes we'll end up high. If you look, you know, at page four, page 14 of the presentation materials, you'll see a low point of 107 billion, you know, a year ago in RWA; you'll see a higher point of 118 billion, you know, last quarter. And quite a bit of that is driven by just those market factors playing through into the calculations that we have. And then, in addition to that, if you run a loan book like we do, you'll have overdrafts, and overdrafts take RWA as well.

Ryan: We printed around 112 billion about half of that is in the markets area and so there's a good bit of variability and that's literally what happens and so sometimes we'll end up low sometimes we'll end up high if you look.

Ryan: At.

Ryan: Page four page 14 of the presentation materials Youll see low point of 107 billion.

Ryan: A year ago, and <unk>, you'll see a higher point of 118 billion last quarter and quite a bit of that is driven by just the those market factors playing through into the calculations that.

Eric Aboaf: The part that we pay a lot of attention to is what's the expected actual money raise and then drawdown, and how do we do our best to match our expenses to that. But we're very excited about the business. Much of the new investment and product investment that Eric talked about in the 2024 guide includes further strengthening of our position there. There's innovation in it, and our goal is to continue to set moats around us so we can continue to excel at it. And Glenn, it's Eric.

Eric: And it played out better through the quarter and through the end. If I then try to, you know, look forward, it's very hard to look forward to the year.

Ryan: And that we have.

Ryan: And then in addition to that if you want a loan book like we do Youll have overdrafts overdrafts take.

Eric Aboaf: And so we also saw some amount of benefit there this quarter. I think the way I would describe the go forward view is that, you know, we ended up particularly low this quarter. We said by, you know, it could be, you know, six, seven billion dollars lower than expected. You know, what would par be? You know, I mean, you know, you know, you know, you know, you know, you know, you know, you know, you know, you know, you know, you know. Maybe I'll describe it that way, you know, going forward, it might be 118, it might be, you know, 120 billion.

Ryan: <unk> as well.

Eric: You know, we'd like to operate and expect to operate in a deposit range of $200 to $210 billion. That's our kind of goal. A lot of that is just client engagement and helping put, you know, their cash to work. And sometimes they put cash to work in deposits, in repo, in money market sweeps. But there's a category, each one of those is an important category and outlet for clients. And what we're seeing is clients using, you know, all the, I'll call it, all the above, right, including just holding treasury securities. So that we expect to continue, and we think deposits will be, you know, roughly in this zone in the first quarter. What's a little harder to read is just how non-interest bearing deposits play out. We do expect those to continue to float downward. They tend to float downward for our clients.

Ryan: And so we also saw some amount.

Ryan: Benefit there this quarter I think the way I would describe.

Ryan: The go forward view is that we ended up particularly low this quarter, we said by could be.

Eric Aboaf: I'd just add, you know, privates have been a real strong area of growth for us. We've described it as, you know, up 10, 15 percent in different quarters. So it's a big part of our growth agenda as we, you know, this past year. And then, you know, this coming year, as we take our sales goals up to $350 to $400 million, at least a quarter of that plus, you know, is going to be around private equity. And that's what's going to help us continue to drive private growth, we think, in the, you know, 15 percent plus range in terms of year-on-year revenues. So it's an area that I think we have a broad approach to both large and small. And mid-size.

Ryan: Six $7 billion lower than expected what would par b, maybe I'll describe it that way going forward it might be a 118 it might be 120 billion.

Ryan: But you've got to put up plus five minus $5 billion bank.

Eric Aboaf: But you've got to put a plus five, minus five billion band around that. And so we'll, you know, what we want to do is we want to take, we want to gently continue to reinvest capital into our businesses. Because, you know, these FX businesses that we now have, you know, have good returns. We've managed them. Well, they've got, you know, 10, 12 percent returns in many cases. The securities finance businesses are typically high single-digit return businesses. But that's healthy. And it's very connected to the servicing and the administrative fee business that we have and important to our clients.

Ryan: Band around that.

Ryan: And so we will.

Ryan: What we want to do is we want to take.

Ryan: We want to gently continue to reinvest capital into our businesses because these FX businesses now that we have.

Ryan: Have good returns, we've manage them well they've got 10, 12% returns in many cases.

Securities Finance.

Ryan: Businesses.

Eric: Clients with the largest funds, those are the ones that have been, you know, floating down over the last two years. So we continue to see that expectation. There continues to be a little bit of repricing that plays out into the first quarter or two as well. And that's why I guided, you know, on an NII basis to, you know, flat to down 3% for the first quarter, just to give you a little bit of an indication. But we expect that.

Ryan: Typically our high single digit return businesses, but that's that's healthy and it is very connected to the servicing and the administrative fee business that we have and important to our clients and so our view is that these are these are ways for us to solidify and expand and do.

Eric Aboaf: And so, you know, our view is that these are ways for us to solidify and expand and deepen our relationship. And so we'll, we'll gently add RWA, you know, each year, you know, how much do we add? We add, you know, a few billion dollars, you know, three to five billion dollars, more RWA each year, perhaps. But there'll be some volatility around that. And, you know, that'll be a part of the way we drive our organic growth. We're a high return. We're a high return bank. That's for sure. But we will, we will. We do want to put some of our capital to work for core organic growth. Thank you. Thank you very much.

Eric: It's actually well distributed, and it's got a good mix of U.S., Europe, and Asia sales coming through as well. Yeah. As well as, Glenn, it's not just private equity. It's a private equity venture. Private credit is booming.

Ryan: Deepen our relationship with clients and so we'll generally at RW <unk>.

Each year, how much do we add we add.

Eric: We expect that it to be roughly on flat as deposits. I got it.

Eric: And, you know, for every bank that complains about what's going to happen with regulation and the fact that it's a private equity venture, it's a private equity venture. It's pushing activity out of the banking system. That's going right into the private credit area, and we should be the beneficiary of that growth. We appreciate all that. Thank you. Your next question comes from Gerard Cassidy with our thanks for watching! Hey, Eric. Hey, Ron.

Ryan: Few billion dollars $3 billion to $5 billion more RW, each year, perhaps but there'll be there'll be some volatility around that and that'll be a part of the way we drive our organic growth were our high return.

Eric: It's very helpful. My follow-up to sticking with deposits is around just deposit beta as we start to sort of enter the rate cutting cycle. So hoping you could articulate maybe what you're assuming for deposit beta on the way down in your 24 and AI guidance, and then broadly how we should think about sort of the cadence of deposit betas as we progress through the rate cutting cycle into the back half of 24, 25 maybe. But just curious to know kind of high of the upper at the beginning, lower towards the end, or the opposite.

Ryan: We're a high return bank that's for sure, but we will we will we do want to put some of our capital to work for FERC core organic growth reasons.

Speaker Change: Okay, great. I appreciate all those details. Thanks.

Speaker Change: Okay, Great I appreciate all those details.

Speaker Change: Your next question comes from Mike Brown with <unk>. Please go ahead.

Speaker Change: Your next question comes from Mike Brown.

Mike Mayo: Alright, Thank you for taking my questions.

Mike Mayo: Great. Thank you for taking my questions.

Mike Mayo: Great Thank you for taking my questions.

Mike Mayo: I guess, you know, I noticed that you saw record cash net inflows in 2023 and you mentioned that you actually took share in the institutional money market space.

Mike Mayo: I guess, you know, I noticed that you saw record cash net inflows in 2023, and you mentioned that you actually took a share in the institutional money market space. As we head into a declining rate environment here, I guess what's your expectation about how these cash and money fund assets could do good from here. I guess, you know, historically institutional money markets can act quite differently than retail. So I guess once the Fed begins to reduce rates here, what are you thinking about in terms of the path of the flows out of money funds?

Alex: Alex, it's, you know, it's an important topic because it affects how we interact with our clients. It affects how we price our products. It's how the industry, you know, has operated for many years. I think you know that our deposit betas on a cumulative basis have climbed quite a bit in the U.S. They're, you know, 75% or so cumulatively since the start of the cycle. In euros, it's, you know, around 60% cumulatively. In pounds sterling, it would be closer to 30% to 35%.

Mike Mayo: I guess.

Mike Mayo: I noticed that you saw record cash net inflows in 2023.

Eric: Thanks, Gerard. Eric, can you share with us? I know you and Ron Warren were on State Street 10 years ago, but... Your comments about the net interest income outlook and just how volatile it is due to what's going on in the bond market with the Federal Reserve and their balance sheet, are there any... Indicators you're monitoring that we could look at that might be able to give us a better insight into when net interest income for State Street might be more predictable on a go-forward basis? Oh, Gerard. It's Eric.

Mike Mayo: Mentioned that she actually took share in the institutional money market space as we head into a declining rate environment here I guess, what's your expectation about how these cash in money fund assets could.

Mike Mayo: As we head into a declining rate environment here, I guess what's your expectation about how these cash and money fund assets could

Mike Mayo: Good trend from here. I guess, you know, historically institutional money markets, they can act quite differently than retail. So I guess once the Fed begins to reduce rates here, what are you thinking about in terms of the path of the flows out of money funds? You know, could you actually still see some money fund inflows from institutional investors?

Mike Mayo: From here I guess historically institutional money markets, we can act quite differently than retail so I.

Mike Mayo: I guess once the fed begins to reduce rates here. What are you thinking about in terms of the path of the flows out of.

Mike Mayo: You know, could you actually still see some money fund inflows from institutional investors?

Mike Mayo: Out of money funds could you actually still see some money fund inflows.

Alex: So they're clearly moved up. What certainly happens as, and I'll say when, you know, if and when rates fall is the deposit betas reverse. You know, there's some amount of symmetry. But, you know, does it reverse instantaneously?

Eric Aboaf: I take a sigh when I think about this question. I think predictability is partly around Fed actions, right? This is the highest rate level that we've seen in 22 years. And also, if I go back a couple years, the lowest rate level we've probably seen in two decades as well, right? So we kind of, we're at these wide bookends relative to, you know, relative to really the whole, you know, since the, you know, since the, I want to say, turn of the century, right? Right, right. We have even more volatility. If you have to take too much duration on the asset side of the portfolio, you've got more AOCI risk. And so, you know, our tools to stabilize work up to a point and then have some negative implications. So I don't, I don't really see a way to turn what we'd like to have into what we want. I don't, I don't see a way to turn this into, you know, just a flywheel, a metronome.

Mike Mayo: From institutional investors.

Speaker Change: Yeah, Mike, it's a good question, one we think about all the time. So part of the way we've attracted more money market funds going back to...

Speaker Change: Yeah, Mike, it's a good question, one we think about all the time. So part of the way we've attracted more money market funds going back to... Our prior answers was that we just have a broader client base. So, and that helps, you know, we've gained market share, not just in terms of assets, but we've just attracted more clients. And, you know, once you have them,

Speaker Change: Yes, Mike.

Speaker Change: It's a good question when we think about all the time so part of the way we've attracted more money market funds going back to one of my prior answers as we just said.

Speaker Change: Our prior answers is we just have a broader client base.

Alex: You know, we want to be, you know, careful with our clients. We want to be fair. But we do think that, you know, over multiple quarters and certainly, you know, over any, you know, realistic timeframe, the Fed cuts, and there's got to be an adjustment. Now, part of that happens because we have a good bit of our deposits that are indexed to markets, right? They're indexed to market indexes, but there are quite a few that are indexed with a spread. And then there is a smaller amount now that has a transactional kind of, I'll call it, "administered" feature. But you'll generally see a broad amount of symmetry in deposits down versus up.

Speaker Change: Have a broader client base.

Speaker Change: So, and that helps, you know, we've gained market share, not just in terms of assets, but we've just attracted more clients. And, you know, once you have them.

Speaker Change: So and that helps we've gained market share not just in terms of assets, where we've just attracted more clients.

Speaker Change: <unk>.

Speaker Change: Once you have them.

Speaker Change: Whether their balances corporate ton you have you typically you have them.

Speaker Change: I think historically what's happened in terms and you've got to look back in history now because we haven't had this kind of a marketplace but the really sophisticated holders of

Speaker Change: I think historically what's happened in terms of terms, and you've got to look back in history now because we haven't had this kind of a marketplace, but the really sophisticated holders of

Speaker Change: I think historically, what's happened in terms.

Speaker Change: You got to look back in history now because we haven't had this kind of marketplace, but for.

Speaker Change: So really sophisticated holders of.

Institutional money market funds tend to hang on right because the the fund itself depending on its duration and there is a little bit of duration.

Speaker Change: Institutional money market funds tend to hang on, right, because the fund itself, depending on its duration, and there is a little bit of duration in it, actually lags.

