Jason Tyler: Yes, you’re right to call out that there is a lift, the launch point is higher coming into the year. And I don’t know if I’d say meaningful, but it’s definitely higher. And the lag effects will help us as we walk into the year. And so, that’s the math of it. But then more strategically, we do feel positive about the pipeline in both asset servicing and in wealth management. And underneath both businesses, our asset management business is incredibly important. And as Mike mentioned in his commentary, there’s some early signs of flows back in. And we always think just as we do on deposits, just keep the money in the house, keep the client assets in the house, but if our asset management business does better, then, that helps as well. And so I think the strategic component is also we’re feeling early signs of some positive movement from an organic perspective.
Operator: We’ll go next to Steven Chubak with Wolfe Research — Research. Excuse me.
Michael O’Grady: Good morning, Steven.
Steven Chubak: Hi. Good morning. So, I was hoping to maybe just unpack, like, the deposit discussion a bit further and specifically just get a sense as to how you’re thinking through the impact of ongoing Fed QT. It does feel like a lot of the liquidity in the system has come out of RRP that’s provided a bit of stability or at least has helped drive better deposit resiliency over the last six months. But with the RRP expected to be exhausted over the next, call it, three to four months, just want to get a sense, once that happens, how you expect deposit flows to ultimately trend.
Jason Tyler: Yes, I’ll start and Mike may have thoughts too, because we talk about this a lot and it’s more predictive than it is quantitatively spitting out results, frankly. But you’re right that — my sense is that, the RRP program had a really significant impact on deposits. And it was effectively competing with banks for deposits, and now that it’s come down, I do think that that’s been a help. Now, from here is different, and I think we have to think about the fact that rate movements are going to also have an impact on how clients think about deposits. And with the deposit cost having gone up so much in the second half of the year, again, that had a big impact on deposit costs and client behavior. Could see that having an impact this year is rates come down.
And so, I think it’s not just the RRP program but how clients think about instead of 5% rates how they think about 3% rates and comparing that to maybe more of a risk on trade. And so, I think we’ve got to think both about the program and the rate environment.
Michael O’Grady: I would agree with what Jason said there and just as there was a transition on the way up with QE, there’s going to be a transition on the way down. Unchartered territory for everyone on QT and how they go about that and when they might stop, more aggressively seeing their portfolio come down. So I think that the timing of that will matter. And then also we saw with client behavior that — as rates went up, more of the liquidity moved into treasury and that had an impact on it and as we come down, I think over time a lot of the fund that moved into treasuries will start to move into other alternative. And as Jason said, our objective is to work with the client and really try to meet any of those needs and keep the dollars in the house.
Steven Chubak: That’s great. And just for my follow-up, the duration on the asset side of the balance sheet admittedly has been a little bit more volatile, especially given some of the repositioning actions you talked about. The asset betas with rate hikes were quite elevated for you guys and some of your trust peers as well. Just wanted to get a sense as to what percentage of the asset side of the balance sheet, if we took a snapshot today, is sensitive to movement in short rates as we do prepare for eventual rate cuts.
Michael O’Grady: We do it in three buckets, and if you just take cash, obviously, 100% of that, the second loans in roughly three quarters are rate sensitive. And you think about the securities portfolio, and I’ll give you two numbers to play with. One is, the duration is meaningful at now about [18] (ph), but also just the weighted average maturity of the portfolio, I think, is also helpful, which is a little under four years. And we quote this balance — the duration of the balance sheet, that’s just us doing a weighted average across those effectively just to give a sense of the impact of the large size of the cash component and the large floating component of the loan book.
Steven Chubak: And Jason, can we just clarify what percentage of the securities book today is floating?
Jason Tyler: Yes, it’s about a third of the book is floating.
Operator: We’ll go next to Alex Blostein with Goldman Sachs.
Michael O’Grady: Hey, Alex.
Alex Blostein: Hey, Jason. Hey, Mike. Good morning, everybody. Just building on Steven’s questions for a second. I guess, given the fact that rates are expected to come down and you guys have actually been, I guess, shifting the balance sheet to be maybe a little bit more floating for the right reason and obviously been a good trade for NII for last quarter, this quarter. Any expectations to actually start locking in higher yields going forward and maybe extending duration a little bit? I know this is pretty quick. You guys have just kind of gone the other way, but the balance sheet effectively became a little more floating as rates are about to come down, so just curious how you’re thinking about that?
Michael O’Grady: Yes, it’s on our mind a lot and as we’re talking about it and we have brought the duration down. And one of the benefits of that is that, it does make it just a lot more flexible, because the markets have been really dynamic. And so, there will come a time when I — I anticipate where we would say it’s time to step out a little bit, our bias over the last year has obviously been to go shorter, and that’s played out. I think rates have — the way rates have played out, we had a view, and not materially, but it worked in our favor. But from here, I think we do have to think about. And it’s not locking in as much as just taking the downside risk off the table of a dramatic reduction in rates. And so, there’s some component there that we’d say we can naturally hedge against.
Alex Blostein: I got it. Makes sense. I wanted to follow-up for my second one just around the expense outlook. 2023 was super noisy, there’s a bunch of one-timers, obviously. So just want to clarify a couple of things. So, I guess, the ultimate message is that, 2024 expense growth is expected to be lower than 2023. I think the core expense growth in 2023 was about 5%, so just want to confirm that? And then the core base you’re speaking to, is it still kind of $5.1 billion to maybe $5.2 billion in sort of core expense base, off of which we should think about 2024?
