Good day everyone and welcome to the Northern Trust Corporation third quarter earnings conference call. Today’s call is being recorded. At this time I would like to turn the conference over to the Director of Investor Relations, Bev Fleming for opening remarks and introductions. Please go ahead.

Thank you, Amy. Welcome to Northern Trust Corporation’s third quarter 2009 earnings conference call. Joining me on our call this morning are Rick Waddell, Northern Trust Chief Executive Officer; Bill Morrison, Chief Financial Officer; Steve Fradkin, President of our Corporate & Institutional Services Business Unit and our Chief Financial Officer prior to September 18, Aileen Blake, our Controller; Preeti Sullivan from our Investor Relations Team. For those of you who did not receive our third quarter earnings press release or financial trends report via email this morning they are both available on our website at www.northerntrust.com. In addition, this October 21 call is being webcast live on www.northerntrust.com. The only authorized rebroadcast of this call is the replay that will be available through October 28. Northern Trust disclaims any continuing accuracy of the information provided in this call after today. Now, for our Safe Harbor statement; what we say during today’s conference call may include forward-looking statements, which are Northern Trust’s current estimates or expectations of future events or future results. Actual results of course could differ materially from those indicated by these statements because the realization of those results is subject to many risks and uncertainties. I urge you to read our 2008 Annual Report and our periodic reports to the Securities and Exchange Commission for detailed information about factors that could affect actual results. Thank you again for your time today. Let me turn the call over to Rick Waddell.

Good morning everyone. Let me join Bev in welcoming all of you to Northern Trust’s third quarter 2009 earnings conference call. I’m delighted to be here with you today and to introduce at this form our new Chief Financial Officer, Bill Morrison. Bill really brings to the CFO role a unique set of experiences and business acumen having most recently served and many of you know Bill in his prior role as co president of our Personal Financial Services Business Unit. Bill’s talents in finance, business leadership over his career in banking give him a really terrific ability to contribute probably to the strategies in the successes of our company. Steve Fradkin is also with us here today. As many of, Steve’s been with the company over 24 years, having served as Northern Trust Chief Financial Officer since 2004 and prior to that, Steve held a variety of leadership roles in our Corporate & Institutional Services Business Unit, which he was named president of on September 18. He joined us today obviously as we transition the CFO responsibilities to Bill, including this quarterly call. These changes are a real testament in my opinion, to the depth and strength of the executive team that we have at Northern Trust. I know that Bill has met with a number of you already and I know that Steve looks forward to maintaining the relationships in his new role that he has made with many of you in his past role as CFO. Steve, would you like to say a few words?

Thanks, Rick. I am pleased to be here today as we transition Bill to the CFO role. I’d say that our transition thus far has been very smooth and as Rick said, I look forward to maintaining many of the friendships that I developed with investors during my 10 year CFO. My thanks also go out to many of you for your support over the years and I’m confident that in my new role our paths will continue to cross in the future. So with that, let me hand the call over to Bill.

Thank you, Steve and good morning everyone. It’s my pleasure to be speaking with you today on Northern Trust’s third quarter earnings conference call. I’ve met many of you, but look forward to meeting many more of you in the days ahead. Earlier this morning Northern Trust reported third quarter 2009 net income of $188 million. Reported earnings equaled $0.77 per share included in our third quarter results in both 2009 and 2008 are items related to the 2008 IPO of Visa which impacted all of Visa member banks. In our press release issued earlier today we’ve provided operating results, which are exclusive of all Visa related items. We believe operating results provide a clear indication of the results and trends in our core businesses. Therefore, our commentary for the remainder of today’s conference call will focus on operating results, which are exclusive only of the Visa related items. To that end, Northern Trust today reported third quarter 2009 operating net income of $177 million. Operating earnings equaled $0.72 per share. This compares very favorably with our operating performance in the third quarter of last year, when we recorded loss of $0.58 per share primarily due to significant client support related charges, which we elected to take to protect our clients at the peek of the financial crisis. To assist you in understanding our performance of this quarter, we’ve organized today’s remarks into the following sections. First, I will discuss certain market conditions that impacted our performance in the third quarter. Second, I’ll review our financial performance focusing on those items that most impacted our results and third, I’ll offer a few perspectives on the near term operating environment and the longer term strategic and financial position of Northern Trust. Finally, Rick and Steve, and Bev and I will be…

(Operator Instructions) Your first question comes from Marty Mosby - FTN Equity Capital.

