Q2 2019 Earnings Call - Fixed Income

July 23, 2019

[music], Hello, and welcome to the city's fixed income.

Operator: Hello and welcome to Citigroup's Fixed Income Investor Review with Chief Financial Officer Mark Mason and Treasurer Mike Verdeschi. Today's call will be hosted by Tom Rogers, Head of Fixed Income Investor Relations. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer. Also, as a reminder, this conference call is being recorded today. If you have any objections, please disconnect at this time. Mr. Rogers, you may begin.

Investors review with Chief Financial Officer, Mark Mason, and Treasurer, Mark Mike or dashi.

Today's call will be hosted by Tom Rogers had a fixed income investor relations.

We ask that you. Please hold all questions until the completion of the formal remarks at which time you will be given instructions for the question and answer.

Also as a reminder, this conference call is being recorded today. If you have any objections. Please disconnect at this time.

Mr. Rogers you may begin.

Tom Rogers: Thank you, Carmen. Good morning, and thank you all for joining us. As Carmen mentioned, I'm joined this morning by our Chief Financial Officer, Mark Mason, and our Treasurer, Mike Verdeschi. In a moment, Mike will take you through the Fixed Income Investor presentation, which is available for download on our website, citigroup.com. Afterwards, Mark and Mike will be happy to answer your questions. Before we get started, I'd like to remind you that today's presentation may contain forward-looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results and capital and other financial conditions may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in our discussion today, and those included in our SEC filings, including without limitations the risk factor section of our 2018 Form 10-K.

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

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

Actual results and capital and other financial conditions may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in our discussion today, and those included in our SEC filings, including without limitations the risk factor section of our 2018 Form 10-K. With that said, let me turn it over to Mike.

Including the cautionary statements reference in our discussion today and those included in our SEC filings, including without limitation risk factor section of our 2018 form 10, K. with that said, let me turn it over to Mike.

Tom Rogers: With that said, let me turn it over to Mike.

Mike Verdeschi: Thank you, Tom, and good morning, everyone. On today's call, I will cover a number of topics. First, I'll briefly discuss our operating results for the first half of 2019. Second, I will cover recent balance sheet trends, including growth in loans and deposits. Third, I'll review our issuance program. And finally, I'll discuss our continued strong liquidity and capital position. Slide 3 summarizes our results for the second quarter and first half of 2019. In the first half of the year, we reported net income of $9.5 billion, delivered positive operating leverage, and achieved an ROTCE of 11.9%. On Slide 4, we show average balance sheet trends over the past five quarters in constant dollars. On this basis, we have grown our balance sheet by approximately 4% over the last year. We saw continued high-quality deposit growth, driven by strong client engagement across both our consumer and institutional businesses.

Thank you Tom and good morning, everyone.

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

First I'll briefly discuss our operating results for the first half of 2019.

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

Third I will review our issuance program.

And finally, I will discuss our continued strong liquidity and capital position.

Slide three summarizes our results for the second quarter and first half of 2019.

In the first half of the year, we reported net income of $9.5 billion.

Delivered positive operating leverage and achieved an ROTC of 11.9%.

On Slide 4, we show average balance sheet trends over the past five quarters in constant dollars. On this basis, we have grown our balance sheet by approximately 4% over the last year. We saw continued high-quality deposit growth, driven by strong client engagement across both our consumer and institutional businesses.

On slide four.

We show average balance sheet trends over the past five quarters in constant dollars.

On this basis, we have grown our balance sheet by approximately 4% over the last year.

We saw continued high quality deposit growth driven by strong client engagement across both our consumer and institutional businesses.

Mike Verdeschi: We issued debt opportunistically across a diversified set of programs, and we saw healthy growth in both ICG and GCB loans. Finally, average cash and investments increased 5% year over year, driven by strong deposit growth, as well as the timing of debt issuance. Slide 5 presents trends in our loan portfolio on an average basis in constant dollars. Total Citigroup loans increased 3% year over year and 4% in aggregate across our consumer and institutional businesses. In our consumer business, average loans grew 3% year over year, driven by continued growth in North America and Asia. Average loans in Mexico declined 1% year over year, reflecting the current environment where we are seeing a deceleration in GDP growth and a slowdown in overall industry volumes. On the institutional side, loans grew 5% year over year.

We issued debt opportunistically across a diversified set of programs, and we saw healthy growth in both ICG and GCB loans. Finally, average cash and investments increased 5% year over year, driven by strong deposit growth, as well as the timing of debt issuance. Slide 5 presents trends in our loan portfolio on an average basis in constant dollars. Total Citigroup loans increased 3% year over year and 4% in aggregate across our consumer and institutional businesses. In our consumer business, average loans grew 3% year over year, driven by continued growth in North America and Asia. Average loans in Mexico declined 1% year over year, reflecting the current environment where we are seeing a deceleration in GDP growth and a slowdown in overall industry volumes. On the institutional side, loans grew 5% year over year.

We issued debt opportunistically across a diversified set of programs.

And we saw healthy growth in both ICICI and GCB loans.

Finally average cash and investments increased 5% year over year, driven by strong deposit growth as well as the timing of debt issuance.

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

Total citigroup loans increased 3% year over year.

And 4% in aggregate across our consumer and institutional businesses.

In our consumer business average loans grew 3% year over year.

Driven by continued growth in North America and Asia.

Average loans in Mexico declined 1% year over year.

Reflecting the current environment, where we are seeing a deceleration in GDP growth.

And the slowdown in overall industry volumes.

On the institutional side loans grew 5% year over year.

Mike Verdeschi: TTS loans decreased 4% despite continued strong origination volumes, as we continue to utilize our distribution capabilities to optimize the balance sheet and drive returns. Corporate lending loans were flat year over year, reflecting both the episodic nature of our clients' strategic financing needs, as well as lower activity in Asia, where corporate client sentiment has become more cautious. Private bank loans increased 12%, driven by both new client onboarding as well as the deepening of relationships with existing clients. Finally, continued strong year-over-year markets loan growth was primarily driven by residential and commercial real estate warehouse lending, as well as Community Reinvestment Act-related lending. Loans in Corp. Other continued to decline, driven by the wind-down of legacy assets. On Slide 6, we show credit quality trends in our GCB and ICG loan portfolios.

TTS loans decreased 4% despite continued strong origination volumes, as we continue to utilize our distribution capabilities to optimize the balance sheet and drive returns. Corporate lending loans were flat year over year, reflecting both the episodic nature of our clients' strategic financing needs, as well as lower activity in Asia, where corporate client sentiment has become more cautious. Private bank loans increased 12%, driven by both new client onboarding as well as the deepening of relationships with existing clients. Finally, continued strong year-over-year markets loan growth was primarily driven by residential and commercial real estate warehouse lending, as well as Community Reinvestment Act-related lending. Loans in Corp. Other continued to decline, driven by the wind-down of legacy assets. On Slide 6, we show credit quality trends in our GCB and ICG loan portfolios.

TTS loans decreased 4%. Despite continued strong origination volumes as we continued to utilize our distribution capabilities to optimize the balance sheet and drive returns.

Corporate lending loans were flat year over year, reflecting both the episodic nature of our client strategic financing needs as well as lower activity in Asia with corporate client sentiment has become more cautious.

Private bank loans increased 12%.

Driven by both new client Onboarding as well as the deepening of relationships with existing clients.

Finally continued strong year over year markets loan growth was primarily driven by residential and commercial real estate warehouse lending as well as community Reinvestment Act related lending.

And loans in Corp. Other continued to decline driven by the wind down of legacy assets.

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

Mike Verdeschi: In GCB, credit continued to be favorable again this quarter, with NCL rates broadly stable across regions. In ICG, total non-accrual loans declined both sequentially on a year-over-year basis and remained low at 39 basis points of total corporate loans. Turning to Slide 7, we show trends in average deposits over the past five quarters in constant dollars. Total deposits increased 7% from the prior year period, with contribution across businesses and regions. In our consumer business, deposits increased 3%, driven by growth across all regions. In North America, we saw deposit momentum continue as we further enhanced our digital capabilities and launched new products to lay the foundation for a more integrated multi-product relationship model. In our institutional business, deposits grew 9%, primarily driven by continued deposit growth in TTS. Now, let me highlight our parent benchmark debt issuance program on Slide 8.

In GCB, credit continued to be favorable again this quarter, with NCL rates broadly stable across regions. In ICG, total non-accrual loans declined both sequentially on a year-over-year basis and remained low at 39 basis points of total corporate loans. Turning to Slide 7, we show trends in average deposits over the past five quarters in constant dollars. Total deposits increased 7% from the prior year period, with contribution across businesses and regions. In our consumer business, deposits increased 3%, driven by growth across all regions.

In GCB credit continued to be favorable again, this quarter with NCL rates broadly stable across regions.

Nice EG total non accrual loans declined both sequentially on a year over year basis and remained low at 39 basis points of total corporate loans.

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

Total deposits increased 7% from the prior year period with contributions across businesses and regions.

In our consumer business deposits increased 3% driven by growth across all regions.

In North America, we saw deposit momentum continue as we further enhanced our digital capabilities and launched new products to lay the foundation for a more integrated multi-product relationship model. In our institutional business, deposits grew 9%, primarily driven by continued deposit growth in TTS. Now, let me highlight our parent benchmark debt issuance program on Slide 8.

In North America, we saw a deposit momentum continue as we further enhanced our digital capabilities and launch new products to lay the foundation for a more integrated multi product relationship model.

In our institutional business deposits grew 9%, primarily driven by continued deposit growth in TTS.

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

Mike Verdeschi: So far this year, we have issued approximately $9 billion of parent-level benchmark debt, and going forward, we'll continue to maintain the flexibility to issue a mix of tenors, currencies, and structures. On Slide 9, let me cover our bank-level issuance. So far in 2019, we have issued just under $9 billion of bank-level debt, which included nearly $1 billion of banknotes issued in AUD. Going forward, we will continue to maintain the flexibility to issue across a variety of tenors, structures, and currencies as we drive the efficiency of our funding sources. On Slide 10, let me cover our issuance maturity and redemption expectations. In 2019, we continued to expect total gross issuance of $30 to 35 billion, roughly evenly split across both our parent-level benchmark debt and our bank-level programs.

So far this year, we have issued approximately $9 billion of parent-level benchmark debt, and going forward, we'll continue to maintain the flexibility to issue a mix of tenors, currencies, and structures. On Slide 9, let me cover our bank-level issuance. So far in 2019, we have issued just under $9 billion of bank-level debt, which included nearly $1 billion of banknotes issued in AUD. Going forward, we will continue to maintain the flexibility to issue across a variety of tenors, structures, and currencies as we drive the efficiency of our funding sources. On Slide 10, let me cover our issuance maturity and redemption expectations. In 2019, we continued to expect total gross issuance of $30 to 35 billion, roughly evenly split across both our parent-level benchmark debt and our bank-level programs.

So far this year, we have issued approximately $9 billion of parent level benchmark that.

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

On slide nine let me cover our bank level issuance.

So far in 2019, we have issued just under 9 billion of bank level debt, which included nearly 1 billion of bank notes issued in Australian dollars.

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

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

In 2019, we continue to expect total gross issuance of 30 to 35 billion roughly evenly split across both our parent level benchmark debt and our bank level programs.

