State Street Corporation (STT) Q3 2011 Earnings Report, Transcript and Summary

Good morning, and welcome to State Street Corp.'s Third Quarter 2011 Conference Call and Webcast. Today's discussion is being broadcast live on State Street's website at www.statestreet.com/stockholder. This call is also being recorded for replay. State Street's call is copyrighted. All rights are reserved. The call may not be recorded for rebroadcast or distribution in whole or in part without expressed written authorization from State Street, and the only authorized broadcast of this call is housed on State Street's website. [Operator Instructions] Now I'd like to introduce Kelley MacDonald, Senior Vice President for Investor Relations at State Street. Please go ahead.

Good morning. Before Jay Hooley, our Chairman and Chief Executive Officer, and Ed Resch, our Chief Financial Officer begin their remarks, I'd like to remind you that during this call, we will be making forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in State Street's 2010 annual report on Form 10-K and its subsequent filings with the SEC. We encourage you to review those filings, including the sections on Risk Factors concerning any forward-looking statements we may make today. Any such forward-looking statements speak only as of today, October 18, 2011, and the corporation does not undertake to revise such forward-looking statements to reflect events or changes after today. I'd also like to remind you that you can find 2 slide presentations: one regarding the corporation's investment portfolio, and the other about our progress in executing our Business Operations and Information Technology Transformation Program, as well as our third quarter 2011 earnings news release, which includes reconciliations of non-GAAP measures referred to on this webcast in the Investor Relations portion of our website Now I'll turn the call over to Jay.

Thanks, Kelley, and good morning. Before reviewing our earnings results for this quarter, I'll briefly address the recent white paper released by Trian Fund Management, a shareholder of State Street's, on Sunday, October 16. Trian's white paper suggested ways we could improve shareholder value, many of which have been underway at State Street for more than a year. We continually search ways to drive value across our operations and always listen to ideas and shareholders. In that spirit, members of State Street senior management have met with representatives of Trian on a number of occasions to discuss our business. Despite the challenging operating environment over the past several years, our business has remained resilient. We have continued our track record of profitable growth and have maintained the strongest capital position among our closest peers. With the approval of the Federal Reserve and within the context of growing our business, we intend to continue to return capital to our shareholders. We believe our third quarter earnings results underscore the underlying strength of our franchise. With that said, I want to emphasize that the purpose of today's conference call is to discuss these results. We will not be taking any questions on Trian. I'd like to now return the focus of today's call to our earnings results. I'm pleased with what we've achieved in the third quarter of 2011 in the face of volatile equity markets and continued uncertainty in Europe. Compared to the third quarter of 2010, revenue from our fee-generating businesses increased 18%, and our total operating basis revenue increased 12%. Compared to the second quarter of this year, our fee revenue declined about 3% due primarily to a decline in Securities Finance revenue from the seasonally strong second quarter. We added about $245 billion in new assets to be…

Thank you, Jay, and good morning, everyone. As Jay said this morning, I'll review 4 areas: first, the results for the third quarter; second, our progress in executing the Business Operations and Information Technology Transformation Program; then I'll summarize the performance of an outlook for the investment portfolio, as well as worldwide interest rates and the impact on our interest margin; and finally, I'll review our strong results comparing the third quarter to the second quarter of 2011. And this morning, all of my comments will be based on our operating basis results as defined in today's earnings news release. Our Servicing Fee revenue decreased by 2% due to weaker average equity markets offset partially by net new business. To put this decline in context, daily average equity markets, as measured by the S&P 500 and the MSCI EAFE index, were down about 9% compared to the second quarter. Asset management revenue declined about 8% due to the weaker average month-end equity valuations offset partially by the impact of net new business installed. For comparison, average month-end equity markets, as measured by the S&P 500 and MSCI EAFE index, declined about 11% compared to the second quarter. Regarding trading services and Securities Finance, foreign exchange revenue increased 21% compared to the second quarter of 2011 due to higher volatility. Brokerage and other revenue declined 8% compared to the second quarter due primarily to weaker revenue from transition management. Securities Finance revenue in the third quarter of 2011 decreased about 38% to $85 million in comparison to the seasonally strong second quarter. Securities on loan averaged $368 billion for the third quarter of 2011, down from $379 billion for the second quarter of 2011 and from $382 billion for the third quarter of 2010. Average lendable assets for the third quarter…

