Good day everyone and welcome to the Northern Trust Corporation’s Fourth Quarter 2014 Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to the Director of Investor Relations Bev Fleming for opening remarks and introductions. Please go ahead ma'am.

Thank you, Louis, and good morning, everyone, and welcome to Northern Trust Corporation’s third quarter 2014 earnings conference call. Joining me on our call this morning are Biff Bowman, our Chief Financial Officer and Allison Quaintance from our Investor Relations team. For those of you who did not receive our fourth quarter earnings press release and financial trends report by email this morning they are both available on our website at northertrust.com. In addition, and also on our website, you will find our quarterly earnings review presentation which we will use to guide today’s conference call. This January 21st call is being webcast live on northerntrust.com, the only authorized rebroadcast of this call is a replay that will be available through February 18. 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 and expectation of future events or future results. Actual results of course could differ materially from those expressed or implied by these statements because the realization of those results is subject to many risks and uncertainties that are difficult to predict. I urge you to read our 2013 annual report and other reports filed with the Securities and Exchange Commission for detailed information about factors that could affect actual results. During today’s question and answer session please limit your initial query to one question and one related follow-up. This will allow us to move through the queue and allow as many people as possible the opportunity to ask questions as time permits. Thank you again for joining us today. Let me turn the call over to Biff Bowman.

Good morning, everyone, and let me join Bev in welcoming you to Northern Trust earnings conference call. As is our customary practice, today I will review our results for the quarter after which Bev and I would be happy to answer your questions. Starting on Page 2, this morning we reported fourth quarter net income of $244 million and earnings per share of $0.98. Our provision for income taxes in the quarter included a 9.5 million benefit related to our decision to reinvest the earnings of a foreign subsidiary and definitely outside the U.S. This decision under APB opinion number 23 reflects the continued growth and success of our business outside United States and is consistent with other similar assertions made in the past. Excluding the income tax benefit earnings per share were $0.94 in the fourth quarter and our return on equity was 11%. Environmental factors which impact our businesses and our clients were mixed in the fourth quarter. A theme which is been ongoing for some time, U.S equity markets was higher at the end of the fourth quarter both year-over-year and sequentially with the S&P 500 up 11% and 4% respectively. International equities as measured MSCI EAFE Index however were down approximately 7% year-over-year and 4% sequentially. With the decline in both comparisons primarily reflecting a stronger U.S. dollar. In bond markets, the Barclays U.S. aggregate index was up 3% year-over-year but down 1% sequentially. Client assets under custody ended the quarter at $6 trillion, up 7% over last year, and assets under management ended at $934 billion, up 6%. On a sequential basis, client custody and managed assets both increased 1%. I’ll provide further details on asset trends later in this call. Currency markets had multiple impacts this quarter. Currency volatility as measured by the G7…

(Operator Instructions). And we'll take our first question from Betsy Graseck of Morgan Stanley.

So operating leverage looked really great and I was just wondering if you could speak to how you're thinking about driving operating leverage, if we have a scenario where rates continue to come down at the long end of the curve? Do you have anything that you could do to pull forward some of the actions that you were outlining?

We continue to execute expense initiative that we talked about in previous calls. We continue to focusing on the revenue side obviously if you think of operating leverage growing that top line that revenue provides the first part of that. And we believe that our focus around growing our trust fees and executing on our business strategies can allow us to continue to grow that even in a rate environment as you described with a flattening curve. So I’ll talk about the fee part of the revenue in that, if you look at our balance sheet and how it’s currently put together today which I would talk about - they can go a little longer than this is. If you looked at our construction of our balance sheet it is relatively short in duration. And this position to take advantage the short end of that curve moves up and the long end stays flat. And that is scenario that we do model and look at and consider. So I would say we’re positioned well on that.

Betsy, did you have a follow up question?

