State Street Corporation (STT) Q4 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to the State Street Corporation's Fourth Quarter 2013 Earnings Conference Call and Webcast. Today's discussion is being broadcast live on State Street's website at www.statestreet.com/stockholder. This conference call is also being recorded for replay. State Street's conference call is copyrighted, and all rights are reserved. This call may not be recorded for rebroadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed at the State Street website. [Operator Instructions] Now I would like to introduce Valerie Haertel, Senior Vice President of Investor Relations at State Street.

Thank you, Stephanie, and good morning, everyone. Welcome to our Fourth Quarter 2013 Earnings Conference Call. Our fourth quarter earnings materials include a slide presentation. Unless otherwise noted, all the financial information discussed on today's webcast will reflect operating basis results. Please note that the operating basis results are a non-GAAP presentation and this webcast includes other non-GAAP financial information, reconciliations of our non-GAAP measures, including operating basis results to GAAP basis measures referenced on this webcast, and other related materials can be found in the Investor Relations section of our website. Mike Bell, our Chief Financial Officer, will refer to the presentation when he provides an overview of our financial results for fourth quarter and full year. Before Jay and Mike begin the discussion of our financial performance, I would like to remind you that during this call, we will be making forward-looking statements. Actual results may differ materially from those included -- those indicated by these forward-looking statements as a result of various important factors, including those discussed in State Street's 2012 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 make today. Any such forward-looking statements speak only as of today, January 24, 2014. The Corporation does not undertake to revise such forward-looking statements to reflect events or changes after today. Now I would like to turn the call over to our Chairman, President and CEO, Jay Hooley.

Thanks, Valerie, and good morning to all. We are pleased to report our fourth quarter and full year 2013 results, which reflect our focus on our key priorities to deliver value for clients and shareholders. Mike and I will comment on our full year 2013 results, but we'll focus our remarks on the fourth quarter. Then we'll share some initial observations about our expectations for 2014. By many measures, 2013 was a strong year for State Street. For the full year, we reported operating basis earnings per share of $4.54, which is a 14.9% increase over full year 2012. We stayed focused on our key priorities, growing our core business, controlling our expenses and returning capital to our shareholders. And while we benefited from the strong equity market performance, we executed on our strategic priorities against the headwinds of low interest rates and increasing regulatory requirements. For full year 2013, we grew total operating basis revenue 3.3% to more than $10 billion, despite the pressures from the low interest rate environment. We grew core servicing and management fees approximately 10% over 2012. We ended 2013 with a record $27.4 trillion in assets under administration and a record $2.35 trillion in assets under management. We delivered approximately $220 million of incremental pretax expense savings in conjunction with our Business Operations and IT Transformation program during 2013, and we achieved positive operating leverage of 171 basis points for full year 2013 compared to full year 2012, calculated on an operating basis. Additionally, we returned approximately $2.5 billion in capital in 2013 to our shareholders through common stock repurchases and dividends. Turning to the fourth quarter 2013 results, we reported operating basis earnings per share of $1.15. Reflected in these results was the continued strength of our core asset servicing and asset management business, partially offset by lower foreign exchange trading revenue. Now I'd like to share some insight on our new business and our client asset flows during the quarter. Regarding new business, our fourth quarter 2013 new asset servicing wins totaled approximately $392 billion. Of these wins, 30% were from outside the U.S. Also included in these new wins were 41 new alternative asset servicing mandates. Our clients say now we're -- we remain the market leader and continue to see above-average long-term growth potential. Regarding flows, equity markets rose significantly during the fourth quarter, stemming from continued optimism regarding an economic recovery, especially in light of the Fed's decision to taper its bond purchases and maintain a low rate environment. Our clients experienced increased flows into equities and continued outflows from fixed income funds. Similar to last quarter, we also continued to see client flows into money market funds. Additionally, we continued to experience high levels of client deposits in the fourth quarter. Trading activities during the quarter were weak as the spread of the global ceiling showdown froze markets in the first part of the quarter and volatility was low throughout the quarter. Turning to asset management, in the fourth quarter, we experienced net inflows of $5 billion, driven primarily by strong inflows into ETFs, partially offset by institutional outflows from passive equities driven by client rebalancing and rerisking. We also experienced short-term outflows from securities finance pools, offset by inflows into money market funds. With respect to ETFs, we experienced strong inflows of $18 billion, led by our S&P 500 fund and our sector SPDR funds, partially offset by continued outflows from our Gold ETF. Our new business pipelines in both asset servicing and asset management remain strong and well diversified. Now I'd like to turn the call over to Mike, who will review our financial performance. Mike?