Thanks, Ed. Since the global economy is recovering much more slowly than economists originally predicted, we're being increasingly vigilant about expense control. Given the difficult environment, I'm pleased that we achieved positive operating leverage compared to the second quarter of 2011, a testament to our attention to controlling expenses. The momentum of new business wins across all geographies in both servicing and asset management remains strong. As expense pressures intensify for our clients, they are increasingly looking to outsource more services to us. At the same time, clients are facing regulatory pressures and look to us for additional products and services to support them. We are continuing to invest in new products which address these client needs while continuing to differentiate us from our competitors. I'm pleased with the progress we've made in executing our Business Operations and Information Technology Transformation Program. As we reported this morning, the pace of the program is ahead of forecast. Our capital position remains strong, positioning us well for new capital standards while maintaining flexibility if the right acquisition present itself and enabling us to increase our returns to shareholders. Overall, I believe that it is the steady execution of our strategy that has enabled us to perform well during the first 9 months of this challenging year for the markets and for our industry. Before we begin taking questions, I'd like to remind you once more that the purpose of today's call is to discuss our third quarter earnings, and we ask that you please limit your questions to topics involving our financial and operational results. With that, now I'd now like to open up the call to questions.

[Operator Instructions] Your first question comes from the line of Glenn Schorr with Nomura.

So, quickie, I heard all your comments on the new business front, which is still great, considering the backdrop. On the deposit front, can you give us a two-parter: one, where are the deposits coming from, and two, what do you do with them? In other words, what kind of duration are you thinking in your mind with these deposits, and what do you do on the asset side? It's a conundrum.

Yes, Glenn. It's Ed. In the third quarter, our average deposits were, in our estimation, about $15 billion over what the normal level is. They're around $33 billion as opposed to $18 billion, which is more normal. Most of this is DDA. Most of it is coming from U.S. customers. We've consistently been treating excess deposits around quarter-end for the last several years as transitory deposits, and as a result, we leave them at the Fed or the ECB or the Swiss National Bank as the case may be. In this quarter, they were left at the Fed, and we are 25 basis points on them.

Got it. So does that mean it's a quarter-end phenomenon, and they come in and out?

Yes. And that's been the case throughout the last couple of years. Glenn, if you recall, going back to a couple of years ago, year-end '08, I think we had $70 billion, and that's a point estimate, not an average. I gave you the average in my earlier numbers. But yes, they ebb and flow, and we treat them as though they're going to be not here for a long period of time.

It's interesting. So given just the economic unrest in Europe, I've been under the assumption that we'd see some deposit growth there, as well as some new business flow. It looks like you got a little bit on the new business flow side, but you're not really seeing a heck of a lot of flight-to-quality on the deposits side.

In this quarter, it happened to be more U.S. In prior quarters, other quarters, it's been weighted more towards Europe. It just depends on the way things go in the quarter.

I think on the new business side, we do see a flight to quality with regard to our pretty consistent performance around acquiring new assets and new customers.

On that front, is the pre-pipe, pipe conversations picking up given everything that's going on? I know if I was an administrator, I'd probably be looking around right now.

Is your question pipeline visibility?

Yes.

Yes, I'd say consistently strong, and I wouldn't say in it's way up or down. But we continue to have a broad range of conversations everywhere from traditional investment managers to, I continue to report, in the alternative asset classes. A lot of that business is previously in-sourced with a private-equity real estate firm being outsourced. So I would say that the other side of this depressed environment is that it is good for business because our customers, whether they're pension funds, investment managers or alternative managers, are looking for some relief around either expense, responding to new regulatory reporting. So the core business is good.

Your next question comes from the line of Ken Usdin with Jefferies. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Ed, could you just take us back through the margin comments? I think I understood you saying that 2011 margin was excluding the weight from the liquid deposits? But I guess my questions are, can you just confirm that and what it means for the fourth quarter margin as a starter?

Yes, I gave you both numbers, with and without. The 144 basis point number included the excess deposits, the $33 billion average number, if you will, okay? If we take those out for the third quarter, it was 157. Okay? Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: I know what it was, but I'm saying your guidance for the low end of 160 to 165 is based on using that 157, not the 144.

Yes, that's correct. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Okay. So the question is, I would presume that those deposits are going to be pretty sticky, even though you consider them transitory. So can you give us a thought on just presuming that's now kind of a run rate for now, what gives you the confidence that the margin can only drip given that in the last 2 quarters, you've reinvested $25 billion at around a 1% reinvestment yield, with the portfolio still in the 2.5-ish type of range?