Sorry about that. So the follow-up question is just on the volatility that's in the marketplace. Not so much on the equity market, which is where I know your skew is more towards the equity market than the bond market, but you do have some business obviously in the bond market side. Could you just give us a sense of how the flash crashes that we're seeing in different parts of the market over the last few months, in October we had the Treasury and more recently the Swiss franc activity. How do you prepare for that? How does that impact you? Are you being asked to take on any balance sheet from your clients if other market participants are not willing to provide sufficient liquidity? And is there anything that you can talk to about how you're thinking of trying to enhance liquidity for clients?

So let me focus in, I’ll pick one example if I could, I’ll talk about the announcement that the Swiss National Bank came out with, it’s one example the flash crashes that you described. If you think about it from our perspective, other than the obvious move in the Swiss franc and the volatility surrounding that move, we really saw no negative impact and we don’t expect when going forward. Much of our business like our foreign exchange business model is centered around our clients for whom we custody their global assets all around the world, so it’s sort of business as usual if you will in support of that. And so these movements if you will have not created any undue stress other than there is volatility in the market on our client base. As you also know we have a conservative risk appetite, you can look at our bar, you can look at other public disclosures, another example for instance is on FX. We don’t really warehouse large currency positions. So these types of volatilities I am just picking on foreign exchanges, one, really haven’t lent them self to the volatility to our business performances perhaps other institutions.

Right. And your clients aren’t necessarily asking you to take on additional roles beyond the custodian role that you have got right now.

They’re not.

And we’ll take our next question from Adam Beatty of Bank of America.

Thank you, good morning. I'll ask my question and follow-up together as they both concern Asset and Wealth Management. Some of the Mutual Fund data that we can see indicate a decent flows through the quarter but somewhat weaker for Northern Trust than other firms in December. Just wondering if you saw similar trends on the Wealth Management side in separate accounts? And also what you're seeing on the corporate institutional side? And as my follow-up it was interesting that some of your wealth clients are were using interest rate swaps to try and lock in lower rates for longer was wondering if that was also affecting their behavior as investors whether they were going toward shorter maturity, fixed income funds or what have you? Thanks very much.

First let me talk a little bit if I could about the AUM and AUC growth which I think you talked about or the AUM growth specifically. On the wealth side first of all the performance when you look at markets being up, that was a U.S. phenomenon and if you look at the MSCI EAFE index, that actually declined 4% or so. And our wealth clients are typically invested globally. So it would have had an impact if you will both a positive and net which help drive what I would call some of the lower sequential growth that you’ve seen in our wealth management business. I would also highlight that we did see some movement into cash in our wealth management space, we saw some meaningful that may address part of your question Adam about did we see any different behaviors with the volatility of the market. We did see some movement into cash in our movements so we didn’t get some of the equity pick up that you may have thought about in those businesses. In terms of the swap portion of question, if you think about our loan volume growth that you saw sequentially the 4%, that has largely come to our wealth management clients who have asked for that and in this interest rate environment they have asked for ways to covert the floating into fix. So we think that some of that revenue was just part of a client solution in not only providing the financing for these individuals but also being able to provide the interest rate protection as a part of that solution. So I think ultimately your question was that is it behavior change? I think they’re certainly looking and coming up with their own conclusions about the rate environments and making decisions based on that.

Just to clarify, as fund investors, are they sort of shying away from longer government funds or high yield funds and going towards shorter maturity type funds? Or have we seen that?

So our mutual fund flow, we saw increases in our mutual fund flow, summing in the cash. I would say probably the trend I would high light would be that that we have seen in our wealth space, I think this is a macro trend is a movement from active to more passive type products in that.

And we’ll take our next question from Marty Mosby of Vining Sparks.

Hi, thanks for taking my questions. I wanted to ask a little bit about the ability to close out the last round of the efficiency target you have on getting the operating expenses equal with your Custody in Core revenues. You've gone down to about only 7% gap between those but do you see kind of what the time frame being able to get that to 100?