One of the things that I’ve been seeing or pick up on the trust banks is having good asset growth, since that for northern, we’ve got 11% growth in assets under custody and 9% growth assets under management, but if you look at the fee structure, we really lost 1% quarter-over-quarter if you take out the securities lending kind of mark-to-market adjustment, and look at CI&S & PFS. Those two together, you had about a 1% decline, we also had a 30% decline in FX. So I was trying to put the correlation between the asset growth that we had, which we expected with the market evaluation improvement, and the lack of fee income growth that we were seeing on the other side?

Well, I think if you break it down a little bit and look at the components of our trust fee income, you’ve got a little bit of a mixed story, but if you look at C&IS custody and fund administration fees those look to be doing pretty much what you would expect. In the C&IS investment management fee category, we’re a little bit below where we would expect to be and that really is the result of two principal drivers. One, we’ve seen lower average short duration assets in C&IS investment management and secondly, we’ve seen a mix shift away from equity assets into lower fee products. If you move over to the PFS side of the business, the shortfall versus what we and you would expect is principally driven by these labors that we talked about during the presentation on our money market funds and that crosses all three of the categories, both categories of PFS trust fees and that is wealth management and non-wealth management fees, but that’s the issue.

The other thing I was just going to ask is, you kind of looked at the run rate and the operating earnings you had at $0.72 where you have taken off the Visa benefit, we also had a benefit from the tax and also the mark-to-market and the securities lending. So those would be at normally favorable. If you looked at that, we had some decline quarter-to-quarter over just what I would call kind of the core earnings and I just wanted to hear what you had to say about that. Thanks.

I think that’s right. There are a lot of moving parts in this environment. We’ve got markets moving around, we’ve got quarter lag fees, we’ve got fee waivers, and we’ve got securities lending marks. So there’s no question that the environment is creating headwinds, and the environment matters for us. So, we’ve had to grapple with this before and again, if you think about it year-over-year markets are down sequentially, they’re up. The interest rate environment is hitting us in a variety of dimensions, whether it’s net interest income, securities lending or the waiver of fees. So there’s no question that we’ve got environmental headwinds as with our peer group. That said and again we’ve been there before, I think there are a number of other things going on that are actually quite good. As Bill alluded to we’ve still got very attractive markets that we’re operating in that we think are generally speaking for financial services lower risk businesses and we’ve also got a lot of innovation going on as we continue to bring new products to the clients that we serve, as we continue to enter into more strongly markets such as Australia, Abu Dhabi, Sweden and the like and we’re continuing to manage our expenses as aggressively as we can in the context of a growing business. As you have heard us talk about before, our challenge is we’ve got more clients and more work to do. It’s just to basis upon which we get paid is less. So that’s a tricky navigation and I think we’ve done that pretty well.

Your next question comes from Mike Mayo - CLSA.

I’m still trying to understand, institutional assets under management were up 11% and the fees were flat and I heard what you said, short duration assets and the change mix, but maybe if you could just give us the mix of assets under management for institutional in the third quarter versus the second quarter, just such an outlier, I just wanted to understand it more?

Mike, I have right in front of me the AUM for institutional, for the third quarter, I apologize, I don’t have it for the second quarter at my fingertips, but let me give that you data, then we can take that off line. At the end of September, equity assets were 44%, short duration assets were 42% and fixed income was 14% and again that does take into account the full AUM for C&IS. So if you want…

That’s 12% one the highest percentages you’ve ever had?

No, I think it’s consistent with where we’ve been before. I don’t think it’s meaningfully different.

Mike, there can be mix shifts within equity between actively managed equity and passively managed equity and as, there are different fees fit for this relative capability.

So was that part of it this quarter?

Yes, that was the mix shift we were referring to

So mix shift from active equity to passive equity?

Yes, within the equity category, that right.

Within C&IS, correct.

Then in PFS you waived $8 million of money market fees in the third quarter. What was that same number in the second quarter?

It wasn’t big enough for us to talk about. It has been accelerating during the year. So this is the first that we’ve mentioned it. We haven’t disclosed it previously.

I’m not sure if you have any other metric for growth in customers, maybe institutional customers or retail customers. It seems like you have some business momentum with AUM and assets under custody up without the fees and you’re just treating your customers well, I guess, by waving some of these fees. Any other measure where you can size up the customer momentum? Are you still gaining share and if so where would that show up?