Well, we're not assuming that those deposits stay, and that's a conservative assumption. We're not taking them and putting them into the portfolio to any long duration or anything like that, Ken. So we continue to have them at the Fed. Just as a point of information through this call, through as of last night, the deposit level has stayed a little bit elevated, okay? So that's the point of information for you, the first couple of weeks of this quarter. In terms of why the margin won't decline more precipitously to your question, it's mainly because of the effect of us being 61% in floaters, and that's principally driven in Europe [indiscernible] getting the benefit by this quarter-end of the broker being somewhat elevated. So while the U.S.-based [indiscernible] security will decline [indiscernible] to reinvest in the low-rate environment, we're getting an uptick in Europe, which will modify the decline in U.S.-related margin. So that's why we feel pretty comfortable with what we're saying about the margin overall declining slowly. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Okay. This last thing, can you just give us some clarity on if the ECB cuts from here, what's the risk to the margin if the ECB were to cut?

If the ECB were to cut and all else equal in terms of the -- we're talking about a roughly $20 billion non-dollar investment portfolio. That's worth about $20 million in NIR annually per 25 basis point of cut. That's not something, Ken, that really will impact 2011. That's more a 2012 comment. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Of course, if it happened in November, December, the run rate on an annual basis is helpful just to understand that. Great.

Your next question comes from the line of Brian Bedell from ISI Group.

Just to clarify once again on the 2012 NIM outlook, when you said behave similarly to 2011 and we look at sort of 1Q '11 starting out at about 166 on a core basis and drifting down to the 157 area, basically, are you saying that under the scenarios that you've outlined, we should expect around, say, about roughly 10 basis points of NIM pressure from current levels through, say, the end of 2012?

A little early to give precise guidance, Brian, but our comments were intended to guide you that way, okay? I don't want to comment on whether it's 10 points or 12 points at this point. We'll give some guidance on the fourth quarter call more specifically. But the slow decline that has been evidenced over the last year is what we're trying to signal.

Yes, that's good. Okay, great. And then just on the cost save program, the 400 basis points operating margin, what operating margin are you using for 2010? I know there's a lot of different ways to calculate that, but what's the actual number that you're basing it from?

We're using our operating basis pretax margin of 28.8.

Got it. Okay, great. And then just a couple of things on the quarter. The core servicing fees were very good. Was there any negative impact from the dollar strengthening?

Immaterial. I mean, on average, for the quarter, the dollar strengthened 2% against euro and 1% against sterling, so no material effect.

Okay, great. And then on the securities processing costs, they were a little -- I guess they would imply they're about $15 million higher in the third quarter versus second based on your comment of that being responsible for the delta. Do you view that as an elevated level, or do you think you can improve upon that?

Well, I think the securities processing costs, as we talked about, over time, can move around a bit. They depend quarter to quarter on exactly what happens. So I wouldn't say that's a run rate by any means. We've had some quarters this year and in recent years where they've been actually pretty low. So a $10 million or $15 million increase in the quarter is not a big delta there.

Right, okay. And then just lastly, on the $13 million of nonrecurring comp, and I think you said about $5 million in some other buckets. Should we be adding that to the $85 million restructuring cost number to get at a more sort of nonoperational run rate?

Well, I mean, that's money we're spending in order to execute on our Business Operations and IT Transformation Program. And we're trying to highlight that as being something that's in the run rate that probably goes away once we're done executing.

Right. That's part of that 15 to 20 that you've been talking about.

Right, exactly.

Your next question comes from the line of Robert Lee with KBW. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: I appreciate the additional color on the new business wins, and I think it's very helpful. And I guess just since we're always going to ask for more, is it possible to get some additional insight on the $200-odd billion to $245 billion wins, kind of a breakdown by alternative, pension, fund, just any color around kind of just in a general sense typically what kind of maybe a typical kind of revenue mix would be with $5 billion of alternative new wins kind of equivalent of like $100 billion of pension or any kind of metrics along those lines?