So I would start with saying, I don’t know we’ve publically said that the 100 is goal because while we’re trying to continue to drive it down, I don’t know that 100 will be the place we want to stop. But let me give you some color? First if I look at our wealth management business, they actually are at a 100% in the wealth management franchise. Our corporate and institutional services business where we have very high growth as you saw in the earnings, it’s slightly higher than that but it’s reducing that significantly as we utilize locations like Mondella, Limerick and Bangalore to help lower the cost if you will and the cost ratio there. We continue to progress on that and continue to execute on all of the expense initiatives and cost initiatives items that we talked about in the past like our location strategy, our technology strategy on minimizing storage or our asset service, our asset pricing where we’ve consolidated asset pricing vendors, all of those continue and we think we can continue to move forward.

Follow-up question was on the loan growth, you've all been around the $28 billion to $29 billion range for a while and now through this year you've really seen kind of a momentum pick up. What are the sources or catalysts for that acceleration in loan growth?

Thanks, yes. Let me start by sharing some of the data you’ll see when we publish our annual report. We’ve had great success in our private client loans I think they’re up 510 million or 7% commercial real estate has grown about 225 million and commercial and institutional is also increased really some across the board, the one area where I’d say we haven’t seen that growth is in residential real estate which is a conscious strategic decision for the bank. Our clients demand and need for assistance in those space picked up significantly in the second half of the year and particularly as you saw with the 4% sequential growth particularly in Q4. So those are kind of the pockets of where we’ve seen that loan growth expand.

And then you change in your philosophy or just customer demand for?

There is not really a change in our philosophy I think we continue to want to serve the clients as their credit needs, as we continue I’d say we’ve grown things that we’d call - secured that is its investment account secured and we’ve gone more up market in our credit strategy that’s why you see some pull back in the residential real estate and more in things such as premium finance, air craft lending and et cetera.

Now we’ll take our next question from Luke Montgomery of Bernstein Research.

Great, good morning, thank you. Well afternoon at this point. I believe you and the other trust banks recently agreed to share information with your custody clients about what they're paying for benchmark licensing and data that you use in performance measurement for them. So I wondered if you might anticipate any need to unbundle those costs from performance reporting fees or if you think there would be any pricing pressure as those costs become more transparent? Maybe it's just a question about whether you mark those up at all, I'm not sure.

Luke that’s something that we’re really not familiar with to that level of detail I’d happy to take it offline with you and help you out, we can talk directly on that at a later date.

Okay, so a little overly detailed, so maybe stepping back big picture, obviously this was a very encouraging result this quarter, fees were up in the face of negative FX impacts. FX fees are finally trending more like peers, you got a little NI growth, expenses seem well contained and the operating margin is above the illusive 30% aspiration you've discussed elsewhere. Core expenses to core trust fees are approaching 110%. So I think at the same time the quarter looks a little bit like an outlier so I just wanted to get your sense of whether you think this is a sort of run rate that's more or less sustainable and a step up related to core business initiatives? Or do you think there is an element of random lumpiness there really caused by the equity market in Q3 among other things?

First, we believe that our business model and strategy are absolutely sustainable and geared around our business with great growth demographics whether we’re serving the wealth of individuals or institutions. Secondly, we believe that the ability to execute on those strategies particularly around winning new clients, winning new mandates, increasing our productivity that you discussed are within our control and those are absolutely sustainable items such as markets and currency volatility and interest rate, they will continue to fluctuate and they provide some of the variability in there but we still believe with continued execution that there is sustainability in our momentum.

And we’ll take our next question from Alex Blostein of Goldman Sachs.

Hi how are you guys? Wanted to dig into the [NII] dynamic in the quarter. And Biff you highlighted a couple of moving pieces just wanted to make sure I've got all the numbers right. So there was obviously a little bit help in NIM this quarter from lower premium amortization and a couple other things but all-in sounds like it was maybe like a 10 basis point help sequentially on the securities portfolio. Maybe like a one or two basis point on the NIM overall. Is it a fair assessment so like all else equal, NIM probably stays in the range over the next couple quarters until rates move hopefully in a positive direction towards the end of the year?

