Bill Demchak: You asked a question on the securities book. It’s just — we basically stayed pretty much in the same position all year. We get to re-price the book, and you see the income coming out of the securities book growing nicely. We haven’t invested into it. It’s a tough market to invest into. If you are — in effect a deposit-funded institution, right? If you want to go out and buy something today, against your marginal cost of money, you’re basically carrying flat to negative. Today on the theory that the Fed is going to cut to what down the road and you got to believe that the Fed is going to go back into 2s on Fed funds, which I just fundamentally don’t believe. So I think kind of the market is just on investable at the moment, and I think that’s going to be figured out through the course of the year.
And so, there’s upside my view on that plays out in the way we run our securities book. But at the moment, there’s no choosing to go along in this environment, I think, is a mistake.
Mike Mayo: One more clarification, you are reserved for your existing book of business, assuming an unemployment rate of what level? I know it’s above 5%.
Rob Reilly: 5.1%.
Operator: Yes. Our next question is from the line of Ebrahim Poonawala with Bank of America. Please go ahead.
Ebrahim Poonawala: On the NII guide, so I think you’ve spoken extensively about the spreads. Wanted to get how much of the inversion in the yield curve was a factor in impacting the NII outlook? And tied to that, like with the 10 years sub-340 this morning, like do you just not invest right now and wait for things to shake out? Or how do you think about balance sheet management in a world where maybe the 10 years headed to 3%, not 4% next?
Bill Demchak: Yes. So, that impacts the NII guide a bit only in terms of what our reinvestment yield is and will be when we — when the existing security book rolls down. So you’ve seen the book yield on that rise from wherever to what is now 260-something.
Rob Reilly: Yes, the total book.
Bill Demchak: And that continues to increase as we — as things roll off, we’re reinvesting with high fours, five handles on securities. Look, if the 10-year goes to 3%, if you look at the five year and five years, the implication of where long-term rates really have to head for that to be true. I just don’t buy. I don’t think we’re going to be in an environment where the Fed is bounce in short-term funds around 1%, which I just don’t think it’s going to happen. I think we’re going to — I think we will get inflation under control, but I think it’s going to be a struggle to get it under three long-term, and I think front rates will rise will stay higher they might cut and likely will cut from some 5% level. But this assumption that they’re going to cut and therefore, rates are going to go back to two or one.
I just think is absurd. So therefore to me, the back end of that curve is on investable. You’re right, it could rally to there. Good for the people who own it as long as it’s not me.
Mike Mayo: Yes. No, that’s fair. And again, I’m not saying it makes sense, but is the world we live in. And I guess tied to that, I’m not sure if you gave explicit guidance in just some of those terms of deposit growth outlook. I mean still a lot of room when we look at the loan-to-deposit ratio. Just give us a thought around how you’re thinking about letting additional sort of rate-sensitive deposits run off, having a smaller balance sheet, creating more excess capital?
