Ebrahim Poonawala: And just a bigger picture question around NIB mix and NII. Do we need to get to a point where QT is short, the Fed is done with cutting rates before we see NII stabilize and maybe the deposit mix shift would stabilize as well? Like do we need to get to that point or can it happen sooner than that?
Eric Aboaf: My instinct on this is NIB will begin to stabilize sometime in 2024, we think sometime in the by the middle of the year or third quarter. You’ve kind of, at that point, I’ll call it, burn through the largest accounts, those are the ones that kind of on a — since its peak are down 75% in NIB. The smallest accounts are down by about 25% since the peak and those were seeing stabilize more and more. So I think we’ll see some stability in NIB because clients and funds and fund boards have made their decisions, especially the ones that have $1 million or $2 million in an account, some of them just don’t want to deal with the tax reporting, and so you’ll get to some stabilization. So we think that will kind of stabilize.
I think the broader question on NII will then come with how, what — well, and at that point, I think deposit betas kind of tend to stabilize as well. So I think at that point, in the second half of next year, the real question is what is the direction of interest rates on the front end. So very important question, which is what’s going to — where is the long end going to go? And where is the long end going to go in the US versus in the international markets. And that is particularly important to the banking sector because with some amount of steepness in the yield curve, and it’s hard to remember when we’ve had steepness, it’s been a while, some amount of steepness in the yield curve is quite accretive to NII, and you expect in a good economy to have some.
And so that will be a feature. So there’s a series of elements that will come through, and it’s hard to I think, to, as a result, predict too precisely.
Operator: Your next question comes from Ryan Kenny Morgan Stanley.
Ryan Kenny: Just a follow-up on the capital side. So you had an 11.6% CET1 ratio that was a nice improvement sequentially, it looks like that was driven mostly by $6 billion of lower RWA. Can you just help us impact the RWA dynamics a bit, what drove the optimization? And then you also mentioned RWA could be higher this year to support various businesses. Does that mean that the optimization was just temporary?
Eric Aboaf: Let me describe it in a couple of different ways. We’re all — every bank tries to manage RWA just because it’s part of our capital requirements and returns. And we try to report it carefully and we do it fully to the rules, as you’d expect. What tends to create the volatility because it’s a spot measure, it’s a one day of the quarter, one out of 90-day measure is the market factors. So if you’ve got an FX, or in any of the trading businesses if you’ve got a forward book or even a vanilla derivative book, you’ve got counterparty exposures, you’ve got — that are affected in particular by the currency pairs. And as those move around in the last week of the quarter, you might be in the money or out of the money in those positions and those directly because of how to standardize RWA mathematics were just goes right through RWA.
So that could create a swing of $4 billion, $5 billion on the size of our RWAs. Our RWAs is about 100 — we printed around $112 billion, about half of that is in the markets area. And so there’s a good bit of variability, and that’s literally what happens. And so sometimes it will end up low, sometimes it will end up high. If you look at Page 14 of the presentation matures, you’ll see low point of $107 billion a year ago in RWA, you’ll see a higher point of $118 billion last quarter and quite a bit of that is driven by just those market factors playing through into the calculations that we have. And then in addition to that, if you’re on a loan book like we do, you’ll have overdrafts, overdrafts take RWA as well. And so we also saw some amount of benefit there this quarter.
I think the way I would describe the go-forward view is that we ended up particularly low this quarter. We said it could be $6 billion, $7 billion lower than expected. What would par be, maybe I’ll describe it that way, going forward, it might be $118 billion, it might be $120 billion. But you’ve got to put plus $5 billion, minus $5 billion band around that. And so what we want to do is we want to gently continue to reinvest capital into our businesses, because these FX businesses now that we have, have good returns. We’ve managed them well, they’ve got 10%, 12% returns in many cases. The securities finance businesses typically are high single digit return businesses, but that’s healthy and it’s very connected to the servicing and the administrative fee business that we have and important to our clients.
And so our view is that these are ways for us to solidify and expand and deepen our relationship with clients. And so we’ll gently add RWA each year. How much do we add? We add a few billion dollars, $3 billion to $5 billion of more RWA each year perhaps. But there’ll be some volatility around that. And that will be a part of the way we drive our organic growth. We’re a high return bank, that’s for sure. But we do want to put some of our capital to work for core organic growth reasons.
Operator: Your next question comes from Mike Brown with KBW.
Mike Brown: I guess I noticed that you saw record cash net inflows in 2023. And you mentioned that you actually took share in the institutional money market space. As we head into a declining rate environment here, I guess what’s your expectation about how these cash and money fund assets could trend from here? I guess, historically, institutional money markets, they can act quite differently than retail. So I guess, once the Fed begins to reduce rates here, what are you thinking about in terms of the path of the flows out of money funds, could you actually still see some money fund inflows from institutional investors?