Thanks Alex, yes. We would look at this if you have the stated NIM of 108 we think that there was probably 1 basis point premium amortization and 1 basis point we had an early call so auction rate preferred, so that 2 basis point type helped that you talked about it is absolutely in the range from a NIM. There were other actions as you see across many of the earning assets that moved them most of those were conscious actions that we take in the regular management of our portfolio.

Got it. And on the funding side of things again numbers are getting quite small but if you look at I guess your funding cost did come down again a little bit over the course of the quarter I think a 1 basis point or 2 basis points. More of what primarily gets behind that is there more room to go because it doesn't seem like we've seen a kind of corresponding headwind on bank deposits, if you guys could help on the asset side of the balance sheet?

Alex I can give you a few data points there across a couple of the funding categories savings which you think as another time that might be the one you are talking about was down about 2 basis points, we saw lower CD rates across basically all tenors but the ultra short category. You saw the cost of non-U.S office interfering go down about 3 basis points. Recall that we had a change in deposit pricing on Euro deposits, so that was obviously a factor there as well as some less favorable FX swap arbitrage activity. And then long-term debt was down as well, we had a September maturity of FHLB advance and had the full quarter impact of that. So again as Biff said kind of a lot of things just in the normal course if you will that led to both the asset side and funding side moving in aggression as he described.

Got it, that's helpful, thank you. And then a quick follow-up just on the core business. C&IS like we have seen for the last couple of years continues to do quite well. It still sounds to me like a big driver there is the administration business but we don't obviously see the assets that correspond to that. Any sense you guys can break out how much of the growth this quarter was due to kind of some of the new funding administration initiatives versus kind of the more core custody business?

Alex we don't have that breakdown for you this quarter but in 2015 we're looking at expanding our disclosures to include asset letters administration which has obviously become a much more relevant asset figure for Northern Trust and we should have our all of our disclosure parameters and controls in place to allow for that disclosure in 2015. And at that time coincident with that asset disclosure it would be our intention to take custody and fund administration fees for C&IS and break that down into two different lines.

And we will take our next question from Ashley Serrao of Credit Suisse.

?:

The slight decline in the corporate capital level really resulted from a flat equity balance and a very modest increase in risk weighted assets as you saw we essentially returned all of net income through capital actions in the quarter between the buyback and the dividend, so obviously we kept the capital level flat and we had a modest increase in the risk weighted assets as you have seen some the balance sheet gets slightly larger. So the combination of those drove that ratio slightly lower about from 12.5 to 12.4, so depending on how you have looked at it. We still think that's a very well capitalized as you might say. The second part of your question was really around the capital structure and how we think about preferred. As you know we did some in August and we continue to evaluate the regulatory environment and to look at our ability to both return or comment and if possible replace that with the tier 1 and that's a strategy we will continue to review on a regular basis.

Okay. I guess my follow-up is just on the core business within C&IS. Are you able to size the business won but not installed as it stands right now?

Internally we have that ability and we know I will comment on this our pipeline is very strong and our incoming business that will be implemented is also very strong and we're busy working on bringing that in as we speak.

And we will take our next question from Ken Usdin of Jefferies.

A little follow-on on the net interest income fund, can you just remind us if that if well I guess actually could you just tell us what that number was -- what the premium amortization was this quarter versus the '13 you had last. And then also then remind us how your mechanism tends to work with regards to either coincidence or lagging. So if rates stay where they are will that then revert back the other way just from a mechanism perspective.

Let me answer the second part of your question first. We are in a lagging basis so as rates have come down, you and we will look at that and the impact on premium amortization absolutely. The first part of your question was on the.

Just wanted to actually size those two numbers that you give basis points terms percent of - you gave in the yield some but it just be simpler if we’re able to just tell us what premium amortization was this quarter and what the benefit was from that those pre phase of the auction rates?

It was 7 million was the amortization in the period. I am rounding.

And then smaller amounts for the auction rate pay down.

That’s correct.

