Chris Gorman : Sure. So, we are about where we need to be in terms of going through our whole portfolio. As we went through and we’re looking and focused on RWAs, really was sort of in three buckets, and we actually went account by account. And I’ve often said that on a risk-adjusted basis, stand-alone credit properly graded can’t return its cost of capital. And so we were extremely prescriptive across the entire firm of going through that. On top of that, we exited some businesses like vendor finance that, by the way, is a credit-only business. And then on top of that, there were certain areas where we were conservative in terms of our capital treatment, where we could actually reduce RWAs without, in fact, having any impact on NII.
That process is really over. When I say the process is over, we will continue, obviously, to look through our portfolio. But in terms of really seeing the step down in RWAs, as you saw last year, $14 billion, that’s behind us. And so as we look forward, Clark talked about sort of the lag from the starting point on loan growth. But as you know, we have the ability to generate loan growth here at Key. We’ve got a long history of that. We’ll be back kind of focused on serving our clients. Now having said that, I personally have a view, everyone is sort of coalesced around the soft landing. I think inflation is still pretty sticky. I think there’s a bunch of drivers out there. We’re managing the business for a short recession in 2024. And obviously, that goes into our thinking, because if you think about working capital in the context of a shrinking economy, that shrink some loan demand.
The other thing that we have to grow through, and this is by design, is we’re going to have $3 billion of runoff in our consumer business. I hope that helps kind of on the puts and takes. When there’s business to be done from a loan perspective, I’m confident that we can get it.
Clark Khayat: The only other thing I’d add, Manan, is just to reground everybody in the average-to-average move. So 118 billion of average in ’23, ending point 112.6 So most of that decline in loans happened last year. We’re pulling that through. There may be a little bit more, as we said in the first quarter, maybe into the second quarter, as some of that non-relationship business continues to move out. But we’ll see the build back through the course of the year and expect the ending of ’24 to be relatively stable with where we exit ’23. So we’ll see a rebound. And to Chris’ point, if there’s less softness in the economy and more opportunity, then we’ll lean into that opportunity.
Manan Gosalia: That’s very helpful. And then for my follow-up, as we look out into 2025, there’s a lot of puts and takes here on the NII side. But what’s the most optimal rate environment for Key? Is it six rate cuts and then an upward sloping yield curve, is that the most optimal environment? Or would you rather see a higher short-end rate and a flatter yield curve?
Clark Khayat: I think — look, I think an upward sloping yield curve benefits the business broadly. I’m not as concerned at the moment about four cuts or six cuts as we move through the year, while we’re liability sensitive today. As we move through the year and swaps and treasury portfolios burn off, we’re going to slightly become more asset-sensitive naturally. So we really want to be neutral and able to operate in any of those environments. But if I had my choice broadly, I think upward sloping yield curve is always a valuable place for us to be in this business.
Operator: And our next question is from Erika Najarian with UBS.
Erika Najarian: So I apologize, one more question on net interest income. I think the stock is a little bit soft today because consensus was expecting quarterly positive progression on the net interest margin, given the fixed rate opportunity. And I’m just wondering in context of the modest RWA reductions, Clark, that you’re forecasting or you’re telling us is happening over the first half of the year. How much of that is impacting the NII trajectory? And are those RWAs being reduced through credit-linked notes that could impact the net interest income? And then as a follow-up to that, as we think past the first half of the year, do you feel like we’ve moved — going back to what Chris has said, the process is over, is that a cleaner way to think about where your balance sheet is or has to be relative to where you think the capital could be in the second half of the year?
In other words, there won’t be any more wholesale actions that can impact this NII and NIM trajectory.
Clark Khayat: Yes. So thank you, Erika. Good question, as always. So the decline in the first half, again, is the continuation of some actions we took to manage RWAs last year. So again, relationship — non-relationship and credit-only related clients coming down. We don’t have anything factored in at the moment around RWA management related to credit-linked notes. As you and I have talked about before, we’re doing our homework to understand those opportunities, but it’s not part of the guidance at the moment. Really, it would be that loan reduction, and that will put a little bit of pressure on first quarter, as will the fact that rates remain high in the first quarter under almost any cutting scenario, and we’ll have a little bit of beta drift.
