Rob Reilly: So first, our reserves are appropriate for what we expect to occur. So that’s number one. Number two, if things should substantially improve yes, sure. We’re running at 1.7% right now, which historically is on the high side. So if things normalize out in your definition of normal, we could be lower.
Bill Carcache: And then, Bill, following up on your comment about feeling good about your reserve levels, but that we haven’t necessarily seen peak charge-off rates yet. If we were to go down the mild recession scenario path, should we expect there to be some lag between when those charge-offs would actually hit the P&L and when the corresponding reserves would get released, or would the releases kind of occur concurrent with the increase in charge-offs?
Bill Demchak: So remember, the charge-offs don’t hit P&L. There seems to be a lot of confusion on that. The provisions we take hit P&L. And we’ve provided for our best expectation of future charge-offs in a scenario that assumes a mild recession. So if our scenario comes true, we’re fully reserved for everything that might happen to us. Charge-offs will flow through but not hit our P&L because they’re effectively neutralized against the debit to the provision.
Bill Carcache: Understood…
Rob Reilly: That’s worth pointing out…
Bill Demchak: There always seems to be some confusion on that, but does that make sense?
Bill Carcache: No, I understand. I guess where I was going with that is that some have sort of alluded to you allowing as — if the credit environment does indeed deteriorate, allowing some of those losses to flow through without necessarily releasing reserves. And so even though they’ve established reserves, they would kind of maintain those reserves and allow the higher charge-offs to flow through before before ultimately releasing. And I was just hoping to get your thoughts on kind of the timing of those different pieces.
Bill Demchak: So it’s a mechanical calculation that’s dependent on our view of the economy at the time. So if you got to a place where the charge-offs occur and somehow we thought the economy was worse than our current expectation, we would be providing for the remainder of the portfolio at a higher level than we are today, but right now we don’t expect that to happen. So if the economy is worse, simply put, if the economy is worse than a mild recession, then you would expect our total reserve to increase.
Rob Reilly: Because it’s forward-looking per CECL…
Bill Carcache: If I could squeeze in one last one on capital return. I appreciate Slide 19. Can you speak to how you’re thinking about that 150 basis point impact from Basel III endgame in light of some of the pushback that it’s received? And is that 8.2% a level you feel comfortable running at or would you target a slightly higher buffer? And then sort of underlying all of that, are you thinking — how are you thinking about buybacks in light of all the moving pieces?
Bill Demchak: We’ll answer the easy question first. 8.2 would be too low, I think, in this new environment, assuming Basel III endgame goes so we’d run some higher number than that for certain. There does appear to be substantial commentary on the proposal such that I would expect that if it isn’t reproposed, there still would be some relief in certain asset categories and risk weighted assets and maybe on operating risk capital, we’ll see. Having said that, we don’t know. So at the moment, what we know is we’re going to continue to grow earnings. We’re going to accrete AOCI back into our capital base and we’re going to pull that 8.2% up. We think we have flexibility inside of that to be active in the share repurchase market between now and then and the more certainty we have, the more certain will be and explicit on what we might buy back during a given period of time.
Rob Reilly: And I would just add to that. You saw we did — we bought just under $100 million of — share repurchases in the fourth quarter. In the first quarter, we would expect to do at least that, maybe a little bit more depending on market indications.
Operator: Our next question comes from Erika Najarian with UBS.
Erika Najarian: I just wanted to ask one follow-up question on NII, if I may. A lot of investors were really excited about the graphic that you put together at Goldman, the Nike Swoosh, if you will, that had sort of the first rate cut embedded under the Nike Swoosh 25 basis points in 3Q ’24. And I completely understand this is abstract in a way. But I just wanted to put together everything that you guys said I think it surprises investors that when you overlay the forward curve that it is neutral to this outcome, at least for ’24. But just looking back at the slides, Rob, and on Slide 6 of this earnings season, it does seem like a lot of your receipts fixed swaps don’t really meaningfully mature until 4Q ’24. So I guess, in terms of like the mechanical repricing that you keep talking about, the way to really ask this question is, it sounds like it is possible to have potentially a lower trough than people expected in ’24 and still have that record net interest income in ’25 because of those fixed rate dynamics, and who knows what can happen on the liability side and the deposit repricing side, if the Fed cuts sooner.