Rob, it's hard. The mixes vary. And actually, that's the good news, which is there's no one single engine firing. I think we're firing globally across asset classes. You saw a big European component this quarter, which, I think, is encouraging and probably indicative of the times. The alternatives continue to be a strong theme throughout this. I'd say the mix of business, the preponderance of it is multiproduct, kind of complex deals. The other thing I would add is I didn't mention specifically, but you may remember Scottish Widows was an early outsourcing deal that we had in the U.K. They've recently concluded to re-up that deal and add a number of additional assets. So some of the context is customers concentrating more of their activity with us. But it's really hard to give you 2 or 3 summary points. It's quite varied in a number of ways, which, again, I think is the strength in it. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, great. And I'm just curious. I mean, of course, M&A has been a consistent part of how you think of capital. Just curious of everything going on in Europe. Are you starting to finally see that activity tick up? It kind of felt like it was kind of a lot of expectations but maybe not a lot actually going on. You're actually starting to see people say, "Okay, now, I need to see to do something," and pace of conversations is accelerating?

I would say without being specific, it feels to me like we're getting closer to that time. I think if you -- we're all following the plight of the European banks and their need to either recapitalize or strengthen capital levels, and I think that most of that has been more discussion and less action. But I think as that moves to action, it's likely that we'll see opportunities. I assume your reference is to the custody books of business in Europe. So it just feels like we're moving in a positive direction. On a smaller scale, I mentioned the Complementa acquisition as well as the Pulse Trading. To me, those, in a different sort of way, represent some of the pressures that the world is feeling, small companies that no longer have the ability to invest or leverage from a revenue side their product. And in both of those cases, I think they're small but nice pickups which add great enhancement to our product mix and through which we should be able to leverage pretty materially the revenue side. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: Great. And one last quick question for Ed. I'm just curious, a little bit more of a near-term modeling question, but of your $80 million run rate, I mean, any sense of how much of that is kind of in the numbers as of Q3?

On the savings? Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: Yes.

Yes. Q3 numbers have about $18 million in there. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: So there's a little bit of a back-end loading, I guess, in Q4 from the...

A little more in Q4 in terms of run rate, yes.

Your next question comes from the line of Alex Blostein with Goldman Sachs.

Just a follow-up on expenses. If we just kind of think about it maybe a little bit differently, so you guys are currently running with about $1.7 billion per quarter in expenses. Can you give us a sense how much of that is sort of fixed versus variable expenses? And then can we just assume that the bucket that's sort of fixed will just subtract the run rate numbers in savings that you guys have given out sort of in 2012, the $170 million number?

Well, it obviously depends over what period of time you're trying to define fixed and variable expenses, Alex, so in terms of...

Just on a year-to-date basis.

Yes, I mean, on a year basis, I think what you're proposing is fair in terms of taking the salary and benefit savings out of that number. Again, we have to anchor them all back to 2010 as our starting point, and the business has grown since 2010. But I think if you look at over a year and call the salary component and the related benefit costs variable, I think that's a fair characterization of it. Does that answer your question?

Yes, okay. So of the $1.7 billion total expenses, you would, I guess, think of salary and benefits as 100% variable?

Well, over a year within the context of the business ops and IT program, yes. I mean, we're saying that most of the savings, more than 100% of the savings for the program will be coming out of that line over the life of the program.

All right, understood. And then on capital deployment, and I guess, obviously, the situation with the regulator is always fluid, but can you talk about your preference looking out into next year? Dividend raises from current levels are like $0.18 a quarter versus buybacks. And then if you could also address the acquisitions in Europe more from a perspective of potential size of how big or small you guys will be looking for.

Sure. Let me start that one, Alex. Just to reframe the parameters here, we'll go into, at the end of this year, the next annual stress test. We'll get parameters in December and then deliver off our own self-evaluation stress test in January and should hear by the end of the first quarter from the regulators, how they view those stress test and capital available for deployment. With regard to preferences and priorities, I'd say it's always a point-in-time assessment, but we would like to get more capital back to shareholders. So buybacks are a bit of a priority for us. I'd also say that from an acquisition standpoint, the other part of your question, if you look at the landscape of what's possible and try to size those acquisitions very broadly, $0.5 billion to $2 billion is kind of a broad range of -- if we're talking about -- I suspect your question is pointed at custody roll-up acquisitions. They'd be in that broad framework of $0.5 billion to $2 billion. Does that answer your question?

Your next question comes from the line of Howard Chen with Crédit Suisse. Howard Chen - Crédit Suisse AG, Research Division: Jay, just a follow-up on that last point on capital planning because you made some fairly constructive commentary within the release. Just given the strength in underlying business and the stock price, just hoping to get your thoughts on maybe taking up the payout ratio. I know you can only speak for yourselves, but we're seeing other firms not put up nearly as much profitability as you all but seemingly taking up kind of their payout ratio or capital return in the back half of the year.