You really look at it in the growth. I mean while the markets are up, we’re also, the flows are up in clients among both the personal side and the institutional side, giving us more business. Again, in the context of the environment it doesn’t always show through, but we opened up a new office in Stockholm, because we’re doing more there. I’m on my way to Beijing this weekend, because we’ve got new clients in China that they want to introduce me to. So we don’t have a metric. We don’t disclose the number of clients in each business and growth in that sense, but I can just tell you, and it’s somewhat anecdotal, but again to Steve’s point, business continues to grow. We continue to attract a lot of new clients in this environment. Our retail deposits are up 42% over $17 billion in personal deposits year-over-year, and on a sequential basis it was up again in the third quarter. So you just kind of look at some of those metrics and the underlying business and what we’re doing from building a client franchise is quite strong.

Then last follow-up, is that one reason why linked quarter expenses are up aside from personnel, the new offices? I mean, the expenses other than personnel were up 5% to 10% linked quarter?

The office and Stockholm, we’ve got less than 10 people there. As Bill said, it’s really driven by the growth in the hiring and in our Asia-Pacific region. As you know, we’re building out our processing capabilities there and that’s an area of focus for us.

Your next question comes from Nancy Bush - NAB Research LLC.

I guess I would ask with this waiver of money market fees, I mean does it not look like the rate environment is going to change any time soon. So are we looking at this as sort of a semi permanent feature of the landscape that we should start thinking about on a quarterly basis?

Nancy. This is Bill. I hope not, but I think we probably haven’t seen the end of it, and we would probably see a little bit. If we just look it is a where our yields are in these funds, you would expect this to be a continuing issue in the short term.

I think, Nancy, you just have to look at interest rates. We’re not going to finalize our clients for the interest rate environment. So as interest rates go, so too, will these fees and if they continue to stay at this level it’s going to be a headwind for awhile and if they pick up that headwind will moderate.

That sort of leads me into the bigger picture question. One of your competitors on the conference call yesterday and I can’t recall which one it was, characterized the third quarter as quote a transitional quarter for the industry and I’m taking that to mean the low rate environment sort of really fully hit in the third quarter. Can you just speak to that and are we through that transition? Are we into a stable state now and low rates or is there more to come?

I think some dimensions of that we’ve been feeling for sometime and we felt that in the spreads on deposits and so forth, but if your question, Nancy is are we at the bottom and has every dimension of the low interest environment been felt, I’d be hesitant to make that call. So, I don’t know where we are in that trough, but I think there’s still, the low interest rate environment for the trust banks is tough. We’ve seen it before, we saw it in the 2000 through 2002 period, and we had to navigate through that carefully. It was different root cause, but the same output. We had a growing franchise through that period and we still add tough revenue environment. So, we’ve been feeling this for some time. We’ll have to see where it goes, but we’re not assuming that it’s going to moderate in the short term.

I’d just add, I mean I don’t know what the third quarter was, the transition that we hit the bottom, that’s what everybody is talking about, but you still have an unemployment rate that is increasing and that’s going to be a drag going forward, in my opinion on net interest, on consumer confidence and a whole bunch of other things that is going to take us into 2010. So, I don’t purport to be smart enough the call the absolute bottom. There’s still a lot of headwinds out there.

If I could also ask Bill to put on his most recent hat and just speak to conditions in the PFS market in Florida right now, I’d appreciate it?

Generally economic conditions in Florida are rough I think we all know that there are some parts of Florida that seem to be improving little bit and others that don’t seem to be. I think that Florida and a couple of the other well known difficult markets to PFS does business in are not clearly on their way to recovery. On the other hand, I would say that other places where PFS does business and has a material presence are starting to show some significant signs of improvement. Our business in Florida continues to grow at a pretty good clip. The deposit business in Florida has been roughly within the parameters that Rick described. Our loan growth there, not surprisingly has been non-existent, but I think that’s appropriate given what’s going on there and our new business has been, by historical standards, pretty strong as well. So, it’s a takeaway game now, Nancy in Florida, and in other of these tough markets, but so far in PFS we’re doing a pretty good job on the takeaway game and the results are encouraging.

Your next question comes from Robert Lee - KBW.

Can you give us a little color on the sec lending business beyond the mark-to-market, in terms of like understanding, assets that are down, but kind of client activity are you starting to see, any in your book, any clients kind of that may have left, starting to come back or rethink it or recommitting to the business? Maybe give us a little bit of color on that?