Speaker Change: Institutional money market funds tend to hang on, right because the fund itself, depending on its duration, and there is a little bit of duration in it, actually lags. So, it's usually the opposite when rates are rising; the very sophisticated holders are toggling in and out depending on whether they see opportunities to go direct. Just given the nature of our client base, we don't see a lot of that activity, so we expect to keep them, and it really will be around where their balances go, and do they need them for some reason, or do they see more attractive investment opportunities.

Actually lags so it's usually the opposite.

Speaker Change: So, it's usually the opposite when rates are rising, the very sophisticated holders are toggling in and out depending on whether they see opportunities to go direct. Just given the nature of our client base,

Alex: I think what you do need to keep in mind is that asset sensitivity and liability sensitivity, though, are somewhat different between international markets and the U.S., right? And international markets are a little bit different. And international markets, because those cumulative betas are still in the 30% to 60% range, we're still asset sensitive. So we make more money with increases in rates. And we actually, NII will trim down, you know, with decreases in rates. And that's where we're most sensitive; that's our interest rate sensitivity today. In the U.S., we have a slight positive bias towards being liability sensitive, but it's still relatively slight. I don't know. I would almost call it neutral.

Speaker Change: When rates are rising very sophisticated holders or.

Speaker Change: Toggling in and out depending on whether they see opportunities to go direct.

Eric: That moves at a certain pace. And it's just, just a feature of what we do. And part of it is, you know, our institutional deposits have somewhat more asset sensitivity or liability sensitivity to, you know, rates relative to a very, you know, simple, you know, regional bank. So, you know, we'll tend to have a little more, but that's, that's part of the industry. That's, that's, you know, I think we're in line with peers. Very good.

<unk>.

Speaker Change: Just given the nature of our client base.

Speaker Change: We don't see a lot of that activity, so we expect to keep them, and it really will be around where do their balances go, and do they need it for some reason, or do they see more attractive investment opportunities. I would expect that we would see, if indeed...

We don't see a lot of that activity. So we expect to keep them and it really will be around.

Speaker Change: Where do their balances go into either.

Speaker Change: Or should we see more attractive investment opportunities.

Speaker Change: I would expect that we would see, if indeed we see a continued risk-on environment, that itself will cause a little bit of reallocation of institutional money market funds because, you know, the saying that everybody's talking about that there's so much parked on the sidelines. Well, a lot of it is parked here. But I would go back to where I began the answer, which is that it really is about establishing more client relationships, servicing them very well, and then continuing to grow the number of clients based on that track record.

Speaker Change: I would expect that we would see.

Speaker Change: If indeed.

Speaker Change: We see a continued risk on environment that itself will cause a little bit of reallocation of institutional money market funds because, you know, the saying that everybody, what everybody's talking about that there's so much parked on the sidelines. Well, a lot of it is parked here. But I would go back to where I began the answer, which is it really is about establishing more client relationships, servicing them very well, and then continue to grow the number of clients based on that track record.

Speaker Change: We see a continued risk on environment that itself will cause a little bit of both.

Speaker Change: Reallocation.

Speaker Change: Institutional money market funds because.

Speaker Change: Saying that everybody whatever.

Ron O'Hanley: Ron, in your prepared remarks, you talked about the success and the momentum you're having with the Alpha product in the servicing business, in the investment services business, I should say. Are there any capacity constraints that you've got to be careful about if the momentum continues, or is it almost no, you've got plenty of bandwidth to handle future growth? Yeah, I would say that the capacity constraint has been, particularly with these large, complicated clients, the really large ones, some of which are, well, most of which are still being onboarded. The capacity strength has been around onboarding. In terms of the past year in particular, we've gotten better at that.

But he is talking about theres, so much parked on the sidelines will a lot of it is parked here.

Alex: So, you know, part of what we're doing is just navigating this interest rate environment. It's not exactly clear when rates will come. It's not clear whether the U.S. will cut before Europe or vice versa.

Speaker Change: I would go back to where I began the answer which is it really is about establishing more client.

<unk> chips.

Servicing very well.

Speaker Change: <unk> continued to grow the number of clients based on our track record.

Speaker Change: Okay, great. Thanks, Ron. The $5 billion share buyback authorization, that certainly was a big number. You know, Eric, as you just alluded to in the last question, just a lot of puts and takes to consider on the capital front in 2024 and into 2025. I guess my question is really just why come with such a large authorization? You're targeting 100% payout ratio. So this would seem to me that you certainly would not need all of that in 2024. Is this just a desire to have kind of a big authorization in place for a multi-year horizon or just to have more flexibility over time? Just love to hear a little bit more about that.

Speaker Change: Okay, great. Thanks, Ron. The $5 billion share buyback authorization, that certainly was a big number. You know, Eric, as you just alluded to in the last question, there are just a lot of puts and takes to consider on the capital front in 2024 and into 2025. I guess my question is really just why come with such a large authorization? You're targeting a 100% payout ratio. So it would seem to me that you certainly would not need all of that in 2024. Is this just a desire to have kind of a big authorization in place for a multi-year horizon or just to have more flexibility over time? I would just love to hear a little bit more about that.

Alex: And part of what we'll do is, you know, actively manage our portfolio to try to take advantage of what's coming. At the same time, we'll price our deposits fairly and prudently. Great. Very helpful. Thanks very much.

Speaker Change: Okay, great. Thanks, Ron.

Speaker Change: The $5 billion share buyback authorization and that certainly was a big number.

Speaker Change: Eric as you just alluded to in the last question just a lot of puts and takes to consider on the capital front in 2024 and into 2025.

Alex: Your next question comes from Brennan Hawken with UBS. Please go ahead. Thank you for watching! Good morning.

I guess my question is really just why come with such a large authorization youre targeting 100% payout ratio. So this would seem to me that you certainly would not need all of that in 2024 is this just a desire to have kind of a <unk>.

Brennan Hawken: Thanks for taking my questions. I think maybe some of what you just said on the non-U.S. side might explain this, but when we think about triangulating the minus 10% to the fact that one Q is either going to be flat, or it's only down a little on NII, it sort of suggests that your exit rate by the time you get to 4Q24 is probably going to be, you know, rather low. So, you know, am I reading correctly in thinking that it's that non-U.S. piece that's going to drive some of that weakness, and am I extrapolating the comments correctly to think that we could see a little bit more back-end weighted decline for NII? Brennan, it's Eric.

Ron O'Hanley: If you just look at that number, we were roughly at about, as I recall, $3.6 trillion in assets to be onboarded, and we're now down to $2.3 trillion. So you can see we're getting better at that. The real constraint, to be specific about it, tends to be how quickly you onboard the middle office element to that, because that often requires engineering, and by that, I mean engineering with the client. Because, ultimately, that's a client, and it's like any other kind of industrial outsourcing. A client has an operation, does things in a particular way, and wants to outsource that element of it to us.

Speaker Change: Big authorization in place for a multi year horizon or just to add more flexibility over time, just look at you a little bit more about that thank you.

Speaker Change: Mike It's Eric the background here is that the industry has evolved I would say pre CCAR, which is a long time ago. There used to be open ended authorizations.

Speaker Change: In the banking sector. Once we got into CCAR remember there was a very defined annual.

Ron O'Hanley: We're not interested in taking somebody's mess for less. I mean, we need to actually work with them to engineer it in a way where as much of it as possible is standardized, and that the customization is limited to the kinds of user interfaces or how things are actually applied. And we've just gotten better at that over time. So I would say, looking forward, we don't see that as being a meaningful constraint. Very good. Thank you. This question comes from Jim Mitchell with... Global. Please go ahead. Good afternoon.

Speaker Change: Out of buybacks that you had to submit in fact, yet to submit the first year in the second year and there was a lot of.

Speaker Change: Making sure that what you submitted within the fed CCAR process was actually what you did because.

Eric: I think you've got the right general pattern framed in the area of NII. You know, clearly, we have a very strong step-off, in particular in December, but, you know, in the fourth quarter, which will flow into the first quarter. And then we expect a trending down. You know, we had a couple, well, probably earlier this, earlier last year, so a couple quarters ago, we described an NII range of 550 to 600 million. And we think we'll get into that range, the top end of that range by around the third quarter. But it's a little bit hard to know the exact shape.

Speaker Change: One wanted to keep consistency with that and so the industry move towards.

Quite a bit of disclosure on a one year basis as a result.

Speaker Change: If you recall a lot of those one year disclosures happened right. After CCAR was announced that the either at the end of June or in the second quarter earnings in July.

Ron: Just maybe a follow-up on the... Outside of sort of the private markets you've had, you've ramped up pretty quickly in terms of getting to your $400 million in net new servicing fee wins. And maybe if private markets are a quarter, can we talk a little bit about the other three quarters, where you've seen success, what's worked, what hasn't worked, and what kind of opportunity set do you see, maybe even getting above the $100 million? Jim, it's Ron.

Speaker Change: We've seen as we've scanned at least the banking.

Speaker Change: Our peer banks the G sibs the large.

Speaker Change: U S. Regionals is now that CCAR.

Is it still an annual process, but it's really with the with.

Eric: We just, but you've got the right direction of travel. And then we expect some stabilization, you know, in the second half of next year, maybe around the top half, the middle half of that range. It's really hard to tell exactly where and when.

Speaker Change: With the SCB and some of the refinements to it.

Speaker Change: It's really an ongoing process and what we've realized is that.

Speaker Change: I'd say more than three quarters of our peers you would probably know have actually moved to open ended programs over the last year year and a half and so we just wanted to conform to that as a result. This one it's multiyear it's open ended.

Ron O'Hanley: It's not just one thing, but a lot of really important things across the board to ramp up our execution. Where we're seeing it, to answer the first part of your question, is that the core investment manager segment still remains strong and active for us. As some of those firms are facing the same kind of market that everybody else is, they're more interested in actually trying to do more with us and do different things with us. A little bit of a resurgence in the asset owner marketplace, and in particular amongst asset owners that aren't just pure asset allocators, meaning they're managing some assets themselves or truly actively asset allocating, not just listening to a consultant tell them what to do, but either managing money or at a strategic and tactical level allocating assets.

Eric: If you step back and ask, you know, what are the underlying drivers, there are really three drivers that continue to be important. In terms of tailwinds, we continue to have long rates playing through the portfolio and the investment portfolio balances as they recoup at higher rates. That's particularly important in the first half of the year, a little less so in the second half of the year, but that continues through as a positive. We then have, as you mentioned, short rates starting to come down. And because of our sensitive position across the global markets, that does start to have a headwind impact on NII, you know, as those cuts continue to come through. We'll see, you know, what the pattern and pace of U.S. versus international cuts are.

Speaker Change: We'll take it from there.

Okay. That's great. Thanks for all the color there. Thank you.

Speaker Change: Okay, that's great. Thanks for all the color there.

Speaker Change: Your next question comes from Mike Mayo with Wells Fargo Securities. Please go ahead.

Speaker Change: Your next question comes from Mike Mayo with Wells Fargo.

Speaker Change: Your next question comes from Mike Mayo with Wells Fargo. Hi.

Speaker Change: Hi.

Mike Mayo: Well, no good deed goes unpunished, $5 billion buyback to that last question.

Mike Mayo: Well, no good deed goes unpunished, $5 billion buyback to that last question. Are you assuming that Basel III gets modified, and if Basel III didn't exist, how much higher would that $5 billion number be? And at what price do you say buybacks don't make so much sense anymore?

Mike Mayo: Well no good deed goes unpunished $5 billion buyback.

Mike Mayo: To that last question, but.

Mike Mayo: Are you assuming that Basel III gets modified and if Basel III didn't exist, how much higher would that $5 billion number be? And at what price do you say buybacks don't make so much sense anymore?

Mike Mayo: Are you assuming that Basel III gets modified and if Basel III didn't exist how much higher would that $5 billion number.

Mike Mayo: And at what price you say buybacks don't make so much sense anymore.

Speaker Change: Mike maybe I'll start.

Speaker Change: Mike, maybe I'll start on the Basel III. I think it's...

Speaker Change: Mike, maybe I'll start on Basel III. I think it's... Where Basel III comes out is very uncertain at this point. You know, the comment period ended January 16th. I don't know how many millions of pages were submitted, but there's a lot to be evaluated there. And you all know the various pressures and responses that the regulators are getting on this. So it's very hard to tell.

Mike: On the on the Basel III I think its.

Speaker Change: Where Basel III comes out is very uncertain at this point. You know, the comment period ended January 16th. I don't know.