Mike Verdeschi: This includes the $9 billion of parent benchmark and the $9 billion of bank-level debt we have issued so far this year. At the parent level, we continue to expect net parent benchmark issuance to be roughly flat in 2019, including contractual maturities of $14 billion and potential buybacks of approximately $1 billion, though, as we've said in the past, we will remain opportunistic around our redemption activity. At the bank level, we continue to expect a modest amount of net issuance for the year, including contractual maturities of $12 billion. On Slide 11, we show the composition of our long-term debt outstanding. During the second quarter, our total long-term debt increased by approximately $8 billion to $252 billion as we issued benchmark debt opportunistically early in the quarter at both the bank and the parent, and continued to see strong demand for our customer-related debt.

This includes the $9 billion of parent benchmark and the $9 billion of bank-level debt we have issued so far this year. At the parent level, we continue to expect net parent benchmark issuance to be roughly flat in 2019, including contractual maturities of $14 billion and potential buybacks of approximately $1 billion, though, as we've said in the past, we will remain opportunistic around our redemption activity. At the bank level, we continue to expect a modest amount of net issuance for the year, including contractual maturities of $12 billion. On Slide 11, we show the composition of our long-term debt outstanding.

This includes the 9 billion of parent benchmark and the 9 billion of bank levels that we have issued so far this year.

At the parent level, we continue to expect net parent benchmark issuance to be roughly flat in 2019, including contractual maturities of 14 billion and potential buybacks of approximately 1 billion. So as we've said in the past we will remain opportunistic around our redemption activity.

At the bank level, we continue to expect a modest amount of net issuance for the year, including contractual maturities of 12 billion.

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

During the second quarter, our total long-term debt increased by approximately $8 billion to $252 billion as we issued benchmark debt opportunistically early in the quarter at both the bank and the parent, and continued to see strong demand for our customer-related debt.

During the second quarter, our total long term debt increased by approximately $8 billion to 252 billion as we issued benchmark debt opportunistically early in the quarter at both the bank and the parent and continued to see strong demand for our customer related debt.

On slide 12, we provided an update of our LCR metric and components.

Mike Verdeschi: On Slide 12, we provide an update of our LCR metric and components. While strong deposit growth drove overall liquidity and HQLA higher this quarter, our average LCR declined to 115% due to changes in our interpretation of the amount of bank HQLA available for inclusion in the consolidated metric. Going forward, we expect our LCR to remain in the range of around 115%. Turning to Slide 13, let me summarize our key regulatory capital metrics. Our CET1 capital ratio remained stable at 11.9%, as net income was offset by $4.6 billion of total common share buybacks and dividends. Our SLRs were 6.4% and 6.9% for Citigroup and Citibank, respectively. Moving to our last slide, let me summarize several key points. First, we earned $9.5 billion of net income, delivered positive operating leverage, and achieved an ROTCE of 11.9%.

On Slide 12, we provide an update of our LCR metric and components. While strong deposit growth drove overall liquidity and HQLA higher this quarter, our average LCR declined to 115% due to changes in our interpretation of the amount of bank HQLA available for inclusion in the consolidated metric. Going forward, we expect our LCR to remain in the range of around 115%. Turning to Slide 13, let me summarize our key regulatory capital metrics. Our CET1 capital ratio remained stable at 11.9%, as net income was offset by $4.6 billion of total common share buybacks and dividends. Our SLRs were 6.4% and 6.9% for Citigroup and Citibank, respectively. Moving to our last slide, let me summarize several key points. First, we earned $9.5 billion of net income, delivered positive operating leverage, and achieved an ROTCE of 11.9%.

While strong deposit growth drove overall liquidity and HQ outlay higher this quarter.

Our average LCR declined to 115% due to changes in our interpretation of the amount of bank HQ allay available for inclusion in the consolidated metric.

Going forward, we expect our LCR to remain in the range of around 115%.

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

Our CPT one capital ratio remained stable at 11.9%.

Net income was offset by 4.6 billion of total common share buybacks and dividends.

And our SLR is were 6.4% and 6.9% for Citigroup and Citibank, respectively.

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

First we earned $9.5 billion of net income.

Delivered positive operating leverage and achieved an ROTC of 11.9%.

Mike Verdeschi: Second, we maintain a strong capital and liquidity position with a CET1 capital ratio of 11.9% and an SLR of 6.4%, an average LCR of 115%, and an estimated NSFR of greater than 100%. We maintain a surplus above our binding TLAC requirement. Finally, we continue to maintain a diverse set of funding alternatives and robust liquidity resources. Before we move on to Q&A, let me touch briefly on the transition away from LIBOR. As I've referenced previously, we are continuing to evaluate alternatives to address the language in the subset of our preferred securities. And while we continue to make progress, we do not yet have a chosen path or an update with respect to timing. More broadly, we are continuing to prepare ourselves for the transition away from LIBOR, working with our regulators and various industry working groups.

Second, we maintain a strong capital and liquidity position with a CET1 capital ratio of 11.9% and an SLR of 6.4%, an average LCR of 115%, and an estimated NSFR of greater than 100%. We maintain a surplus above our binding TLAC requirement. Finally, we continue to maintain a diverse set of funding alternatives and robust liquidity resources. Before we move on to Q&A, let me touch briefly on the transition away from LIBOR. As I've referenced previously, we are continuing to evaluate alternatives to address the language in the subset of our preferred securities. And while we continue to make progress, we do not yet have a chosen path or an update with respect to timing. More broadly, we are continuing to prepare ourselves for the transition away from LIBOR, working with our regulators and various industry working groups.

Second we maintained a strong capital and liquidity position with a CE tier one capital ratio of 11.9% and an SLR of 6.4%.

And average LCR of 150% and an estimated them thus far of greater than 100%.

And we maintain a surplus above our binding T Lac requirement.

Finally, we continue to maintain a diverse set of funding alternatives and robust liquidity resources.

Before we move on to Q in a let me touch briefly on the transition away from LIBOR.

As I've referenced previously we are continuing to evaluate alternatives to address the language in the subset of our preferred securities.

And while we continue to make progress we do not yet have a chosen path or an update with respect to timing.

And more broadly.

Continuing to prepare ourselves for the transition away from LIBOR or working with our regulators and various industry working groups.

Mike Verdeschi: With that, Mark and I will be happy to answer your questions.

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

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

And as a reminder, if you do have any questions. Please press star one on your telephone keypad again that is star then the number one on your telephone keypad. Your first question comes from the line of Scott, Kevin I'll with HPG.

Operator: As a reminder, if you do have any questions, please press star one on your telephone keypad. Again, that is star, then the number one on your telephone keypad. Your first question comes from the line of Scott Kavanaugh with APG.

Scott Kavanaugh: Good morning, guys. Thanks for holding the call once again. Always appreciate it.

Scott Cavanagh: Good morning, guys. Thanks for holding the call once again. Always appreciate it.

Good morning, guys. Thanks for holding the call once again always appreciated.

[Company Representative] (Citigroup): Hi, guys.

Mike Verdeschi: Hi, guys.

Mark Mason: Good morning.

I want to Scot morning.

Scott Kavanaugh: Good morning. When we look at CECL, could you give us an update on your range that you put out in Q1?

Scott Cavanagh: Good morning. When we look at CECL, could you give us an update on your range that you put out in Q1?

So when we look at sea. So could you give us an update on your range that you put out in the first quarter.

Mark Mason: Sure. This is Mark. We actually haven't adjusted our range from the first quarter. So you'll recall, on that quarter, we updated our guidance for the day-one impact of 20% to 30% of our total reserves. And so that would equate to somewhere between $2.8 and $4.2 billion on a pre-tax basis. We have not updated that. And even at the 30% level, as I said on the first quarter, the incremental impact we view as manageable, as we also benefit from the phasing in of that. So no update beyond that.

Sure This is mark.

We actually Havent adjusted our range from the first quarter. So you'll recall on that quarter, we updated our guidance for the day, one impact of 20% to 30% of our total reserves.

And so that would equate to somewhere between 2.8 and $4.2 billion on a pre tax basis, we have not we have not updated that.

And even at the 30% level as I've said on the first quarter the incremental impact we'd be was manageable.

As we also benefit from the phasing in of that so no update beyond that.

Scott Kavanaugh: Okay. And then going to LIBOR, when we think about it from the asset side, how far has the industry progressed in getting the language or uniform language for the assets for loans, etc.?

Scott Cavanagh: Okay. And then going to LIBOR, when we think about it from the asset side, how far has the industry progressed in getting the language or uniform language for the assets for loans, etc.?

Okay, and then go into LIBOR, when we think about from the asset side, how far has industry progressed in getting the language.

Our uniform language for the assets for loans et cetera.

Mike Verdeschi: Yeah. So I would say that there's been continued progress on these fronts with the LIBOR transition, much of that leadership coming out of the Alternative Reference Rate Committee. Certainly, ARC recently provided recommended language in issuance, but we've also seen fallback language for loans. They issued a white paper for consumer-related lending. We've also seen clearinghouses get involved in using SOFR for US discounting and derivatives. So while there's plenty of work to be done, I would say there's continued good progress around developing language for fallback.

Yes, so I would say that Theres been continued progress on these fronts with the LIBOR transition a much of that leadership coming out of the alternative reference rate Committee on certainly.

Arc recently.

Provided recommended language in issuance, but we've also seen pullback language from for loans.

We issued a white paper for consumer related.

Lending we've also seen clearing houses get involved in using our so for us discounting in derivatives. So while there is plenty of work to be done I would say there's continued good progress around developing language for for fall back.

Scott Kavanaugh: Okay. And on the issuance side, when we look at your surplus on the TLAC and the LTD that was up this quarter, where is kind of an appropriate level? Should we be thinking that buffer? And then when we think about issuance needs going forward, how do you think about the declining rate environment, the timing of issuance, and liability management?

Scott Cavanagh: Okay. And on the issuance side, when we look at your surplus on the TLAC and the LTD that was up this quarter, where is kind of an appropriate level? Should we be thinking that buffer? And then when we think about issuance needs going forward, how do you think about the declining rate environment, the timing of issuance, and liability management?

Okay and on the issuance side when we look at your surplus on the T. Lack in Ltd that was up this quarter, whereas kind of an appropriate level should we be thinking that buffer and then when we think about issuance needs going forward.

How do you think about the declining rate environment, the timing of issuance and liability management.

Mike Verdeschi: Sure. On TLAC, we talked about a range of $7 to $8 billion before, but clearly, we've been running above that. As we've said, TLAC is just one of the considerations. Clearly, we've met that targeted range and are above it. We're looking at issuance in terms of our overall funding need for growth of the balance sheet. So we're running a bit high against that. We've also talked about perhaps some of the TLAC rules evolving, none of which have been implemented yet. We could be even further above that requirement down the road. I would say we're probably going to be running a bit higher than that $7 to $8 range for the time being.

Sure.

On T. like we talked about a range of seven to 8 billion before but but clearly we've been running above that and as we've said Gee lacking is just one of the considerations clearly we've we've met that targeted range in or above it.

What we're looking at issuance in terms of our overall, our funding need for growth of the balance sheet.

So we're running a bit high against that we've also talked about perhaps some of the GE lacked rolls evolving none of which have been implemented yet.

Like we could be even further above that requirement down the road, but I would say, we're probably going to be running a bit higher than that seven to eight range for the time being.

