So I think we can sit back and be selective in terms of deploying capital inorganically.
Ebrahim Poonawala: That is helpful. And I guess just one follow-up in terms of — for whatever reason, when you look at your NII, the fee revenue guide in particular, just maybe talk to us around expense flex. If some of these things don’t play out as expected, should we anticipate some level of, like, expense offset or are you kind of pretty tight given just everything you’ve done on the cost side?
Bruce Van Saun: Yeah, I mean there’s always opportunities to look to flex your expense base down. I think we’ve been pretty hard at it here to get to this level. And I’d say the strategic initiatives offer you some flexibility, but again, if you’re looking at the medium term and the longer term to try to scrape to come up with $0.03 to $0.05 or something of that magnitude, if that puts at jeopardy your trajectory on things like private bank, it wouldn’t appear to be a really advisable decision to take. So we will always look at that. You know you can trust us to do that. But at this point, we’re trying to manage for both near-term delivery but also with an eye towards the medium term and really getting that ROTCE back into the kind of targeted range.
Ebrahim Poonawala: Got it. Thank you.
Operator: Thank you. And your next question will come from the line of Scott Siefers with Piper Sandler. Your line is open.
Scott Siefers: Thanks. Good morning, everybody.
Bruce Van Saun: Good morning.
Scott Siefers: John, I think you’ve got five great cuts built into the guidance. Just maybe a broad thought on sort of where that balance sheet is geared now. In other words, I guess more specifically, how would more or fewer cuts impact the NII outlook?
John Woods: Yeah, I mean, I would say that we’re very close to neutral one way or the other, really up or down. And — but I’d say that I think what’s important to the outlook is we have deposit migration continuing to moderate every quarter. And it continued this quarter. We expect it to continue next quarter. But, our outlook is until you get that first cut, it still doesn’t completely go away. So we have an expectation the first cut comes in the second quarter and we get down to around 4.25%. I think that’s still holding around. We’re looking out the window today in the neighborhood of what the forward curve might indicate. I would say that if there’s a slight bias, if the cuts came in a little fewer this year, that would probably be okay.
But nevertheless, that first cut is key. And a general normalization in an orderly fashion over time is what we think is very good for our balance sheet. Again, staying around neutral with maybe a slight benefit if rates come in a tiny bit higher in ‘24.
Bruce Van Saun: The other aspect to that too is just we’ve had an inverted curve for a long time. So, when you think about the medium term, presumably we get back to a point where there’s a normal yield curve, which also benefits NII.
John Woods: Yeah.
Scott Siefers: Perfect. Thank you. And then also, John, for you, so the liquidity building efforts have introduced some noise into the margin rate, even if they’ve been NII-neutral, I guess, just looking at the guidance, presumably that’s going to be less of a factor going forward, but just maybe a thought on sort of where we are in that journey.
John Woods: Yeah, I’d say we’re basically — we’ve achieved our objectives with respect to our liquidity bill. This is the headline there. And it’s — we believe a very strong kind of position being around 117% of the requirements for Category 1 banks. I think that matches our objectives and therefore going forward you will not see liquidity being a headwind to net interest.
Bruce Van Saun: I think that was something we were talking about in the back half of the year. It affected us in Q3. It affected us in Q4. If you actually look at, I think, one of the dialogues on these calls a way back, are we going to exit the year close to 3% underlying? Well, we actually did do that. The underlying performance on our NIM was quite good. It only dropped 3 basis points, which is showing up well relative to everybody who’s reported so far. But that liquidity build, which is neutral to NII, took us down another 9. So we end up exiting closer to [290 than to the 3] (ph). But that liquidity build is kind of done. And so we can just focus on not having that, exercising that from the conversation and just focusing on what the underlying drivers are from here on out.
Scott Siefers: Perfect. Thank you very much.
Operator: Your next question comes from the line of Ken Usdin with Jefferies. Your line is now open.
Ken Usdin: Hey, thanks. Good morning, guys. One follow-up. You mentioned the PPNR bottoming in the second quarter. I’m just wondering, do you expect NII to bottom coincident with that, or would there be a slight timing disconnect based on how the swaps work through?
John Woods: Yeah, I mean, I think that is the driver. Basically, that we are looking at NII being at 70% of our revenues. So yeah, the NII’s going to bottom in that quarter as well.
Bruce Van Saun: But in Q3, Ken, then you’d have other things kicking in, like fee growth strong, long growth starting to kick in. And so even though the swap is incremental, forward starting swaps, then I think we’d have to look at the whole dynamic around what we expect to see in the business performance that would allow us to absorb that.
John Woods: Yeah [indiscernible] later. But PPNR troughs in 2Q.
Ken Usdin: Well, I’m sorry, John. Can you just clarify that again? I didn’t want to speak over it.
John Woods: Yeah. And I think we’re mentioning that the NIM trough is 3Q, but the PPNR NII trough is in 2Q.