Mike: We're Basel III comes out it's very uncertain at this point.

Brennan Hawken: And I think right now we've pegged to the forwards, which shows a lot of consistency and symmetry. But we'll see if that really, really happens, because, you know, you can see inflation expectations keep moving around literally daily and weekly. And then the third feature is just client deposits and mix. And, you know, while we expect client deposits to be in that zone of, you know, 200, 210, they might bump up above that, or a little below that. But they'll be in that broad zone.

Mike: The comment period ended January 2016.

Speaker Change: I don't know.

Speaker Change: and how many millions of pages were submitted, but there's a lot to be evaluated there. And you all know the various pressure and response that

Speaker Change: How many millions of pages were submitted but theres a lot to be evaluated there and you all know the.

The various pressure in response, but.

Speaker Change: that the regulators are getting on this. So it's very hard to tell.

Speaker Change: The regulators are getting on this so it's very hard to tell.

Speaker Change: I don't know that we would have changed the authorization if we had perfect clarity on where it was coming out. It was a factor, obviously.

Speaker Change: I don't know that we would have changed the authorization if we had perfect clarity on where it was coming out. It was, obviously. But it's not like we have a we think it's absolutely going to be this and therefore, So I hope that helps.

Speaker Change: I don't know that we would have.

Speaker Change: Change the authorization, if we had perfect clarity on where.

Where it was coming out it was it was a factor.

Speaker Change: <unk>.

Speaker Change: But it's it's not like we have a we think it's absolutely going to be this and therefore

Speaker Change: But it's it's not like we have a we think it's absolutely going to be this and therefore.

Ron O'Hanley: And then finally, I should just talk about regions. We have invested heavily in the capabilities in all of our regions, and probably the most impact from that over the last couple of years has been just the very good growth that we're seeing in Asia-Pacific, and really all parts of Asia-Pacific, from, you know, Australia north to Japan and everything in between. The U.S., as we talked about in the past, we were not pleased with where we were in this past year, particularly the second half of the year. We're actually reasonably pleased with how we've done. Europe has always been strong for us.

Speaker Change: So I hope that helps.

Brennan Hawken: You know, the mix will continue to shave down non-interest bearing bonds over the next quarter or two, we think. But it's hard, again, to predict. And then there's the, you know, we're working through the final stages of some of our interest-bearing deposit repricings, which seem to have taken a little longer in some cases than we expected. That's OK. That means we accumulate income. You know, but those continue to come through, and they'll play through in the first quarter or two as well. And then that's what kind of brings us to some level of, you know, reasonable stability in the back half of the year. Thanks for all that texture, Eric.

Speaker Change: So I hope I hope that helps.

Speaker Change: Yes, but maybe it's Eric Yeah, Mike.

Speaker Change: Yeah. Go ahead, Mike. Go ahead. No, just so where your base case, what is the RWA inflation, the most recent update? We've gotten a few changes here during earnings season.

Speaker Change: Yeah. Go ahead, Mike. Go ahead. No, just so where is your base case, what is the RWA inflation rate, the most recent update? We've made a few changes here during earnings season.

Speaker Change: Yes.

Speaker Change: Your base case, what is the <unk> inflation.

Speaker Change: The most recent update because we've gotten a few changes here during earnings season.

Mike: Due to Basel III.

Mike: Due to Basel III. Mike, let me describe it this way. The headline that we've previously disclosed for the ANPR as it's written is a Basel RWA increase for us at about 15%. So that's what we shared. I think what we said at the time, and we actually believe even more so now, is that it'll come in at a portion of that. There's been lots of discussion around, for example, energy tax credits, some of the arcane parts of Basel and how that impacts public policy, mortgages, which we're not really affected by. There's been much more discussion about operational risk in the last few months, and that would make us quite uncomfortable.

Speaker Change: Due to Basel III.

Mike: Mike, let me describe it this way. The headline that we've previously disclosed for the ANPR as it's written is Basel RWA increase for us at about 15%. So that's what we've shared. I think what we said at the time, and we actually believe even more so now, is that it'll come in at a portion of that. There's been lots of discussion around, for example, energy tax credits, some of the arcane parts of Basel and how that impacts public policy, mortgages, which we're not really affected on. There's much more discussion about operational risk literally over the last few months, and that would make us quite uncomfortable. optimistic that the increases would be relatively small. So we've not updated it because there's a menu out there, but we're encouraged. We think the regulators are trying to navigate public policy on one hand and the right level of capital in the banking system, but we think the direction of the discussions in particular over the last few months are constructive.

Speaker Change: Yes, Mike Let me, let me describe it this way the headline that we've previously disclosed for the NPR assets written is.

Speaker Change: Basel or there'll be way increase for us at about 15%. So that's what we've shared.

Ron O'Hanley: It was a little softer in 2023, but again, a very strong pipeline. But that regional focus where we're actually pushing accountability down into the country and regional level and making sure that it's very clear who's responsible for what. Sharing, obviously, not just the technology and the product but the best practices and how you move these things forward, but very much decentralizing accountability.

Shared I think what we.

Speaker Change: Set at the time and we actually believe even more so now is that it will come in at a at a portion of that.

Speaker Change: There's been lots of discussion around for example, energy tax credits some of the arcane part of Basel, and how that impacts public policy mortgages, which we're not really affected on there's much more discussion about operational risk.

Eric: It's very, very helpful. And by the way, I apologize about any background noise that I hear. Second question, a bit more strategic. So we saw a flurry of Bitcoin ETF launches here recently. Thank you.

Eric Aboaf: Okay, that's all really helpful. And maybe Eric, just a quick one on the Health and Maturity book, still yielding just a little over 2%. Can you kind of walk us through the maturity profile of that? How long will we start to see some, some pickup in or turnover and reinvestment benefits from that portfolio? Yeah, it's Eric.

Eric: It didn't seem like you all actually landed any of those servicing opportunities, so I want to confirm whether my early read on that is right. And given the magnitude of the investment and the focus you've made on digital assets, you know, what did you learn if you guys missed out on that? And is that what led to the restructuring of the digital asset groups?

Speaker Change: Literally over the last.

Speaker Change: A few months and that would make us quite.

Mike: optimistic that the increases would be relatively small. So we've not updated it because there's a menu out there, but we're encouraged. We think the regulators are trying to balance public policy on the one hand and the right level of capital in the banking system, but we think the direction of the discussions, in particular over the last few months, have been constructive.

Speaker Change: <unk> optimistic that the increases would be relatively small so we've not updated it because it's just you got a there's a menu out there, but we're encouraged we think the regulators are trying to navigate public policy and.

Eric Aboaf: The way I describe it is we've got a natural roll-off in that portfolio. It's about $5 billion a year, so it sort of plays out. That's related to the maturity of the latter.

Brennan Hawken: And what should we see as a change from that restructuring? So, Brennan, there were 11 launched on the day after the SEC gave approval, and we actually serviced three of them. And I think we're the only ones that's servicing across three different digital custodians, so we help three of the major players make this happen, so we're quite active in the space, and as you'd expect, we do everything for each of those three except for the actual custody for the reasons that I think you So no, we're very active in space. It was, you know. What did we learn? I mean, it's early.

Speaker Change: On one hand, and the right level of capital in the banking system.

Speaker Change: But we think that the direction of the discussions in particular over the last few months are constructive.

Eric: So that'll come down over the next couple of years. As that happens, because, as you say, it's at a lower coupon relative to our average. Our average portfolio yields are in the three, three and a half range. There's real pickup that comes through that line, at least for the next couple of quarters.

Speaker Change: Okay, thank you.

Speaker Change: Okay. Thank you.

Speaker Change: Okay.

Speaker Change: Your next question comes from Brian Bedell with Deutsche Bank. Please go ahead.

Brian Bedell: Great. Thanks very much for taking my question. Most of the questions have been asked and answered. Oh, can you hear me? Yes.

Brian Bedell: Great. Thanks very much for taking my question. Most of the questions have been asked and answered. Oh, can you hear me? Yes,

Great. Thanks, very much for taking my question. Most of my questions have been asked and answered but can you hear me.

Eric: My guess is probably for the next couple years, even because once rates stabilize. We do think that we'll also get some steepness in the yield curve, and that'll help. So there are some benefits coming that way. It's also a portfolio that will obviously insulate us from rate moves. I don't think in the next few years this is the last down cycle versus... Up cycle, and we'll see. And so it'll serve its purpose then as well. All right, helpful color.

Speaker Change: Yes.

Speaker Change: Okay, great. Most of my questions have been answered. Just one quick one on securities portfolio repositioning. I guess, Eric, what's the desire to potentially do more of those, you know, potentially take losses and look at this sort of capital usage for doing that and enhancing NII and NIM more versus share buyback? Brian, it's Eric. You know, it's something that we continue to think about. I think every bank continues to think about it. You know, we included, we're just continuing to just work through how we feel about the, you know, the rate levels that we're at, in particular on the, you know, up on the curve.

Speaker Change: Okay great.

Speaker Change: Yes.

Speaker Change: Most of my questions have been asked.

Speaker Change: Just one quick one on securities portfolio repositioning I guess, Eric what's the desire to potentially do more of those.

Speaker Change: Potentially take losses.

Look at this through the use of cash.

Capital usage for doing that and enhancing NII and NIM more versus versus share buybacks.

Eric: Thanks. The next question comes from Steven. Thank you, bye, and so on. Hi, good afternoon.

Speaker Change: Okay.

Speaker Change: Brian, it's Eric. You know, it's something that we continue to think about. I think every bank continues to think about. You know, we included, you know, we're just continuing to just work through, you know, how do we feel about the, you know, the rate levels that we're at, in particular on the, you know, up on the curve. We are conscious of that both in the U.S. and in the international areas. You know, we've got positions in, you know, pounds, sterling and euros and so forth. So we'll just continue to evaluate it. I think as you indicated from your question, part of the reason we repositioned last year in the third quarter was around rate position. We thought it was a very good entry point. In retrospect, we timed that quite well. So we're quite pleased. And I think we felt like we came out ahead economically with the trade. Because remember, we took out some bonds, but also reinvested both in the belly of the curve and overnight. So that was, you know, that was constructive. And, you know, we'll also keep an eye on, we don't have a lot of capital intensive securities. We've always had a very vanilla book. So there's not a enormous capital motivation, but we'll selectively look at it and see if it might make sense. But I think we're like many others. It's one of the things we keep an eye on.

Speaker Change: Brian It's Eric it's something that we continue to think about it I think every bank continues to think about.

Eric Aboaf: So, Eric, I wanted to start off with a question just on the fee guidance and benchmarking your historical fee performance versus the guidance. You've struggled to at least meet or exceed the guidance in the absence of significant equity market gains. Sorry, can you guys hear me okay?

We included.

Speaker Change: Continuing to just work through.

Brennan Hawken: But these are early days, and it was good to get the uncertainty cleared up and for all this to get launched, and we're keen to be part of it. Yeah, Ron, thanks for clarifying pure custody versus a servicing. Very, very helpful.

Eric: How do we feel about the the rate levels that were at in particular on the.

Speaker Change: We are conscious of that both in the U.S. and in international areas. You know, we've got positions in pounds, sterling, and euros and so forth. So we'll just continue to evaluate it. I think, as you indicated in your question, part of the reason we repositioned last year in the third quarter was around our rate position. We thought it was a very good entry point, and in retrospect, we timed that quite well. So we're quite pleased, and I think we feel like we came out ahead economically with the trade. Because remember, we took out some bonds but also reinvested both in the belly of the curve and overnight. So that was, you know, was constructive.

Eric: Up on the curve.

Speaker Change: We are conscious of that both in the U S and in the international areas, we've got to stop positions.

Steven: Yep. I'm sorry about that. So you have a conservative market assumption embedded in the fee guide for the coming year. And given that historical experience, I was hoping you could just provide additional granularity in terms of growth across the different fee lines that's underpinning that 3% to 4% growth assumption for this year.

Speaker Change: Pound Sterling and euros and so forth. So we will just continue to evaluate it I think as you as you indicated from your question part of the reason.

Ron Johnson: Yeah, and just to clarify, it's, I mean, I think everybody knows this, but, I mean, right now, it's extremely difficult for a bank to do pure custody because of the capital requirements that are imposed on a bank. We're quite familiar with, and we are participating in, Your next question comes from Glenn Schorr with Evercore. Please go ahead. Thanks very much.

Speaker Change: We.

Speaker Change: We repositioned last.

Speaker Change: Last year in the third quarter was around rate position. We thought it was a very good entry point in retrospect, we time that quite well so were we.