Mike Verdeschi: In terms of the level of rates, really what drives our funding decisions is going to be a function of the growth of our balance sheet and our credit spreads. The level of rates, while we do evaluate that, we often would use swaps to really put against our debt to, for example, take a fixed-rate debt instrument and float it down. So I would say the level of interest rates aren't really a main driver of that issuance activity. It's going to be the funding needs, and it's going to be the credit spreads.

In terms of the level of rates, really what drives our funding decisions is going to be a function of the growth of our balance sheet and our credit spreads. The level of rates, while we do evaluate that, we often would use swaps to really put against our debt to, for example, take a fixed-rate debt instrument and float it down. So I would say the level of interest rates aren't really a main driver of that issuance activity. It's going to be the funding needs, and it's going to be the credit spreads.

In terms of the the level of rates.

Really what drives our.

Funding decisions is going to be a function of the growth of our balance sheet in our credit spreads as the level of rates, while we do evaluate that we often would use swaps to.

So really.

Put against our debt to for example, take a fixed rate debt instrument and floated down.

So I would say the level of interest rates aren't really a main driver of that issuance activity, it's going to be the funding needs and it's going to be the credit spreads.

Mark Mason: Yeah. I'd just reiterate. I mean, obviously, we're a client-driven business, and so growth in the balance sheet is going to be based on those client needs that we see. And we obviously look at the economics of funding alternatives in order to meet those needs, but those are the drivers, as Mike said.

I just thought I'd, just reiterate I mean, obviously, we're client driven business and so growth in the balance sheet is going to be based on those client needs that we see in.

We obviously look at the economics of funding alternatives in order to meet those needs, but those are the those are the drivers as Mike said.

Scott Kavanaugh: Last thing for me, would you ever issue a long-dated bank note?

Scott Cavanagh: Last thing for me, would you ever issue a long-dated bank note?

And last thing from me would you ever issued long dated back now.

You know bank notes again, what we've thought about that program.

Mike Verdeschi: Bank notes, again, when we've thought about that program, we thought of it as a complement to our other funding alternatives. When we think about the longer-term issuance, we typically have kept that in the parent. The bank, we've typically kept shorter, and really not to have one compete with the other. So in the bank, unsecured, I think we've gone out as far as five years. When we've done securitization, we've gone out a bit further than that. But I would say typically the longer-dated paper is going to come in our non-bank program.

We thought of it is as a complement to our other funding alternatives. When we think about the longer term issuance. We typically have kept that in the parents.

The bank, we've typically kept shorter and really not to have one compete with the other so.

You know in the bank unsecured I think we've gone out as far as.

Five years.

When we've done securitization, we've gone out a bit further than that but I would say typically the longer dated paper is going to come in our non bank program.

Scott Kavanaugh: Okay. Thank you very much, guys. Appreciate it.

Scott Cavanagh: Okay. Thank you very much, guys. Appreciate it.

Thank you very much guys appreciate it.

Mike Verdeschi: Thanks, Scott.

Thanks Scott.

Operator: Your next question comes from the line of Hima Inguva with Bank of America.

And your next question comes from the line of Hema and give us with bank of America.

Great. Thank you thanks for hosting the call landmark Mike on Tom and Thanks for all the color.

Hima Inguva: Great. Thank you. Thanks for hosting the call, Mark, Mike, and Tom. Thanks for all the color.

Mark Mason: Good morning.

Mike Verdeschi: Sure. Hi, Hima.

Morning, sure housing inorganic hey.

Hima Inguva: Good morning. Hey. So the first one is that Tier 2 bucket decreased 40 basis points in corp from DFAST levels. Do you expect to undertake sub-debt redemptions?

So the first one is that.

Two bucket decreased 40 basis points and C car from de fast level.

Do you expect to undertake accepted.

Sure.

Our humor, it's Mike as we talked about in the past.

Mike Verdeschi: Hema, it's Mike. As we talked about in the past, we wanted to be in a range of roughly 200 basis points of tier two, and we've been running above that level for some time now. Clearly, we don't need to issue at this time. And so with some room to optimize the level of tier two, we did build some flexibility into C corp. However, we'll need to evaluate our balance sheet growth and consider the broader market conditions before taking actions.

We wanted to be in a range of roughly 200 basis points of tier two when we've been running above that level for some time now.

Clearly, we don't need to issue at this time and so with some room to optimize the level of tier two we did build some flexibility into C car.

However will lead to evaluate our balance sheet growth.

And and consider consider the broader market conditions before taking actions.

Okay great.

Hima Inguva: Okay. Great. Then moving on to prefs. I guess if you could share your plans for the $1.5 billion pref that's becoming callable later this year.

And then moving on to crash I guess, if you could share your plans for the 1.5 billion profits becoming callable in.

Later this year.

Sure.

Mike Verdeschi: Sure. As we've done in the past, we'll evaluate our need at that time. For AT1, we talked about the range of 150 basis points, and we're right about there now. So when this does become callable, we'll evaluate our need for capital at that time. And to the extent we need to retain that AT1, we'll evaluate the economics of calling and reissuing versus leaving it outstanding. So we'll consider a number of factors at that time.

As we've done in the past.

We'll evaluate our need at that time.

For AG, one we talked about the range of 150 basis points and were right about there now.

So when this does become callable, we'll evaluate our need for capital at that time.

And to the extent, we need to retain that 81.

Well evaluate the economics of calling and reissuing versus leaving an outstanding So we'll consider a number of factors.

At that time.

Sure and just a follow up on that in addition to economics what are the other factors that you would consider.

Hima Inguva: Sure. Just to follow up on that, in addition to economics, what are the other factors that you would consider when you're making a decision like this?

When you are making a decision like that.

Mike Verdeschi: Sure. Well, I'll give you one example. I mean, obviously, with the transition away from LIBOR now, as we build ARRC-recommended language into some of our issuance, that would be a consideration as well. Obviously, if we were calling and reissuing, we would have the opportunity to build in that new recommended language.

Sure well.

I'll give you. One example, I mean, obviously with the transition away from LIBOR now utilize we build arc recommended language into some of our issuance on that would be a consideration as well, obviously, if we were calling and reissuing.

We would have the opportunity to build in that new recommended language.

Hima Inguva: Sure. Yeah. That makes sense. Great. That's it from me. Thank you very much.

Sure, Yes that makes sense.

That's it from me thank you very much.

Mike Verdeschi: Thanks, Hema.

Thanks.

Operator: Your next question is from the line of Brian Monteleone with Barclays.

And your next question is from the line of Brian month, only own with Barclays.

Hey, good morning.

Brian Monteleone: Hey. Good morning. Thanks.

Mike Verdeschi: Good morning.

Thanks.

Can you talk a little bit about the overall issuance target for the year is unchanged, but yes chose not to kind of issue last week.

Brian Monteleone: Can you talk a little bit about the overall issuance target for the year is unchanged, but you guys chose not to kind of issue last week? Can you talk about kind of what the drivers of that were? I know you talked a little bit about kind of overall balance sheet growth. Was that driven by deposit growth outstripping loans, or was it something else?

Can you talk about kind of what the drivers of that where I know you talked a little bit about kind of overall balance sheet growth was that driven by.

Deposit growth outstripping loans or was it something else.

Mike Verdeschi: Sure. It's Mike. So as I mentioned, for the first half, we've already issued 18. So that is, again, at a pace slightly above our overall target for the year. Something that we did see in the previous quarter, we had good deposit growth across our businesses, and especially in TTS. As we've done in the past, this quarter, we'll be looking to optimize that liquidity that we raised in the previous quarter. So as we come into this quarter, we're evaluating our needs. We like the flexibility that that deposit growth has given us. So we're currently evaluating our needs, and we'll be determining what the most efficient sources for that funding is.

Sure it's Mike.

So as I mentioned for the first half Weve already issued 18, so that is a again at a pace slightly above our our overall target for the year.

Yes, something that we did see in the previous quarter, we had good deposit growth across our businesses and especially in GTS and as we've done in the past on this quarter, we'll be looking to optimize that liquidity that we raised in the previous quarter. So as we as we come into this quarter. We are evaluating our needs are we like the flexibility that deposit growth has given us so were currently evaluating our needs and.

We will be determining what the most efficient sources for that funding is.

Mark Mason: Yeah. Again, it gets back to some of the earlier part of the conversation with what demand we're seeing, what kind of client needs we have that need to be met, and then how do we think about the funding of that in the most economic and optimal fashion.

Again, it gets back to some of the earlier part of the conversation with what demand we're seeing on a client needs. We have that need to be met and then how do we think about the funding of that in the most economic and optimal fashion.

Brian Monteleone: Perfect. Thanks. And then there were kind of a couple of new structures introduced to the market this past quarter. One, on the preferred side, with securities that reset once every five years, but then are callable semi-annually. And then on the senior side, fixed-to-floating structures that reset to SOFR instead of LIBOR. I assume you guys have looked at those. Can you kind of talk about any kind of pluses and minuses you see from your perspective and if you think those are the kind of most likely structures going forward?

Perfect. Thanks, and then.

There were a couple of these structures introduced to the market this past quarter one.

On the preferred side with securities that reset once every five years that are callable semi annually.

And then on the senior side fixed flow structures that reset to so for sort of live or.

I assume you guys have looked to those can can you kind of.

Talk about any kind of.

Pluses and minuses you see from your perspective, and if you think those are the kind of most likely structures going forward.

Mike Verdeschi: Yeah. Those are structures, of course, that we do think make sense. And again, every bank is going to evaluate the tenor, the structure that makes sense for them. Clearly, we've done a SOFR issuance already. And as we continue to evolve our funding, we will be considering how to further support the transition away from LIBOR and think about similar types of structures.

Yes.

Those are those are structures of course that.

We do think makes sense and again everything's going evaluate the tenor of the structure that makes sense for them.

Clearly we've done so for issuance already and as we continue to evolve our funding we will be considering how to further support the transition away from LIBOR floor and think about it.

Think about similar types of structures.

Okay, Great and then maybe just one last one and a follow up on Scott's question earlier.

Brian Monteleone: Okay. Great. And then maybe just one last one, and to follow up on Scott's question earlier. Beyond just repapering contracts, can you talk a little bit about the work that needs to be done from an internal systems perspective to transition to be able to really handle SOFR versus LIBOR, and kind of where you are in that process?

Beyond just repapering contracts can you talk a little bit about the work that needs to be done from an internal systems perspective to transition to build a really handle so far versus live or.

And kind of where you are in that process.

Mike Verdeschi: Sure. Quite a bit of work. As you can imagine, an evaluation of your models, that's a key component. So you have to obviously evaluate those models and enhance them where needed, validate those models, and then obviously building that into your overall infrastructure, both on your liability side and on your asset side. So you have to obviously ensure that your product processors are capable of this transition. So I would say a lot of the systems work across the products. And then even as we think about even beyond that is how we think about transfer pricing, that balance sheet internally, and how we think about the use of different benchmarks today, and then evolving to a world where LIBOR doesn't exist. So I would say in addition to thinking about the third-party activities, there's some of the internal systems that we'll be contemplating as well.

Sure.

Quite a bit of work as you can imagine.

An evaluation of your models are that's a key component. So you have to obviously evaluate those models and enhance them where needed on validate those models and then obviously building that into your year overall infrastructure. Both on your liability side and on your asset side. So you have to obviously ensure that your product processors are capable of this transition. So I would say a lot of the systems work across the products and then even as we think about.

