Bill Carcache: Yeah, thanks for taking my follow-up. So, Bill, I was hoping you could just share your thoughts on the CFPB’s plans to propose an open banking rule. There’s a view that open banking essentially forces the industry to hand over the keys to the customer relationship. You’ve talked in the past about sort of the dynamic of like passwords and all that kind of stuff, but I was just hoping you could speak broadly to that point or that topic.
Bill Demchak: Yeah, I think, what I’ve seen thus far out of CFPB commentary is they’re largely focused on some of the right things. Make it easier for customers, agree with that. Secure data, agree with that. Don’t allow data to be sold and commercialized without customer permission, agree with that. Make customers agree to specific data items that they want to share in a secure environment. So, all of that stuff versus where we are today where it’s a free for all and there’s a lot of fraud, actually I’m in favor of. The notion of kind of open banking where somehow I can just lift and shift my account from one bank to another because now there’s technology to do it, I’m not that afraid of that. It’s more in the technology to allow it in a secure manner, dependent of what rule is written, doesn’t exist today.
And I kind of look at what they’re doing and hope it’s a step in the right direction on security and the safety and soundness of customer information, leading to a reduction in fraud across the industry. And the sound bites are, that’s where they’re going.
Bill Carcache: Okay, that’s helpful. I had heard something along the lines of some of the actions they’re taking are intended to make it easier for customers to “break up with their banks.” And so, I was wondering if there was anything in the language. You mentioned how you’re not worried about the ability to shift the relationship…
Bill Demchak: Look, at the end of the day — by the way, if that happened, terrific. We compete every day and we have good customer service and great products, we’ll be a net beneficiary. Practically, the technology to allow that to happen, so just think about the notion of, okay, now you have connected APIs that allow somebody to gather information and move information. Now you need to build a program that keeps track of the back book while you open a new book on a checking account, transfers, balances on cards and all. So, eventually somebody will come up with a cool business model that might be able to do that on the back of laws that allow it on the back of APIs that haven’t been written yet on the back of technology that links all the banks in question together. But that hasn’t happened yet.
Bill Carcache: That’s great. Very helpful. Thank you.
Operator: Our next question is from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.
Bill Demchak: Hey, Mike.
Mike Mayo: Sorry about that earlier. So, in terms of the decline in commercial loans, how much of that decline is due to softer demand and how much of that is deliberate as you look to shore up capital more than you previously would have intended?
Bill Demchak: Well, none of it’s deliberate per se. We’ve seen some drop in utilization. We’ve seen a drop in kind of refinance rate as people are — think about a corporate loan revolver where it’s a three-year and every two years you renew it for the next three years. Everybody’s kind of extending out under the hope that things are going to get better on spreads. So, there’s just been less activity. At the margin, we are extending less credit into credit-only new relationships on the hope that we’re going to get fees versus protecting our wallet where we already have a lot of fees and get cross-sell. But that’s kind of at the margin thing.
Bill Demchak: Yeah, that’s small. It’s on the demand side.
Mike Mayo: Okay. And you’re very clear about the expense guidance and the tough actions you’re taking with personnel. Did you give an outlook for operating leverage over next year? Do you think the pace of expense decline will be faster than any decline in revenues? And specifically to the fourth quarter, the SBNY loan acquisition, looks like it adds a couple percent to your fourth quarter NII, but you’re guiding down 1% to 2%. So that decline might be a little bit more than some had expected. It’s more than you had expected. The quarter decline looks like 2% to 4% in the fourth quarter. Is that math correct? Why is it down maybe more than you thought? And the big question, though, is revenues versus expenses over the next year?
Rob Reilly: Bill, do you want me to? I can. Well, on the expense issue, we did say that we expect ’24 expenses to be stable. And we haven’t finished our budgeting cycle, so we can’t really answer in terms of anything beyond that in ’24. In regard to the NII and the fourth quarter guide, it does include the Signature acquisition, which we said was about $0.10 a share. Recall, in the third quarter, we had expected 3% to 5% decline. We ended up down 3%. So, when we look to the fourth quarter, roll all that together, that’s how we get down 1% to 2%.
Mike Mayo: Got it. Okay, thank you.
Rob Reilly: Sure.
Operator: Our next question is from the line of Ken Usdin with Jefferies. Please go ahead.
Ken Usdin: Thanks. Good morning, guys. One follow-up on the Signature acquisition as well. So just wondering if you can provide a little more context on the portfolio, seeing the line that you’re expecting to hold on to — or expecting to hold on to 75% of the relationships over time, are you bringing on new team members? Is there expenses along with that? And just anything you can help us in terms of like the duration of the loans and is there just kind of a natural run-off that happens given I think that they’re generally a pretty short duration type of loan? Thanks.
Bill Demchak: Yeah. It’s de minimis adds of people that we’re bringing on. We’re already in the business. We have the technology to be in the business. We know the clients. The rundown, we’re kind of saying, 75% probably survives. Most of that is simply a function of where we have overlap with clients and the size hold that we want to have for a particular client, we’d syndicate more of it as we kind of right-size our hold. There may be inside of that book of business a handful of people that we would choose not to renew, but their credit quality is pristine. We know we underwrote every fund that is in that. And through time, you would expect that as they mature, we’ll renew and some period of time out a couple of years, we’ll end up with 75% of the notional that we started with, and you’ll have no clue between now and then how much it was.
Rob Reilly: But that’s right. De minimis expense is involved with it, and we’re excited about it.
Ken Usdin: Yeah, that’s a fair point on we won’t know. That’s what I was trying to ask. The second question is…
Bill Demchak: But to be clear, I mean, it’ll be lost inside of our book of business.
Rob Reilly: It becomes part of our…
Bill Demchak: It becomes part of our C&I balances.
