Steven Chubak: So I wanted to start with a question on just the expense and margin outlook. Expenses were actually well managed in the quarter. But one of your peers did talk about competition intensifying in terms of the war for talent within investment banking and trading. It feels like that’s been the case for the better part of a number of years in wealth management. And I was hoping you could just speak to your expense growth outlook and your confidence in terms of your ability to achieve the firm-wide margin target of 30%?
Sharon Yeshaya: So, when you think about the expenses, we have been looking at expenses through the cycle. We’ve unfortunately, you know, we have taken actions. We took actions both at the end of last year and then we took one in the spring as well. We’ve discussed those severance costs throughout the course of the year. And so we’ve been managing our expense base to better understand and to sort of think about it against the backdrop of what environment are we seeing. So while there is — there is always a war for talent. We do pay for talent and we pay competitively for that talent, but we have to think about it in the context of where we see the potential growth opportunities. And that is also, we have to take into account the investments that we’re making.
And that’s around processes and investing in technology. And when you look at the technology that we’re investing in, we should see operating efficiencies and leverage as you go forward. So that’s modernization of the plant. You’re going to have optimization, and you’re also going to work on things like making sure that you have the right risk and control framework to give ourselves an opportunity to grow. So just what it means to boil it down is it’s a balance, right, of investing for the future, but also making sure that you have the right expense base, rather, as you move forward and you can take advantage and see those efficiency gains. And really the operating leverage that James is talking about as we move forward through the cycle.
James Gorman: I’ll just say one thing on the war for talent. Yes, I mean, obviously, really high performers are in demand across the street. But we’ve actually had the opposite issue. We’ve had very low attrition, which is why we did some of the expense initiatives that Sharon talked about. And I guess we should feel flattered. It’s a reflection of the culture and the stability of the firm. But also, that’s why we took the initiatives, because you’ve got to bring in talented people and new generations to keep growing this place. So one’s these and two’s these, yes, you can lose somebody, a senior person here or there and we’ve hired a bunch in banking insurance, but the broader across the 80,000 people we’ve got is the broader messages attrition has been remarkably low and that’s something that, you know, we just got to work through.
Steven Chubak: That’s great and for my follow-up just a question on capital, James you noted that pro forma Basel III endgame, your capital requirements approximate your current capital base. How much capital cushion do you plan on running with? Also, how it informs your buyback? And you addressed a question on ROTCE targets, curious about 20% target contemplates higher capital under Basel III. So I know there’s a lot in there, capital cushion, buyback level 20% ROTCE target?
James Gorman: I’m going to have to write this down. There’s an old guy, there’s a lot to remember. It’s not going to affect ROTCE. We’re not going to be increasing capital. So that one you can put to bed. The cushion, you know, it’s a function where the rules come out. I mean, I’ve been very clear about this day one. I do not believe the proposal as is will be what we see when the comment period is over. I do not believe that. I have no special insight except that obviously I spent a lot of time with the regulatory community, which I’ve done for 14-years. I think everybody understands for example the way operating risk RWAs have been calculated in a sort of blunt instrument based on fees is not, you know, it wasn’t what Basel was originally going to do though.
We’re going to take that rule out years ago. And they ended up just not getting around to it. And suddenly we’re complying with something that they didn’t even want and don’t, you know, they don’t use in Europe. So it’s not that — it’s just not going to happen the way it is. And that’s not being pollyannaish. That’s just, that’s my judgment call. That said, what we want to frame with investors is, god forbid, it does happen exactly as is. The rule becomes proposal rule tomorrow, then we’re fine. So we’re certainly not going to be raising capital. We’re going to continue with our buyback through this period. The final implementation of this thing is going to be 2028. You know, there’s a lot that’s going to happen between now and then. But listen, this is the first time you’ve had members of the Fed Board and the FDIC, I think, come out in advance of a rule being promulgated, if that’s the word, saying that they’re not comfortable with it.
So there’s clearly debate within the regulatory institutions. And if you get past the — why we need more capital, which I don’t think the industry does, into well what should it be, the only place it clearly shouldn’t be is punishing businesses that have fees attached to them, whether it’s credit cards or wealth management, that’s not the regulatory intent. And they’ve told me that and therefore I believe that will change. So on the cushion it’s frankly a function of, you know, where the rule ends up. We’ll carry whatever appropriate prudent cushion we need to carry. On do we create more capital? No, not unless we grow the business to reflect that, that we can put it to work. And thirdly, will we continue buybacks? Yes, and I’m sure Sharon can give more play from what we think about on the buyback side and dividends for that matter.
Sharon Yeshaya: Yes, on the capital return strategy, we’ve been really clear that we expect to continue to return capital to our shareholders. Dan said that at the September conference, even when you think about all Basel, we first and foremost, we’ve talked about the dividend strategy. We doubled our dividend a few years ago and we’ve continually increased the dividend. That increase has been reflective of the growth and stable revenues that we’ve had more broadly as an institution. Then, of course, buyback, we’re committed to a buyback, but the size of a buyback is always going to be opportunistic when you think about what the alternatives are for capital usage, right? So what are the opportunities that we see going forward and will make the right decision for what we think the right decision is for the company and for our shareholders around the uses of the capital.
But we increased the buyback this quarter. So that shows you sort of how we feel about being able to return capital to our shareholders when you compare this quarter over the course of last quarter, moving from $1 billion to $1.5 billion dollars.
Operator: We’ll go next to Devin Ryan with JMP Securities.
Devin Ryan: Thanks. Good morning. I guess first question just on the E-Trade conversion, I’m sure good to get on the other side of that. And you spoke to some of the benefits, I think more on the flow side and revenue side. Just curious if there’s any — in a more material expense saving opportunities, just assuming there’s probably some redundancies there that can be removed, and then any other efficiencies that might exist?
Sharon Yeshaya: Look, we haven’t really — this deal was never contemplated from a cost synergy perspective. It’s really been around revenue synergies. Will there be potential savings on the margin? It’s possible. But that’s not really the point of the transaction. What I think is more fundamentally interesting is that a couple of things when you think about the E-Trade integration, other than the fact that it went very smoothly as it relates to the clients themselves, it creates a really clear foundation when we’re trying to migrate clients from channels and move them. So give somebody from an E-Trade channel or a self-directed channel and say, let’s make an introduction to an FA and begin that potential migration. If you’re on the same platform, it’s a much easier and much more seamless transition.