Even beyond that is how we think about transfer pricing.

That balance sheet internally and how we think about the use of different benchmarks today, and then evolving to a world where LIBOR doesn't exist. So I would say in addition to thinking about third party activities. There is some of the internal systems that will be contemplating as well. So there's there's quite a bit of work involved I would say as part of this broader effort. There our transition teams that we've established their governance that we've established.

So I would say in addition to thinking about the third-party activities, there's some of the internal systems that we'll be contemplating as well. So there's quite a bit of work involved. I would say as part of this broader effort, there are transition teams that we've established. There's governance that we've established. And as you can imagine, there's a particular focus on the operational elements associated with this transition. And so a substantial amount of focus in that regard.

Mike Verdeschi: So there's quite a bit of work involved. I would say as part of this broader effort, there are transition teams that we've established. There's governance that we've established. And as you can imagine, there's a particular focus on the operational elements associated with this transition. And so a substantial amount of focus in that regard.

And as you can imagine there is a particular focus on the operational elements associated with this transition and so a substantial amount of focus in that regard.

Brian Monteleone: That's very helpful. Any way to estimate kind of how far along you are on that journey?

That's very helpful anyway to estimate kind of how far along you are on that journey.

Mike Verdeschi: It's a good question. And one of the challenges is exactly how this LIBOR transition takes place, meaning when does LIBOR actually cease? When does liquidity build in the other products? Because I think one of the challenges is obviously building up sufficient liquidity and building up sufficient use of these new benchmarks such that it becomes more frequent used by customers and therefore something that we're offering. And then certainly, really, I would say embedding in all of our systems and capabilities. So I would say the transition is certainly well underway. What I'm focused on is the speed of the adoption of these other rates such that we can continue to embed this in the infrastructure as needed.

You know, it's a it's a good question and.

You know that the the one of the challenges is exactly how this livewatch transition takes place, meaning when does LIBOR actually sees when does liquidity build in the other products because I think one of the challenges is obviously building up sufficient liquidity in building up our sufficient use of these new benchmarks such that it becomes.

No more frequent use by customers and therefore, something that we're offering and then certainly really I would say embedding in all of our systems and capabilities. So I would say the transition is certainly well underway what I'm focused on is the speed of the adoption of these other rate such that we can continue to embed. This in the infrastructure is needed.

Mark Mason: Yeah. I mean, as you said, I mean, this is obviously an issue that touches multiple parts of the organization, consumer, the institutional, obviously what we do out of treasury and finance. And so we've got cross-functional, cross-business teams that are focused on this and ensuring that we get it right with the funding required to do so.

Yeah, I mean as as you said I mean, this is obviously and issue that touches multiple parts of the organization consumer the institutional obviously, what we do out of our Treasury and finance and so Weve got cross functional cross business teams that are focused on this and ensuring that we that we get it right with the with the funding required to do so.

Brian Monteleone: Great. Thanks, Mike. Thanks, Mark.

Great. Thanks, Mike Thanks, Mark.

Mike Verdeschi: Sure.

Sure.

Operator: Your next question comes from the line of Arnold Kakuta with Bloomberg Intelligence.

And your next question comes from the line of Arnold could have with Bloomberg intelligence.

Brian Monteleone: Great. Thanks for holding the call, guys. Appreciate it.

Arnold Kakuda: Great. Thanks for holding the call, guys. Appreciate it.

Great. Thanks for holding the call guys appreciate it.

Mike Verdeschi: Sure. Hi, Arnold.

Sure I don't have.

Brian Monteleone: So, just to be clear, it sounds like on the preferred, you guys are leaning more towards kind of the ARRC-recommended language and the waterfall fallback versus, I guess, you have a peer that issued a preferred that seems to be doing pretty well where the back-end floater is versus a five-year US Treasury. Is that right to say?

Arnold Kakuda: So, just to be clear, it sounds like on the preferred, you guys are leaning more towards kind of the ARRC-recommended language and the waterfall fallback versus, I guess, you have a peer that issued a preferred that seems to be doing pretty well where the back-end floater is versus a five-year US Treasury. Is that right to say?

So just to be clear it sounds like on the preferred.

You guys are leaning more towards kind of the Ark recommend language and the and the waterfall fallback versus I guess you have appear that.

Issue to prefer that seems to be doing pretty well aware the backend flow. It is versus a five year, yes treasury is that right.

Mike Verdeschi: Yeah. So to the extent that we would call and reissue, we would certainly be looking at that ARRC-recommended language should the structure involve that backend flow.

Yes, so did extend Pratt we recall and reissue we would certainly be looking at that arc recommended language.

Should this structure involve that backend float.

Brian Monteleone: Okay. Great. Thanks. And then shifting gears to your capital plan. So congratulations. You got approval for the over the three years, get 60 billion of capital return, including this year, over 20 billion. But unfortunately, it seems like we're hitting a soft patch in terms of NII. I guess maybe you're less NII sensitive compared to peers, but nonetheless, still a headwind. But how do we think about your capital return plan, over 20 billion this year versus your 11.5% CET1 target? Can you still do both of those? Or if one had to go, are you willing to go below that 11.5% CET1 this year?

Okay, great. Thanks, and then shifting gears to.

Your capital plan so congratulations.

Got approval for the.

For the three years get $60 billion of capital return, including this year.

Over 20 billion, but again unfortunately.

But.

Yeah. It seems like we're hitting a soft patch in terms of Eni.

I guess, maybe are less sensitive to catch it compared to peers, but.

Nonetheless, still a headwind, but how do we think about.

Your capital return plan over 20 billion this year.

Versus your OLED and a half percent CGEN one target Mike can you still do both of those are if one have to go.

Are you willing to go below that 11.5% 51 this year.

Mark Mason: Yeah. No, sure. So we are, as you know, running through the first half with the CET1 ending in the second quarter at about 11.9%. We've set the target at 11.5%. You'll recall that that target has both the regulatory minimum in it. It also has the G-SIB score for us as a 3% bank. It also has a proxy, if you will, for the stress capital buffer and then a management buffer as well. And so, as we get further clarity on some of the regulatory proposals that are out there, we will continually take a look at what we have in our 11.5% and how we think about the management buffer. And we will certainly continue to do that over time as we gain clarity.

Yes, no sure.

So we are as you know running through the first half with the C. One ending in the second quarter at about 11.9.

We've set the target at 11, and a half youll recall that that target.

It has both the regulatory minimum and it. It also has the GCIB score for us as as a 3% bank.

It also has a great proxy if you will for the stress capital buffer and then a management buffer as well and so as we get as we speak we've said all along as we get further clarity.

On some of the regulatory proposals that are out there we will continually take a look at what we have seen in our 11.5%. How we think about the management buffer and we will we will certainly.

We'll continue to do that over time as clarity as as as we gain clarity in terms of how to think about capital return going forward.

Mark Mason: In terms of how to think about capital return going forward, again, we've come from a place where our CET1 capital was 13% and have brought it down over the past couple of years to where it is now at this 11.9%. And so going forward, once we get to that 11.5%, notwithstanding what I've said about the proposals that are outstanding, it'll be a byproduct of the net income that we're able to generate, the disallowed DTA that we're able to utilize. That net income, obviously, is to common after we paid out for preferreds. The DTA that we're able to utilize, the growth that we want to put back into the business, which is very important. And then what's left will be what we would obviously move to return. And so that's kind of how we think about it.

In terms of how to think about capital return going forward, again, we've come from a place where our CET1 capital was 13% and have brought it down over the past couple of years to where it is now at this 11.9%. And so going forward, once we get to that 11.5%, notwithstanding what I've said about the proposals that are outstanding, it'll be a byproduct of the net income that we're able to generate, the disallowed DTA that we're able to utilize. That net income, obviously, is to common after we paid out for preferreds.

Again, we come from a place where our seed Q1 capital was 13%.

And have brought it down over the past couple of years to where it is now at this 11 nine and so going forward once we get to that 11 and a half.

Notwithstanding what I've said about the proposals that are outstanding it will be a byproduct of the net income that we're able to generate.

The disallowed DTA that we're able to utilize that net income obviously is to common after we paid out for preferred.

The DTA that we're able to utilize, the growth that we want to put back into the business, which is very important. And then what's left will be what we would obviously move to return. And so that's kind of how we think about it. As we get clarity, we'll look at it for sure. But short of that clarity, we'll run at the 11.5 and manage that accordingly through the stress scenarios that we run every year.

Our the DTA that we're able to utilize the growth that we want to put back into the business, which is very important and then what's left will be what we would obviously move to to return.

So thats kind of how we how we think about it as we get clarity, we'll look at it for sure but short of that clarity will run at the at the 11 and a half and manage that accordingly through the through the stress scenarios that we run every year.

Mark Mason: As we get clarity, we'll look at it for sure. But short of that clarity, we'll run at the 11.5 and manage that accordingly through the stress scenarios that we run every year.

Brian Monteleone: Okay. Great. Thanks. And lastly, on profitability, I'm not a rounding kind of guy, but I get asked, "All right. You're running at 11.9%. You have some headwinds and maybe some tailwinds in card. But how do you get to 12%? And is your target a 12 point greater than 12.0%?

Arnold Kakuda: Okay. Great. Thanks. And lastly, on profitability, I'm not a rounding kind of guy, but I get asked, "All right. You're running at 11.9%. You have some headwinds and maybe some tailwinds in card. But how do you get to 12%? And is your target a 12 point greater than 12.0%?

Okay, great. Thanks, and lastly on profitability.

I'm not a rounding kind of guy, but I get asked all right you are running at 11.9%.

You have some headwinds and maybe some tailwind and card, but how do you get to 12% and is your target a 12 point greater than 12.0%.

[laughter].

So that the target remains 12%.

Mark Mason: So the target remains 12%. We talked a little bit about on the earnings call, but talked a little bit about continuing to generate non-interest revenue towards the target that we had set for the year, which was an increase of about 4% or $2 billion. We've made good progress on that in the first half, about a billion three of net interest revenue. And that was really a byproduct of some of the things that we pointed to in the way of top-line growth. So branded cards continuing to perform with revenue growth, our accrual businesses performing both or in the ICG, our TTS business, our securities services business, our private bank. And we expect to see continued momentum from those businesses contributing to that NIR going through the balance of the year. We expect to get our non-interest revenue at flat for the year.

We.

Talk a little bit about on the earnings call, but talk a little bit about continuing to generate non interest revenue towards the target that we had set for the year, which was an increase of about 4% or $2 billion.

Weve made good progress on that in the first half about a billion three of non of net interest revenue.

And that was really a byproduct of some of the things that we pointed to in the way of top line growth.

So branded cards continuing to perform with revenue growth our accrual.

Businesses performing boat or in the in the IC GR TTS business, our security services business, our private bank and we expect to see continued momentum from those businesses continuing contributing to that and I are going through the balance of the year, we expect to get our noninterest revenue Adam at flat for the year.

We expect to get our non-interest revenue at flat for the year. Some of that will be aided by a fourth quarter that we hope will look obviously better than the fourth quarter we saw last year. We continue to have good dialogue with our corporate clients. We think that will continue to play out in the top line. A combination of revenue growth, continued revenue growth, and the expense management, which you saw through the first half, we've been managing that very tightly. The benign credit environment or, I should say, normalization of credit levels that you, again, have seen through the first half. Then obviously, what we do with capital will play out in the back half as well. That should enable us to stay focused on that 12% for the full year.