Eric Aboaf: Let me maybe describe it in a couple of ways, because three to four is for the overall franchise. We think that there are some areas of the franchise that'll be higher, and in some cases, a good bit higher than that. Asset management is very geared towards the equity markets, and the 10% tailwind from equity markets comes through on literally half of that tends to go right through the asset management fee line, and then the flows that we talked about earlier in the call provide a nice tailwind. We need to see how the markets play out, but the combination of those two, which is exactly how the business is doing. You know, it's market-based, and it's flow-based, and you know, it will be healthy. I think software and data processing, you know, we've historically said high single digits, sometimes low double digits.

Speaker Change: We're quite pleased and I think we can't and felt like we came out ahead economically.

Speaker Change: With with the trade because remember we took.

We took out some bonds, but also reinvest it both in the belly of the curve and overnight so that was.

Speaker Change: And, you know, we'll also keep an eye on. We don't have a lot of capital-intensive securities. We've always had a very vanilla book. So there's not an enormous capital motivation, but we'll selectively look at it and see if it might make sense. But I think we're like many others. It's one of the things we keep an eye on.

Glenn Schorr: So, big flows in SSEA, which is great to see, you know, these things aren't predictable, but I am curious if you had any thoughts towards sustainability and maybe it would be the colors of what clients are buying, what clients. I'm sorry, what flavors of ETF are they, the average fee, and what you're specifically doing differently on the distribution front and education front to get at those flows. Thanks. Yeah, so there are a number of things going on there in the fourth quarter, Glenn, and throughout 2023. I think, as we've noted, and certainly you all would have observed, for most of the year, with some episodic exceptions, it was a risk-off environment. That changed in the fourth quarter somewhat, as predicted once investors got a sense of where interest rates were going, as they did when the Fed communicated in the third quarter more or less a pause. I think that started the activity going.

Was that was that was constructive.

Speaker Change: And.

Speaker Change: We will also keep an eye on we don't have a lot of capital intensive securities. We've always had a very vanilla book, So theres not a enormous capital motivation, but well we will selectively look at it and.

Speaker Change: Let's see if that if it might make sense, but I think we're like many others.

Speaker Change: One of the things, we keep an eye on.

Speaker Change: Okay, great. Thanks very much.

Speaker Change: Okay.

Speaker Change: Your next question comes from Rob <unk>.

Speaker Change: question comes from Rob Wildhack with

Speaker Change: The question comes from Rob Wildhack with

Rob: <unk> with.

Speaker Change: and many more.

Rob: Autonomous research. Please go ahead.

Eric Aboaf: If you look at the last couple of years, you're at the, you know, 9%, 10% average full-year growth, and we've got good visibility there. Part of that is alpha, and part of that is outright, you know, software and data sales. And so that's...

Rob Wildhack: Go ahead.

Rob Wildhack: Go ahead. Hi guys. I wanted to ask about the fee operating leverage target for this year. Hypothetically, let's say fees come in better than you expect. Would you anticipate dropping that down to the bottom line or reinvesting it? And maybe the same question in reverse, you know, fees come in lower than expected. What kind of room is there on the expense side to preserve your fee operating leverage target?

Rob: Hi, guys I wanted to ask about the fee operating leverage target for this year.

Rob Wildhack: Hi, guys. I wanted to ask about the fee operating leverage target for this year. Hypothetically, let's say fees come in better than you expect. Would you anticipate dropping that down to the bottom line or reinvesting it? And maybe the same question in reverse, you know, fees come in lower than expected. What kind of room is there on the expense side to preserve your fee operating leverage target?

Hypothetically, let's say fees come in better than you expect would you anticipate dropping that down to the bottom line of reinvesting. It and then maybe the same question in reverse fees come in lower than expected what kind of room is there on the expense side.

Eric Aboaf: I think at the other bookend, you know, servicing fees will come in, and they'll be, you know, a bit below the 3% to 4%. Now, some of that is core organic net new business that we need to drive, which is why we've reshaped and tuned that area, in particular in sales and, you know, how we go to market. You're seeing some of the benefits there. We're seeing some of the benefits in how we measure ourselves. We're being very conscious there.

Glenn Schorr: So much of the activity late in the year would have been the kind of classic risk-off. Let's put a risk on, let's take positions on quickly, benefiting the highly liquid spider core SPY and the sector ETFs. But underlying it and throughout the year, the low-cost ETFs, which represent different investors, these would be, you know, the ultimate holders here tend to be individuals. They're often advised by an intermediary like an RIA. So they're individuals. It's very sticky.

Rob: To preserve your fee operating leverage target.

Speaker Change: Rob why don't I.

Speaker Change: Yeah, Rob, why don't I start on that? We feel like we've done a very good job this year in terms of focus. I'm sorry, in 2023.

Speaker Change: Yeah, Rob, why don't I start on that? We feel like we've done a very good job this year in terms of focus. I'm sorry, in 2023. Focusing on BAU cost reduction to help finance and create a very sizable investment pool. Eric walked you through that.

Rob: Start on that.

Rob: We feel like we've done a very good job this year in terms of.

Rob: I'm sorry in 2023.

Speaker Change: Focusing on BAU cost reduction to help finance and create a very sizable investment pool. Eric walked you through that.

Rob: Focusing on.

Rob: VA you cost reduction to help finance.

Rob: Create a very sizeable investment pool, Eric walk you through them.

Ron O'Hanley: But one of the reasons that that number will be lower this coming year is that we have that previously announced transition coming through, you know, which will mute some of what we'd like to see. You know, and then the market activities we're hoping will be somewhere in the middle of the range, whether, you know, FX trading and SEC finance. I think what plays out behind...

Speaker Change: So

Speaker Change: So you know, obviously, if these are up dramatically more than expected, there are some revenue-related expenses, but I wouldn't foresee that. I think we've got a lot to invest in and execute against, and I really want to get through that. You know, on the margin, there might be a few things that we would do, but the vast majority of it would go to the bottom line.

Rob: So.

Speaker Change: You know, obviously, if these are up dramatically more than expected, there are some revenue related expenses, but

Rob: Obviously, if fees were up dramatically more than expected there are some revenue related expenses, but.

Speaker Change: I wouldn't foresee. I think we've got a lot to invest and execute against, and I really want to get through that. You know, on the margin, there might be a few things that we would do, but the vast majority of it would go to the bottom line.

Rob: I wouldn't foresee.

Glenn Schorr: And we have continued to build share there, both in equity and fixed income, low-cost across the board. I think there's increasing acceptance both by retail investors and institutional investors that the ETF is a good vehicle to hold fixed income, and you're just seeing that asset allocation moving that way. And then finally, active ETFs of all sorts you're seeing growth in. And it's been a long time coming.

Rob: I think we've got a lot to invest and execute against and I really want to get through that.

Ron O'Hanley: The market-dependent areas and sometimes why, you know, we don't meet are around client activity, how much transactional activity, whether clients are on the sidelines or whether they're all in. You know, that this past year on the servicing fees, which are half of our fees, which was worth 2% to 3% points of servicing fee headwind. I mean, that literally...

Rob: On the margin there might be a few things that we would do but the vast majority of it go to the bottom line.

Speaker Change: In the case of the, if the opposite occurs, you know, whatever, a terrible market, geopolitical.

Speaker Change: In the case of the, if the opposite occurs, you know, whatever, terrible market, geopolitical issues flare, and you know you've just got a very different environment than any one of us anticipated.

Rob: On the up.

Rob: In case of the.

Rob: Sure.

Rob: If the opposite occurs.

Rob: A terrible market geopolitical.

Speaker Change: issues flare and you know you've just got a very different environment than any one of us anticipate.

Rob: Issues flare.

Rob: You've just got a very different environment than any one of us anticipate.

Brennan Hawken: As you know, it's been over a decade since how was this actually going to play out, and it's ironic how it's playing out in that everybody's just taking their standard investment strategy and putting it in an active ETF. We benefit from some of that, on the GA side, in terms of what they're doing in fixed income, but we benefit from it greatly on the servicing side because we're very, very, not to overuse the word, active in the active ETF servicing space, and we believe you'll see a lot more growth there as core funds and core offerings of well-known asset managers either get converted to ETFs or launched as ETFs. So we're really pleased on the GA side. In terms of what drove it, I think the next part of your question. I mean, part of it was much more focus and resources dedicated to the various intermediary channels.

Rob: <unk>.

Speaker Change: Again, we'd probably, you'd see some revenue-related expenses come down naturally, which would help. I think, at least my initial instinct would be to try and preserve the investments and look at, is there any more to do on BAU, but then, obviously, Some of these, yeah, we've got a pecking order for our investments in terms of priorities, and if it came to that, we'd defer them. And Rob, it's Eric. I would just add that, you know, we've got a pretty industrious productivity plan for this year. You know, part of that was the repositioning that we announced.

Rob: Again, we'd probably you'd see some revenue related expenses come down naturally which would help.

Ron O'Hanley: So, you know... You do the math, that's worth, you know, $100, $150 million of headwind because, you know, we don't have that activity, the transactional activity, and derivatives in international custody, which is very, very valuable to us. So, you know, part of what plays through is these macroeconomic features, you know, equity bond markets on the one hand, you've got a client, the kind of risk on, I think it is important.

I think at least my initial instinct would be to try and preserve the investments and look at.

Rob: Is there any more to do on <unk>, but then.

Rob: Obviously some of these fixed.

Speaker Change: Some of these, yeah, we've got a pecking order for our investments in terms of priorities, and if it came to that, we'd defer them.

We've got a pecking order for our investments in terms of priorities.

Rob: It came to that.

Rob: We have to further.

Speaker Change: And Rob, it's Eric. I would just add that, you know, we've got a pretty industrious productivity plan for this year. You know, part of that was the repositioning that we announced. But, you know, two-thirds of the roles impacted are really around de-layering and simplifying State Street. You know, we're actually taking our spans of control in some areas like operations from 5 to 1 to 8 to 1. We're taking, you know, spans of controls in the business and staff functions in some cases from 3 to 1 to 5 to 1, right? And the benefit of that is it actually brings our teams, our client teams and operational teams even closer to our clients, right? And, you know, some of what we're doing with the joint venture consolidation is a catalyst for that because in some cases we had too many handoffs. And now we can simplify processes and, again, bring them closer. We can bring them closer to our clients. So there's some real structural changes there. And what we do want to do is make sure we see those through. As Ron mentioned, there's always a little more we'll look at, you know, on the margin. And, you know, but we want to be careful. We want to do this right. But, you know, on the margin, you know, you continue to work on, you know, vendors and so forth. You look at performance-based incentive compensation. They're always obvious. Other, you know, smaller levers. But we're pretty, I think, we've got a nice work step out and a lot to do. And I think we've got real confidence that, you know, this is, I think, year probably five. I don't think we name our programs with annual versions. But, you know, this is probably year five of productivity program and should, you know, should really deliver quite a bit.

Rob: Rob It's Eric I would just add that we've got a pretty industrious.

Eric: Productivity planned for this year part of that was the repositioning though.

Speaker Change: But, you know, two-thirds of the roles impacted are really around de-layering and simplifying State Street. You know, we're actually taking our spans of control in some areas like operations from 5 to 1 to 8 to 1. We're taking, you know, spans of control in the business and staff functions in some cases from 3 to 1 to 5 to 1, right? And the benefit of that is it actually brings our teams, our client teams, and operational teams even closer to our clients, right? And, you know, some of what we're doing with the joint venture consolidation is a catalyst for that because, in some cases, we have had too many handoffs.

Eric: We announced but two thirds of the.

Eric: The.

Eric: <unk>.

Eric: Of the roles impacted are really around delayering and simplifying state Street, we're actually taking our spans of control in some areas like operation from 5% to 1% to eight one we're taking.

Eric Aboaf: You've got volatility levels in FX and, you know, agency lending, you know, and so those we have to live through and navigate through, and sometimes those will come in more strongly and sometimes less. And then I think finally the piece that we do need to deliver on, Steve, is the part that we can control, which is sales and retention, and we've been very clear about our goals and our targets very purposefully because that's where we think we need to hold ourselves particularly accountable and where you can hold us accountable. And there's a version of goals and targets and services. We spent a little extra time there. But if you go through our line of businesses, you know, we've got similar kinds of goals area by area, and that's on us to deliver, which will, you know, help power us through, but, you know, the six elements will still come and go. Thanks, Eric. That's really helpful, Collar.

Eric: And the controls and the business and staff functions in some cases from three to one five to one right. So.

Eric: And the benefit of that is it actually brings our off.

Eric: Our teams are.