I think, as we’ve talked about in past quarters, there’s been a bit of a pendulum effect with the crisis everyone sort of questioning what is securities lending and trying to big deep and putting it on hold and so forth and then so everyone is in before the crisis, everyone is questioning it during the crisis and I think there is a softening. We have seen some new clients coming in, we’ve seen some clients who were existing change their mind and reenter, but we still have a staged withdrawal process going on right now that is giving clients the opportunity to decide. Those decisions in the end will come down need to be decided by October 30. So, we still have the number of clients that are undecided, but I’d say I guess my view would be is that there’s definitely more interest in securities lending today relative to where it was several months ago, but we’ll have to wait and see where clients end up.

Maybe as a follow on to that, I mean if I think about how if I perceive you guys to kind of think about pricing your relationships, you obviously I think do it on a relationship basis, now with that in mind, if you kind of look out at, arguably securities lending, maybe FX trading, but definitely maybe securities lending may not be as profitable contribution to you, may have somewhat lower potential revenues. How does that make you think about pricing other aspect of your relationships? Do you think if the outcome, we need to earn a little bit more on pure custody or admin that is actually enough pricing power to get it?

Sure, Rob, it’s Steve again. I think you’re right. We have always thought about the totality of the bundle more so than the individual streams, custody fees, securities lending, FX, etc. In terms of FX, as an example, FX has been an important part of that stream and yes, in the last couple of years it mushroomed because of currency volatility and so forth, but that will go up and down. I think the securities lending stream is more interesting because you do have both an interest rate environment and a participation environment, but we’re not the kind of firm that’s going to go to our clients because of one quarter or two quarters. If securities lending changes systemically for the long term, then that would be factored into the bundle and dialogue with clients in the future. Again, we don’t want to just react to where things are in a quarter or in a certain interest rate environment. It’s on average overtime. So will it have an impact? Sure, we’ll factor it into the bundle if it is going to be less, but we’re not currently envisioning across the board fee increases to adjust for that.

Maybe just one last follow-up question. Obviously, you’ve seen the institutional asset management. A lot of asset owners rethink asset allocations, providers, managers, things like that. I’m just curious if you’re seeing in the pension and endowment world that anything coming out of the last environment is maybe going to spur kind of an increase in new activity, increase in pension, looking to change custody admin providers or what not that you kind of think of a natural outgrowth, just volatile environment, but just if you’re seeing kind of increase in RFP activity in that sense?

I guess, Rob, I’d break into it two buckets. I’ll start with the investment managers themselves first. We are definitely seeing elevated levels of activity as investment managers review their business models, try and decide what they should do in-house what they should outsource. So that comes into play in the investment operations outsourcing, custody fund administration side. At that time peak of this crisis, nobody could think about anything, but getting through it, but now I think there’s definitely more activity on that front. So I guess a good news outgrowth. At the institutional investor level not being the fund manager per se, but the foundation, the endowment, the pension fund and the like. Yes, I guess I would say pipelines are looking pretty good. Again, people have other distractions that are sort of mixed into that, but we’re starting to get back to a more normal environment where people are factoring in their reviews and so forth more consistently as opposed to being frozen by the environment.

Your next question comes from Glenn Schorr - UBS.

So I think we’ve established enough that the core business isn’t still in very good shape. I think some of these ancillary revenues like FX and even net interest income, money markets; you can’t control some of them because it’s the market environment. So my question is you do have huge capital ratios and you still are making a lot of money. So I think you can impact manages income if you choose, take up the balance sheet some and absolutely not a northern thing, but you can also extend duration a little bit or something like that. Just curious on how you’re thinking about balance sheet, leverage, reinvestment on the asset side, and maybe repurchases in the concept of big capital ratios and really sluggish ancillary revenues?

I’ll try and that’s not contemplated. We learned our lesson a long time ago, and we’ve managed our balance sheet very conservatively and we use our balance sheet for the benefit of our clients. We’ve said that over the years. I think especially in this environment it has stood up in good stead. Again, notwithstanding the fact that we’ve got. We’ve had some issues, and we’ve had some impairment, but I would not want to get in an environment or a situation where we’re trying to engineer something. It’s just not in our DNA and our clients like the safety and soundness of our balance sheet, so I don’t anticipate us really changing our ALCO guidelines and our policies in any meaningful way in that regard. The other thing I would say is a lot of capital in this environment is a good thing. We are not out of the woods as an industry. We have all the talk out there about the higher capital ratios and the fed is trying to figure out and the other regulators are trying to figure out where they want us all to land, and at this point in time, I think and I appreciate your comments that, we do have strong capital levels, and we’re earning a lot of money, that I am very happy in that position right now.