Mark Mason: Some of that will be aided by a fourth quarter that we hope will look obviously better than the fourth quarter we saw last year. We continue to have good dialogue with our corporate clients. We think that will continue to play out in the top line. A combination of revenue growth, continued revenue growth, and the expense management, which you saw through the first half, we've been managing that very tightly. The benign credit environment or, I should say, normalization of credit levels that you, again, have seen through the first half. Then obviously, what we do with capital will play out in the back half as well. That should enable us to stay focused on that 12% for the full year.

And some of that will be aided by.

A fourth quarter that we.

Hope, we'll look obviously better than the fourth quarter. We saw last year. We continue to have good dialogue with our corporate clients. We think that will continue to play out in the top line. So a combination of revenue growth continued revenue growth.

The expense management, which you saw through the first half we've been managing that very tightly.

The benign credit environment or norm, I should say normalization of credit.

Levels that you again have seen through the through the first half.

And then obviously, what we do with capital will play out in the back half as well and that should enable us to stay focused on that 12% for the full year.

Brian Monteleone: Great. Thanks a lot, Mark and Mike.

Great. Thanks.

Mark Mason: Thank you. Thank you.

Mark and Mike Thank you.

Operator: Your next question is from the line of Robert Smalley with UBS.

Your next question is from the line of Robert Smalley with Qbs.

Hi.

Robert Smalley: Hi. Good morning, Tom, Mark, Mike. Thanks for doing the call. A lot of questions asked and answered. So a couple of follow-ups. But first, in general, on card, you and a number of your other peers are talking about increasing card outstandings. And as I listened to the earnings calls last week, I couldn't help but being struck with the idea that the industry might be betting maybe a little bit too heavily on card growth. So I wanted to get your feelings on that. And we kind of went through something like this in 2016 and had a bit of a problematic vintage. So what's different now than it was a couple of years ago is my first question.

Good morning, Togmorden, Rob Thanks for doing the call a lot of questions asked and answered so a couple of follow ups.

But first in general on card.

You and number of your other peers are talking about increasing card outstandings.

And as I listen to.

The the earnings calls last week, I couldn't help but being struck with the idea that we.

The industry might be betting, maybe a little bit too heavily on on card growth.

So I wanted to get your feelings on that now.

And then we kind of went through something like this in 2016 and had a bit of a problematic.

Problematic vintage so what's different now than it was a couple of years ago as my first question.

Mark Mason: Yeah. So look, I'd say that we first have talked about a consumer strategy that is certainly broader than cards, but it leverages our card customer base, the 28 million US cardholders that we have, and leveraging that card customer base and developing broader value propositions for them that deepen our relationship with them, i.e., the deposit and retail banking relationships that we want to grow with that card customer base. So yes, we have been getting good momentum out of cards. We expect to continue to do so. But our strategy, important to point out, is broader than that. And the digital capabilities that we've been implementing is in line with trying to execute against that strategy. That's one point that I'd make.

Yes, so look I'd say that.

We first have talked about a consumer strategy that is certainly broader than cards, but it leverages our card customer base, the 28 million.

US card holders that we have been leveraging that that card customer base and developing broader value propositions for them that deepen our relationship with them I either deposit in retail banking relationships that we we want to grow with that card customer base. So so yes, we have been getting good momentum out of cards. We expect to continue to do so but our strategy is important to point out is broader than that and the digital capabilities that we've been implementing.

Is in line with trying to execute against that strategy. That's one point that I've made the second point that I'd make is that the momentum that we're seeing in car does not just from purchase sales and not just from the loan growth, but also a byproduct of investments that we've made in the past and promotional rewards. If you will to card customers now converting into average interest, earning balances and that is giving us some tailwinds so to speak from from the franchise from the card business that we that we have the third point that I'd make is that as we think about our portfolio. We tend to skew higher on the FICO score in terms of the quality of the card customers.

Mark Mason: The second point that I'd make is that the momentum that we're seeing in cards is not just from purchase sales and not just from the loan growth, but also a byproduct of investments that we've made in the past in promotional rewards, if you will, to card customers, now converting into average interest-earning balances. And that is giving us some tailwinds, so to speak, from the franchise, from the card business that we have. The third point that I'd make is that as we think about our portfolio, we tend to skew higher on the FICO Score in terms of the quality of the card customers that we have. And that is true in both our branded card business, but also in our retail services card business.

The second point that I'd make is that the momentum that we're seeing in cards is not just from purchase sales and not just from the loan growth, but also a byproduct of investments that we've made in the past in promotional rewards, if you will, to card customers, now converting into average interest-earning balances. And that is giving us some tailwinds, so to speak, from the franchise, from the card business that we have. The third point that I'd make is that as we think about our portfolio, we tend to skew higher on the FICO Score in terms of the quality of the card customers that we have. And that is true in both our branded card business, but also in our retail services card business.

That we have and that is that is true in both our branded card business, but also in our retail services our card business and we look very different in terms of that portfolio than we did even or end certainly during the last crisis as we as we have made that type of shift in so I think the combination of those things.

Mark Mason: We look very different in terms of that portfolio than we did even well, and certainly during the last crisis as we have made that type of shift. So I think the combination of those things position us to see continued growth and momentum, and to the extent that things do slow down, to be in a relatively safer position than certainly we would have been at the last crisis. I'd also point out that we aren't, at this point in time, seeing any particular signs of major concern in either of the card portfolios that we have. So when we look at min pay, payment rates, and delinquencies, and things of that sort, we aren't seeing any meaningful slowdown. So those would be the couple of points that I'd make with regard to that, Robert.

We look very different in terms of that portfolio than we did even well, and certainly during the last crisis as we have made that type of shift. So I think the combination of those things position us to see continued growth and momentum, and to the extent that things do slow down, to be in a relatively safer position than certainly we would have been at the last crisis. I'd also point out that we aren't, at this point in time, seeing any particular signs of major concern in either of the card portfolios that we have. So when we look at min pay, payment rates, and delinquencies, and things of that sort, we aren't seeing any meaningful slowdown. So those would be the couple of points that I'd make with regard to that, Robert.

Position us to to see continued growth and momentum and to the extent that things do slow down two to be in a relatively.

Safer position, then certainly we would have been at the last crisis.

I'd also point out that we aren't at this point in time seeing any particular signs.

Of major concern in either of the card portfolios that we have so when we look at.

And then pay in payment rates and delinquencies and things of that sort, we aren't seeing any any meaningful slowdown. So so those would be the couple of points that I'd make with regard to that Robert.

Robert Smalley: Thanks. That's helpful. And a couple on issuance. When we look out to 2020, which may be too long, but next year in the deck, you've got $22 billion in maturities. With the exception of this year, you've really matched maturities and issuance. Do you think that's where you're headed next year? Or could you even do a little bit less than maturities? That's one. And the second is I was wondering if you had any comments on any issuance out of the non-bank.

Thanks, That's that's helpful and a couple on issuance.

When we look out to 2020, which may be too long, but.

Next year in the deck, you've got $22 billion in maturities.

With the exception of this year Youve really matched maturities in issuance do you think thats, where you're headed.

Next year or could you even.

We do a little bit less than maturities, that's one and the second is.

I was wondering if you have any comments on that.

Any issuance out of the non bank.

2028, it's a bit far out there to two.

Mike Verdeschi: 2020, it's a bit far out there to comment at this time. You're right. When you look at this year, where we're issuing our maturities in the non-bank, is the guidance that we provided in the bank. We've talked about maybe slight growth. I think in the bank, that's been a program that had been new. So we were ramping that up. Therefore, you see some growth. It's too early to tell as you look out. But as you can imagine, again, it is going to be about that balance sheet growth and the type of activity we're facilitating for our clients. Then, of course, looking at how we optimize our resources. We'll obviously look at our deposit growth. We've talked in the past about having various different funding levers to give us flexibility.

Comment at this time in and you're right. When you look at this year.

Where we're issuing our maturities in the non bank is the guidance that we provided in the bank.

We've talked about maybe slight growth and I think in the bank that's been a program that.

That had been new so we were ramping that up and therefore, you see some growth.

It's too early to tell as as you look out but as you can imagine.

Again, it is going to be about that balance sheet growth and the type of activity. We're facilitating for our clients and then of course looking at how we optimize our resources and we'll obviously look at our deposit growth we've talked in the past about having.

Various different funding levers to give us flexibility, we've talked about meeting a lot of our of our requirement to not being T. Lac and resolution liquidity. So it's hard to know exactly how it evolves at that point, but.

Mike Verdeschi: We've talked about meeting a lot of our requirements and that being TLAC and resolution liquidity. So it's hard to know exactly how it evolves at that point, but more to come on that perhaps in the months ahead as we would normally do.

We've talked about meeting a lot of our requirements and that being TLAC and resolution liquidity. So it's hard to know exactly how it evolves at that point, but more to come on that perhaps in the months ahead as we would normally do.

More to come on that perhaps.

You know in the months ahead as we would normally do.

And on the non bank anything.

Robert Smalley: On the non-bank, anything to report even though we're in early days?

Anything to report, even though we're in the early days.

Mike Verdeschi: No. The same. Again, our guidance at this point for the year is roughly the same. We've already done nine. So we're looking at our needs for the remainder and just don't have much more color at this point. Again, it's going to be a function of how our balance sheet is evolving and what our funding needs are.

No I have the same again our guidance at this point.

For the year is roughly the same we we've already done.

You know nine so where we're looking at our needs for the remainder and.

Yes, just don't have much more color at this point again, it's going to be a function of how our balance sheet.

How our balance sheet is evolving and what our funding needs are.

Robert Smalley: Then just one other question, general question. In terms of the investment bank, when I look at results and look across lines of business, in terms of peer comparisons, they're near or at peers, in some cases exceeding them, and in some cases with some lower volatility. Do you think that you're getting enough credit from the investment community for the performance of the IB over the past couple of quarters?

And then just one other.

Question General question in terms of the investment bank.

When I look at results and look across lines of business.

Interest in terms of peer comparisons there at near or at <unk>.

At peers in some cases exceeding them.

And in some cases with some lower volatility.

Do you think that you're getting enough credit from the investment community for further performance of the IB over the past couple of quarters.

But look I think we're making some some good traction in our investment banking business I think we obviously, we've seen performance this quarter.

Mark Mason: Look, I think we're making some good traction in our Investment Banking business. I think obviously we've seen performance this quarter that certainly showed well relative to the market, and frankly came in better than what I had forecasted at the last conference I spoke at. Some of that, I think, was a byproduct of, again, good activity, some of which being pulled into Q3. Frankly, we continue to have good constructive dialogue with our corporate clients around their banking needs. There is a sentiment out there that is a bit cautious, but I think we're making good progress. We're picking up talent where that makes sense to kind of build out sectors where we think we could be stronger. So we're taking advantage of those opportunities where we see fit. You can expect that we'll continue to do that.

That certainly showed route well relative to the market and frankly came in better than.

What I had forecasted at the at the last conference I spoke that some of that I think was a byproduct of again.

