Brian Bedell: Great. Great. Thank you.
Robin Vince: Thanks, Brian.
Operator: Our next question comes from the line of Ebrahim Poonawala with Bank of America. Please go ahead.
Ebrahim Poonawala: Hey, good afternoon.
Robin Vince: Hey, Ebrahim.
Ebrahim Poonawala: I had a favorable question just around looking at your medium-term targets, and I heard what you said in response to Mike’s question on the fee revenue guide for this year. But when I looked at the strategic targets, I guess it’s deliberate that we don’t have a revenue growth number in there or a revenue growth target. And I’m just wondering, is that due to the macro or your view on the business where you don’t have the line-of-sight around being able to sustain a certain level of revenue growth? And I ask this because I think that’s probably the toughest part of the BK investment story is what’s the sustainable level of revenue growth. You gave a lot of details around products and businesses, but would love to hear in terms of how you think one should think about baseline revenue growth in a more or less normal macro-environment over the coming years.
Dermot McDonogh: Okay. Thanks for the question, Ebrahim. So I’ve been here 14 months now, so I’ll give you my perspective, right, in terms of my history and I’ve studied the firm and what we’ve accomplished over the last 12 months, and how I see the future. So over the past years, BMI Mellon has delivered organic growth north of 2%, but hasn’t done it in a consistent fashion. And so we want to be able to talk to you in a consistent manner and we give you guidance we want to — know that when we give guidance, you believe that we’re going to do it. So for 2024, we think we’re going to turn positive on fee growth. We feel we’ve set the firm up, but we don’t want to kind of give out guidance that has not got a track record of success.
And so I’ve kind of said this in answer to some other questions, asset servicing we feel like we have strong momentum. We feel we’re making the right investments to power that business forward, and that will — it’s our biggest business and so we feel like pre-tax margin is going to go up as a result of efficiency and fee growth. And then if you take Market and Wealth Services, our most profitable segment Clearance and Collateral Management, Treasury Services, and Pershing, all have mid-40s pre-tax margin and all have good opportunities for growth. But then again, fee growth is a little bit dependent on the market and a big part of it is what happens to the market. And that guides us to be a little bit more cautious giving you guidance overall on fee growth.
But each of our business in terms of the underlying fundamentals, we feel very, very good about.
Robin Vince: Ebrahim, I’ll just add to that. And we debated this a lot about the fact that you don’t have the dollar output guidance on fees. And so as a result, what we’ve been trying to do is really make sure that we’re communicating to you on all of the inputs to that. But as Dermot said, there is both a market impact potential. We’ll have to see how the markets evolve, and there’s a bit of a portfolio effect, which is we’ve really invested in a lot of different places. We have good confidence around the fact that several of those are going to yield something in 2024 and then hopefully continue to yield more in 2025. But it’s hard for us to be able to know exactly what’s going to hit and exactly when it’s going to hit. So we’ve got a confidence on a portfolio basis around those investments, but we don’t have the absolute line of sight that makes us comfortable to tell you the exact number in the exact quarter that it’s actually going to hit.
And so all we can do is show you the inputs and now point to a year of track record in 2023 around the fact that we have, in fact, made progress on the things that we said we were committed to make progress on.
Ebrahim Poonawala: That’s helpful. Good color. Thank you. And just a separate question. I mean, I’m sure most investors like the fact that you’re going to be buying back stock. But when you think about, given the sort of run in the stock valuation wise, is there any sensitivity to where you probably don’t want to be leaning into buybacks? And secondly, are there other good users of capital, one of them being inorganic M&A driven growth? Or is that just off the table right now?
Robin Vince: So you’re right that we have an implied waterfall of how we think about our capital. And the first is to be able to invest it profitably well in the business, and then towards the bottom of that waterfall is if we have surplus capital after we’ve taken those things into account, we want to return it to our shareholders, and that’s what we’ve been doing. And so that waterfall hasn’t changed in how we think about it. Now in terms of M&A, right now, we’re focused on what we have and how we think that we can improve it. That’s really been the story. Dermot really made the point around running our company better and we think that there’s so much opportunity in the franchise to be able to run ourselves better and have the growth that we haven’t wanted to distract ourselves with M&A.
Now we have a high bar. We’ve had a high bar. We continue to have a high bar, but we are keeping our eyes open. And I think that’s the right thing to do, particularly for things that would help us to accelerate our delivery. We’re not looking at transformation. We’re not looking at big pivots, but we are always interested in things that can, in their own way, speed us on the journey that we’ve laid out to you.
Ebrahim Poonawala: Got it. Thank you for taking my questions.
Operator: Our next question comes from the line of Ken Usdin with Jefferies. Please go ahead.
Ken Usdin: Thanks. Good afternoon. So last year, you guys did a really good job setting a hittable bar on that NII point that you made earlier, and we ended up seeing a nice increase to NII to the end of the year, up to $1.1 billion. So just wondering, given that you’re still setting a new bar to down 10%, which implies definitely like a settling down from the $1.1 billion. I’m wondering to the prior conversation on rates, just can you help us understand like the cadence of that, the direction of travel, and then with regards to the rates forecast you’re building in like when that settles back down and starts to bottom? Thanks.
Dermot McDonogh: New yearly guidance, I’m not too sure I really want to commit to quarterly guidance and deposit levels. We finished the year strong. That was a variety of factors. As I said in my prepared remarks, we had four months of consecutive growth. I talked at Barclays in September. I talked at Goldman in December. We feel very good about the deposit franchise. We feel very good about what clients are doing with us. And so, you know, we bank it as it comes. But when I sit back and I look out at the macro and this is what we said this time last year, we expected deposits to go down by mid to high single digits, and ultimately it was down 4% for us. That’s the trajectory I expect to happen this year. And so I don’t have a particular magic ball on what’s going to happen quarter-by-quarter. So I would just take the down 10% and divide it by 4 for your model and just see where that gets you.
Ken Usdin: Okay, got it. And then as a corollary to that, your comments on the movement to a flattish expense base from a successful plus three last year is a meaningful move, and I know it foots to that point we just ended on, which it still incorporates a down 10% NII. Presuming we get past this point and NII does get stable and/or and the fee income starts to grow. I presume you’re not trying to point us to a flattish expense trajectory for the longer term future, but maybe you can talk us to how you will manage that positive operating leverage gap relative to needed investments and then the margin targets you just gave us to in terms of how you kind of deal with volatility of the macro environment while getting to that point of seeing those margin target improvements.