The back of this year, Howard? Howard Chen - Crédit Suisse AG, Research Division: Right, like right now.

Yes, I mean, I think if I understand your question, I mean, the Fed guidance is annual guidance. And so we get our next shot at having that discussion at the end of this year leading into next year. The payout ratio with regard to capital, I think, was pretty consistent among the banks. We think based on the strength of our capital, the relative risk of our business profile, that we should be in pretty good shape going into this year's stress test, and we'll argue for more flexibility with regard to returning capital to shareholders. I think the factors that -- so those are the factors unique to us. I think the other factor would be how the regulator views the broad environment and what criteria that they put forward against which we'll run our stress test. But we feel pretty good going in. Howard Chen - Crédit Suisse AG, Research Division: Okay, great. And then, Ed, just another follow-up on the NIM and sensitivities. I realize the environment's fluid. You mentioned the sensitivity to an ECB cut, but what about potential sensitivity of things like the benefits of what we see into LIBOR and twist in the states? Is there any sort of potential offset there?

Well, we haven't seen much of an effect on us and, specifically, our mortgage-backed element of the portfolio because of twist. It looks like spreads are about 10 basis points tighter when all's said and done so far based on twist, so not a huge effect. I think with 3-month LIBOR widening out a bit and Fed funds staying where it is, there's a little bit of potential upside on securities lending, for example, if that would maintain itself and volumes would stay where they are. But I mean, overall, our interest rate risk position is fairly low with where we are with floaters as the mixture of floaters and fixed, and our shock and ramp tests are pretty low, a little bit bigger than they were in June given that we have a larger balance sheet. But overall, we're in a pretty low interest-rate risk position, so the sensitivity would not be that great. Howard Chen - Crédit Suisse AG, Research Division: Okay. And then finally, thanks for all the details on the long-term efficiency program in the slide deck. I'm just realizing this is an invest-to-ultimately-save initiative. Can you provide a bit more details on maybe sort of the gross spending and net saving by year or quarter? I think that'd be helpful if possible.

Let me just [indiscernible] that question up. Howard, I'll just remind you that I think it's often loss because of the focus on expense saves during this time, but I believe this is going to transform this company with regards to how it delivers new products to the market and how it responds to -- how it picks up the pace of responding to industry needs. So I don't want you to lose sight of that. But with that, Ed, do you want to comment on...

Sure. Howard, if you look at Page 7, okay, what we're trying to present there is by year, by component of the program, what we believe the net benefits to be before nonrecurring project-related expenses, okay? So we break out the nonrecurring in order to show those expenses that we're incurring in order to execute the program, but we think we'll drive to 0, as you see, out in 2015, and their costs basically incurred to execute on the program. Everything that we are spending that we believe will be an offset to our savings, i.e. it's a permanent increase in expenses in order to execute the program or for whatever reason relative to this program is included in the net benefit numbers in the 2 lines, business operations transformation and information technology transformation. The only other element of cost other than the nonrecurring that we're probably breaking out are the expected restructuring charges, which I've already talked about.

Your next question comes from the line of Mike Mayo with CLSA.

Can you quantify the pipeline? I guess you talked about installed business, but your total pipeline, where is that now and how does that compare to the start of last quarter?

I don't know that we give necessarily pipeline visibility, but if you go back, Mike, 3 quarters we've been running as far as committed business in the $250 billion to $350 billion a quarter. I think last year, it's probably closer to $350 billion down at $250 billion. So if I look at the visible pipeline, that doesn't seem like an unreasonable rate going forward as far as translating prospects to clients.

All right. So it's pretty similar to what it's been?

Yes, it's very steady and good.

Okay. And your comment about consolidation in Europe, so you're still looking to do some deals in Europe, perhaps?

I think the screen that we put over that is the strategic screen. I mean, we make these acquisitions because we think it positions us for future growth. And then I think given the environment, we'll be ever more discerning about price paid. So if it falls into the strategic sweet spot and it meets our hurdle rate for pricing, then we're a buyer.

What about the tradeoff between repurchasing more of your own stock versus acquisitions? I mean, where is that tipping point? When your stock is really low, maybe it makes sense to buy more stock. If the stock goes up to $50, maybe it makes sense to do more deals. How do you think about that?