Thank you, Jay, and good morning, everyone. This morning, before I start my review of our operating basis results, I'd like to mention a couple of nonoperating items included in our GAAP reporting. First, our GAAP results for the quarter included a $71 million tax benefit associated with the completion of a multiyear project related to our deferred tax accounts. This contributed approximately $0.16 per share to our GAAP earnings in the fourth quarter. In addition, the quarter included $45 million of additional accruals for costs associated with previously disclosed litigation and non-U.S. regulatory matters. This reduced GAAP earnings by approximately $0.06 per share in the quarter. Now I will review our operating basis financial highlights, beginning on Slide 10. From this point on, I'll reference only our non-GAAP operating basis results in my comments. Overall, our strong full year 2013 results were driven by year-over-year fee revenue growth of 7.4% and good execution on our priority to effectively manage our expenses. In full year 2013, we achieved approximately 15% year-over-year EPS growth despite low short-term interest rates, which negatively impacted both our net interest revenue and our securities finance revenue. We also generated 171 basis points of positive operating leverage, comparing full year 2013 to full year 2012, and improved our pretax operating margin to 30.1% for full year 2013. Our return on common equity increased to 10.3% for the full year. Now turning to Slide 11. Fourth quarter 2013 earnings per share of $1.15 decreased from third quarter 2013, primarily as the result of the soft trading environment. The fourth quarter operating results also included several noteworthy items. Net interest revenue included $19 million of revenue associated with a municipal security that was previously impaired. Other expenses included $28 million of securities processing costs, offset by Lehman Brothers-related gains and recoveries. Compared to the fourth quarter of 2012, EPS increased primarily due to higher fee revenue and a reduction in the number of our outstanding shares, partly offset by increased expenses. Fourth quarter total revenue increased compared to the third quarter of 2013, driven by higher core servicing and management fees and higher net interest revenue, partially offset by lower trading revenue. Total expenses increased in the fourth quarter compared to the third quarter, primarily due to higher compensation and benefits, occupancy and other expenses. During the fourth quarter, we repurchased approximately 8 million shares of our common stock at a total cost of approximately $560 million, resulting in average fully diluted common shares outstanding of approximately 445 million for the quarter. At year end, we had approximately $420 million remaining on our common stock repurchase program, which is effective through March of 2014. We declared a quarterly common stock dividend of $0.26 per share and also declared a noncumulative quarterly perpetual preferred stock dividend of $0.33 per share during the quarter. Turning to Slide 12. I'll discuss additional details of our operating basis revenue for the fourth quarter of 2013, focusing on the notable variances. Fourth quarter servicing fees increased approximately 2% from the third quarter and 7% from the fourth quarter of 2012, primarily due to stronger global equity markets and net new business. Fourth quarter management fees increased approximately 5% from the third quarter and 12% from the fourth quarter of 2012, respectively. The increase in both periods primarily reflects stronger global equity markets. Fourth quarter management fees were negatively impacted by $13 million of money market fee waivers compared to $12 million in the third quarter of 2013 and $5 million in the fourth quarter of 2012. For the full year 2013, money market fee waivers were $40 million. Performance fees in the fourth quarter of 2013 were approximately $5 million, up from $4 million in the third quarter and down from $8 million in the fourth quarter of 2012. Total trading services revenue decreased 11% compared to the third quarter, primarily due to lower foreign exchange trading revenue from lower market volatility. Compared to the fourth quarter of 2012, total trading services revenue decreased 6%, primarily due to lower fees associated with the SPDR Gold ETF. Securities finance revenue increased approximately 3% from both the third quarter of 2013 and the fourth quarter of 2012. Average securities on loan were relatively unchanged sequentially at $315 billion. Processing fees and other revenue increased approximately 3% from the third quarter of 2013, primarily due to an increase in revenue associated with tax-advantaged investments. The decrease from the prior year quarter is primarily due to specifically noted gains recorded in the fourth quarter of 2012. Operating basis net interest revenue of $596 million in the fourth quarter of 2013 increased from $553 million in