Steven Chubak: So Eric, I wanted to start off with a question just on the fee guidance, and benchmarking your historical fee performance versus the guidance. You’ve struggled to at least meet or exceed the guide in the absence of significant equity market gains. Can you guys hear me okay?
Eric Aboaf: Yes.
Steven Chubak: So you have a conservative market assumption embedded in the fee guide for the coming year. And just given that historical experience, I was hoping you could just provide additional granularity in terms of growth across the different fee lines that’s underpinning that 3% to 4% growth assumption for this year?
Eric Aboaf: Let me maybe describe it in a couple of ways, because 3% to 4% is for the overall franchise. We think that there are some areas of the franchise that will be higher and in some cases, a good bit higher than that. Asset Management, very geared towards the equity markets and the 10% tailwind in equity markets, comes through on literally half of that tends to the right through the asset management fee line, and then the flows that we talked about earlier in the call provide a nice tailwind. So we need to see how markets play through. But the combination of those two, which is exactly how the business is designed, it’s market based and it’s flow based, will be healthy. I think software and data processing, we’ve historically said high single digits, sometimes low double digits.
If you look at the last couple of years, you’re at the 9%, 10% average full year growth. And we’ve got good visibility there, part of that is Alpha and part of that is outright software and data sales, and so that’s strong. I think at the other bookend, servicing fees will come in — it will be a bit below the 3% to 4%, now some of that is core organic net new business that we need to drive, which is why we’ve reshaped and tuned that area, in particular on the sales and how we go to market. You’re seeing some of the benefits there and how we measure ourselves. We’re being very conscious there. But one of the reasons that one will be lower this coming year is that we had that previously announced transition coming through, which will mute some of what we’d like to see.
And then the markets activities, we’re hoping will be somewhere in the middle of the range, whether FX trading and sec finance. I think what plays out behind the market dependent areas and sometimes why we don’t need is around client — what we describe as client activity, how much transactional activity, whether our clients are on the sidelines or whether they’re all in, that this past year on the servicing fees which are half of our fees, that was worth 2 to 3 percentage points of servicing fee headwind. I mean that literally. So you do the math, that’s worth $100 million, $150 million of headwind because we don’t have those — that activity, the transactional activity in derivatives, in international custody, which is very, very valuable to us.
So part of what plays through is these macroeconomic features, equity bond markets on one hand, you’ve got client, the kind of risk-on risk-off sentiment, I think, is important. You’ve got volatility levels in FX and agency lending. And so those we have to live through and navigate through, and sometimes those will come in more strongly and sometimes less. And then I think finally, the piece that we do need to deliver on, Steve, is the part that we can control, which is sales, it’s retention. And we’ve been very clear about our goals and our targets very purposely, because that’s where we think we need to hold ourselves particularly accountable and where you can hold us accountable. And there’s a version of goals and targets in servicing, we spent a little extra time there.
But if you go through our line of businesses, we’ve got similar kinds of goals area by area and that’s on us to deliver, which will help power us through. But the cyclical elements will still come and go.
Steven Chubak: Just one quick follow-up from me. What’s the assumed timing for the large client transition? Just wanted to get a sense as to whether that’s reflected in the 1Q servicing fee guide or you’re expecting that later in the year?
Eric Aboaf: Let me see how — let me try to describe this to you in a couple of ways and to be helpful. At this point, on a quarterly run rate basis, and I say that very specifically, we’re about halfway through the transition, including a piece that came out in the fourth quarter. So we’re halfway through on a quarterly run rate basis. We also, though, have to think about it on a fiscal year-on-year basis. And the way I would describe it on a fiscal year-on-year basis, remember, we said this was worth about 2 percentage points of total fees, that’s what we’ve disclosed in our Qs and Ks. About a quarter of that fiscally has come out through the end of ’23, about half of it will come out through ’24 and about another quarter in ’25, so it just takes time to play through. And so we did include that headwind in the first quarter ’24 versus first quarter ’23 guide, and it is important to that guide. And so our guide includes that and you’ve got the net guide as a result.
Operator: Your next question comes from Ebrahim Poonawala with Bank of America.
Ebrahim Poonawala: Just a very quick follow-up. I know the call has gone on so long, Eric. I heard you talk about just the right level of deposits between 200 and 210 . Did you say that you expect the growth we saw in fourth quarter to reverse in 1Q as we think about why deposits shake out?
Eric Aboaf: No, what I said is that we think we’ll operate in the $200 billion to $210 billion range in the first quarter, second, through the year. We expect that to be where we land. I think in fourth quarter on average, right? Remember, we also, I think, talked a little bit about the months, we talked there’s end of period data, which is very volatile. But on average, we ended up at, I think, around $207 billion for the quarter in 4Q. And so we think roughly flattish deposits into 1Q. It’s just hard to tell, there’s seasonality at year end, there tends to be a low point in February, and then you’ve got cash building for tax purposes into March. But I’d call it flattish in the scheme of things but with a range around that.