Good good activity, some of which being pulled into the third quarter and frankly, we continue to have good constructive dialogue with our corporate clients around around their banking needs. There is a sentiment out there that is a bit cautious, but I think we're making good progress we're picking up talent, where that makes sense to kind of build outs sectors, where we think we could be stronger. So we're taking advantage of those opportunities. We received it you can expect that will continue to do that and so I feel good about the franchise I feel as though there's more.

Mark Mason: I feel good about the franchise. I feel as though there's more upside to us given the nature of the relationship we have with our corporate clients. We're looking forward to that.

I feel good about the franchise. I feel as though there's more upside to us given the nature of the relationship we have with our corporate clients. We're looking forward to that.

Upside to us given the nature of the relationship we have with our corporate clients and we're looking forward to that.

That's again that's helpful. Thanks for the call greatly appreciative.

Robert Smalley: Again, that's helpful. Thanks for the call. Greatly appreciate it.

Mark Mason: Thank you.

Mike Verdeschi: Thank you.

Thank you.

Operator: Your next question is from the line of Mark Kehoe with MacKay Shields.

Your next question is from the line of Mark Kiyo with Mccain Shield.

Mark Kehoe: Hi, good morning. You've talked about the transition away from kind of return on capital to, sorry, return of capital to return on capital. Can you briefly set out how greater dissemination on kind of fund transfer pricing throughout the organization has kind of helped increase the ROIC and kind of optimization of capital and funding that's helping drive the ROE expansion?

Hi, good morning, you've talked about the transition away from kind of return on capital of two sorry to return of capital to return on capital can you briefly set of highly creative dissemination are going to fund transfer pricing.

Throughout the organization has kind of helped increase DRC and cut optimization of capital and funding Thats, helping drive the army expansion.

I apologize Mark you broke up a little bit can you would you mind repeating that for me sure Youve talked about kind of transition away from return of capital to work to return on capital and to create a kind of use of funds transfer pricing and capital optimization within the business.

Mark Mason: I apologize, Mark. You broke up a little bit. Would you mind repeating that for me?

Mark Kehoe: Sure. You've talked about kind of transition away from return of capital to return on capital, and to greater kind of use of fund transfer pricing and capital optimization within the business, and to kind of allocate capital economically. Can you talk briefly of how that's changing your thinking around several businesses and whether you want to put more capital into certain businesses and take it out from others?

Allocate capital economically can you talk briefly how that has changed your thinking around several businesses and where they want to put more capital to certain businesses and taking share from others.

Yes sure. So so first of all just just to be clear I mean, we're certainly still focused on return on and return of both both continue to be an important focus I understand your question as we get closer to.

Mark Mason: Yeah, sure. So first of all, just to be clear, I mean, we're certainly still focused on return on and return of. Both continue to be an important focus. I understand your question as we get closer to having less excess capital. Today, we still sit at 11.9, but getting very close to the 11.5. We are, and in many ways, have always been, so to speak, focused on how we actually ensure that we are optimizing the use of the balance sheet and how we're allocating capital, and the returns that the businesses are able to generate.

Having less excess capital today today, we still sit at 11, nine but getting very close to the to the 11 and a half we are and in many ways have.

I have always been so to speak focused on on how we actually ensure that we are optimizing the use of the balance sheet and how we're allocating capital and the returns that the businesses are able to generate in many ways that starts with understanding what the client needs and demands are across the.

Mark Mason: In many ways, that starts with understanding what the client needs and demands are across the different parts of the franchise, ensuring that we can develop competitive offerings that make sense, ensuring that the resources required to do so, both capital and expense-wise, allow for us to get to return levels that are meaningful. Starting with that as a basis, where there are opportunities to look at returns, we're looking at them not only cross products. We look at them cross clients. We look at them cross regions. We also look at the linkages that exist as we cover and serve clients. So linkages that may exist between our TTS corporate client and the FX relationship that they have with us or the rates work that we do with them out of our Markets business.

In many ways, that starts with understanding what the client needs and demands are across the different parts of the franchise, ensuring that we can develop competitive offerings that make sense, ensuring that the resources required to do so, both capital and expense-wise, allow for us to get to return levels that are meaningful. Starting with that as a basis, where there are opportunities to look at returns, we're looking at them not only cross products. We look at them cross clients. We look at them cross regions. We also look at the linkages that exist as we cover and serve clients. So linkages that may exist between our TTS corporate client and the FX relationship that they have with us or the rates work that we do with them out of our Markets business.

Different parts of the franchise, ensuring that we can develop competitive offerings that make sense, ensuring that the resources required to do so.

Both capital and expense wise.

Allow for us to get to return levels that are that are meaningful starting with that as a as a basis, where there are opportunities to look at returns. We're looking at not only cost products. We look at them cross clients, we look at them cost regions.

We also look at the linkages that exist as we cover and serve clients. So linkages that may exist from between our TTS corporate client and the FX relationship that they have with us or the rates works that we do with them out of our markets business and those linkages are important as we think about returns that are generated for the business through that client lens and how we think about the reallocation of capital where returns are not meeting appropriate hurdles, where we do find clients or products that don't meet those hurdles. We obviously work with first them to better understand the broader needs remember, we're obviously a financial services firm that can serve a broad needs, particularly of our corporate clients and they are often opportunities to do more with them.

Mark Mason: Those linkages are important as we think about returns that are generated for the business through that client lens and how we think about the reallocation of capital where returns are not meeting appropriate hurdles. Where we do find clients or products that don't meet those hurdles, we obviously work with them first to better understand the broader needs. Remember, we're obviously a financial services firm that can serve the broad needs, particularly of our corporate clients. There are often opportunities to do more with them, whether it be a TTS client where we can actually do more in different countries or whether it be a corporate client that we're lending to, but we don't yet have a TTS relationship with.

Those linkages are important as we think about returns that are generated for the business through that client lens and how we think about the reallocation of capital where returns are not meeting appropriate hurdles. Where we do find clients or products that don't meet those hurdles, we obviously work with them first to better understand the broader needs. Remember, we're obviously a financial services firm that can serve the broad needs, particularly of our corporate clients. There are often opportunities to do more with them, whether it be a TTS client where we can actually do more in different countries or whether it be a corporate client that we're lending to, but we don't yet have a TTS relationship with.

Whether it be a GTS client, where we can actually do more in different countries or whether it be a corporate client that were lending to but we don't yet have a TTS relationship with and our first path. If you will is to figure out how we expand that relationship how we deepen the the wallet that we have with those clients with an eye towards better serving them, but also enhancing the returns in and where that doesn't work. We obviously move towards how we are we can redistribute that capital to two other clients. Other products that are higher returning so hopefully that gives you a little bit of a sense, we are going to get into the transfer pricing and what have you that that happens internally, but I wanted to just give you a little bit of a sense of how we think about it.

Mark Mason: Our first path, if you will, is to figure out how we expand that relationship, how we deepen the wallet that we have with those clients with an eye towards better serving them, but also enhancing the returns. Where that doesn't work, we obviously move towards how we can redistribute that capital to other clients, other products that are higher returning. So hopefully that gives you a little bit of a sense. We're not going to get into the transfer pricing and what have you that happens internally, but I wanted to just give you a little bit of a sense for how we think about it.

Our first path, if you will, is to figure out how we expand that relationship, how we deepen the wallet that we have with those clients with an eye towards better serving them, but also enhancing the returns. Where that doesn't work, we obviously move towards how we can redistribute that capital to other clients, other products that are higher returning. So hopefully that gives you a little bit of a sense. We're not going to get into the transfer pricing and what have you that happens internally, but I wanted to just give you a little bit of a sense for how we think about it.

Mark Kehoe: That's very helpful. Thank you. Just one last question. We saw one regional bank last week look to kind of immunize its name from headwinds of lower rates by putting on forward starting five-year swaps. Is that something Citi could do? Are the balance sheets too big? And then to that point, what's the worst-case scenario? Is it really a flat yield curve in a low-rate environment? And also, are you looking at putting on floors on consumer contracts so that you don't end up with contracts that would whereby you would pay if interest rates were to go negative in the US?

That's very helpful. Thank you just one last question, we saw one regional bank Squeak look differently immunize, its NIM from headwinds of lower rates, but putting on forward starting five year swaps is that something city could do or the balance sheet to be and then to that point.

What's the worst case scenario is that really a flat.

Flat yield curve in a low rate environment.

And also are you looking at putting on floors on consumer contracts for that.

You don't end up with a.

With the contracts that would have been.

But you would pay in traits were to go negative in the us.

Mark It's Mike.

Mike Verdeschi: Mark, it's Mike. When we're managing our portfolio, we are looking across the balance sheet at different ways to reflect the interest rate exposure that we wish to have. We do use derivatives. Some of those derivatives could be marked to market, but by and large, they'll be accrual swaps that have accounting-friendly terms from an accrual standpoint. And yes, we would look at forwards and have used those in the past. So those are tools we would be considering. Of course, something that you've seen us do over a year now is that we've been taking down that dollar sensitivity for quite some time. And we probably cut it by 2/3 already. And the way in which we do that is various. Some of that is achieved through use of derivatives. Some of that, you've seen us by reallocating securities away from treasuries and into agency MBS.

We when we are managing our portfolio, we are looking across the balance sheet a different ways too.

Reflect the interest rate exposure that we wish to have we do use derivatives. Some of those derivatives could be mark to market, but by and large still be accruals swaps that have accounting friendly terms from an accrual standpoint.

And yes, we would look at forwards and and have used those in the past. So those are our tools, we would be considering of course, you know something that you've seen us do.

Over a year now is that we've been taking down.

That dollar.

Sensitivity for quite some time and we'd probably cut it by two thirds are already and.

The way in which we do that is various some of that is.

Achieve through use of derivatives.

Some of that Youve seen us by reallocating securities away from treasuries and into agency MBS.

Mike Verdeschi: We will look at various tools to get the interest rate duration that we think makes sense in this evolving environment. You're talking about now floors with, again, the zero bound. As you approach that, of course, you think about not just the level of interest rates, but you're also thinking about the shape of the curve. You're thinking about spreads. All of those things are what we would contemplate in managing the overall exposure.

We will look at various tools to get the interest rate duration that we think makes sense in this evolving environment. You're talking about now floors with, again, the zero bound. As you approach that, of course, you think about not just the level of interest rates, but you're also thinking about the shape of the curve. You're thinking about spreads. All of those things are what we would contemplate in managing the overall exposure.

And so we will look at.

Various tools to get the interest rate duration that we think make sense in this.

In this involves evolving environment then.

You are talking about now floors with again, the the zero bound and so as you approach that of course, you think about not just the the level of interest rates, but you're also thinking about the shape of the curve you are thinking about spreads all of those things are are what we would contemplate in managing the the overall exposure.

Robert Smalley: All right. Thank you for the call.

Mark Kehoe: All right. Thank you for the call.

Great. Thank you for the call.

Thank you.

Mike Verdeschi: Thank you.

Operator: Your next question is from the line of Scott Frost with State Street.

Your next question is from the line of Scott Frost with State Street.

Robert Smalley: Hello. Can you hear me okay?

Scott Frost: Hello. Can you hear me okay?

Hello can you hear me okay.

Mike Verdeschi: Yes. Hi, Scott.

Yes, Hi, guys Scott Hi.

