Ron O’Hanley: Yes, Alex, it’s Ron here. I think it’s good to focus on what we said here because we’ve talked to you and your colleagues just about ongoing productivity improvement. We’ve been at it for years. And we do believe this unlocks a potential, not a potential, but a new wave of productivity growth. And why is that? Well, firstly, almost by definition, if you’re taking these ventures on, you’re eliminating the margin that was in it, that was in our expenses, that now comes out, right? So you’ve got that as a near immediate tailwind. But more importantly, and more important for the long-term, is that we can really complete and take advantage of true end-to-end process improvement and simplification. We had created through the JVs, which go back to the early days of our off-shoring journey.
We created a lot of complication. Unintentionally, we created a lot of complication. This enables us to get at that. The work has already started. Our operations folks are spending a lot of time in India there. They’ve done some recent hiring and brought on some great leadership there. So if you think about the importance of India to our operations and, you know, the amount of work that passes through there, between this end-to-end simplification, this ability to eliminate checkers of checkers of checkers and all those kinds of things, we see an enormous amount of opportunity to improve. And then finally, as we continue our technology investment, a lot of that will be directed there. It’ll be directed at some of the things that, you know, in the past you would have said, well, let’s take advantage of labor arbitrage.
And now the technology is at a cost level where we can simply eliminate the labor and not have, particularly for some of these repetitive kinds of tasks between machine learning and other kinds of AI that you can use to replace labor. And you end up then with a one — a lower labor cost, but more importantly, you’ve got job content that’s very attractive to people, and people want to make careers here as opposed to feeling like they’re stuck in this dead-end repetitive task. So we are very optimistic about this.
Alex Blostein: Thanks so much.
Operator: Thank you. Next question will be from Brian Bedell at Deutsche Bank. Please go ahead.
Brian Bedell: Great. Thanks. Good morning. Thanks for taking my questions. First, just a confirmation on the guidance you gave, Eric, on the 2Q fee revenue up 1% to 2%, NII down 2% to 5%, expenses up 2% to 2.5%. Is that sequential for revenue and year-over-year for expenses?
Eric Aboaf: No, it was sequential for every one of those as you look forward. So it was all on a 1Q to 2Q basis.
Brian Bedell: 2Q basis, okay. So then going back to the NII guide, I think you also said down 2% to 5% versus the 7% to 16% in 2Q and then did you say down again in 3Q and then flattening out or flattening out in 3Q?
Eric Aboaf: What I described is a flatter second-half of the year. And so, you know, there are different paths here, to be honest. And it really will just depend on the level of deposits, the level of interest rates, just how the pale of some of the climate deposit or pricings that we’ve described come through, or the back end of those. So I gave some, you know, a high level view, but Brian, I think there’s a range of scenarios. But we do have some confidence in the expectation that in aggregate, NII will be down 5% from a full-year basis, and that’s quite a bit better than the down 10% that we had previously guided towards.
Brian Bedell: Right, yes. Then if I just get — if I use the flattish assumption, I’m more like flat for the year on that cadence, but would that be sort of a, as you said, a range, but a flat NII outcome year-over-year would be at the better end of your range, or is that sort of really difficult to achieve?
Eric Aboaf: No, let me try to clarify. We expect total NII to be down 5% on a year-on-year basis for the full-year. What I did say is that we expect NII to be in 3Q and 4Q to be roughly the same, to be flattish between those two quarters. And so, you know, now the question is exactly how much does it come down in second quarter, and then from second quarter into the combination of third and fourth quarter, how much does that come down? And there is a range of different scenarios I think you could foresee. But the reason we’re trying not to over-spec the exact quarter by quarter by quarter by quarter expectation is there’s just underlying volatility out there in the kind of macroeconomic conditions in the risk on risk off sentiment in the central bank’s actions right. And then in our client deposit levels. And so hopefully that gives you enough context to go on.
Brian Bedell: That’s super helpful. And then maybe just on the private markets wins, it sounds like momentum is improving there. Maybe if you could just talk about what your pipeline is looking like in private markets, Alpha and kind of your expectations over the next one to two years?
Ron O’Hanley: Brian, it’s Ron. I mean, we’ve talked about the private businesses being a double-digit growth business. We stand by that. We see lots of potential growth. Private markets, Alpha is developing nicely for us, largely for some of the — for many of the same reasons that Alpha itself has. It’s an opportunity as these firms become more complex, have complex operating and technology stacks. It’s a way to not just lower some costs, but improve operations and future-proof operations. So it’s developing well. So we remain optimistic about it.
Brian Bedell: Okay, great. Thank you.
Operator: Thank you. Next question will be from David Smith at Autonomous Research. Please go ahead.
David Smith: Good morning. Could you talk a little bit more about your capital priorities today? Your payout ratio in the first quarter was somewhat below your 100% full-year target?