the third quarter of 2013, due in part to $19 million in revenue associated with a previously impaired municipal security. In addition, higher interest-earning assets and lower mortgage prepayments contributed to the sequential increase in net interest revenue. Excluding the $19 million in net interest revenue associated with a municipal security, our operating basis net interest margin in the fourth quarter of 2013 was 125 basis points. Now let's turn to operating basis expenses on Slide 13. Our total expenses for the fourth quarter of 2013 increased from the third quarter, primarily due to higher compensation and benefits, occupancy and other expenses. Our fourth quarter 2013 compensation and employee benefits expenses increased 3.4% from the third quarter, primarily due to lower benefit costs resulting from planned changes in the third quarter, as well as increased costs in the fourth quarter to support new business. Our Business Operations and IT Transformation program continues to be on track. For full year 2013, we achieved approximately $220 million in additional pretax expense savings, resulting in approximately $420 million of incremental pretax expense savings since the inception of the program. Our nonrecurring expenses related to our Business Operations and IT Transformation program were approximately $26 million for the fourth quarter of 2013. Occupancy expenses of $124 million in the fourth quarter increased relative to the third quarter of 2013, primarily due to the effect of a one-time $8 million charge in this quarter associated with a sublease renegotiation. Other expenses increased to $292 million in the fourth quarter of 2013, largely due to higher securities processing costs, professional services fees and sales promotion costs. The fourth quarter also included $28 million of Lehman Brothers-related gains and recoveries compared to $30 million in the third quarter of 2013. Compared to the fourth quarter of 2012, other expenses increased, primarily due to higher securities processing costs. Now I will provide you some details on our balance sheet. As you can see on Slide 14, our overall philosophy to managing our investment portfolio has not changed. We maintain a high credit quality profile with 89% AAA- or AA-rated securities, and 44% of our security is fixed rate and 56% floating rate. Our interest rate risk position was in line with our position at the end of the third quarter of 2013, and the duration of the portfolio remains relatively unchanged at approximately 1.9 years. Additionally, the unrealized mark-to-market loss increased during the quarter to $213 million, primarily due to a rise in market interest rates. We monitor and manage our interest rate risk position using a variety of risk measures, including EVE, primarily to determine the potential impact of a rise in rates on both the mark-to-market and on our net interest revenue. During the fourth quarter, these risk metrics remained within our risk appetite. Maintaining a strong capital position is very important to us. Particularly in this evolving and complex regulatory environment, we continue to identify opportunities to optimize the capital efficiency of our balance sheet. As we reported last quarter, we've begun to invest in senior secured bank loans, targeting BB- and B-rated issuers, all subject to our credit underwriting standards. As of year-end 2013, this loan book exposure was $931 million. In accordance with GAAP, we recorded a provision for loan losses of approximately $6 million in the fourth quarter related to the aggregate senior secured bank loan portfolio. This calculation is based upon market credit loss factors for loans with similar characteristics and does not reflect an identified loss event for any particular loan in our portfolio. Now let's turn to the next slide to review our capital position. As you can see, we maintained a strong capital position, and that strength has allowed us to deliver on our key priority of returning value to shareholders through dividends and common stock repurchases. As of year-end 2013, our estimated pro forma Basel III Tier 1 common ratio was 10.1% under the standardized approach and 11.8% under the advanced approach. We estimate that our pro forma Basel III supplementary leverage ratios under the U.S. proposed rules are approximately 5.2% at the holding company and approximately 5.0% at the bank as of December 31, 2013. The slight decrease in the holding company ratio from the prior quarter is primarily due to the influx of client cash deposits on our balance sheet at year-end 2013. Recently, the Basel Committee released its final rules on the supplementary leverage ratio. While there were several modifications made to the rule that, if adopted by the U.S. regulator, would be helpful to us, we are disappointed that the committee did not exclude central bank deposits from the denominator. And we will continue to work with the U.S. regulators to seek exclusion when the U.S. rules are finalized. The