The other thing, just as a reminder, we’re either one of two banks in the top 20 that never cut our dividend throughout this. So to Rick’s point, the integrity and strength of that balance sheet is very important and highly differentiated. While we always want to be operating in an optimal way relative to capital, I think this environment showed a lot of people the importance of having it in its right box and understanding that through the cycle, even when there’s a temptation to, quote unquote, optimize. I think a lot of people got hurt, quote, optimizing, and end quote.

No doubt and I have full appreciation for how you all have behaved in the last couple years especially. I was just looking to see if there was at any point where a 13% and growing tier 1 common starts to get interested in redeployment, that’s all. I very much appreciate it. Thanks.

Your next question comes from Tom McCrohan - Janney Montgomery Scott.

Just a two hopefully quick questions, one was on the Wealth Management fees and I apologize, if you had mentioned to this. They seemed a little bit below trend. I was wondering if there’s anything unusual going on there.

We did mention that briefly and that is down principally due to the waivers on the money market accounts that we talked about, then by lower short duration AUM as some of their clients are moving things around. They move in big chunks.

Good problem to have, I guess. For reinstating the money market fee waiver, is that simply you reinstitute and rates come up, or do you have to give investors in those funds the ability to opt out and pull their money out? Is there any significant hurdles down the road if you just kind of reinstate these fees?

No.

It’s voluntary and completely at our choice, so we’ve just not charged them, and when the environment is such that it’s appropriate we’d do that.

Your next question comes from Brian Bedell - ISI Group.

I apologize if I missed this, the PFS breakout between the equity fixed in short term? If you could give us C&IS assets under management, I’m not sure did you give the PFS assets under management?

PFS AUM was 34% equity, 32% fixed income and 34% and short duration.

So you’re getting a little bit of a pickup back into equities. Are you generally advising clients to move back into the markets, or are they just kind just doing this on their own or is it just more market appreciation driven?

I would say that those commitments to equities are up a little bit, probably about 10% from their trough, and, yes, we are advising our clients to take a little bit more risk and they’re following our direction. We’ve been doing that for some number of months, but I think the operative word is, a limited amount of additional risk, because we are, as you know, in the PFS business, capital preservation focused.

In the $8 million of the money market fees waived, I guess is there still more potential yield depreciation on those money market funds that levels could actually increase in the next quarter or do you think it’s fully in the run rate at this stage?

At this point, Brian, we do have an expectation that the pace of increase could continue. As you can imagine, the waivers did increase during the third quarter as rates came in and the maturing investments were reinvested at lower rates. So I would say that is as comparing the third quarter to the fourth quarter, we were not at a full run rate at the end of the third quarter.

So we could see another step up in 4Q and then it’s your choice if you want to waive the fees or not?

All other things equal that could happen, yes.

Can you shift clients over to bank deposits or encourage clients to move out of the money market product?

We can and many cases we don’t need to, because the clients are making that decision themselves and they’re doing it at a pretty good pace actually.

So that could potentially mitigate some of that increased pressurized to client?

Including clients choosing to move out of money market funds and take on more risk on their own, because we do have a variety of mutual funds that obviously are equity oriented and fixed income oriented. So that’s an opportunity that we’re seeing as well.

On the net interest margin, what do you think the flexibility to reduce the foreign deposit costs are? Looks like your rates are still a little bit higher than stages bank in New York and Stage Street. Clearly as assets continue to mature and you’re reinvesting in kind of lower rate assets, if you’re not lowering your deposit rates, obviously more NIM pressure. Just trying to get a sense of, whether you can take that down to right now, it’s like 27 bips. Can that go down to 10 bips or less?

It’s Bill. I don’t think so, personally. I’m watching what our personal clients are doing, and these comments are only to the personal clients, and particularly the smaller clients, they’re very mindful of some of the big tax payer supported banks that are paying much, much higher rates for short term liabilities than we are. There’s a phenomenon out there, as you all know that the average client thinks that all banks are equally safe these days. So if we don’t stay at the midpoint or maybe a bit above the midpoint in our liability pricing, we run the risk of accelerating money flows out of the bank.

How about on the C&IS side?

I think these are the same, Brian. These are large, sophisticated institutional clients and they expect competitive rates and I think we want to make sure we provide that.

Then last question, just on credit. If you can comment on the increase in the nonperforming assets in the quarter, whether there was some lumpiness in that, and then maybe just your overall view on credit quality in the portfolio, mostly in, I guess commercial real estate and within your PFS?

There were a couple of larger credits in there, commercial credits specifically, and there was a pretty significant chunk of commercial real estate that moved over into the nonperforming category as well. I wouldn’t say that there are any very significant changes in the trends except for a pick up in the commercial real estate nonperforming asset area.

