Eric Aboaf: I think the more-than-expected deposits is really driven by two factors. One, is that there tends to be more cash in the system, in the banking system today. We think that’s a mix of central bank actions, in particular, in the U.S., the reduction in the overnight repo operation that the Fed is running. That comes back in a way into our clients or into the banking system. And that’s been a — I think that’s generally improved liquidity conditions or added to what is — our very liquid conditions have made them even more liquid. And then the second factor, to be honest, is over the last 1.5 years, two years, we’ve been very engaged, and I’d say, increasingly engaged with clients on where they put their cash. They put their cash with us in deposits, in repo, in money market, in money market suites, because every one of those areas we offer services to our clients.
And I think what we’ve done over time is sharpened our engagement with our clients, and that’s resulted in more cash and deposits with us in a way that we find is healthy, obviously, for our balance sheet. We’re always delighted to keep cash, but also helps with earnings and margin and economically.
Mike Mayo: Thank you.
Operator: Thank you. Next question will be from Rajiv Bhatia at Morningstar. Please go ahead.
Rajiv Bhatia: Great. Good morning. Can you comment on how the pricing environment is for your servicing business? If inflation remains higher for longer, should we expect lower pricing headwinds? And then as I understand it, about 60% of your service fees is asset-based. How do pricing headwinds compare in the asset-based bucket versus the non-asset-based bucket? Thanks.
Eric Aboaf: It’s a broad question. We’ve been in an environment, I think, the last four years or so where we’ve seen pricing headwinds in the servicing business to be roughly in the 2% headwind level. And that’s kind of — that will float around a bit by quarter. It will float around on the margin a little bit by year, but it’s substantially below what we had seen way back in 2019. And which was, I’ll describe, a bubble of repricing. I described it that way because during this time, we’ve seen, to your point, a very accentuated rise in inflation. We’ve now seen a partial reduction in inflation. And that’s not really had a large or substantial effect to our general fee rates or our — or servicing fees. And so it’s been — I think it’s not particularly determinative of that.
In terms of our fee schedules, you’re right, the fee schedules have several components. They have asset-based. There’s an asset under custody basis for some of the fees which is about half. There are some transactional fees. There are just some flat fees. There are some per account fees. And those usually end up being negotiated as a package. It’s not that when there is a — when we have negotiations that one particular part of that package is treated very differently. We have large, sophisticated clients. They think of it as a package. And to be honest, they’re looking for a fair set of — a fair amount of fees so that as a partnership, which lasts often 10, 15, 20, in some cases, 30, 40 years, right? That they feel they’re getting value and that they feel that we, as a custodian can deliver on what their expectations are.
And so it comes to be a reasonable accommodation, I think, in our minds, in their minds.
Rajiv Bhatia: Got it, thanks.
Operator: Thank you. Next question will be from Ken Usdin at Jefferies. Please go ahead, Ken.
Ken Usdin: Thanks, Ron, Eric, sorry for that earlier. Sorry for that earlier. Just one follow-up on just the servicing fee algorithm. So with all the commentary you’ve made. And you show us the good detail about the business wins and the fees to come on, and we know about the headwinds, some cyclical, some due to deconversion. Do you have a line of sight when we can really start to see that back office line start to move up in a positive way. And I know we have to consider the middle office and the whole front office kit as a together thing. But that’s still the biggest line, and that’s still kind of flattish on a year-over-year basis with all the things we talked about. But is there any path forward where you can kind of see some of those headwinds abating and some of the growth starting to come on and transitions that we can see a better growth rate overall? Thanks.
Ron O’Hanley: Yes. Ken, why don’t I start here? The transition, I know it feels like it’s been going on forever, but that will basically abate. And the effect of that will go away, more or less go away next year, assuming no other changes on the client side. So a headwind goes to zero. Secondly, and perhaps more importantly, you’ve seen — you saw the sales performance last year. You’re seeing the sales performance this year that’s building up the to be installed business. That still remains very, very high for us. Part of it is some complicated kinds of Alpha clients that they will install, they are installing — they typically tend to install in waves and tranches. So we’ll make progress against that. But I would note from sales performance last year and it continued in the quarter, there’s a fair amount of back office in some of these recent sales, which just installs faster.
And so we’re quite optimistic about the opportunities here in fee revenue growth, particularly servicing fee revenue growth as you overcome headwinds, but more importantly, start to reap the benefits of what we’ve sold in Alpha, what we sold in back office and get those installed.