target effective date is January 1 of 2018. Assuming the rules go into effect as proposed, we believe that we have a number of levers that would enable us to comply with these requirements in advance of the 2018 effective date. The Basel Committee also updated their thinking on the net stable funding ratio. While there's still more work to be done, the recognition of some liquidity value in operational deposits is helpful to us. Again, we believe that by the targeted effective date of January 1, 2018, we will have taken appropriate actions to be in compliance with the rules. In October, the U.S. banking regulators issued a notice of proposed rulemaking or proposed rule intended to implement the Basel Committee's liquidity coverage ratio or LCR. While the U.S. proposed rule is generally consistent with the Basel Committee's LCR, it includes certain more stringent requirements, including an accelerated implementation timeline and modifications to the definition of high-quality liquid assets and expected outflow assumptions. The proposed rule remains subject to interpretation, regulatory guidance and public comment until January 31 of 2014, before the issuance of a final rule. In addition, in December, 5 federal agencies issued final rules developed jointly to implement Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as the Volcker Rule. We continue to analyze the proposed rules and their potential impact on us, and intend to develop and implement any changes to ensure compliance. In the meantime, we remain focused on executing our capital plan that we submitted in conjunction with the 2013 CCAR, which includes our authorization to purchase up to $2.1 billion of our common stock through March 31 of 2014, of which approximately $420 million remained available as of year-end 2013. So to summarize our results, our strong performance for the full year 2013 was driven by positive core servicing and management fee revenue, as well as our continued control over expenses. We are proud of achieving 171 basis points of positive operating leverage for full year 2013 compared to full year 2012 and increasing our pretax operating margin to 30.1%. Now let's turn to our 2014 outlook on Slide 17, beginning with revenue. For 2014, we expect total revenue growth to be in the range of 3% to 5% compared to 2013. This growth rate is predicated on a number of important assumptions. First, we plan to continue to execute on our top priorities: driving core revenue growth, investing in new growth opportunities, controlling expenses and managing our strong capital position. Second, we assume a modest increase in market interest rates later in 2014. As we've discussed previously, until short-term interest rates begin to rise, we expect our net interest revenue to continue to be under pressure. For planning purposes, we assume equity markets, defined as the S&P 500 NEV [ph], will remain close to year-end 2013 levels for the full year 2014. In addition, we expect that the market environment will improve and benefit both our securities finance and trading revenues. We continue to target positive operating leverage on a full year basis. Our ability to achieve this goal is highly dependent upon our continued diligence in controlling expenses across the company. We continue to expect to achieve an incremental $130 million in pretax expense savings in 2014 from our Business Operations and IT Transformation Program and to continue to invest in initiatives to drive revenue growth from the expansion of new products and services for clients in key sectors and geographies. Additionally, we expect some upward pressure on regulatory compliance costs. Now I'd also like to remind you that, as in prior years, the first quarter 2014 compensation and employee benefits expense will be higher due to the effect of the accounting treatment of equity compensation for retirement-eligible employees, as well as for payroll taxes. We expect the incremental amount attributed to equity compensation for retirement-eligible employees and payroll taxes in the first quarter of 2014 to be approximately $150 million. In 2014, we expect to remain focused on optimizing our strong capital position and returning capital to our shareholders. We plan to complete our current 2013 common stock repurchase plan, effective through March 31 of 2014. In addition, we submitted our 2014 CCAR plan to the Federal Reserve, which included a capital distribution program of dividends and common stock purchases that we believe is consistent with our strong capital position and earnings capacity. The amount in form of capital distribution in our plan is contingent upon the Federal Reserve not objecting to our request, and we expect to receive the results of their review in mid-March. We continue to believe that our common stock repurchase program, combined with dividends, is the best way to return value to shareholders. And return of capital remains a top priority for us. Now I'll turn the call back to Jay.

