If you step back and ask, what are the underlying drivers? There are really three drivers that continue to be important. In terms of tailwinds, we continue to have long rates playing through the portfolio and the investment portfolio balances as they recoupon at higher rates, that’s particularly important in the first half of the year, a little less so in the second half of the year, but that continues through as a positive. You then have, as you mentioned, short rates starting to come down. And because of our sensitivity position across the global markets, that does start to have a headwind impact on NII as those cuts continue to come through. Now we’ll see what’s the pattern and pace of US versus international cuts. And I think right now, we’ve pegged to the forward, which shows a lot of consistency in symmetry but we’ll see if that really happens, because you can see inflation expectations keep moving around literally daily, weekly.
And then the third feature is just client deposits and mix. And while we expect client deposits to be in that zone of $200 million, $210 million, they might bump up above that, a little below that, but they’ll be in that broad zone. The mix will continue to shave down out of noninterest bearing over the next quarter or two, we think, it’s hard to, again, to predict and then there’s — we’re working through the final stages of some of our interest bearing deposit, repricing, those seem to have taken a little longer in some cases than we expected. That’s okay, that means we accrete income. But those continue to come through and they’ll still play through in the first quarter or two as well. And then that’s what kind of brings us to some level of reasonable stability in the back half of the year.
Brennan Hawken: And by the way, I apologize for background noise that is here. Second question, a bit more strategic. So we saw a flurry of Bitcoin ETF launches here recently. It didn’t seem like you all actually landed any of those servicing opportunities. So I want to confirm whether my early read on that is right. And given the magnitude of the investment and the focus you’ve made on digital assets, what did you learn if you guys missed on that? And is that what led to the restructuring of the digital asset group, and what should we see as a change from that restructuring?
Ron O’Hanley: So Brennan, there were 11 launched on the day that the — or day after the SEC gave approval, and we actually service three of them. And I think we’re the only ones that’s servicing across three different digital custodians. So we helped three of the major players make this happen. So we’re quite active in the space. And as you’d expect, we do everything for each of those three except for the actual custody for the reasons that I think you know. So no, we’re very active in the space. It was — what did we learn? I mean it’s early. What I think everybody is watching out for is there’s a lot of players that went into the market, some of them with some existing high levels of assets. What will be interesting to see over time is, does it actually consolidate and how does it work in terms of who the buyers are institutional versus retail versus intermediary, but these are early days.
And it was good to get the uncertainty cleared up and for all this to get launched, and we’re keen to be part of it.
Brennan Hawken: Ron, thanks for clarifying pure custody versus the servicing, Very, very helpful.
Ron O’Hanley: And just to clarify, I mean, I think everybody knows this. But I mean, right now, it’s extremely difficult for a bank to do pure custody because of the capital requirements that are imposed on a bank. I mean it’s basically 100% capital. So therefore, virtually everybody is working with some kind of digital custodian, a non-bank digital custodian, but all of the other parts of the ecosystem, which we’re quite familiar with, we are participating in.
Operator: Your next question comes from Glenn Schorr with Evercore.
Glenn Schorr: So big flows in SSGA, which is great, good to see, these things are unpredictable, but I am curious on if you had any thoughts towards sustainability? And maybe it would be the color of what clients are buying, what clients are — I mean, what flavors of ETF are they, the average fee? And what you’re specifically doing differently on the distribution front and education front to get at those flows?
Ron O’Hanley: So there are a number of things going on there in the fourth quarter, Glenn, and throughout 2023. I think as we’ve noted and certainly, you all would have observed, there was — it was most of the year with some episodic exceptions, it was a risk-off environment that changed in fourth quarter somewhat as predicted once investors got a sense of where interest rates were going, as they did when the Fed communicated in the third quarter more or less a pause. I think that started activity going. So much of the activity late in the year would have been the kind of classic risk on, let’s put positions on quickly, benefiting the highly liquid SPDR Core SPY in the sector ETFs. But underlying it and throughout the year, the low cost ETFs, which represent different investors, these would be — the ultimate holders here tend to be individuals.
They’re often advised by an intermediary like an RIA, so they’re — it’s very sticky. And we have continued to build share there, both in equity and fixed income, low cost. Across the board, fixed income is seeing a dramatic growth. I think there’s increasing acceptance, both by retail investors and institutional investors that the ETF is a good vehicle to hold fixed income and you’re just seeing that asset allocation moving that way. And then finally, active ETFs of all sort, you’re seeing growth in. And it’s been a long time coming. As you know, it’s been over a decade on how is this actually going to play out. And it’s ironic how it’s playing out and that everybody is just taking their standard investment strategy and putting it in active ETF.