Glenn Schorr: I mean, our roots are in the institutional channels, but lots of the growth is in the intermediary channels, so that's part of it. And then, as we talked about last quarter, we took a hard look at pricing, particularly for the so-called low-cost ETFs and, recognizing their durability, felt that it was worth the investment to reprice them to continue to gain market share because they tend to be very, very sticky. A lot of detail. It's perfect.

Eric: Our client teams and operational teams even closer to our clients.

Eric: Some of what we're doing with the joint venture consolidations, a catalyst for that because some cases, we had too many handoffs and now we can simplify our processes and again, bringing them closer to.

Speaker Change: And now we can simplify processes and, again, bring them closer to our clients. So there are some real structural changes there, and what we do want to do is make sure we see those through. As Ron mentioned, there's always a little more we'll look at on the margins. And, you know, but we want to be careful. We want to do this right, but, you know, on the margin, you continue to work on, you know, vendors and so forth. When you look at performance-based incentive compensation, it's always obvious. Other, you know, smaller levers.

Eric: To our clients so theres some real structural changes there and what do you want to do is make sure. We we see those through as Ron mentioned Theres always.

Eric: A little more we'll look at it on the margin in it.

Eric: But we want to be careful we want to do this right, but on the margin.

Glenn Schorr: I appreciate it. I'll go quickly on the follow-up. It's the same question, just different on the servicing front.

Collar: Just one quick follow-up from me. What's the assumed timing for the large client transition? Just wanted to get a sense as to whether that's reflected in the 1Q servicing fee guide, or you're expecting that later in the year? Um... Let me try to describe this to you in a couple ways to be helpful.

Eric: You continue to work on.

Eric: Vendors and.

Brennan Hawken: I'm happy with the wins you noted. Maybe we could just drill down. I know it's not huge yet, but the private market piece of the servicing wins, I'm curious if you want to tell us how much it was, but more importantly, what it is and how. Is it one client or is it multiple clients?

Eric: So for if you look at performance based incentive compensation. They are always there are always other other.

Eric: Smaller levers, but we're pretty.

Speaker Change: But we're pretty, I think we've got a nice work step out and a lot to do. And I think we've got real confidence that, you know, this is probably year five. I don't think we name our programs with annual versions. But, you know, this is probably year five of our productivity program and should, you know, should really deliver quite a bit.

I think we've got to we've got a nice work step.

Collar: At this point, on a quarterly run rate basis, and I say that very specifically, we're about halfway through the transition, including a piece that came out in the fourth quarter. So we're halfway through on a quarterly run rate basis. You also, though, have to think about it on a fiscal year-on-year basis.

Eric: And a lot to do and I think we've got real confidence that.

Eric: This is I think youre, probably five I don't think we name our programs with the.

Eric: With annual versions, but.

Eric: This is probably a year five of our productivity program and <unk>.

Glenn Schorr: I'm curious how that private market servicing space is developing. Thanks. No, no, it's, well, to answer the last part of it first, Glenn, it's certainly not one client. I mean, this is a space that we've invested in and we're well known in, and we see a secular trend here where so many of these operations are held inside firms. They're highly bespoke, often sitting in very expensive locations.

Eric: Should you.

Eric: You should really deliver quite a bit.

Rob Wildhack: Okay, thanks. And then on the regulatory front, there was some commentary last week from the FDIC around regulations for large index fund providers. I'm curious if you have any thoughts there on how that could potentially impact your business.

Rob Wildhack: Okay, thanks. And on the regulatory front, there was some commentary last week from the FDIC on regulations for large index fund providers. I'm curious if you have any thoughts on how that could potentially impact your business.

Collar: And the way I would describe it on a fiscal year-on-year basis, remember we said this was worth about 2 percentage points of total fees. That's what we've disclosed in our Qs and Ks. About a quarter of that fiscally has come out through the end of 23, about half of it will come out through 24, and about another quarter in 25. So it just takes time to play out.

Speaker Change: Okay. Thanks, and then on the.

Speaker Change: Regulatory front there were some commentary last week and the FDIC around regulations for large index fund providers Im curious do you have any thoughts there and how that could potentially impact your business.

Rob Wildhack: From the FDIC.

Rob Wildhack: From the FDIC:

From from the FDIC.

Rob Wildhack: Um

Speaker Change: Yes, I didn't I didn't see this rob.

Speaker Change: I didn't see this, Rob. I'm curious as to the FDIC's role in index funds. I wonder what Vanguard has to say about that.

Curious as to the Fdic's rule index ones Wonder what.

Eric Aboaf: And so we did include that headwind in the first quarter 24 versus first quarter 23 guide. And it is important to that guide, and so our guide includes that, and you've got the net guide as a result. Very helpful.

Speaker Change: Beyond guardhouse of Fairbanks.

Speaker Change: So I'm just not familiar with it, Rob.

Speaker Change: So I'm just not very familiar with it, Rob.

Brennan Hawken: And as the product sets have become more complicated, I mean, it's following a path that the active long-only industry followed 10, 15 years ago. It was fine to do all this stuff inside when there were just a couple of products that were fairly straightforward. That's not what's happening now. Products are more complicated as you start to think about the structures that enable high-net-worth individuals to participate in them. You've got that added complexity, and then oftentimes there's side investments that are permitted, et cetera. So it's very complicated. It lends itself to outsourcing, but it's still very complicated. It's very much an in-source business, so we see lots of potential growth in it. Its fee characteristics are different, positive in the sense that the fees are higher, but they get fully recognized when the fund is fully invested.

Speaker Change: So.

Speaker Change: Not familiar with it.

Speaker Change: Okay.

Rob Wildhack: Okay, I can send it over to you later.

Eric Aboaf: Thanks for taking that question. Your next question comes from Ibrahim. Kevin Nwala with Bank of America. Please go ahead. Good afternoon.

Speaker Change: Send it over to you later.

Speaker Change: Yeah, why don't we follow up offline, Rob? Just send it through to Ilene and the team. Yeah, and it could be, Rob, that GA is already on this. I just haven't seen that.

Speaker Change: Yes, why don't we follow up offline, Rob just send it through to Eileen and that it could be it could be rubbish.

Eric Aboaf: Just a very quick follow-up. I know the call's gone on for a long time, Eric. I heard you talk about just the right level of deposits between $200 and $210. Did you say that you expect the growth we saw in the fourth quarter to reverse in one way or another as we think about where deposits shake out? Ibrahim and Tarek, no, what I said is that we think we'll operate in the 200 to 210 billion dollar range in the first quarter, second, through the year. We expect that to be where we land.

Speaker Change: <unk> already on this I just haven't seen that.

Rob Wildhack: Okay, thanks.

Rob Wildhack: Okay, thanks for the questions at this time.

Rob: Okay. Thanks.

Rob Wildhack: for the questions at this time.

Rob: There are no further questions at this time. Please proceed.

Speaker Change: Well, thank you everybody for joining the call.

Speaker Change: Thank you, everybody, for joining the call.

Speaker Change: Ladies and gentlemen.

Speaker Change: Ladies and gentlemen, that concludes your conference call for today.

Ladies and gentlemen.

Speaker Change: This.

Speaker Change: That concludes your conference call for today.

Speaker Change: Your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

Speaker Change: Thank you for participating in our paper.

Eric Aboaf: I think in the fourth quarter on average, right, remember we also talked a little bit about the months. We talked, there's end-of-period data which is very volatile, but on average, we ended up at, I think, around 207 billion for the quarter in 4Q. And so we think roughly flattish deposits into 1Q; it's just hard to tell. There's seasonality at year end, there is, there tends to be a low point in February, and then you've got cash building for tax purposes into March. But I'd call it flattish in the scheme of things, but with a range around that.

Speaker Change: Okay.

Speaker Change: Thank you for watching!

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: transcript Emily Beynon

Eric: So, part that we pay a lot of attention to is, you know, what's the expected actual raise and then draw down? And how do we, you know, how do we do our best to match our expenses to that? But we're very excited about the business. Much of the investment and product investment that Eric talked about in the 2024 guide includes further strengthening of our position there. Innovation is there, and our goal is to continue to set moats around us so we can continue to excel at it. And Glenn, it's Eric.

Speaker Change: Thank you.

Speaker Change: Thank you. Thank you for watching!

Okay.

Speaker Change: Thank you for watching!

Speaker Change: Okay.

Speaker Change: [music].

Emily Beynon: transcript Emily Beynon

Eric Aboaf: And just a bigger picture question around the NIB mix and NII. Do we need to get to a point where QT is closed, the Fed is done with cutting rates before we see NII stabilize and maybe the deposit mix shift? Do we need to get to that point, or can it happen sooner than that? Um, that's a fair question. My instinct on this is NIB will begin to stabilize, you know, sometime in 2024 by, we think, sometime in the middle of the year, third quarter. You've kind of, we've, I'll call it burned through the, the, the, largest accounts. Those are the ones that, you know, kind of on a since, since, since its peak are down, you know, 75% in NIB.

Emily Beynon: Thank you for watching!

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Eric: I just add, you know, privates have been a real strong area of growth for us. We've described it as, you know, up 10, 15 percent in different quarters. So it's a big part of our growth agenda as we, you know, this past year and then, you know, this coming year as we take our sales goals up to $350 to $400 million, at least a quarter of that plus, it's going to be around private equity, and that's what's going to help us continue to drive private equity growth, we think, in the, you know, 15 percent plus range in terms of year-on So it's an area that I think we have pretty broadly covered, with both large and small and mid-size. It's actually well distributed, and it's got a good mix of U.S., Europe, and Asia. Sales, sales are coming through as well. Yeah, as well as Glenn.

Emily Beynon: Thank you for watching! Thank you for watching!

Eric Aboaf: The smallest accounts are down by about 25% since the peak, and those we're seeing stabilize more and more. So, um, I think we'll see some stability in NIB because Clients and funds and fund boards have made their decisions, especially the ones that have a million or 2 million in an account. You know, some of them just don't want to deal with the tax reporting, and so you'll, you'll, you'll get to some, uh, stabilization.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: No.

Speaker Change: [music].

Speaker Change: Yes.

Yes.

Speaker Change: transcript Emily Beynon

Eric Aboaf: So, you know, we think that'll, that'll kind of, uh, uh, stabilize. I think the broader question on NII will then come with, um. You know, how... Well, at that point, I think deposit betas kind of tend to stabilize as well. So I think at that point in the second half of next year, the real question is, what is the direction of interest rates on the front end? It's a very important question, which is, where is the long end going to go?

Speaker Change: [music].

Eric: It's not just private equity. It's private equity venture. Private credit is booming.

Speaker Change: Yes.

Speaker Change: [music].

Eric: And for every bank that complains about what's going to happen with regulation and the fact that it's pushing activity out of the banking system, that's going right into the private credit area. And we should be the beneficiary of that growth. We appreciate all that. Thank you. The next question comes from Gerard Cassidy with our thanks for watching! Hey, Eric. Hey, Ron.

Eric Aboaf: And where's the long end going to go in the U.S. versus in the international markets? And that is particularly important to the banking sector because, you know, with some amount of steepness in the yield curve. And I, you know, it's hard to remember when we had a steepness. It's been a while.

Eric Aboaf: You know, some amount of steepness in the yield curve is quite accretive to NII, and you expect in a good economy to have some. And so that'll be a feature. So there's a series of elements that'll come through, and it's hard to, I think, exercise.

Eric Aboaf: I'll predict too precisely. That's it. Thanks, Eric. Your next question comes from Ryan Kenney with Morgan. Go ahead.

Ryan Kenney: Hi, thanks for taking my question. Just to follow up on the capital side, you had an 11.6% C to 1 ratio. That was a nice improvement sequentially, and it looks like that was driven mostly by $6 billion of lower RWA. Can you just help us impact the RWA dynamics a bit? What drove the optimization?

Eric: I take a sigh when I think about this question. I think the predictability is partly around Fed actions, right? This is the highest rate level that we've seen in 22 years. And, Also, if I go back a couple of years, the lowest rate level we've probably seen in two decades as well, right?

Eric: So we kind of – we're at these wide bookends relative to – You know, relative to really the, you know, since the, you know, since the, I want to say, turn of the century, right? And that's really created this volatility. Can we, you know, manage that and mitigate it? Well, you know, we do try to, on a sustained, on a regular basis, match off deposit, deposit tenor, and rate characteristics with, you know, the asset side of the portfolio. And we do that with duration. The challenge is if you take too little duration, you have even more volatility. If you have to take too much duration on the asset side of the portfolio, you've got more AOCI risk.