Thanks, Mike. Let me close our call by briefly reiterating our continued focus on creating value for our clients and shareholders by growing revenue, diligently controlling expenses and returning capital to our shareholders through common stock purchases and dividends. Stephanie, Mike and I are now available to take questions.

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

Mike, just a point of clarification in the outlook on the modest increase in market interest rates. Are we talking specifically short rates later in 2014? And then just curious, does that even impact NII in '14, or is there a lag and it really starts impacting in '15?

Sure, Glenn. The short answer is, we do expect by the end of 2014 an increase in market interest rates, both at the short term as well as at the intermediate term. And we would expect some modest benefit from that in net interest revenue and, importantly, as well, in the securities finance revenue, that it would help immensely to see some uptick, for example, in the 90-day rates for the securities lending business. And what we intend to do, Glenn, is at the Investor Day, where we have time to provide some greater context, to give you some of the scenarios that we've looked at. So I think we can answer that question pretty thoroughly for you here on February 27.

Okay. On a related note, ECB had cut. I went back and looked, and I -- the last public comment I saw was 25 basis points, equaled something like $40 million in annual revenues. I'm just curious if that relationship holds or -- and how you're thinking about ECB as they talk about the potential for going negative on deposit rates. Do you have to park the money in the same locale? Can you park your money elsewhere?

Okay. Yes, ballpark, Glenn, we still think that, that sensitivity of the $40 million is rational. Again, let us give you a more thorough answer to some alternatives when we see you in February.

Okay. Last one, just as a reminder for myself. There's a pretty big gap between or spread between your standardized and advanced Basel III ratios. So I'm curious, a, what produces the bulk of that large gap? And b, does it impact how you go about the CCAR process?

Sure. So Glenn, first, you're absolutely right. At the moment, we have a 170-basis-point spread between the advanced approach and the standardized approach for the Basel III risk-weighted asset calculations. As we've talked about last quarter, there are 2 main drivers of that. First, the standardized approach uses standardized risk factors and haircuts, where the advanced model uses advanced model-driven loss estimates. And the standardized risk factors and haircuts are more punitive in 2 areas. First, certain off-balance-sheet items, for example around the securities finance business, is treated more punitively under the standardized approach. And the other area that's more punitively treated is the high-quality assets. And our balance sheet is chock-full of high-quality assets. So as a result, the -- under the current environment with our current balance sheet, the standardized approach is the more punitive one of the 2.

Do you anticipate a changing behavior? Because it would seem counterstates or counterintuitive to change your quality metrics based on that. Or just it is what it is, and hopefully, the metrics will adapt to the quality of the balance sheet? In other words, all I'm looking to find out is, does it change how you go about your capital return thought process?

Sure. So Glenn, we do need to meet the more onerous of the 2 requirements under the CCAR stressed scenario. So as we are working to sort out how to optimize our balance sheet mix going forward, that is part of our calculations, that is part of our thinking around balance sheet strategy for the future. I would remind you that the standardized ratio does not kick in until 1/1/2015. So for 2014, the binding constraint is the advanced approach. But again, CCAR is about the long term as much as it is about the short term. So qualitatively, as we go through CCAR, we need to be cognizant of the supplementary leverage ratio that may be coming down the line, as well as the more onerous of the standardized and advanced approach. And that's why the work that we're doing to optimize our balance sheet under the new rules is something that's a pretty complex undertaking. But we are confident we're going to be in compliance, and as we draw conclusions on that, we'll certainly plan to communicate that.

Your next question comes from the line of Ken Usdin with Jefferies.

Mike, I just wanted to ask you about the outlook for revenues you were very clear on and positive operating leverage. You've got the pretax margin at 30% this year, and last year, you did 170 basis points of operating leverage. So I was just wondering if you can help us put in context what type of magnitude of improvement can we see on both the pretax margin direction and if you can maintain or even increase that operating leverage gap.