Are you concerned at all about that bucket and maybe you just want to talk about the overall; I guess credit quality of that portfolio in terms of characterization? I think 90% of the clients are PFS clients in that back, is that correct?

That’s correct.

I wouldn’t say that we are overly concerned about the commercial real estate portfolio, based on the way we’ve underwritten it and the relationship approach base that we take even to that market, but commercial real estate is an issue throughout the country and we’ve got 11% of our portfolio in commercial real estate. So we’re not concerned about it, but we’re paying attention to the.

Brian, the only other thing that I would add about the increase in non-performers, when you see the 10-Q come out towards the end of this month you’ll actually see non-performers by category and you will see that commercial loans, traditional C&I loans, non-performers went up in a pretty meaningful way in addition to the commercial real estate that Bill just mentioned, and a vast majority of that sequential quarter increase was driven by the results that came out of the shared national credit exam. As you know, when you and I’ve talked about this before, the only reason that we have any so-called shared national credits is because, we have clients, traditional clients, relationship oriented, where they have a bank group, and we are a participant, typically a small participant, but nevertheless, when the results come out, and are given to the industry, we needed to take into consideration where we have loans rated and categorized, and with respect to commercial loans, the majority of that increase was indeed a result of that exam, and the results that we got.

You deployed CDS against credits that you are worried about actively, is that correct?

Yes, we have a small amount of credit default swaps, notional value is somewhere in the range of $100 million as the end of September. So we’ll use them as needed, but it’s very modest.

Then just lastly on the expenses, I mean, you’re in a very great competitive position now obviously than probably you’ve ever been. Certainly, on the PFS side, if you think about the cycle in 2003, you guys were obviously much stronger versus peers in this sort of recovery cycle in that segment. Steve, you mentioned the tricky navigation before on sort of expenses versus growth initiative. I guess, as we move into 2010, if we are or if we remain in a tough revenue environment with rates staying low and volatility staying down, sec lending staying down, and you’ve got a lot of growth opportunities because your clients were asking for on both sides, PFS, what’s the appetite to say, okay we’re willing to sort of spend on this now and not be as mindful sort of where the operating leverage is going this year?

One, as we go into 2010, I think we feel very good about our capital strength, and I reference that in this context only because, if and as we see strategic opportunities we are in a good position to take advantage of those opportunities. Two, from a expense management point of view, clearly if we believe that the environment is going to be hostile, markets, interest rates, sec lending, FX, mutual fund fee waivers and the lot. As we have done in the past, tighten our expense management as much as we can. This is where you get the judgment around, we won’t tighten it blindly. We will tighten it as much as we can, keeping in mind that we have a growing franchise and keeping the clients franchise happy is imperative to continuing that growth. So I wouldn’t suggest that we will just across the board take a whack at expenses in an environment where we’ve got a growing shop. We’ll think about what we do, we’ll think about where we’ll do it, we think about what we can defer and what we can delay, where we can, but we have the good news problem. That’s growing business, notwithstanding how the revenues come in at any given point in time. That’s what we’re really focused on, making sure we build and continue to build a successful franchise. So it will be a judgment call.

Your next question comes from James Mitchell - Buckingham Research.

Just a quick question on the balance sheet, it expanded sequentially, but if you look at average earning assets, they were down a couple of billion dollars, the difference between period end earning assets and average earning assets is about $6 billion almost. So it’s a pretty big difference. Can you explain how we should think about that going into 4Q? Should we look more at the period end or is there some hot money going in and out? How do we think about that?

I think it’s pretty fluid. I don’t think there was any driver or sustainable trend that comes to my mind on that. So, I think you’ve just got a lot of fluidity as some clients are leaving less deposit; some clients are rotating into equity assets. So nothing comes to the top of my mind. I don’t know if, Bill or…

The line item that I am looking at, which appears most different between the average for the period and the period end would be the one that typically does see point in time aberrations, which is the non-U.S. office time deposits, it looks likes it’s about a $3 billion difference between the two. That one can move around really based on what our clients are choosing to do on any given day or at any point in time.

Remember, just to refresh, that’s driven largely by our clients outside the United States and either cash that’s in transition as they’re giving us cash to redeploy to other managers and the like. So it really can move.

Just wanted to see if there was any trends we should be aware of. Maybe just switching to the institutional asset management business, you talked about in your wealth management platform, but are there any material fee waivers on the institutional side?

They’re really modest relative to the private client side. So, no, it’s deminimis.