Eric Aboaf: And then you also mentioned RWA could be higher this year to support various businesses. So does that mean that the optimization was just temporary? Sure. It's Eric.

Eric: Let me describe it in a couple of different ways. Every bank tries to manage RWA just because it's part of our capital requirements and returns. And we try to report it carefully, and we do it fully according to the rules, as you'd expect. But what tends to create the volatility, because it's a spot measure, it's a one-day of the quarter, one-out-of-90-day measure, are market

Eric: And so, you know, our tools to stabilize work up to a point and then have some negative implications. So I don't, I don't really see a way to turn what we'd like to have into a, you know, just a flywheel, a metronome that moves at a certain pace.

Eric: So if you've got an FX desk or in any of the trading businesses, if you've got a forward book or even a vanilla derivative book, you've got counterparty exposures you have that are affected, in particular, by the currency pairs. And as those move around in the last week of the quarter, you might be in the money or out of the money in those positions, and that directly because of how the standardized RWA mathematics works just goes right through RWA. And so that could create a swing of $4 or $5 billion in the size of our RWAs. Our RWAs are about 100; we printed around $112 billion. About half of that is in the market area, and so there's a good bit of variability, and that's literally what happens. And so sometimes we'll end up low; sometimes we'll end up high.

Eric: And it's just, just a feature of what we do. And part of it is, you know, our industry. Our institutional deposits have somewhat more asset sensitivity or liability sensitivity to, you know, to rates relative to a very, you know, simple, you know, regional bank. So, you know, we'll tend to have a little more, but that's, that's part of the industry that, that's, that's, you know, I think we're in line with peers. Very good.

Eric: If you look at page 14 of the presentation materials, you'll see a low point of $107 billion. A year ago in RWA, you'll see a higher point of $118 billion last quarter, and quite a bit of that is driven by just those market factors playing through into the calculations that we have. And then, in addition to that, if you run a loan book like we do, you'll have overdrafts. Overdrafts take RWA as well, and so we also saw some amount of benefit there this quarter. I think the way I would describe the go-forward view is that we ended up particularly low this quarter. We said it could be $6 billion, $7 billion lower than expected. What would par be?

Ron Johnson: Ron, in your prepared remarks, you talked about the success and the momentum you're having with the Alpha product in the servicing business, in the investment services business, I should say. Are there any capacity constraints that you've got to be careful about if the momentum continues, or is it almost no, you've got plenty of bandwidth to handle future growth? Yeah, I would say that the capacity constraint has been, particularly with these large, complicated clients, the really large ones, and so forth. Thank you.

Eric: Maybe I'll describe it that way. Going forward, it might be $118 billion, it might be $120 billion, but you've got to put a plus-five, minus-five billion band around that. And so what we want to do is we want to gently continue to reinvest capital into our businesses because these FX businesses that we have now have good returns. We've managed them well. They've got 10%, 12% returns in many

Ron Johnson: Some of which are, well, most of which are still being onboarded. The capacity strength has been around onboarding. In terms of the past year in particular, we've gotten better at that. If you just look at that number, we were roughly at about, as I recall, $3.6 trillion in assets to be onboarded, and we're now down to $2.3 trillion. So you can see we're getting better at that. The real constraint, to be specific about it, tends to be how quickly you onboard the middle office element to that because that often requires engineering, and by that, I mean engineering with the client. Because ultimately, that's a client, and it's like any other kind of industrial outsourcing. A client has an operation, does things in a particular way, and wants to outsource that element of it to us.

Eric Aboaf: The securities finance businesses typically are high single-digit return businesses, but that's healthy, and it's very connected to the servicing and the administrative fee business that we have and is important to our clients. And so our view is that these are ways for us to solidify and expand and deepen our relationship with clients. And so we'll gently add RWA each year. How much do we add?

Ryan Kenney: We'll add a few billion dollars, $3 billion to $5 billion more RWA each year, perhaps. But there'll be some volatility around that, and that'll be a part of the way we drive our organic growth. We're a high-return bank, that's for sure, but we do want to put some of our capital to work for core organic growth reasons. Okay, great. I appreciate all those details.

Ron Johnson: We're not interested in taking somebody's mess for less. I mean, we need to actually work with them to engineer it in a way where as much of it as possible is standardized, and that the customization is limited to the kinds of user interfaces or how things are actually applied. And we've just gotten better at that over time. So I would say, looking forward, we don't see that as being a meaningful constraint. Very good. Thank you. The question comes from Jim Mitchell with, Please go ahead. Good afternoon,

Ryan Kenney: Thanks. Your next question comes from Mike Brown. Great. Thank you for taking my questions.

Mike Mayo: I guess, you know, I noticed that you saw record cash net inflows in 2023, and you mentioned that you actually took a share in the institutional money market space. As we head into a declining rate environment here, I guess what's your expectation about how these cash and money fund assets could do, Good trend from here. I guess, you know, historically institutional money markets can act quite differently than retail. So I guess once the Fed begins to reduce rates here, what are you thinking about in terms of the path of the flows out of money funds? You know, could you actually still see some money fund inflows from institutional investors? Yeah, Mike, it's a good question, one we think about all the time.

Mike Mayo: So part of the way we've attracted more money market funds going back to our prior answers is that we just have a broader client base. So, and that helps, you know, we've gained market share, not just in terms of assets, but we've just attracted more clients. And, you know, once you have them,

Ron: It's not just one thing, but a lot of really important things across the board to ramp up our execution. Where we're seeing it, to answer the first part of your question, is, um, is... The core investment manager segment still remains strong and active for us.

Mike Mayo: I think historically what's happened in terms of terms, and you've got to look back in history now because we haven't had this kind of a marketplace, but the really sophisticated holders of institutional money market funds tend to hang on, right, because the fund itself, depending on its duration, and there is a little bit of duration in it, actually lags. So, it's usually the opposite when rates are rising; the very sophisticated holders are toggling in and out depending on whether they see opportunities to go direct. Just given the nature of our client base, we don't see a lot of that activity, so we expect to keep them, and it really will be around where their balances go, and do they need them for some reason, or do they see more attractive investment opportunities. I would expect that we would see, if indeed... We see a continued risk-on environment that will itself cause a little bit of reallocation of institutional money market funds because, you know, the saying that everybody's talking about that there's so much parked on the sidelines. Well, a lot of it is parked here.

Ron Johnson: As some of those firms are facing the same kind of market that everybody else is, they're more interested in actually trying to do more with us and do different things with us. A little bit of a resurgence in the asset owner marketplace, and in particular amongst asset owners that aren't just pure asset allocators, meaning they're managing some assets themselves or truly actively asset allocating, not just listening to a consultant tell them what to do, but either managing money or at a strategic and tactical level allocating assets, which again requires support. But in all cases, what we're doing is we're really focused on ensuring that the back office part of all this comes with it and comes with it in a timely fashion. Because, as I was saying earlier when I was talking to Gerard, the thing that takes a long time or a longer time to onboard would be the middle office, the outsourcing element of it. Onboarding back office is pretty easy, pretty straightforward, and in almost all instances, comes on at a pretty healthy incremental margin given the scale of activities to it.

Ron O'Hanley: But I would go back to where I began the answer, which is that it really is about establishing more client relationships, servicing them very well, and then continuing to grow the number of clients based on that track record. Okay, great. Thanks, Ron.

Eric Aboaf: The $5 billion share buyback authorization, that certainly was a big number. You know, Eric, as you just alluded to in the last question, just a lot of puts and takes to consider on the capital front in 2024 and into 2025. I guess my question is really just, why did you come up with such a large authorization?

Ron Johnson: And then, finally, I should just talk about regions. We have invested heavily in the capabilities in all of our regions. Where you see probably the most impact from that over the last couple of years has been just the very good growth that we're seeing in Asia-Pacific, and really all parts of Asia-Pacific, from, you know, Australia north to Japan and everything in between. The U.S., as we talked about in the past, we were not pleased with where we were in this past year, particularly the second half of the year. We're actually reasonably pleased with how we've done. Europe has always been strong for us.

Eric Aboaf: You're targeting a 100% payout ratio, so it would seem to me that you certainly would not need all of that in 2024. Is this just a desire to have kind of a big authorization in place for a multi-year horizon or just to have more flexibility over time? I would love to hear a little bit more about that. Thank you. Mike, it's Eric.

Eric Aboaf: The background here is that the industry has evolved, I would say, pre-CCAR, which is a long time ago. You know, there used to be open-ended authorizations in the banking sector. Once we got into CCAR, remember, there was a very defined annual amount of buybacks that you had to submit. In fact, you had to submit the first year and the second year, and there was a lot of making sure that what you submitted within the Fed's CCAR process was actually what you did, because I wanted to keep consistency with that.

Ron: It was a little softer in 2023, but again, a very strong pipeline. But that regional focus where we're actually pushing accountability down into the country and regional level and making sure that it's very clear who's responsible for what. Sharing, obviously, not just the technology and the product but the best practices and how you move these things forward, but very much decentralizing accountability.

Eric: Okay, that's all really helpful. And maybe, Eric, just a quick one on the Health and Maturity book, still yielding just a little over 2%. Can you kind of walk us through the maturity profile of that, how long we start to see some pickup or turnover and reinvestment benefits from that portfolio? Yeah, it's Eric.

Eric Aboaf: And so the industry moved towards quite a bit of disclosure on a one-year basis as a result. And if you recall, a lot of those one-year disclosures happened right after CCAR was announced, either at the end of June or in the second quarter earnings in July. What we've seen as we've scanned at least the banking, you know, our peer banks, the G-SIBs, the large U.S. regionals is that CCAR is still an annual process, but with the SCB and some of the refinements to it, it's really an ongoing process. And what we've realized is that I'd say more than three-quarters of our peers, you probably know, have actually And so we just wanted to conform to that.

Eric: The way I describe it is we've got a natural roll-off in that portfolio. It's about, you know, $5 billion a year, so it sort of, you know, plays out. That's related to maturity and the ladder, you know, so that'll come down over the next, you know, couple of years.

Eric: You know, as that happens, because, as you say, it's, you know, at a lower coupon relative to our average, right? Our average portfolio yields are, you know, in the, you know, three, three and a half range. There's real pickup that comes through that line, at least for the next couple quarters. I guess it's probably for the next couple years, even because, you know, once rates stabilize. We do think that, you know, we'll also get some steepness in the yield curve, and that'll help. You know, so there are some, you know, benefits coming that way. It's also a portfolio that, obviously, will be, will insulate us from rate moves. I don't think, you know, in the next few years, this is the last down cycle versus, you know, up cycle, and we'll see. And so, you know, it'll serve its purpose then as well. Thank you very much. Thank you. All right, helpful color.

Eric: As a result, this one's multi-year, it's open-ended, and we'll take it from there. Okay, that's great. Thanks for all the color there.

Eric: Your next question comes from Mike Mayo with Wells Fargo. Hi. Well, no good deed goes unpunished, $5 billion buyback on that last question. Are you assuming that Basel III gets modified, and if Basel III didn't exist, how much higher would that $5 billion number be? And at what price do you say buybacks don't make so much sense anymore?

Mike Mayo: Mike, maybe I'll start on Basel III. I think it's... Where Basel III comes out is very uncertain at this point. You know, the comment period ended on January 16th.

Mike Mayo: I don't know how many millions of pages were submitted, but there's a lot to be evaluated there. And you all know the various pressures and responses that the regulators are getting on this. So it's very hard to tell.

Eric: Thanks. The next question comes from: Thank you, bye. So I have. Hi, good afternoon.

Eric: So, Eric, I wanted to start off with a question just on the fee guidance and benchmarking your historical fee performance versus the guidance. You've struggled to at least meet or exceed the guide in the absence of significant equity market gains. Thank you guys for having me on the show. Yeah. I'm sorry about that.

Mike Mayo: I don't know that we would have changed the authorization if we had perfect clarity on where it was coming out. It was a factor, obviously. But it's not like we have a we think it's absolutely going to be this and therefore. So I hope that helps. Yeah. Go ahead, Mike.

Eric: So you have a conservative market assumption embedded in the fee guide for the coming year, and just given that historical experience, I was hoping you could just provide additional granularity in terms of growth across the different fee lines that's underpinning that 3% to 4% growth assumption for this year. Let me maybe describe it in a couple of ways, because three to four is for the overall franchise. We think that there are some areas of the franchise that will be higher, and in some cases, a good bit higher than that. You know, asset management is very geared towards the equity markets, and the, you know, 10% tailwind in equity markets comes through on literally half of that, which tends to go right through the asset management fee line.