And then the bigger picture follow-up on net interest income. The balance sheet mix is changed low ends are now starting to grow again they’ve become a smaller proportion of the balance sheet. When you think about the potential for rates arise whenever they do any update as use as far as where you think your normalize them can go given the changes that we have seen in both the liabilities structure the equity mix and the asset side components of the balance sheet. Thanks.

What we certainly think our NIM can expand in that environment. And we think we’re positioned well for that increase in rates when they do arise. I don’t think we’ll provide exactly where we think the NIM can go. But we think we’re positioned well. As you see in our duration we’re relatively short with the sort of a 1.1 duration in the existing portfolio and we think like I said we’re positioned well on the NIM for the NIM to rise when rates do come.

And we’ll take our next question from Brennan Hawken of UBS.

So little quick on the dropping in outside services and other expense. Was some of that a decline in the sort of elevated CCAR expense that you’ve got and should we expect some of that to transition in the comp as I think you guys have laid out in the past. Just curious about whether that’s said play it all there.

Let me answer that question from a couple of different perspectives particularly as it relates to regulatory expense and what you saw come through down like services. I’ll start with same, that the decline in outside services fairly broad based that include legal expense, included that consulting expense that you talked about, you talked about consulting services our focusing on the part that you talked about the regulatory environment. Let me talk about that from a few different perspectives. As we said in the past our expenses associated with outside consultants it did ramp up in 2013 really due to our first time efforts around CCAR resolution planning. We expected the level of consulting expense related to these initiatives to decline in 2014 and that did indeed happen. We do continue however to add personal where appropriate and as we shift to what I would call business as usual environment we’re staffing those efforts more internally than using outside expertise. So the second part of it is our portfolio of regulatory initiatives quite frankly it changes year to year, as you’re aware. We track those we track the expenditures for those specific programs and we really track those programs if you will to indicate where we need internal personal and appetite consultant. And we’ve seen the mix shift from use of outside consulting to the hiring of personal internal Northern where we need that expertise on an ongoing basis. So I’ll end it by saying while we don’t really a moderation in the level of expense. We do see a slowing in the growth rate of that and the mix between internal higher and external is shifting as well.

And then following up on the point that you made on the swap volumes that you saw this quarter, should we view those as sort of one time in opportunistic. And if so is there a way you could help us maybe size that to think about how we should be looking at the revenues on core basis.

So they are opportunistic and they are certainly in any environment would move up and down and - this sequential increase had about half of that sequential increase was a result of what I would call apostolic interest rates swap opportunities. Those can come and go in quarter depending on loans. But about half of the sequential increase in that line item was interest rate swaps.

And we’ll take our next question from Brian Bedell of Deutsche Bank.

Biff if you can just talk a little bit more on the balance sheet. Just trying to get a sense of direction coming into 2015. I think you mentioned investing a little bit longer out on the yield curve in the government security portfolio. Just want to see if that was a significant additive. And then also on the yield mix and pricing if you continue to see that recent trends continue into 2015 on the loan pricing?

Let me start with part one on the duration. As we said we were at 1.1 in the month of December we did add about 0.1 of duration buying treasuries about $1 billion worth of treasury. So I would say a modest increase in the duration of the portfolio and still on the shorter end. So that help to add if you will some of the increase that you saw there. If you look at the loan, the yields on loans were down 11 basis points quarter-over-quarter. There is a couple components that I’ll walk through there if I could. The first is really the shift if you will, the first was we’re in lower yielding loans and I scribe some of those, so that is part one. And part two is some of that mix shift has impacted the overall spread and we did have a very modest amount of lease residual write down in the quarter meaningfully. But the combinations of those sort of was the 11 point basis points.

And do you see those trends continuing aside from the lease residual write down? Do you see those trends continuing into the first quarter? And what’s sort of your ceiling on duration on the securities portfolio that typically like to stay within?