Your next question comes from Ken Usdin - Bank of America/Merrill Lynch. Ken Usdin - Bank of America/Merrill Lynch: Can you give us first the, do you have the seven and eight outstandings as of the end of the quarter?

Actually, Ken, what you are going to find when we disclose or when we issue our 10 Q, when we file it at the end of the month, you’ll see that we are no longer going to be disclosing the seven and eight rated loan designation. What’s going on there is that, we’re continuing to progress towards the implementation of bozl2. We’ve implemented a new internal rating system and we’re in the process of re-rating our loan portfolio. So we no longer really have comparable information that would give you comparable seven and eight today to what it used to be seven and eight. One thing to keep in mind is the key component of bozl2, it’s called pillar 3 disclosures. So we will be providing more granular view of a number of financial metrics, including credit quality when bozl2 comes into play, but from here going forward, unfortunately we don’t have comparable data and so we don’t have that available for you. Ken Usdin - Bank of America/Merrill Lynch: Would that re-rating resulted any change to your reserve level and potentially influence to provision?

Too early to tell, we’re not finished. We’re 95% of the way through that re-rating. I would not think so, though. Ken Usdin - Bank of America/Merrill Lynch: Then my next question is just, with regard to the recapture of the securities lending market, do you accrue expense against that, meaning, I guess another way of saying it, if that were not to occur would expenses be any different this quarter?

If that were not to… Ken Usdin - Bank of America/Merrill Lynch: If you didn’t have the $56 million, I’m just wondering, how do you look at the signing, compensation expense, comp and benefits against the recapture of the sec lending mark. Is there any accrual against that?

I wouldn’t think of that as a direct accrual in the way you might think of other trading businesses. I think, Ken, last year, clearly the corporation’s overall performance in securities lending and so forth we took accruals down. This year, if that is additive and helps, it does impact the overall accrual, but I wouldn’t look at it as one for one, traders getting big bonuses out of that kind of event. Ken Usdin - Bank of America/Merrill Lynch: I’m more concerned with just come overall firm performance, does that kind of influence here overall rate of earnings and that their influences expense comp. My point is if that number wasn’t there expenses might have been lower.

That’s correct. It is a factor, but again, I want to emphasize, it’s a factor in a broad mosaic, not a dominant fact to I guess as what I would say.

That maybe the aspect, the other point that I could make there, Ken is, keeping in mind that last quarter, the second quarter, the marks were $129 million. This quarter the marks were $57 million, and yet our comp expense really only went down by about $5 million. So even if the were, which it isn’t, kind of a one for one, you should take that into consideration of a meaningful move in the mark, but not a meaningful move in comp expense. Ken Usdin - Bank of America/Merrill Lynch: My third question is just related to the CSAs, you had recaptured a bunch of last quarter. I’m just wondering if there was any recapture in this quarter and just how that’s looking overtime. How and when would you expect to recapture the rest of that?

Nothing material and the CSAs expire on November 6. So our sense is that we will let the CSAs expire, and whatever the shortfalls are, if any, we’ll have to fund, and at the end of the quarter, we thought that the $127 million accrual we had under books for that would be sufficient. Ken Usdin - Bank of America/Merrill Lynch: So if that been just plays out, but that would mean no income statement effect if it played out as expected?

I don’t know if I’d call that expected. I’d say the current fair value at the end of the quarter, if that didn’t change, then these would expire and there would be no income statement effect. If the fair value changed between the end of the quarter and the expiration of the CSAs on November 6, for better or worse, there would be an income statement effect, but it was certainly steady quarter-to-quarter sequentially. Ken Usdin - Bank of America/Merrill Lynch: That’s why we didn’t see a material change. So, if there’s no material change between now and when they expire we wouldn’t see a material change or recapture or release or whatever incrementally?

Correct. Ken Usdin - Bank of America/Merrill Lynch: Just coming back to the margin, Steve is you made the point earlier about fighting through the 2002 low rate cycle. The margin was a lot higher than obviously the balance sheet was structurally different then. I am just wondering if you can give us some perspective on what you see as kind of the downside risk to margin or is there kind of a bottom then margin that even if rates do stay low for awhile you can kind of feel comfortable that you’ve got some underlying margin support there?

I don’t really have any guidance on where it could be. The only good news I’d say is, it’s hard for rates to go much lower. So, you can factor that in, but no, we don’t have any there is no number that will give that, we say is sort of the bottom of the bottom if you will.

