Mike Mayo : Well, Chris, one of your competitors’ CEOs said scale has never been more important and that competitor is larger than you are. And so pulling back the lens, how do you think about scale and how it’s changed in the past year? And I have two specific questions before you give that broader answer. What percent of the value of commercial relationship is from the deposits? That’s a specific number. And then what percent of the revenues that you get from your typical commercial relationship is fee-based versus lending-based, because I think that gets to the larger value proposition of Key?
Chris Gorman: For sure. Well, let me start with the larger question first, and then we’ll talk a bit about the mix of spread income to fee income, which I do think, by the way — let me just start there. I think that’s a great barometer. As you know, throughout Key, we’re 40% fee income, which for a Category 4 bank is at the high end of the spectrum. As we look at businesses like our institutional bank, the split there in some areas is as high as 80% fees, 20% spread. And it varies depending on the business because some businesses are more capital-intensive than others. But that is one of the metrics we look at to see what kind of penetration we’re getting. As it relates to scale, and I think it’s a really good and important question.
On one hand, there’s no question that if you have to carry more capital and capital is more expensive, that would put more of a premium on scale than before. And the same would go for things like cyber. So on the margin, yes, scale would be probably more important today than it was 12 months ago. Having said that, I do not think scale is the answer for a bank like Key. And I say that because when you have competitors that are 20x as big as you are, the question really is what is scale? And as you know, what we’ve decided to do is focus on targeted scale to be really, really relevant to the customers that we try to be relevant to. We’re certainly not trying to compete in the same manner that the largest banks — they have a nice business model, it works for them, but that’s not a business model, Mike, that we’re executing at all.
Does that answer your question?
Mike Mayo: Yes. I mean I think this kind of goes to the stickiness of corporate deposits and how that’s changed over the past year. And you answered the question of fees. How much of the value of your commercial relationship is deposit driven and you have the cash from treasury management and other services that you provide corporate treasurers, is that still sticky? And is that like 20%, 30%, 50% of the value, as some have said? And then just another follow-up is just what does all your thinking mean about acquisitions, if and when the unrealized securities losses go down for you and the targets? Are you looking to be in that game or not?
Chris Gorman : Well, on the acquisition front, as you know, we’ve had a lot of success buying niche businesses and successfully integrating them, which I don’t think a lot of large companies — forget about banking, have had a lot of success doing. We are still — because of our targeted scale focus, we are still interested in doing that. We’re always building these positive people and actually looking for small organizations. In terms of looking, Mike, at depositories, that’s not something we’re spending any time doing. I think when you kind of look at sort of the landscape, one, I think the regulatory/approval process, I think there’s a lot of questions around that. Obviously, the pull to par, any unrealized losses become realized losses in the event of an acquisition.
And then secondly, there’s just so much uncertainty in the marketplace. I think one would have a lot of questions about what is actually in the book of the company that you’re acquiring. So that’s not something I’m spending a lot of time on. Getting back to your question, there’s no question that there’s a significant value in the deposits. And for example, that’s one of the reasons we’re really focused this year on building out our business banking business because that’s a business that’s very deposit centric. And as you think about going forward, there’s a lot of value in there. I don’t have off the top of my head what percentage is the contribution. We’ll circle back to you. I think it’s about the 30% of the value is in the payments and deposits.
But we will circle back to you and confirm that.
Operator: Next, we go to Steven Alexopoulos with JPMorgan.
Steven Alexopoulos: I want to start out, Vern, like everybody else said, almost everybody on the call, congratulations. You’re really one of a kind, so we’re going to miss you. In terms of my question, so first, I want to go back, Clark, to your response to Scott Siefers earlier question on where NIM could go. You said 2.80 to 3, like in a more normal environment, whatever the hell that is, right? We haven’t seen that in 20 years. But you guys used to do 3 to 3.20. Is there something — it’s really a 2-part question. One, is there something structural maybe the way you’re using swaps today that there’s a lower ceiling on them, like 3 to 3.20 is done, maybe 3 is like upper end? And then secondly, assuming this benefit accrues through 2024, that’s up for a good 2025.
Now — and maybe for Chris, how do you think about this, like NIMs expanding pretty nicely in 2025, assume we have a more normal curve. Is that the time you now step up the pace of investment you’ve been cutting or expenses forever? Is that the time where you step up? Or do you let that benefit fall to the bottom line?
Clark Khayat: Yes. So, a couple of questions in there, and thank you for acknowledging no normal environment has existed. But the structural piece, I would say, Steve, relative to Key over the last 20 years, but particularly going into the crisis, would be, I think the loan book profile is quite a bit different. So if you think about the quality of the borrowers, the 55% of C&I being investment grade, the structural differences in our CRE portfolio, the largely residential real estate, collateralized kind of super prime consumer, all of those things kind of lean you towards a little bit lower base NII just because of the quality of that portfolio.
Chris Gorman : Clark, I would add card as well.
Clark Khayat : I mean, yes, card, which we have, but it’s highly transactor based versus balance based. Now given that, you would expect credit losses to be better, and we think they will be certainly better than us historically, but you would expect better on a relative basis. And your other question would be, okay, how do you monetize those clients to make sure that you’re getting the right returns and getting business on it. We think we do that really well in the commercial business. We think we’re doing that better and better as you go down market in commercial with things like payments, and we think we’re getting much better on wealth and building the wealth business and the consumer space. So we think we’re building those capabilities and have the opportunity to do that.