On the ceiling on duration the answer the answer is as we meet monthly as a committee and look at the market environments and make decisions as needed. So we removed appropriately on that front. In terms of the loan yield, somewhat a factor the market, what is pricing doing in the market and if the compaction and others continues to drive down the pricing on the loans there that we have there, we could continue to see pressure on that line. So that’s all market driven.

And then just for clarification on the expenses, I think you said FX currency translation impacted revenue by 1%. I don’t know if I missed what the impact was to expenses?

Generally the revenue and expense impact for us is almost a wash in any given -- on a year-over-year comparison we had 7 million worth of trust fee impact and 6 million worth of impact in our comp bend. But a reasonable expectation is around those two being a wash in terms of currency impacts.

And we’ll take our next question from Glenn Shor of Evercore ISI.

Just a quick question on annulations levels. You mentioned strong capital ratios and you returned most of the cash net income in the quarter. But fully diluted share counts only down 1.3% year-on-year. So just curious what’s the annual issuance about just more of a modeling question for go forward?

I was thinking about whether or not I have got that in the materials in front of me. I think I am going to have to get back you on that.

The other question I have is just in asset management general we tend to talk around it through the other businesses but maybe we can get a quick reminder on maybe the core growth initiatives within the asset management as a business is seen to be well positioned from a product standpoint given the environment and using your own proprietary distribution. But just curious if you could talk about it at the asset management business level?

I’ll highlight a couple of initiatives in the group that are, we’ve talked about our ETF growth and we continue to add funds I believe we have 17 funds in our ETF family and over 8.5 billion of AUMs, so that’s continued to be a focus. I would also highlight an engineered equity products and capability, this is if you think about our tax advantage equity and other programs which is as the trend from active to passive comes we view engineered equity as a form of active equity but has some of the characteristics of passive funds in their return profile. And so those are two areas, the third I would highlight is have alternatives investment business. And particularly that’s a particular interest really across both of our business units, but that demand as you might suspect from our wealth management clients.

Okay and usually not a big - on my part but while you’re contemplating some of those other disclosures for 2015, a metrics screen on asset management as a business might be an interesting one because you got a lot of essential pieces of what’s growing in the marketplaces it’s hard to see sometimes but I appreciate that.

I just find that figure, so we talked about in the call that we had 2.5 million shares repurchased in the quarter. The issuance for under employee comp was about 112,000.

[indiscernible].

For the fourth quarter.

Okay, I have a follow up and if you don’t have it on the full year later.

Okay, no problem.

And we will take our next question from Mike Mayo of CLSA.

Hi, I’m staring at slide 4, and just looking at the fourth quarter annualized revenue growth of 19% and wondering how much of those revenues are sustainable? I heard that you said you’ve sustainability to model the clients and momentum but what’s interesting is that your assets under custody and assets under management grew only half of that in the fourth quarter as it did for the year but the revenue growth grew twice as that so maybe just to summarize what you said on this call, you talked about some episodic event but when I look at slide 4, and the four categories, anything there you want to caution us about not extrapolating too much?

Yes, well first of all in first part of your question was around the AUC and other growth there is foreign exchange impacts on those so they somewhat tempered AUC growth and other so the sequential growth was a little bit it muted the impact of the AUC growth by some of the foreign exchange impact. In terms of is there anything in that, that we want to sort of - I’d say that there is the core business the trust fee growth continues to be solid and trend around that 8% to 9% range that you’re seeing by almost three measure we think that there will clearly be volatility in FX, your models will produce that and we think in the net interest income model while at risk to the - rate loop, we think we’ve given you some pretty good indications to the stability of that. We can highly control the expense side of the equation in terms of the overall profitability and we continue to work on that but I don’t think there is any revenue trend that we would call out, Bev, I don’t know if you have.

Yes, Mike I guess the only think that I would point out and as Biff mentioned this earlier and you can quite see it on slide 4 but within the other category is securities commissions and trading income and we did point out that, that was a record in the quarter quite a significant record of $21 million and that the interest rate swap revenue in the quarter was particularly high. So, what I’d say is the stars align with respect to that particular revenue stream and whether or not that will repeat as we go forward and the interest rate environment shift and client demand shift remains to be same.