Yes, I mean, we think about it as a point-in-time assessment. We're constantly looking at acquisitions. We're trying to measure the flexibility that we'll get through the stress test as far as our ability to purchase shares. And I think we -- at a point in time, you'll look at stock price and make that determination, but we're obviously very focused on that.

And then separately, you get this question all the time, if you take all the expense savings that you expect and add it to the pretax margin, your margin would be even higher than, I guess, the 33%. What you're saying, you're saying 400 basis points higher than what it was in 2010. That was 29%. Add 400 basis points, you get to 33%. So I guess, it could be even higher. So I think just looking at this, it implies that you're going to reinvest 1/3 of the savings and let the other 2/3 hit the bottom line. Am I reading that correct?

No. I think what we're saying is that, that 400 basis points of margin lift, pretax margin lift from 10 to 15 is a translation of that $600 million on a direct basis. So we're saying kind of all else equal -- which is we're in this constrained environment from a standpoint of equity markets, interest rates and the like, but all things being equal, that $600 million translates into 400 basis points of margin lift.

Okay. So you're assuming it all kind of hits the bottom line then?

Yes.

So I guess you're, okay, maybe assuming some revenue loss, or I guess you don't want to give forecast so many years out, but how do you think about the revenues? Because that goes into the assumption.

Yes, I mean, I think the revenues, if you break down the revenue equation, I think that we have demonstrated that we've performed pretty well in the core line items. We would expect that to continue. And over time, they get some help from markets and interest rates and cross-border investing and spreads, which help our securities, lending and other businesses. So we would project that we can continue to run at this rate from a revenue standpoint with, hopefully, some upside.

And then last question. You said of your top 100 servicing clients, 75% of them have some portion of their assets with SSgA. Can you give the dollar amount of the overlap in revenues, those assets that are managed by SSgA for 75% of the top 100 servicing clients. What's the dollar amount of revenues of that business?

I wouldn't have that off the top of my head. But what I would say is that you can assume that those top 100 customers are some of the top 100 financial institutions across the globe. So the SSgA comment is that not only it's a cross-sell, but I think when you look at SSgA's business and its upside, a lot of it's about cross-sell. So once you have a relationship with the big financial institution and you get your foot in the door, that's generally the best prospect for the next asset class to sell.

Your final question comes from the line of Gerard Cassidy with RBC.

Jay, you mentioned that you expect to hear about the SIFI buffer by the end of the year. Are you guys expecting to be a global SIFI or just a national SIFI?

The expectation for the end of the year is largely tied to the Dodd-Frank-legislated SIFI, systemically important financial institution. And further, that would be -- we think a designation which would largely have Tier 1 capital in the 7% to 9.5% is going to be broadly thought to be the range. I think the global SIFI, which is -- my understanding doesn't add additional capital but puts you into a different club on a global scale, much less visibility on -- other than the broad considerations of size, complexity, interconnectedness and the like. So we really don't have any visibility on what the thinking is of trust banks in that group.

Okay. And assuming you're just a national SIFI, what are you guys comfortable with in terms of the buffer? What do you think is appropriate for you folks? You just gave us a range which is commonly talked about for the bigger banks. Where do you think you guys fit in?

I wouldn't comment on that. I think that you've got to look at -- and you can do this yourself. You look at the above-$50 billion financial institutions or banks in this country and look at the range of types and complexity, and the regulators are going to slot us in some way there, I'd be guessing, to put us in a certain bucket.

And on the expense savings that you guys talked about and you detailed in great detail what you expect, the $600 million. From a static basis using your year-end '10 noninterest expense number of just around $6.8 billion, do you actually think your numbers would decline when we get to the final number, or is it just going to reduce the rate of growth?

Well, I mean, when we get to the final number, hopefully, what we've done has been to grow the company in the interim and take the $600 million of expense out. So I would expect that the overall level of expense in 2015 will be higher than what it was in 2010.

Okay. And then finally, just going back to your net interest margin comment about the operating margin in '10 being 168 basis points, and if you exclude out those extra deposits, you're going to be in this range of 160 to 165 for this year, at the lower end. If we keep those deposits in, as you pointed out last night, they're still there, where would you think that margin would be if those deposits end up staying for most of the quarter?

Probably in the range of 5 to 8 basis points lower for the full year.

That concludes our question-and-answer session for today. I'll hand the program back over to management for any further comments or closing remarks.

No, we would just say thank you and look forward to speaking with you at the end of the fourth quarter.

This concludes today's conference call. You may now disconnect.