Kelvin Tran: The increase in spending for risk and control does not have an impact on operational risk.
Sohrab Movahedi: So you’re not anticipating any increase in your operational risk RWA outside of the spending?
Kelvin Tran: The operational risk capital would depend — could be impacted by other items like fines and stuff like that, but the increase in spending does not have an impact on operational risk capital.
Sohrab Movahedi: Thank you for squeezing me in.
Operator: Thank you. The next question is from Lemar Persaud from Cormark Securities. Please go ahead.
Lemar Persaud: Thanks. Most of my questions have been asked and answered, but I got a couple of quick ones here. Just wondering if you guys know the size of the restructuring charges that are to come in 2024, why not just put them through today?
Kelvin Tran: So, I’ll give you some examples. So when you look at real estate optimization, there are specific accounting rules on what conditions you need to meet in order to be able to take those charges and those would come over time. And so we expect some of that would be in Q1 or Q2, for example.
Lemar Persaud: Okay. So it’s not related to the impact that it would have on capital today, for example, it’s strictly due to accounting rules?
Kelvin Tran: That and you know, the pace of the program that we’re initiating.
Lemar Persaud: Okay. And then could you guys talk about or help me understand, which business lines are going to be most impacted by the 3% reduction in FTE?
Kelvin Tran: It’s pretty broad based.
Lemar Persaud: Okay. So just assuming it goes across all business lines would be a fair characterization of it.
Kelvin Tran: Correct.
Lemar Persaud: Okay. And then, just last one here in terms of the rapid-fire questions, I think last quarter you guys were guiding to flat margins in the U.S., but you had 7 basis points this quarter and then you guys are sticking with flat margin guidance again moving forward. What drove the surprise on U.S. margins this quarter? And why not offer a little bit more of a constructive outlook?
Leo Salom: Lemar, thanks for the question, and I’ll try to be constructive. Just — I wouldn’t say, it was a surprise, a couple of factors actually materialized in the quarter. First and probably foremost is that we had larger maturities and the tractor on rates, you know, generated a significant positive lift for us. That was one significant factor. The other is that, while we had made borrowing reductions last quarter, and you would have seen that in the spot reductions, the average value actually came through this quarter. So the combination of higher tractor on maturities and the impact associated with that and lower borrowings in the quarter actually gave us a bigger lift than what we had anticipated. And then to a lesser extent, and I want to be careful on this one, deposit migration, which was a factor in some of the pressure we saw last quarter, eased just a bit, and I would expect that to continue over the subsequent quarter.
So I think it was really the combination of those factors that yielded a slightly better margin profile. I would still say, that given market conditions in the U.S., given the uncertainty that still exists in terms of overall funding and liquidity positions, we feel quite comfortable with the guidance that margins are going to be relatively stable over the next quarter.
Lemar Persaud: I appreciate the time, guys.
Operator: Thank you. And we do have one last question, Darko Mihelic from RBC Capital Markets. Please go ahead.
Darko Mihelic: Hey, thank you for squeezing me in. I appreciate that. Just a couple of quickies. First, maybe this is for Kelvin. The U.S. business, I’m looking at it in U.S. dollars, what’s a reasonable tax rate, do you think for 2024 to think about with respect to our business?
Kelvin Tran: I’ll take that. So on an average basis right now, it’s sitting just under 20%, but at the margin, I would expect that number to be slightly higher.
Darko Mihelic: Slightly higher. Okay. Second question, Leo sticking with you, I may be looking at this incorrectly, but was there a benefit to your NII from the Schwab payment or was that put into corporate?
Leo Salom: No, it’s a very good question, Darko. There was a — there was a benefit in the cost. So let me just break those two out. We did — there was a breakage — one-time breakage fee that was paid by Schwab as they bought down flexibility in terms of the fixed rate obligations, which was a condition that we put into the agreement with them, and they exercised that in the quarter. So that would have given us a slight benefit in the quarter. It was more than offset by the decline in overall sweep balances and lower investment earnings and management fee earnings from the actual agreement itself. So net Schwab in the quarter for us from an NII perspective was a drag.
Darko Mihelic: It was a drag and essentially moving forward now, unless there’s other charges or something we should really assume that. I mean, what was that, is there anything you can provide to us in terms of — I mean, I think I can calculate the fee that they paid to you, but I can’t calculate all the negatives. Can you — is there a number you can put around the NII hit?
Leo Salom: Darko, we’ve traditionally not provided that number, but if you’re — but if you’re trying to get at, would we expect potentially balances to decline and there could be some revenue headwinds? Yes, and that’s something that we factored into our long-term plans.
Darko Mihelic: Okay. Okay, thank you. And last question for me, and I promise I’ll stop here. But again, a question on net interest margin. And maybe this is for Kelvin, but anyone can pipe in, I guess. When I stare at the sensitivity that you guys provide, and now I’m looking at it through the lens of falling rates, because I think that’s where we’re all heading. And it looks like your sensitivity has declined over the last six, seven quarters now with respect overall at the all-bank level, with respect to the sensitivity to falling rates, is this something intentional that TD is doing? Is there some sort of balance sheet changes occurring at the bank to reduce NII sensitivity? Or is this just simply normal course and the balance sheet structurally has just moved in such a way that you have less sensitivity to falling rates going forward?