Yes, and Mike I highlight one other in the other income we have a relationship that we talked about that it had some third quarter impact we had retroactive negotiation with the service provider if you will and we have some benefit in that it’s a portion of that outperformance but not meaningful in terms of that but there is a little bit of the outperformance and other was third quarter and not fourth quarter run rate relatively modest.

And then just one follow-up, in terms of the competitive environment as it relates to the trust fees, has anything changed, has it got better, has it got worst, could you talk maybe by geography?

It continues to be a competitive landscape as you know I think there is discipline amongst our competitors in that, they have their own models and when it - an opportunity make sense financially they compete hard and when it doesn’t we’ve seen them for ourselves have the discipline to not continue on, both from a pricing and from a risk perspective at least that’s true for us. In certain regions of the world we’ve seen our success and our competitive wins have been really broad based I think we’ve had particularly great success in Australia but the wins are pretty broad based for us across the business.

And we will take our next question from Gerard Cassidy of RBC.

Question I have has to do with your securities lending business, can you frame out for us the ideal environment where the security loan balances could grow even faster than you have seen in the recent past. Ideally the foreign exchange revenues, it seems like high volume of activity and volatility favorably impacts that business. Earning metrics that you guys look to that could favorable impact the securities lending business besides some spreads widening out.

Demand is a big part of that I mean the market the hedge fund needs for the securities or the instruments you have got I mean demand is the primary driver of the success in that business. And as you know that varies and particularly in the fourth quarter we see people make decisions about their willingness to have that outstanding late in the year but demand is the driver. So if we see either stocks let's talk about equities if we see equities with high intrinsic values and there is a demand for those it's a driver of that business -- a substantial driver of that business.

Do you get a sense behind the demand obviously higher demand would be great but would a sustained bear market be the ideal condition to drive that demand even higher. Do you guys with a sense of what that would be from your past experience?

I am not sure, I think it could but it would be speculation on my part I mean I think it's absolutely good but I would be speculating and I don't -- I would be speculating I will leave at that.

Okay. And the follow-up question is you guys have had good success in growing the balance sheet obviously over the last two years and one of the areas of growth has been the deposits that central banks the Federal Reserve deposits were up quite strongly in the fourth quarter versus first quarter of '13 as you show in your trend slides. The question is how much of that is sticky meaning that should rates move higher and your customers decide to take their excess deposits out assuming most of them are sitting there. Where do you see those line items going and do you have the liquidity coverage ratio that you have to maintain versus what your customers may take out and put elsewhere?

So I will start with our liquidity coverage ratio and as you see from our balance sheet our liquidity coverage ratio is fully compliant with 2017 guidelines and is north of a 100% as we talk and to your point we have a very liquid balance sheet as you have seen. We do detailed analysis to understand the stickiness or what is operational in that deposit base and what is perhaps sitting there as an excess and I have just used that phrase as an excess. I think that much of the growth in the balance sheet and much of the growth that you have seen in central bank deposits et cetera is reflective of the growth we've had in our business. They are largely items there that would be in support of business transactions and the core custody business. We have had an increase in demand deposit if you look at that, that's a meaningful increase on the balance sheet. I believe two-thirds of that increase is in 10 clients and that money is largely around hedge funds endowments and other types of large clients with large balances. The nature of them staying or going is probably somewhat more in up for discussion. But our core balance growth I think is still reflective of the business growth you see.

And we will take our next question from Jim Mitchell of Buckingham Research.

I just wanted to follow-up on foreign exchange in the fourth quarter as you guys were up 31% sequentially. Is that purely the function of just the higher volatility or was there anything unusual whether this quarter I mean fourth quarter as in the third quarter where you were a little bit weaker than your peers. Anything unusual that you saw in the fourth quarter or is it just reflective of the environment?

