Ronald P. O’Hanley: Some of it is related to Alpha, and some of it is related to the core business. And what you should also — and the point we normally don’t go into a client example that we did there, but it’s such a pure example of the strength — the Vontobel example is such a pure illustration of the strength of Alpha because it’s an institution we had no relationship with. We began the relationship with Front and Middle office, and then we brought along the Back office, which itself, as you know, Mike, as well as anybody, generates other kinds of ancillary revenues. So that’s an illustration of how Alpha is enabling us. We believe, to pick up share that we wouldn’t otherwise be able to pick up, and to do it in a way that’s distinctive from our competitors.
Michael Mayo: All right. Thank you.
Operator: Thank you. Your next question comes from Gerard Cassidy of RBC. Your line is already open.
Gerard Cassidy: Thank you. Hi, Eric. Hi, Ron. Eric, can you share with us, I know — I’m not asking to go into details on your budget for the upcoming year, but could you frame out for us though, the outside factors that influence the budgeting process on expenses such as wage inflation or other types of inflation? Do you feel that there’s less pressure going into 2024 versus this time last year when you were doing your 2023 budget?
Eric Aboaf: Gerard. It’s Eric. Yes, the headwinds have lessened. They’re still there, but they’ve lessened. If you think about it, when we were doing the budget for 2023, it was the fall of 2022. We actually, at that point had done two formal merit increases that year, some of which were going to then play through on a carryover basis for 2023. So that was partly a headwind. And then we had a larger than probably typical merit increase by a little bit in the spring of this year in 2023. So that’s — we’re not in that environment anymore. We certainly want to reward our employees with annual merit increases, but much more in line with what we’ve done over the last 5 or 10 years, as opposed to something that was much higher. So that’s on the kind of wage side benefits.
We’re actually continuing to see some amount of inflationary activity, medical claims, dental, et cetera, as you’d expect. I think that’s pretty broad-based. So, that’s probably similar to prior years. And then I think the interesting area, where we’re doing a lot of work on is all non-personnel spend, right. Our various partners and vendors and software licenses, cloud computing costs, every one of those is an area for us to think about what’s appropriate. And so we have — we’ve been having those discussions this summer and this fall, and we’ll continue to have them into the winter around next year. Are we seeing inflationary increases the way we were a year ago there? A little bit less so, but I think we’re still seeing higher than we’d like inflationary increases there.
And so important questions are how do we offset them? How do we use technology if it is a little more expensive to drive, increasing process engineering and automation? How do we partner with fewer suppliers in some cases and get the benefits of our scale? So there’s a number of initiatives that we’re working through, but that’s one that takes some work in a way, that’s part of what we do during the budget process.
Gerard Cassidy: Very good. And then as a follow-up, obviously, our industry, the world has gone through incredible turmoil in the last three or four years with the pandemic and such. And now we’re in this interest rate environment that we have not seen since prior to the financial crisis. And if we assume that the Fed is higher for longer, let’s say it’s 4% to 5% for an extended period of time versus the 0 to 25 bps that you all had to operate and the industry operated on post-financial crisis going into where we are today. How is that — or is it changing some of the strategies you may pursue, now that the rate environment is not — possibly not going back to the 50 basis points that we are accustomed to? Does that change the way you approach the business or approach your customers that you couldn’t do because rates were at this level three or four years ago?
Eric Aboaf: Gerard, it’s Eric. I think it has several impacts on us, which actually in aggregate tend to be positive for how we manage and engage on our business. Very tactically, higher rates and especially some steepness in the yield curve we talked about earlier give us some ability to add duration and feel like that’s valuable. So there’s some tactical effects there. I think more broadly with higher rates, the value of cash in our ecosystem, we described trillion dollars of cash in our ecosystem across deposits, money market and cash sweeps in our asset management business, our repo activity, our platform sweep activities a trillion dollars. To us, cash is valuable for our clients to keep, especially in risk-on versus — or especially in risk-off versus risk-on environments.
And they want to be rewarded for it, but it also means there’s a whole cash wallet out there that for us is a way to engage with clients, right? We as a bank who’ve got not only the banking offering of deposits but the capital markets offering of repo, the money management offering of money markets and cash management. To us, it’s a way to deepen our relationships with clients. And I think over time, you’ll see us add to our product offering, some of that’s quite broad today, but we’ll think about how else do we integrate cash into, say, the Alpha proposition is a way to consider it. How do we think about it in terms of our platforms and our market activities? A number of those are important cash generators. And then, I think, at the most senior levels with our clients, the C-suite actually cares about cash today.
They care about who they keep it with, how it’s managed, how they are renumerated, how it’s safe, but also how it can be redeployed. And so it’s become a real C-suite discussion in a way that we think can strengthen both our relationships, given our broad offering, but also one that becomes more and more of a business activity and a business growth activity over time.
Gerard Cassidy: Great. Appreciate the color. Thank you.
Operator: Thank you. There are no further questions at this time. I will hand over the conference to Ron O’Hanley. Please proceed.
Ronald P. O’Hanley: Well, thank you, operator. And thanks to all on the call for joining us.
Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation and you may now disconnect.