Your final question comes from John Stilmar – SunTrust. John Stilmar – SunTrust: Real quickly, starting with credit, just putting a final point on, it sounds like large commercial credit and the sink exam are the two sort catalysts that drove the NPAs. Is there any other things other than that at least geographically that we can draw from, and then secondly, as part of that I didn’t see material build in the reserve so that to imply that these are sort of nonperforming from an accounting perspective, but the probability of loss is not something that certainly has you guys concerned?

Well, from a recent historical perspective, that’s been the case. Our charge offs has not been a large percentage of our nonperforming assets. So, as everybody does and as you know, sit down at the end of the quarter and decide what our provisioning needs to be against the nonperforming assets that we’re talking about, the charge offs we’re talking about, and our own feeling about the portfolio. So, I think at the end of the third quarter, we were pretty comfortable with our loan loss reserve level after considering those factors. John Stilmar – SunTrust: As we’re analysts and when we start thinking about the reserve level, it seems, going back to 2001, the reserve is typically been anywhere between 300% and 400% or 500% of my nonperformers. However, in the third quarter it’s down just about to being one-to-one ratio of my level of nonperformers. How should we be thinking about that or is there anything you can do to help us short think through where reserve levels might be given, you sort of see rising nonperformers at the same point in time you’re not necessarily seeing the same increase in profession. How should we be thinking about that over the coming quarters going forward?

I don’t know that we’re going to really be able to healthy with that, because as you know, we don’t give guidance. I think the point is as Bill just said, was that we’re comfortable with where the reserve was at the end of the quarter given all of the things that go into determining it, but we really can’t give you a perspective that we don’t manage that to a specific number, if you will. John Stilmar – SunTrust: Then finally, I’m shifting gears to back to expenses, and with full recognition that on the revenue side there probably hasn’t been a period in which the macro revenue headwinds have been more acute than probably this past quarter, but if I sort of take out some of the onetime nature and the discount or the accretion that you’ve had in the mark-to-market fund and sec lending it looks like operating margins were rate around 29% to 30%, and sort of on the tail of the questions of really strong opportunities and certainly believe in spending on those opportunities. How should we be thinking about the operating margins for this business over the coming years and quarter given that 30% really represents a low water mark especially going back to time periods in which operating margins were in kind of the mid 30s? Is that really reflective of the acuteness of the revenue pressures, or and that that’s sort of what we have to sort of live with as investors over the coming quarters until some of those macro factors start to abate?

I think if you look at our history, I think your point is a good one. We’ve historically been 35% pre-tax. Clearly there’s an environmental, in our view dimension that is just, it is what it is. So, I don’t know what the low water and high water marks are, but I think it’s fair to say; look we’re running the same business this year as last year and the year before and many years before that. The environment in which we’re operating is different. We’re just going to make net less net interest income in this very low environment, as an example and we expect that that will reverse out in due course. So, that’s a way of saying, yes we would agree with your assessment that there’s a big environmental component here. John Stilmar – SunTrust: On the institutional asset manage side, one of the things if I heard you correctly and maybe put a finer point, it seems like you may have alluded to even though equity itself has grown, which traditionally is a higher margin product, there seems to be a move from more active to passes management. Can you help put that in context with some of the things we’re hearing like on BlackRock’s call where they talked about a lot larger inflows, at least into alternative asset management, so would you think that even the moves inside equity maybe met with some of those trends underneath it such that equity itself you couldn’t have even a higher margin business going forward. So, long way of saying, institutional asset management business, should we be expecting or thinking about as risk tolerance improves a hire margin per assets under management kind of going forward? Can you kind of lay that out versus maybe just some of the other pieces that you alluded to underneath going forward?

When you think about our institutional asset management business I would encourage you to think of it in the areas where we have the best competitive positioning, which would be those that are primarily close to custody, which would be short duration, fixed income and passes or index. So, that’s really the way that you should think about our institutional asset management business. Part of what you’re seeing going on here is that we did have an active equity group that was in London, which we have more or less shut down and so part of what’s going on here is that there was a mix shift within the equity component such that a higher proportion of our equity assets in the institutional asset management business is now in the passes or index arena, so that’s really the way you should think about our institutional asset management business.

It wouldn’t signal this quarter I don’t think would signal a trend, getting back to your BlackRock comment. That’s what happened for us and our clients this quarter.

Exactly.

All right, thank you very much for your time today.

We’ll look forward to the update on January.

Preeti and I here for any other questions that you all have. Thank you very much. Amy, we’re done with the call.

Thank you. That does conclude today’s call. We thank you for your participation.