Mike Mayo: Go ahead. No, just so where is your base case, what is the RWA inflation, the most recent update? We've gotten a few changes here during earnings season due to Basel III. Yeah, Mike, let me describe it this way.

Mike: The headline that we've previously disclosed for the ANPR, as it's written, is a Basel RWA increase for us at about 15%. So that's what we've shared. I think what we said at the time, and we actually believe even more so now, is that it'll come in at a portion of that. There's been lots of discussion around, for example, energy tax credits, some of the arcane parts of Basel, and how that impacts public policy, mortgages, which we're not really affected by. There's been much more discussion about operational risk literally over the last few months, and that would make us quite optimistic that the increases would be relatively small. So we've not updated it because there's a menu out there, but we're encouraged. We think the regulators are trying to balance public policy on the one hand and the right level of capital in the banking system, but we think the direction of the discussions, in particular over the last few months, has been constructive. Okay, thank you. Your next question comes from Brian Bedell with Deutsche Bank. Please go ahead.

Eric: And then, you know, the flows that we talked about earlier in the call provide a nice tailwind. So, you know, we need to see how markets play out, but the combination of those two, which is exactly how the business is doing, will be healthy. I think software and data processing, we've historically said high single digits, sometimes low double digits.

Eric: If you look at the last couple of years, you're at the, you know, 9%, 10% average full-year growth. And we've got good visibility there. Part of that is alpha, and part of that is outright, you know, software and data sales. And so that's...

Eric: I think at the other bookend, you know, servicing fees will come in, and they'll be, you know, a bit below the 3% to 4%. Now, some of that is core organic net new business that we need to drive, which is why we've reshaped and tuned that area, in particular in sales and, you know, how we go to market. You're seeing some of the benefits there. We're seeing some of the benefits in how we measure ourselves. We're being very conscious there.

Brian Bedell: Great. Thanks very much for taking my question. Most of the questions have been asked and answered. Oh, can you hear me?

Brian Bedell: Yes. Okay, great. Most of my questions have been answered.

Brian Bedell: Just one quick one on securities portfolio repositioning. I guess, Eric, what's the desire to potentially do more of those, you know, potentially take losses and look at this sort of capital usage for doing that and enhancing NII and NIM more versus share buyback? Brian, it's Eric.

Eric: But one of the reasons that one will be lower this coming year is that we have that previously announced transition coming through, you know, which will mute some of what we'd like to see. You know, and then the market activities we're hoping will be somewhere in the middle of the range, whether, you know, FX trading and SEC finance. I think what plays out behind the market-dependent areas and sometimes why, you know, we don't meet is around client activity, what we describe as client activity, how much transactional activity, whether clients are on the sidelines or whether they're all in, you know. That this past year on the servicing fees, which are half of our fees, you know, that was worth 2% to 3% points of servicing fee headwind. I mean, that literally...

Eric: You know, it's something that we continue to think about. I think every bank continues to think about it. You know, we included, we're just continuing to just work through how we feel about the, you know, the rate levels that we're at, in particular on the, you know, up on the curve. We are conscious of that both in the U.S. and in the international areas. We've got positions in pounds, sterling, and euros and so forth.

Eric: So we'll just continue to evaluate it. I think, as you indicated in your question, part of the reason we repositioned last year in the third quarter was around the rate position. We thought it was a very good entry point. In retrospect, we timed that quite well.

Ron Johnson: So you do the math, that's worth, you know, $100, $150 million of headwind because, you know, we don't have that activity, the transactional activity, and derivatives in international custody, which is very, very valuable to us. So, you know, part of what plays through is these macroeconomic features, you know, equity bond markets on the one hand, you've got a client, the kind of risk on risk off sentiment. I think it is, is, is important.

Eric Aboaf: So we're quite pleased. And I think we feel like we came out ahead economically with the trade. Because remember, we took out some bonds but also reinvested both in the belly of the curve and overnight.

Ron Johnson: You've got volatility levels in FX and, you know, agency lending, you know, and so those we have to live through and navigate through, and sometimes those will come in more strongly and sometimes less. And then I think finally the piece that we do need to deliver on, Steve, is the part that we can control, which is sales and retention, and we've been very clear about our goals and our targets very purposefully because that's where we think we need to hold ourselves particularly accountable and where you can hold us accountable. And there's a version of goals and targets and services. We spent a little extra time there. But if you go through our line of businesses, you know, we've got similar kinds of goals area by area, and that's on us to deliver, which will, you know, help power us through, but, you know, the six elements will still come and go. Thanks, Eric. That's really helpful, caller.

Eric: So that was, you know, that was constructive. And, you know, we'll also keep an eye on. We don't have a lot of capital-intensive securities. We've always had a very vanilla book.

Eric: So there's not an enormous capital motivation, but we'll selectively look at it and see if it might make sense. But I think we're like many others. It's one of the things we keep an eye on. Okay, great. Thanks very much. The question comes from Rob Wildhack with and many more. Go ahead.

Rob Wildhack: Hi Guys, I wanted to ask about the fee operating leverage target for this year. Hypothetically, let's say fees come in better than you expect. Would you anticipate dropping that down to the bottom line or reinvesting it? And maybe the same question in reverse, you know, fees come in lower than expected. What kind of room is there on the expense side to preserve your fee operating leverage target?

Rob Wildhack: Yeah, Rob, why don't I start on that? We feel like we've done a very good job this year in terms of focus. I'm sorry, in 2023.

Eric: Just one quick follow-up from me. What's the assumed timing for the large client transition? Just wanted to get a sense as to whether that's reflected in the 1Q servicing fee guide, or you're expecting that later in the year? Um... Let me try to describe this to you in a couple ways to be helpful.

Eric Aboaf: Focusing on BAU cost reduction to help finance and create a very sizable investment pool. Eric walked you through that. So, you know, obviously, if these are up dramatically more than expected, there are some revenue-related expenses, but I wouldn't foresee that. I think we've got a lot to invest in and execute against, and I really want to get through that. You know, on the margin, there might be a few things that we would do, but the vast majority of it would go to the bottom line. In the case of the, if the opposite occurs, you know, whatever, terrible market, and geopolitical issues flare, and you know you've just got a very different environment than any one of us anticipated. Again, we'd probably, you'd see some revenue-related expenses come down naturally, which would help. I think, at least my initial instinct would be to try and preserve the investments and look at, is there any more to do on BAU, but then, obviously, Some of these, yeah, we've got a pecking order for our investments in terms of priorities, and if it came to that, we'd defer them. And Rob, it's Eric.

Eric: At this point, on a quarterly run rate basis, and I say that very specifically, we're about halfway through the transition, including a piece that came out in the fourth quarter. So we're halfway through on a quarterly run rate basis. You also, though, have to think about it on a fiscal year-on-year basis, and the way I would describe it on a fiscal year-on-year basis is that, remember, we said this was worth about 2 percentage points of total fees.

Eric: That's what we've disclosed in our Qs and Ks. About a quarter of that, you know, fiscally has come out through the end of 23. About half of it will come out through 24, and about another quarter in, you know, in 25. So it just takes time to play through. And so we did include that headwind in the first quarter of fiscal year 24.

Eric Aboaf: I would just add that, you know, we've got a pretty ambitious productivity plan for this year. Part of that was the repositioning that we announced. But, you know, two-thirds of the roles impacted are really around de-layering and simplifying State Street. You know, we're actually taking our spans of control in some areas like operations from 5 to 1 to 8 to 1. We're taking, you know, spans of control in the business and staff functions in some cases from 3 to 1 to 5 to 1, right? And the benefit of that is it actually brings our teams, our client teams, and operational teams even closer to our clients, right? And, you know, some of what we're doing with the joint venture consolidation is a catalyst for that because, in some cases, we had too many handoffs. And now we can simplify processes and, again, bring them closer. We can bring them closer to our clients, so there are some real structural changes there.

Eric: Versus first quarter, 23 guide, you know, and it is, you know, it is important to that guide. And so, you know, our guide includes that, and you've got the net guide as a result. Very helpful.

Eric: Thanks for taking my question. Your next question comes from Ibrahim. I'm Noala with Bank of America. Please go ahead. Good afternoon.

Eric: Just a very quick follow-up. I know the call's gone on for a long time, Eric. I heard you talk about just the right level of deposits between $200 and $210. Did you say that you expect the growth we saw in the fourth quarter to reverse in one way or another as we think about where deposits shake out? Ibrahim and Tarek, no, what I said is that we think we'll operate in the 200 to 210 billion dollar range in the first quarter, second, you know, through the year. We expect that to be where we land.

Eric Aboaf: And what we do want to do is make sure we see those through. As Ron mentioned, there's always a little more we'll look at, you know, on the margin. And, you know, but we want to be careful. We want to do this right. But, you know, on the margin, you continue to work on, you know, vendors and so forth. You look at performance-based incentive compensation. They're always obvious. Other, you know, smaller levers.

Eric: I think in the fourth quarter on average, right, remember we also talked a little bit about the months. We talked about the period data which is very, you know, volatile, but on average, we ended up at I think around 207 billion for the quarter in 4Q. And so we think, you know, roughly flattish deposits into 1Q. It's just hard to tell.

Eric: There's seasonality at year end. There tends to be a low point in February and then you've got cash building for tax purposes, you know, into into March. But I'd call it flattish in the scheme of things, but with a range of with a range around that.

Eric Aboaf: But we're pretty, I think, we've got a nice work step out and a lot to do. And I think we've got real confidence that, you know, this is probably the fifth year. I don't think we name our programs with annual versions.

Ibrahim Noala: And just a bigger picture question around the NIB mix and NII. Do we need to get to a point where QT is closed, the Fed is done with cutting rates before we see NII stabilize and maybe the deposit mix shift? Do we need to get to that point, or can it happen sooner than that? Um, that's a fair question. My instinct on this is NIB will begin to stabilize, you know, sometime in 2024 by, we think, sometime in the middle of the year, third quarter. You've kind of, we've, I'll call it burned through the, the, the, largest accounts. Those are the ones that, you know, kind of on a since, since, since its peak are down, you know, 75% in NIB.

Eric Aboaf: But, you know, this is probably year five of our productivity program and should, you know, should really deliver quite a bit. Okay, thanks. And then on the regulatory front, there was some commentary last week from the FDIC around regulations for large index fund providers. I'm curious if you have any thoughts on how that could potentially impact your business. From the FDIC. Um, I didn't see that, Rob. I'm curious as to the FDIC's role in index funds.

Eric: The smallest accounts are down by about 25% since the peak, and those we're seeing stabilize more and more. So, um, I think we'll see some stability in NIB because Clients and funds and fund boards have made their decisions, especially the ones that have 1M or 2M in an account. You know, some of them just don't want to deal with the tax reporting and so you'll, you'll, you'll get to some stabilization.

Glenn Schorr: So, you know, we think that'll, that'll kind of. Uh, uh, that'll, that'll kind of stabilize. I think that the broader question on NIB will then come with. You know, how?

Rob Wildhack: I wonder what Vanguard has to say about that. So I'm just not familiar with it, Rob. Okay, I can send it over to you later. Yeah, why don't we follow up offline, Rob? Just send it through to Ilene and the team. Yeah, and it could be, Rob, that GA is already on this. I just haven't seen that.

Speaker Change: Well, and at that point, I think deposit betas kind of tend to stabilize as well. So I think at that point, in the second half of next year, the real question is, what is the direction of interest rates on the front end? It's a very important question, which is where the long end is going to go, and where is the long end going to go in the U.S. versus in the international markets? And that is particularly important to the banking sector because, you know, with some amount of steepness in the yield curve, and I, you know, it's hard to remember when we had a steepness. It's been a while.

Rob Wildhack: Okay, thanks for the questions at this time. Thank you, everybody, for joining the call. Ladies and gentlemen.

Rob Wildhack: That concludes your conference call for today. Thank you for participating in our paper. Thank you for watching! Transcript Emily Beynon, Thank you. Thank you for watching! Transcript Emily Beynon, Thank you for watching! Thank you for watching! Thank you for watching! transcript Emily Beynon

Speaker Change: You know, some amount of steepness in the yield curve is quite accretive to NII, and you expect in a good economy to have some. And so that'll be a feature. So there's a series of elements that'll come through, and it's hard to, I think, exercise.

Speaker Change: I'll predict too precisely. That's it. Thanks, Eric. Your next question comes from Ryan Kenney with Morgan. Go ahead.

Ryan Kenney: Hi, thanks for taking my question. Just to follow up on the capital side, you had an 11.6% C to 1 ratio. That was a nice improvement sequentially.