Robert Smalley: Hi, Scott. Hi. I'm sorry if I've missed your comments on this topic. I seem to recall you commented indirectly, but not directly. So if I've got this wrong, I apologize. But to clarify, when I look at slide 20, this quarter versus last quarter, and I see the marginal build, should I think of that? How should I think of that? Is that a planned marginal build, or is it just some quarter-over-quarter noise as you wait for more clarity on capital guidelines? What's kind of the right way to look at that?

Mark Mason: Hi, Scott.

Scott Frost: Hi. I'm sorry if I've missed your comments on this topic. I seem to recall you commented indirectly, but not directly. So if I've got this wrong, I apologize. But to clarify, when I look at slide 20, this quarter versus last quarter, and I see the marginal build, should I think of that? How should I think of that? Is that a planned marginal build, or is it just some quarter-over-quarter noise as you wait for more clarity on capital guidelines? What's kind of the right way to look at that?

I'm sorry, if I missed your comments on this topic I seem to recall you commented indirectly, but not directly so if I've got this wrong I apologize but.

To clarify when I look at slide 20.

This quarter versus last quarter, and I see the marginal build.

Should I think of that how should I think of that is that a planned marginal build or is it just some quarter over quarter noise as you wait for more clarity on capital guidelines, what's what's kind of the right way to look at that.

Mike Verdeschi: Yeah. I would say that build in that TLAC, again, we're over the targeted range, more of an output. Again, we're raising debt in bank and non-bank. Of course, that is all part of our funding of the balance sheet. As the balance sheet evolves and our customer needs evolve, this is just one of our funding levers to meet that growth. One of the things we have to be mindful of is obviously carrying sufficient TLAC. But I would say this has been more of an output. Clearly, we're above our targeted range. And again, TLAC, not necessarily the driver of all of our issuance, but a consideration.

Yes, I would say that build in that that GE like again, we're over the targeted range more of an output.

Again, where were raising debt.

In bank and non bank of course that is all part of our funding of the balance sheet.

As the balance sheet evolved in our customer needs evolve.

This is just one of our funding levers to meet that growth one of the one of the things we have to be mindful of is obviously carrying sufficient T. Lac, but I would say this has been more of an output clearly were above our our targeted range and again, she lack not necessarily the driver of all of our issuance, but but but a consideration.

Robert Smalley: So I'm hearing that I'm taking that as more incidental than not.

Scott Frost: So I'm hearing that I'm taking that as more incidental than not.

So I'm hearing that I'm, taking that is more incidental than than not.

Mike Verdeschi: Yes.

Yes.

Robert Smalley: Thank you.

Scott Frost: Thank you.

Thank you.

Your next question is from the line of Jesse Rosenthal with credit site.

Operator: Your next question is from the line of Jesse Rosenthal with CreditSights.

Good morning, Thanks for holding this call most of my questions have been asked and answered just a quick one on regulations couple of months ago, We saw Europe take a pretty big step forward towards the implementation of the NSF are and so I just wanted to get your thoughts and kind of any color you may have on the timing or potential structure for it going into effect in the U.S.

Tom Rogers: Good morning. Thanks for holding this call. Most of my questions have been asked and answered. Just a quick one on regulations. A couple of months ago, we saw Europe take a pretty big step forward towards implementation of the NSFR. And so I just wanted to get your thoughts and kind of any color you may have on the timing or potential structure for it going into effect in the US.

Jesse Rosenthal: Good morning. Thanks for holding this call. Most of my questions have been asked and answered. Just a quick one on regulations. A couple of months ago, we saw Europe take a pretty big step forward towards implementation of the NSFR. And so I just wanted to get your thoughts and kind of any color you may have on the timing or potential structure for it going into effect in the US.

Mike Verdeschi: Yeah. No color regards to timing. I mean, of course, we've been writing ourselves around that metric, but it's hard to know exactly what that timing is. Of course, there's been some discussion around the calibration of that. It remains to be seen how that will be implemented and how much of a stress metric, if you will, it plans to be. But we just don't have more clarity at this time in terms of the implementation. But of course, we will be ready.

Yes.

No color regards to timing I mean of course, we.

And readying ourselves around.

Yes that metric.

Well, it's hard to know exactly what that timing is of course, there has been some discussion around the calibration of that remains remains to be seen how that how that will be implemented.

And how much of a of a stress metric if you will.

It plans to be.

But we just don't have more clarity at this time in terms of the in terms of the implementation but.

Of course, we will be ready.

Tom Rogers: Okay. That's fair. I actually had a quick follow-up on the card portfolio. So it looks like some of that recent growth has really been driven by the retail book, and it has picked up a little bit of share in terms of the overall North American card portfolio. And I think in the past, you've talked about not getting too over-indexed on retail relative to Citi branded. So I was just kind of curious, what do you think the sort of right mix of that book looks like?

Jesse Rosenthal: Okay. That's fair. I actually had a quick follow-up on the card portfolio. So it looks like some of that recent growth has really been driven by the retail book, and it has picked up a little bit of share in terms of the overall North American card portfolio. And I think in the past, you've talked about not getting too over-indexed on retail relative to Citi branded. So I was just kind of curious, what do you think the sort of right mix of that book looks like?

Okay. That's fair actually had a quick follow up on the card portfolio. So it looks like some of that recent growth has really been driven by the retail book and it has picked up a little bit of share in terms of the overall North American card portfolio and I think in the past you've talked about not getting too over indexed.

On retail relative to city branded so I was just kind of curious what do you think theres sort of right mix of that of that book looks like.

Yes, we've seen growth in both both side certainly on that on that on the top line and good momentum out of the branded cards as part of the portfolio I do think the mix is important.

Mark Mason: Yeah. We've seen growth on both sides, certainly on the top line, and good momentum out of the Branded Cards part of the portfolio. I do think the mix is important. Obviously, the Branded Cards portfolio that we have, it's not a relationship that we have with another partner. And so the economics there are more favorable, so to speak. There's not a sharing that takes place, as is the case with Retail Services. But we have seen good growth in balances from Costco and American Airlines. And so we think the mix is about where it should be. And we'll see that evolve a little bit over time, but we think it's about where it should be.

Obviously, the branded card portfolio that we have with its not a relationship that we have with another partner and so the economics. There are more favorable so to speak there is not a sharing that takes place as is the case with retail with retail or with.

With retail services, but.

We have seen good growth in organic growth in balances from Costco and American Airlines and so we think the mix is about.

Is about where it should be and we'll we'll see that evolve a little bit over time, but we think it's about where it should be.

Tom Rogers: Okay. Great. Very helpful. Thank you.

Okay, great very helpful. Thank you.

Mark Mason: Yeah.

Mike Verdeschi: Sure.

Sure.

Operator: Your next question is from the line of Kevin Maloney with BlackRock.

Your next question is from a line of Kevin Maloney with Blackrock.

Mark Kehoe: Thanks for taking my questions. On TTS, clearly, the big mechanism is deposit gathering. I'm just wondering, what's the duration of those deposits? Is most of it overnight? And there's obviously a funding mechanism to loans, but I would imagine most of that goes into securities as they typically go into treasuries or govvies?

Kevin Maloney: Thanks for taking my questions. On TTS, clearly, the big mechanism is deposit gathering. I'm just wondering, what's the duration of those deposits? Is most of it overnight? And there's obviously a funding mechanism to loans, but I would imagine most of that goes into securities as they typically go into treasuries or govvies?

Hi, Thanks for taking my questions.

On TTS.

Clearly the big mechanism is deposit gathering and just wondering.

What's the duration of those deposits is most of it overnight.

And does it theres, obviously, a funding mechanism to loans by imagine most of that goes into securities.

Typically go into.

Treasuries Govies.

Hi, Kevin its Mike.

Mike Verdeschi: Hi, Kevin. It's Mike. So as we raise those deposits, I mean, it is going to vary. If you think about there's a liquidity consideration, and then there's an interest rate consideration. And so depending on where we're raising those deposits, obviously, we're seeing good growth around the globe, both in dollars and non-dollars. But to the extent you're raising operating account type of deposits, then you have to consider, obviously, liquidity characteristics associated with that. And then, as I said, interest rate. If you have the non-interest-bearing aspect, then, of course, you will consider that you have what I would think of as a fixed liability, where if you invest that for some term, you can stabilize, for example, your net interest revenue.

So.

As we raise those deposits I mean, it is going to vary if you think about there is a liquidity consideration and then there is an interest rate consideration and so.

Depending on on where we are raising those deposits. Obviously, we're seeing good growth around the globe both in dollars and non dollars.

But.

To the extent, you're raising operating account type of deposits. Then you have to consider obviously look liquidity characteristics associated with that and then is that interest rate. After you have if you have the non interest bearing aspect. Then then of course you know you will consider that you have what would I would think of as a fixed liability where if you invest that for some term you can stabilize for example, your net interest revenue, but again, if you have something that floats two way short term rate then you may be inclined to obviously think about.

Mike Verdeschi: But again, if you have something that floats to a short-term rate, then you may be inclined to obviously think about a floating-rate instrument or perhaps just investing it shorter. So really, the deposits are going to come in many different forms. And I would say that you have to consider both the liquidity characteristics as well as the interest rate. But again, a lot of that activity is good deposits, operating accounts that you can use to facilitate the loan growth that we have on our balance sheet. Of course, a certain portion, getting back to that liquidity characteristic, a certain portion of that, you're going to want to retain in your HQLA. And that's all part of our liquidity risk management practices.

But again, if you have something that floats to a short-term rate, then you may be inclined to obviously think about a floating-rate instrument or perhaps just investing it shorter. So really, the deposits are going to come in many different forms. And I would say that you have to consider both the liquidity characteristics as well as the interest rate. But again, a lot of that activity is good deposits, operating accounts that you can use to facilitate the loan growth that we have on our balance sheet. Of course, a certain portion, getting back to that liquidity characteristic, a certain portion of that, you're going to want to retain in your HQLA. And that's all part of our liquidity risk management practices.

Our floating rate instrument or perhaps shifts investing at shorter so really the deposits are going to come in many different forms and I would say that you have to consider both the liquidity characteristics as well as the interest rate, but again a lot of that activity good deposits.

You know operating accounts that you can use that facilitate the loan growth that we have on our balance sheet of course, a certain portion getting back that liquidity characteristic a certain portion of that youre going to want to retain in your HQ away and that's all part of our liquidity risk management practices.

Mark Kehoe: Great. Thanks. On technology spend in that business, it seems like two or three other large banks want to increase their share in that. Everybody talks about technology and basically increasing the effectiveness of the payment system. Just wondering how much you're spending on technology. Is it a big deal, or is this being over-emphasized?

Kevin Maloney: Great. Thanks. On technology spend in that business, it seems like two or three other large banks want to increase their share in that. Everybody talks about technology and basically increasing the effectiveness of the payment system. Just wondering how much you're spending on technology. Is it a big deal, or is this being over-emphasized?

Great. Thanks.

On.

Technology spend in that business it seems like.

No two or three other large banks want to increase their share of that and everybody talks about technology and basically increasing the.

The effectiveness of the payment system, just wondering how much you're spending on technology is a big deal or is this being over emphasized.

So first of all the TTS business.

Mark Mason: So first of all, the TTS business for us, obviously, is a core part of our franchise. We're a big player in the space. We've got large multinational clients. We've got new emerging clients that go global overnight. And it is a space that continues to get a lot of attention, focus, and has been in the press a lot. That's not a surprise. It's been growing very nicely, as I think we've evidenced over many quarters at this point. It's profitable. It's high returning. Again, we think we are nicely entrenched with many of the customers that we serve around the world. It does require continued investment in technology, particularly as the payment space continues to evolve. And we've been continuing to do just that.

