Eric Aboaf: It’s something that we continue to think about. I think every bank continues to think about, we included. We’re just continuing to just work through how do we feel about the rate levels that we’re at, in particular up on the curve. We are conscious of that, both in the US and in the international areas. We’ve got positions in pounds sterling and euros and so forth. So we’ll just continue to evaluate it. I think as you indicated from your question, part of the reason we repositioned last year in the third quarter was around rate position. We thought it was a very good entry point. In retrospect, we timed that quite well. So we were quite pleased. And I think we felt like we came out ahead economically with the trade because we remember, we took out some bonds but also reinvested both in the belly of the curve and overnight.
So that was constructive. And we’ll also keep an eye on — we don’t have a lot of capital intensive securities, we’ve always had a very vanilla book. So there’s not an enormous capital motivation, but we’ll selectively look at it and see if it might make sense. But I think we’re like many others, it’s one of the things we keep an eye on.
Operator: Your next question comes from Rob Wildhack with Autonomous Research.
Rob Wildhack: I wanted to ask about the fee operating leverage target for this year. Hypothetically, let’s say, fees come in better than you expect. Would you anticipate dropping that down to the bottom line or reinvesting it? And maybe the same question in reverse, fees come in lower than expected. What kind of room is there on the expense side to preserve your fee operating leverage target?
Ron O’Hanley: Rob, why don’t I start on that. We feel like we’ve done a very good job this year in terms of — in 2023, focusing on BAU cost reduction to help finance and create a very sizable investment pool. Eric walked you through that. So obviously, if fees are up dramatically more than expected, there are some revenue related expenses. But I wouldn’t foresee — I think we’ve got a lot to invest and execute against and I really won’t want to get through that. On the margin, there might be a few things that we would do, but the vast majority of it will go to the bottom line. the case of the — if the opposite occurs, whatever, a terrible market, geopolitical issues, flare and you’ve just got a very different environment than any one of us anticipate.
Again, we’d probably — you’d see some revenue related expenses come down naturally, which would help. I think at least my initial instinct would be to try and preserve the investments and look at is there any more to do on BAU, but then obviously, some of these — we’ve got a pecking order for our investments in terms of priorities. And if it came to that, we’d defer them.
Eric Aboaf: I would just add that we’ve got a pretty industrial productivity plan for this year. Part of that was the repositioning that we announced, but two thirds of the roles impacted are really around delayering and simplifying State Street. We’re actually taking our spans of control in some areas like operations from 5:1 to 8:1. We’re taking standard controls in the business and staff functions in some cases from 3:1 to 5:1. And the benefit of that is it actually brings our teams, our client teams and operational teams even closer to our clients. And some of what we’re doing with the joint venture consolidation is a catalyst for that because, in some cases, we had too many hand offs and now we can simplify processes and again, bring them closer to our clients.
So there’s some real structural changes there. And what we do want to do is make sure we see those through. As Ron mentioned, there’s always a little more, we’ll look at on the margin but we want to be careful. We want to do this right. But on the margin, you continue to work on vendors and so forth, you look at performance based incentive compensation, there are always other smaller levers. But we’re pretty — I think we’ve got a nice work set out and a lot to do. And I think we’ve got real confidence that this is, I think, year probably five. I don’t think we name our programs with annual versions. But this is probably a year five of productivity program and should really deliver quite a bit.
Rob Wildhack: And then on the regulatory front, there was some commentary last week from the FDIC around regulations for large index fund providers. I’m curious if you have any thoughts there on how that can potentially impact your business?
Ron O’Hanley: From the FDIC, I didn’t see this, Rob. Curious as to the FDIC’s role in index funds. I wonder what Vanguard has to say about that. So I’m just not familiar with it, Rob.
Rob Wildhack: I can send it over to you later.
Eric Aboaf: Why don’t we follow up off-line, Rob, just send it through to Ilene and the team.
Ron O’Hanley: Yes, it could be, Rob, that GA is already on this. I just haven’t seen that.
Operator: There are no further questions at this time. Please proceed.
Ron O’Hanley: Well, thank you everybody for joining the call.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
