Bill Demchak: It’s not — I mean you see the credit metrics, it’s not a concern in terms of customers. We’ve seen with the margin — profit margins decrease with certain clients. If you look at soft inputs, surveys and so forth that are coming out of the Fed districts, the economy is definitely weakening, not at a alarming pace. It’s kind of what we had expected given how tight the Fed has gotten with monetary policy. So we kind of see a mild recession. We actually see employment remaining strong through that, which ultimately is the thing that keeps the economy from going deeply into recession, just the strength of the labor market and consumer spending. So this is kind of following the path of what we thought for some period of time now.
Ebrahim Poonawala: And one quick follow-up — yes, go ahead.
Rob Reilly: I was just going to add to that to Bill. So I mean, we can have a slowdown continue and technically hit a recession without adding a whole lot of credit risk or increased credit structure.
Ebrahim Poonawala: And just one thing, Rob, you mentioned that you expect non-interest bearing deposits to stabilize from here. Just playing devil’s advocate, why should they stabilize from here? If rates remain if we are in a 3% plus Fed funds world, should we not expect the mix of deposits to move towards interest-bearing, towards more CDs, or is your view different?
Rob Reilly: Well, I think, obviously, we’ve been watching that for the better part of the year here in terms of the decline in non-interest bearing in absolute terms and relative percentages. Why we think it’s largely happened is because it’s been so long. And much of that base is our businesses and individuals that run on non-interest bearing deposits. So they’re not necessarily shopping for a higher rate. There’s something around the institution in terms of they pay for their services through deposits or on the consumer side, small transaction accounts.
Operator: Our next question comes from Matt O’Connor with Deutsche Bank.
Matt O’Connor: Just wondering your thoughts on kind of medium term loan growth, a bit of a bigger picture question. You obviously gave details for this year. But as you think out like the next couple of years, are you in the camp that there needs to be some structural deleveraging. So loan growth might be below GDP or where normally it would be or just any thoughts that you have on that?
Bill Demchak: I mean, I don’t think there’s going to be any structural delevering here. We’re obviously seeing a lot of banks kind of on my prior point, coming to the conclusion that some of the ancillary lending activities they took on, on the back of the big stimulus, don’t make sense anymore. So there’s deleveraging maybe across the industry by certain groups, but not here.
Matt O’Connor: And I guess I meant from customers, right? Look, even if rates go down a little bit, they’re still structurally a lot higher than they’ve been for the last almost 15 years. So if you just think about like the lending demand that’s out there, obviously, there’s lots of factors. But just thoughts on if higher rates structurally have a meaningful impact on that?
Bill Demchak: On loan growth?
Matt O’Connor: Correct. Right, as you think about corporate borrowers, right, they just can’t afford potentially to borrow as much with rates higher. Obviously, the same for consumer mortgage is the most obvious. So thinking more like on the commercial side.
Bill Demchak: Well, I think at the end of the day, our generic corporate client needs to redo their facilities and the price has gone up and that will occur. I think some of the activity that we saw on the back of just really low cost of capital in the private equity markets where it kind of leverages free, that’s going to go by the wayside at a higher rate environment. But if you look at the composition of our book, we’re kind of the bread and butter of America. So I wouldn’t expect that we would necessarily see a decline in loan growth simply because the front end of the — [SOFR] rate is higher.
Operator: Our next question comes from Dave Rochester with Compass Point.
Dave Rochester: Just back on the M&A discussion, I know you mentioned building in a bigger buffer than that 8.2% you have on your adjusted CET1 ratio today. But is the plan to also maybe retain more capital than you normally would to better position you for taking advantage of any inorganic opportunities, which might keep the buyback activity more muted this year? Just curious to get your thoughts there, how you might balance that.
Bill Demchak: Well, there — I mean both of those thoughts are consistent. 8.2 is too low, so we’re going to grow. Whether we’re growing to be in faster compliance or growing because maybe something shows up where we could use some, we’re still going to grow and it’s going to mute our capital return below it and otherwise might be absent the Basel III endgame changes.
Dave Rochester: So you would expect buyback activity maybe to remain muted for the rest of the year, not just the first quarter?
Bill Demchak: There’s too much up in the air. I mean, it’s depending what the Fed does, look, they could have to repropose that. It could go through the elections, they could change it materially. We don’t know, right? All we know is all else equal, 8.2 is probably too low. We’re still burning through our AOCI, we don’t think that’s going to change. So we stay the course and we’ll adapt based on what we learn.