For Us obviously is a core part of our franchise, we're a big player in the space. We've got large multinational clients, we've got new emerging clients that go global overnight.

And it is a it is a space that is continues to get a lot of attention and focus.

It has been in the press a lot that's not a surprise its been growing very nicely.

As as I think we've evidenced over over many quarters at this point.

It's it's profitable it's high returning.

We again, we think we are.

Nicely in trench with many of the customers that we serve around the world I does require continued investment in technology, particularly as the payment space continues to evolve and weve been continuing to do just that we do it not only in developing and enhancing the technology that we have to serve those clients.

Mark Mason: And we do it not only in developing and enhancing the technology that we have to serve those clients today, but also in partnering with other fintechs and in being responsive to where the client's business model is evolving. And so we haven't disclosed how much tech spend we're spending in TTS, but we have disclosed that as a firm, we spend about 20% of our total expenses in the area of tech. And we're continuing to grow the spend that we make in TTS, in particular, for all of the reasons that I've stated. Now, again, we feel good about our franchise. The nature of our relationships with these clients are with the treasurers and with the assistant treasurers, and deputy treasurers that sit, in some instances, in the country with the local parts of their or local subsidiaries that these large multinationals have.

And we do it not only in developing and enhancing the technology that we have to serve those clients today, but also in partnering with other fintechs and in being responsive to where the client's business model is evolving. And so we haven't disclosed how much tech spend we're spending in TTS, but we have disclosed that as a firm, we spend about 20% of our total expenses in the area of tech. And we're continuing to grow the spend that we make in TTS, in particular, for all of the reasons that I've stated.

Today, but also in partnering with other fintechs and being responsive to where the clients business model is evolving and so we don't we havent disclose how much tech spend we're spending in TTS, what we have disclosed that as a firm we spend about 20% of our total expenses in that in the area of tech and and and we are continuing to grow the spend that we make in TTS in particular for all the reasons that are that I've stated now we again, we feel good about our franchise the nature of our relationships with these clients are with the treasurers and with the assistant Treasurer Deputy Treasurer that sit in some instances in the country with the local parts out there or local subsidiaries that these large multinationals have and those are deep relationships that that we continue to nurture and tried to grow.

Now, again, we feel good about our franchise. The nature of our relationships with these clients are with the treasurers and with the assistant treasurers, and deputy treasurers that sit, in some instances, in the country with the local parts of their or local subsidiaries that these large multinationals have. Those are deep relationships that we continue to nurture and try to grow.

Mark Mason: Those are deep relationships that we continue to nurture and try to grow.

Okay, great. Thanks, and one last question. This has to deal with the arc language on the most recent paper, which I think came on April does allow for the waterfall to include.

Mark Kehoe: Okay. Great. Thanks. One last question. This has to deal with the ARRC language. The most recent paper, which I think came out in April, does allow for the waterfall to include a government instrument, a benchmark, which would infer that you could use a five-year treasury as others have done. Just wondering what do you see as being a better vehicle for you, pushing a SOFR reset or going to what is now becoming more the standard five-year treasury backend?

Kevin Maloney: Okay. Great. Thanks. One last question. This has to deal with the ARRC language. The most recent paper, which I think came out in April, does allow for the waterfall to include a government instrument, a benchmark, which would infer that you could use a five-year treasury as others have done. Just wondering what do you see as being a better vehicle for you, pushing a SOFR reset or going to what is now becoming more the standard five-year treasury backend?

Government.

Instrument, a benchmark, which would infer that you could use a five year treasury has as I have done just wondering if.

Yes.

What do you see as being a better vehicle for you.

Pushing us so for.

Reset or going to was now becoming more the standard.

Five year Treasury backend.

Mike Verdeschi: Yeah. It's a good question. I would say that it's good to see the flexibility of different instruments being built into structures and that there's demand for that. But that being said, obviously, as part of supporting the transition away from LIBOR and supporting SOFR, clearly, we would consider use of SOFR as well to help support the build of liquidity in that instrument. So I would say, really, as we go about our funding activities, we'll be considering a variety of structures. And part of that will include supporting the build of SOFR.

It's a good question.

I would say that it's good to see the flexibility of different instruments being built into structures and that there is demand for that.

But that being said, obviously as part of supporting the transition away from LIBOR and supporting so for.

Clearly, we would consider use of so for as well to help support the build of liquidity in that instrument.

So I would say really as we go about our funding activities will be considering a variety of structures than and part of that will include supporting the buildup. So for.

Mark Kehoe: Okay. Great. Have you issued corporate loans or other instruments to clients that are based off of SOFR? In other words, have you written into language of a corporate loan?

Kevin Maloney: Okay. Great. Have you issued corporate loans or other instruments to clients that are based off of SOFR? In other words, have you written into language of a corporate loan?

Okay, Great and have you.

Have you issued corporate loans or other.

Instruments to clients that are based off the sulfur in other words have you written into language of a you know a corporate loan.

No the efforts.

Mike Verdeschi: The efforts at this point, as I referenced the leadership role of ARRC previously, a lot of that has been with relationship to the fallback language. So I don't think we've seen any of that so far. It's been more about having conditions for fallback rather than new activity.

At this point as I referenced.

The leadership role of arc previously.

A lot of that has been with relationship to the fallback language.

So I don't think we've seen any of that so far it's been more about having conditions for a fall back rather than rather than new activity.

Okay, great. Thanks for answering my questions.

Mark Kehoe: Okay. Great. Thanks for answering my questions.

Kevin Maloney: Okay. Great. Thanks for answering my questions.

Mark Mason: Thank you.

Mike Verdeschi: Sure. You're welcome.

Thank you welcome.

Operator: Your last question is from the line of David Jang with Prudential PGIM.

And your last question is from the line of David Chang with Prudential, Fiji I am.

Hi, guys.

David Jang: Hi, guys. On page 12 with the LCR metric, can you just go clarify a little more on the interpretation change that drove that LCR ratio lower? I think you mentioned it has to do with the bank HQLA.

On page 12 with the.

LCR metric can you just go clarify a little more on the interpretation change that drove that.

LCR ratio lower I think you mentioned has to do with the bank HQ away.

Mike Verdeschi: Sure. So what happens is when you think about your aggregate liquidity resources in terms of how you then evaluate those liquidity resources for the purposes of calculating your top-of-the-house LCR. And what's happening is that there is an interpretation of the transferability of some of those resources from the bank for the purpose of the top-of-the-house calculation. So what this is not is it's not a reduction in the aggregate resources that the firm has. It's simply related to the transferability interpretation. Of course, those resources remain at the bank exactly where we need them to continue to facilitate our customer activity in the form of, for example, loan growth.

Sure.

So.

What happens is when you think about your aggregate liquidity resources.

In terms of how you then.

Evaluate those liquidity resources for the purposes of calculating your top of the house LCR and what's happening is that there is a interpretation of the transferability of some of those resources from the bank for the purpose of the top of the house calculation. So what this is not is it not a reduction in the aggregate resources that the firm has its simply related to the transferability interpretation of course those resources remain at the bank.

Exactly where we need them to continue to facilitate our customer activity.

In the form of for example loan growth.

Okay. So it's it's I guess, how trap that liquidity is.

David Jang: Okay. So it's, I guess, how trapped that liquidity is at the bank.

Mike Verdeschi: Yeah. It's an interpretation of that transfer.

Thank you, yes, it's an interpretation of that transfer.

David Jang: Although when I look at the ratio, the components of the ratio, the HQLA is actually higher, but the outflows are lower. So did that manifest itself in higher outflows, or?

Although when I look at the ratio the components the ratio will kill is actually higher but the outflows are lower so that that manifests itself in our outflows or yes. So it's when you look at.

Mike Verdeschi: Yeah. When you look at the quarter, we actually had quite a bit of deposit growth, and a lot of that was used to build cash. With that deposit growth being strong, you did actually see a build in HQLA. However, it was less than you would have seen without that interpretation around the transferability.

The quarter, we actually had quite a bit of the deposit growth and and a lot of that was used to build.

To build cash and so with that deposit growth are being strong you did actually see a build in HQ outlay, but however, it was less than you would have seen without that interpretation around the transferability.

David Jang: Got it. Okay. Thanks. And then, just going back to the Asia business, the loan growth there on the corporate side, I think from the main earnings call, you mentioned there was some weakness there. I'm just wondering, how much of that was really driven by the US-China trade dispute versus pricing?

Got it.

Thanks, and then.

Just going back to the.

The Asia business, the the loan growth there on the on the.

Corporate side.

I think from the.

Main earnings call you mentioned there was from.

Weakness there I'm just wondering how much of that was really driven by.

US trying to trade dispute.

Versus pricing.

Mark Mason: Yeah. I mean, it's hard to parse specifically. We haven't kind of broken that out and publicly talked to that. We're obviously down about 5% in terms of the average loans. And there are a couple of dynamics, right? One is just the pricing dynamic in the region where we've chosen not to originate low-yielding, low-returning assets. There's also the fluctuation in volumes from the timing of draws and repayments from some of our corporate clients and their revolving credit facilities. And that's not unusual at all, as you would know, from a corporate lending business. And then the third piece would be we are seeing the trade tensions impact the demand, as I mentioned on the earnings call for corporate lending in Asia. And the sentiment there has become one that is more cautious. But we haven't broken down the reduction.

Yes, I mean, it's it's hard to parse.

Specifically, we haven't we haven't kind of broken that out in public you talked to that we were obviously down about 5%.

In terms of the the average loans.

And there are a couple of dynamics right. One is just the pricing dynamic in the region in a region, where we've chosen not to originate low yielding low returning assets.

There is also the fluctuation in volumes from the timing of draws in repayments.

From some of our corporate clients and their revolving credit facilities and Thats not unusual at all as you would know from a corporate lending business.

And then the third piece would be we are seeing the trade tensions impact the demand, as I mentioned on the earnings call for corporate lending in Asia. And the sentiment there has become one that is more cautious. But we haven't broken down the reduction. We saw the level that we saw for those components, but I would point to those three.

And then the third piece would be we are seeing the trade tensions impact the demand as I mentioned on the earnings call for our for corporate lending in Asia and the sentiment. There has become one that is that is more cautious, but we haven't we haven't broken down.

The reduction we saw the level that we saw for those components, but I would point to those three.

Mark Mason: We saw the level that we saw for those components, but I would point to those three.

Okay, great. Thank you.

David Jang: Okay. Great. Thank you.

Mark Mason: Thank you.

Thank you.

Mike Verdeschi: Thank you.

Thank you.

Operator: All right. And this does conclude the question-and-answer session. Mr. Rogers, do you have any closing remarks?

And this does conclude the question and answer session Mr. Rodgers do you have any closing remarks.

David Jang: I'd just like to thank everyone for joining the call today. Of course, if you have follow-up questions, please feel free to reach out to us in investor relations. Thanks.

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

I'd just like to thank everyone for joining the call today and of course, if you have follow up questions. Please feel free to reach out to us in Investor relations. Thanks.

Operator: Thank you. At this time, please disconnect.

Thank you at this time please disconnect.

Yes.

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