It's largely reflective of the environment with the volatility we track with that we had very modest volume increase with our clients but largely it was is around the volatility. As we said last quarter though we continue to build out our capabilities and products around foreign exchange business and we hope to see the fruition of that as we move through the year.

On the electronic side?

On the electronic side and providing algorithmic solutions to our clients et cetera.

Got you, so when we think about the volatility this quarter -- I appreciate the comments around it's the volatility around the Swiss National Bank for instance was in a negative but I would think is it fair to assume that all else being equal the higher volatility so far this month is a positive or is there would we think there is something else that could be negative -- I have seen that way but volatility should be good, right?

Volatility is good for us as I described earlier with the -- no we don't warehouse positions and others it's really trading volume for our clients, so that volatility is positive.

Great, and on sticking with the volatility theme, have you seen deposits remain elevated or increase by the times end of the quarter you get a buildup and then it drops up. But obviously with Swiss National Bank in Queue and Europe, do you see deposit level even growing further so far this quarter.

We have seen some modest growth in the balance sheet. But I wouldn’t say outsized from traditional growth that we just see related to our core businesses.

And we’ll take our next question from Jeffrey Elliott of Autonomous Research.

When you talked about the 10.6% fully phased Basel III common equity tier one you mentioned that you’ll be watching for what regulators have to stay there and I just wondered are there any areas in particular that you’re focusing on but you think could move that ratio up or down.

We just continue as you know in December Governor talked about additional buffers which didn’t impact us. But we still stand ready to see if that type of change is come along so it’s so much of change in the calculation of that element of the ratio. But it - where our levels are relative to where new ratio limit are required. So we've seen ready to make adjustments if we need to be compliant with any new ratios that come about. And then we obviously will wait for anything on the net stable funding ratio we got better guidance in the U.S version of that and the Basel came out in October but the U.S sort of finality that and others.

And then maybe just to follow up there’s been some discussion around the group of banks which go through the CCAR process being bolted the 50 billion asset threshold being where is - Do you kind of think as an advanced to purchase bank you’re going to be in that exercise whatever or do you think this as a $100 billion asset bank or thereabouts, at some stage you come out of the process or it gets watered down.

The answer I would say is we’re different in some of those other $100 balance sheet banks in the sense that were 6 trillion of assets under custody and were a trillion almost a trillion of assets under management. So we become and we’re far more significantly global that probably puts us in a position that the regulators will have to make a determination if we more like a U.S based $100 billion regional bank or a global institution and want to see how that plays out.

And we’ll take our last question from Vivek Juneja of JPMorgan.

Question on the swaps business that drove some higher revenues. Is that a business you have trying to expand more actively in the wealth and management area?

It is a business that we think is complementary to our focus on solutions for our client. And in this kind of interest rate environment particularly is the credit demand picks up and we have an interest rate environment where people have an opinion on whether it’s at lows or going up. It’s a product in a capability that I think goes out for solutions that we can bring to them very effectively. So we will continue to discussing with our clients as needed.

And might you limit in to just interest full ups or anything beyond that too.

Generally that’s been the most common solution. But we listen to our clients and if they have other needs we certainly have those dialogues internally.

And a completely unrelated question that been some great cuts overseas any commentary on implications of those.

Sure if you up picked Swiss franc if I could for instance we have about $200 million worth of Swiss franc deposits we have been charging negative 35 basis points on that with move to negative 75 basis points. Our team will closely monitor the situation and adjust our pricing to be appropriate for the competition. But likely moving down much closer to that rate if not slightly hasted. And the same would be through in the Danish Kroner or any other market that where they dropped the central bank rates if you will.

And in Australia meaningful one from your folks in terms of deposit or assets.

It is and in fact it is a high growth area for us. And some of the improvement in our NIM is been our ability to invest in Australian securities it’s a pretty modest impact to the NIM but it is - it’s an example of where because we have the cash and the deposits in that market we’ve been able to utilize some sub sovereign wealth investments in the Australian marketplace.

And at this time, there are no further questions in the queue.