And as we prepare the business to continue to move forward to drive organic growth, we’re getting much, much better at identifying issues and we identify an issue what we’ve done here is if we think there’s is appropriate to refund customer payments, we’re going to do that. So, we identified a particular issue largely within servicing for our student loan business, although there was a general impact in another business line and we continue to look across our business. But the lion’s share of that reserve relates to student loans and essentially what we’re doing is trying to position the business and that product for a successful exit.
Mihir Bhatia: Thank you. Thanks for taking my questions. I’ll get back in queue.
Operator: Thank you. Our next question will come from Sanjay Sakhrani with KBW.
Sanjay Sakhrani: Thanks. Good morning. Sorry, multi-part question on the same topic and then a follow-up. Can you update us, John, on the progress made with the regulatory agencies; I think that was sort of alluded to in the previous question. But maybe just the firmness around capital return post CCAR? What exactly happens to the CFPB consent order when the loan servicing is transferred? And then just curious, the loan growth expectations, was that any part driven by any regulatory related matters? Thanks.
John Owen: This is John Owen. I’ll take part of that, and John Greene will take the capital part. What I would tell you is over the last 18 months or so, we’ve made significant progress improving our risk management and compliance capabilities. We’ve increased our investments on risk and compliance in 2022 to 2023 up to about a $500 million level. And as John mentioned earlier, we think expense growth, and that will be in the mid-single digits in line with other guidance we’ve given. We’ve made improvements in risk and compliance, but we still have quite a bit of work to do. One thing I’d point out, the FDIC consent order, which we did get and was made public, it does not include the misclassification issue in that scope of work. We’re working closely with our regulators on that topic and really don’t have anything further to add on that topic at this point in time.
John Greene: Okay. Sanjay, I feel like your question is a five-part question, but what we’ll do our best to answer it. So the loan growth aspect that you asked, it is completely unrelated to any regulatory issues, so nothing to connect on that point. In terms of capital return, our commitment to capital return and capital allocation have not changed. So, first to invest in profitable organic growth; and second, to return excess capital to shareholders. So as we kind of progressed through the fourth quarter, we remained on pause with our buybacks. And given we’ve got a new CEO coming in, we are contending with a number of different compliance and risk management matters. We got the merchant tiering reserve. We don’t have any feedback from our regulators on that point.
We decided that it would be most appropriate to remain conservative in terms of our guidance related to buybacks. We will go through CCAR, as I said in my prepared remarks, that will form a view of capital under significant stress as it always does. And then we’re going to have the exit or hopefully, the exit from the Student Loan business, which will provide free up at least $2 billion worth of capital. So what you’re hearing here hopefully is some indications that one, we’re committed to returning excess capital to shareholders; two, that there will be excess capital generated and available; and three, we’re going to go through a diligent process internally, share it with our Board and then take the Board’s direction in terms of buybacks.
Sanjay Sakhrani: The consent order?
John Greene: And…
Sanjay Sakhrani: With the loan servicing, like does that look…
John Greene: Yes, that was part 5A, I think. Yes. So that remains in effect and our chosen provider, Nelnet is fully aware of the consent order requirements in terms of kind of servicing excellence. And they were chosen because they’ve got a track record in terms of being able to kind of service a portfolio such as this, and they’ve dedicated both technology and resources to ensure a seamless transition.
Sanjay Sakhrani: Okay. Then my follow-up, just question is — sorry, to my five-part question. Is the reserve rate, Moshe sort of asked about it a little bit, but how should we think about that reserve rate migrating over the course of the year given that the charge-off rate plateaus. Does the reserve rates start coming down? And where does it come down to in a normal environment? I’m just trying to think about how we model that because that’s really important.
John Greene: Yes, yes. Thanks for that. We are hoping that, that question would come out. So the — let me talk about the reserves for the quarter, and then I’ll give you perspective on 2024 and what could potentially happen there. So we grew receivables in the quarter, $5.7 billion. Now some of that was transactor balances that are reserved light. But one thing that we’ve been consistent on in terms of our communication is that as we approach peak losses, reserve levels increase. And what we’ve said previously is, typically, we hit the highest reserve rate level one to two quarters before peak losses. So that’s the path we’re on. Let me provide some details on some assumptions that were used to set the reserve levels this year at year end.