Ryan Kenney: And it looks like that was driven mostly by $6 billion of lower RWA. Can you just help us impact the RWA dynamics a bit? What drove the optimization?

Eric: And then you also mentioned RWA could be higher this year to support various businesses. So does that mean that the optimization was just temporary? Sure. It's Eric.

Eric: Let me describe it in a couple of different ways. Every bank tries to manage RWA just because it's part of our capital requirements and returns. And we try to report it carefully, and we do it fully according to the rules, as you'd expect. But what tends to create the volatility, because it's a spot measure, it's a one day of the quarter, one out of 90 day measure, are market factors, right?

Eric: So if you've got a, you know, an FX or in any of the trading businesses, if you've got a forward book or even a vanilla, you know, derivative book, you've got counterparty exposures that are affected in particular by the currency pairs. And as those move around in the last week of the quarter, you might be in the money or out of the money in the last week of the quarter. In those positions, and those directly because of how the standardized RWA mathematics work just goes right through RWA. And so that could create a swing of, you know, four or five billion dollars on the size of our RWAs. You know, our RWAs are about 100, we printed around 112 billion, and about half of that is in the markets area. And so, you know, there's a good bit of variability. And that's literally what happens.

Eric: And so, you know, sometimes we'll end up low; sometimes we'll end up high. If you look, you know, at page four, page 14 of the presentation materials, you'll see a low point of 107 billion, you know, a year ago in RWA; you'll see a higher point of 118 billion, you know, last quarter. And quite a bit of that is driven by just those market factors playing through into the calculations that we have. And then, in addition to that, if you run a loan book like we do, you'll have overdrafts. Overdrafts take RWA as well. And so we also saw some amount of benefit there this quarter. I think the way I would describe the go forward view is that, you know, we ended up particularly low this quarter. We said by, you know, it could be, you know, six, seven billion dollars lower than expected. You know, what would par be? You know, maybe. Maybe I'll describe it that way, going forward: it might be 118; it might be, you know, 120 billion. But you've got to put a plus five and minus five billion band around that.

Eric: And so we'll, you know, what we want to do is we want to take, we want to gently continue to reinvest capital into our businesses because, you know, these FX businesses that we now have, have good returns. We've managed them. Well, they've got, you know, 10, 12% returns in many cases.

Glenn Schorr: The securities finance businesses typically are high single-digit return businesses, but that's, that's healthy, and it's very connected to the servicing and the administrative fee business that we have and important to our clients. And so, you know, our view is that these are ways for us to solidify, expand, and deepen our relationship. And so we'll gently add, you know, RWA, you know, each year. How much do we add? We add, you know, a few billion dollars, you know, three to five billion dollars more RWA each year, perhaps. But there'll be, there'll be some volatility around that. And, you know, that'll be a part of the way we drive our organic growth. We're, we're a high return bank. That's, that's for sure.

Glenn Schorr: But we will, we will, we do want to put some of our capital to work for core organic growth. I agree. Okay, great. Appreciate all those details.

Glenn Schorr: Thanks. Your next question comes from Mike Brown. Great. Thank you for taking my questions.

Mike Mayo: I guess, you know, I noticed that you saw record cash net inflows in 2023, and you mentioned that you actually took a share in the institutional money market space. As we head into a declining rate environment here, I guess what's your expectation about how these cash and money fund assets could do, Good trend from here. I guess, you know, historically institutional money markets can act quite differently than retail. So I guess once the Fed begins to reduce rates here, what are you thinking about in terms of the path of the flows out of money funds? You know, could you actually still see some money fund inflows from institutional investors? Yeah, Mike, it's a good question, one we think about all the time.

Mike Mayo: So, you know, part of the way we've attracted more money market funds going back to the prior answers is that we just have a broader client base. So, and that helps, you know, we've gained market share, not just in terms of assets, but we've just attracted more clients. And, you know, once you have them,

Ron Johnson: I think historically what's happened in terms of terms, and you've got to look back in history now because we haven't had this kind of a marketplace, but the really sophisticated holders of institutional money market funds tend to hang on, right, because the fund itself, depending on its duration, and there is a little bit of duration in it, actually lags. So it's usually the opposite; when rates are rising, the very sophisticated holders are toggling in and out, depending on whether they see opportunities to go direct. Just given the nature of our client base, we don't see a lot of that activity, so we expect to keep them, and it really will be around where their balances go, and do they need them for some reason, or do they see more effective investment opportunities.

Ron Johnson: I would expect that we would see, if indeed... We see a continued risky environment, that itself will cause a little bit of reallocation of institutional money market funds because, you know, the saying that everybody, what everybody's talking about, that there's so much parked on the sidelines, well, a lot of it is parked here. But I would go back to where I began the answer, which is that it really is about establishing more client relationships, servicing them very well, and then continuing to grow the number of clients based on that track record. Okay, great. Thanks, Ron.

Ron Johnson: The $5 billion share buyback authorization, that certainly was a big number. You know, Eric, as you just alluded to in the last question, just a lot of puts and takes to consider on the capital front in 2024 and 2025. I guess my question is really just why did they come up with such a large authorization?

Ron Johnson: You're targeting a 100% payout ratio, so it would seem to me that you certainly would not need all of that in 2024. Is this just a desire to have kind of a big authorization in place for a multi-year horizon, or just to have more flexibility over time? I would love to hear a little bit more about that. Mike, it's Eric.

Eric: The background here is that the industry has evolved. I would say pre-CCAR, which is a long time ago, there used to be open-ended authorizations in the banking sector. Once we got into CCAR, remember, there was a very defined annual amount of buybacks that you had to submit. In fact, you had to submit the first year and the second year, and there was a lot of making sure that what you submitted within the Fed's CCAR process was actually what you did, because one wanted to keep consistency with that. And so the industry moved towards quite a bit of disclosure on an open-ended basis. And if you recall, a lot of those one-year disclosures happened right after CCAR was announced either at the end of June or in the second quarter earnings in July. What we've seen as we've scanned at least the banking, our peer banks, the G-SIBs, the large U.S. regionals, is that CCAR is still an annual process. But it's still an annual process.

Eric: But it's really with the SCB and some of the refinements to it; it's really an ongoing process. And what we've realized is that I'd say more than three-quarters of our peers, you probably know, have actually moved to open-ended programs over the last year, year and a half. And so we just wanted to conform to that.

Eric: As a result, this one's multi-year. It's open-ended. And, you know, we'll take it from there. Okay, that's great. Thanks for all the color there.

Mike: Mike, maybe I'll start on Basel III. Where Basel III comes out is very uncertain at this point. You know, the comment period ended on January 16th.

Mike Mayo: I don't know, thank you very much for letting us know that the regulators are getting on this. So it's very hard to tell.

Mike Mayo: I don't know that we would have changed the authorization if we had perfect clarity on where it was coming out. It was a factor. But it's...

Mike Mayo: It's not like we think it's absolutely going to be this and therefore. So, I hope that helps. Yeah, go ahead, Mike.

Mike: No, just so where is your base case, what is the RWA inflation, the most recent update? We've gotten a few changes here during earnings season due to Basel III. Mike, let me describe it this way.

Mike: The headline that we've previously disclosed for the ANPR as it's written is a Basel-RWA increase for us at about 15%. So that's what we've shared. I think what we said at the time, and we actually believe even more so now, is that it'll come in at a portion of that. There's been lots of discussion around, for example, energy tax credits, some of the arcane parts of Basel and how that impacts public policy, mortgages, which we're not really affected by. There's been much more discussion about operational risk in the last few months, and that would make us quite uncomfortable. But I think we're optimistic that the increases would be relatively small. So we've not updated it because there is a menu out there, but we're encouraged. We think the regulators are trying to balance public policy on the one hand and the right level of capital in the banking system, but we think the direction of the discussions, in particular over the last few months, have been constructive. Okay, thank you. Your next question comes from Brian Bedell with Deutsche Bank. Please go ahead.

Brian Bedell: All right, great. Thanks very much for taking my question. Most of the questions have been asked and answered. Oh, can you hear me?

Brian Bedell: Yes. Okay, great. Most of my questions have been answered.

Eric: You know, it's something that we continue to think about. I think every bank continues to think about it. You know, we included, we're just continuing to just work through how we feel about the, you know, the rate levels that we're at, in particular on the, you know, up on the curve. We are conscious of that, both in the U.S. and in the international areas. You know, we've got positions in pounds sterling and euros and so forth.

Brian: So we'll just continue to evaluate it. I think, as you indicated in your question, part of the reason we repositioned last year in the third quarter was around the rate position. We thought it was a very good entry point. In retrospect, we timed that quite well.

Eric: So we're quite pleased, and I think we felt like we came out ahead economically with the trade, because remember, we took out some bonds but also reinvested both in the belly of the curve and overnight. So that was, you know, that was constructive. And, you know, we'll also keep an eye on. We don't have a lot of capital-intensive securities. We've always had a very vanilla book.

Brian: So there's not an, you know, enormous capital motivation, but we'll selectively look at it and see if it might make sense. But I think we're like many others. It's one of the things we keep an eye on. Okay, great. Thanks very much.

Brian: This question comes from Rob Wildhack, with, Thank you. Go ahead. Hi Guys, I wanted to ask about the fee operating leverage target for this year. Hypothetically, let's say fees come in better than you expect. Would you anticipate dropping that down to the bottom line or reinvesting it? And maybe the same question in reverse, you know, fees come in lower than expected. What kind of room is there on the expense side to preserve your fee operating leverage target?

Rob Wildhack: Yeah, Rob, why don't I start on that? We feel like we've done a very good job this year in terms of focus for 2023. Focusing on BAU cost reduction to help finance and create a very sizable investment pool. Eric walked you through that.

Rob Wildhack: So... You know, obviously, if these are up dramatically more than expected, there are some revenue-related expenses, but I wouldn't foresee that. I think we've got a lot to invest in and execute against, and I really want to get through that. You know, on the margin, there might be a few things that we would do, but the vast majority of it would go to the bottom line. In the case of the, if the opposite occurs, you know, whatever, a terrible market, geopolitical market, you know, a terrible market, geopolitical issues flare, and you know you've just got a very different environment than any one of us anticipated. Again, we'd probably, you'd see some revenue-related expenses come down naturally, which would help. I think, at least my initial instinct would be to try and preserve the investments and look at, is there any more to do on BAU, but then, obviously, Some of these, yeah, we've got a pecking order for our investments in terms of priorities, and if it came to that, we'd defer them. And Rob, it's Eric.

Eric: I would just add that we've got a pretty ambitious productivity plan for this year. Part of that was the repositioning that we announced, but two-thirds of the roles impacted are really around de-layering and simplifying State Street. We're actually taking our spans of control in some areas, like operations, from 5 to 1 to 8 to 1.

Eric: We're taking spans of control in the business and staff functions, in some cases, from 3 to 1 to 5 to 1, right? And the benefit of that is it actually brings our teams, our client teams, and operational teams even closer to our clients, right? And some of what we're doing with the joint venture consolidation is a catalyst for that because, in some cases, we had too many handoffs, and now we can simplify processes and, again, bring them closer. So there are some real structural changes there, and what we do want to do is make sure we see those through.

Eric: As Ron mentioned, there's always a little more we'll look at on the margin, but we want to be careful. We want to do this right, but on the margin, you continue to work with vendors and so forth. You look at performance-based incentive compensation. It's always obvious.

Eric: There's always other smaller levers, but we're pretty, I think, we've got a nice work set out and a lot to do, and I think we've got real confidence that this is, I think, probably year five. I don't think we name our programs with annual versions, but this is probably year five of the productivity program and should really deliver quite a bit. Okay, thanks. And on the regulatory front, there was some commentary last week from the FDIC on regulations for large index fund providers. I'm curious if you have any thoughts on how that could potentially impact your business. From the FDIC. Um, I didn't see this, Rob. I'm curious as to the FDIC's role in index funds.

Rob: I wonder what Vanguard has to say about that. So I'm just not familiar with it, Rob. Okay, I can send it over to you later. Yeah, why don't we follow up offline, Rob? Just send it through to Ilene and the team. Yeah, and it could be, Rob, that GA is already on this. I just haven't seen that.

Rob Wildhack: Okay, thanks for the questions at this time. Thank you, everybody, for joining the call. Ladies and gentlemen.

Rob Wildhack: That concludes your conference call for today. Thank you for participating in our theme. transcript Emily Beynon, Thank you. transcript Emily Beynon, Thanks for watching! Thank you for watching! Thank you for watching!

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