Sure, Ken. First, I would prefer to wait until the Investor Day, where we have time to give you some additional context. For example, we do plan, as I mentioned to Glenn, we do plan to share some of the modeling we've done on various interest rate scenarios, and as well as talk about work that we're doing in our core businesses to drive revenue growth, but also in some of the new growth opportunities that we see out there. And then we'll also talk about some of the areas where we're investing. So I think, Ken, I'd prefer, rather than trying to give it to you in a 30-second answer on a crowded conference call, I'd rather wait and give it to you at the Investor Day. But I think stepping back, to me, what's most important is that, even in a relatively low growth environment where we would expect revenue growth to only be 3% to 5% compared to our long-term targets, which are quite a bit higher than that, we still believe we'll be positioned to achieve positive operating leverage, perhaps not as much as 2013, but again, another step forward on the operating leverage. And therefore, we would expect, again, good progress as an enterprise through our strategic goal of being a low-cost provider in this business.

Okay. And then my second question relates to just -- I want to understand this, the increase in the FTE adjustment, which obviously gets backed out from a GAAP perspective. But is -- could you just walk us through the elevated tax adjustment, tax investments? How much is that carrying now in that processing other and if this is the new run rate for that, because I don't think people would've expected that to be as much of a backout this quarter?

Sure. Ken, first of all, as we've previously disclosed, we have been steadily looking for opportunities to make tax-advantaged investments. And we've been doing that pretty consistently over the last couple of years, and that's been beneficial in terms of our effective tax rate. On the specific tax-equivalent adjustment for Q4, let me -- why don't we take that one offline. I think we were going to talk to you a little bit later today. It's just not a -- it's not a simple calculation, so I prefer to do that, again, not in a crowded conference call, if you will.

Okay. And then my last question then, Mike, just to get more granular then on the quarter itself, then is -- I mean, a lot of people are asking you about the elevated other expenses. And could you just help us reestablish a base for what that line should look like going forward? Because I think that's, again, that's another key question, I think, in terms of this stock's reaction today.

Sure, absolutely, Ken. First, on the other expenses, as we've talked about previously, remember, this stuff can bounce around quarter-to-quarter because some of the costs in this category are pretty lumpy. And a good example of that is the securities processing costs. So the securities processing costs in the quarter were $28 million. We don't think $28 million in a quarter is reflective of our outlook going forward, but it's a good reminder that the number does bounce around quarter-to-quarter. Now I'd point out, recently, in the recent past, we've been doing a good job in this area, and we would expect that to normalize in 2014. But that would be an example, Ken, of why I don't think the $292 million in total for the other category is a good run rate going forward. And then just to talk about a couple of the other larger pieces. We had sales promotional costs of $6 million this quarter. That mainly is part of our year-end process to support our investment management business. So that was planned. But again, that -- we view that as a Q4 item. We would expect that to normalize back out in Q1. So again, I would reduce for that. And I'd say the big wildcard really are the higher legal and regulatory compliance costs, and that reflects a combination of this regulatory environment that we are operating in, where we have had to spend more money on a variety of things that, in an ideal world, we wouldn't. But we do live in this world, and we've had to spend some more money in that area, in particular, more money on professional services, which increased for the quarter. And then the legal costs, which primarily relate to prior year problems, but there are areas where we do need to spend money to support our position. So at this point, I'd -- the number has been bouncing around enough and there's enough uncertainty around our regulatory compliance costs, Ken, that I'd prefer not to give you a new range or something like that for 2014. But I do think, at our Investor Day, we can give you some additional color on how we're thinking about it.

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

I was hoping you can comment on the kind of continued disconnect between your servicing fees and assets under custody and administration. And I think this is the phenomenon that we've seen for almost 2 years now. And even this year, when your average assets are up 12, fees are up 9. Last year they were up 5, fees were flat. So can you help us flush out, I guess, this dynamic and what needs to happen to bridge that gap going forward?

Yes, let me start that, Alex, and Mike will it pick up. First off, I look at market and service fee correlations, and if you look at, it's hard to examine much in a quarter. But if you look year-over-year, service fees are up 9%. Equity markets were up big, fixed income markets were not. So if you piece that apart a little bit, a couple of factors. One is the mix, the question of, when you look at the service, the global services business, I think, by our calculation, less than half of the revenues are tied directly to assets. So this -- the other half are tied to other fee levels, other fees that are unassociated with assets. The -- I guess the other thing I would say, which is -- makes the question even murkier is, if you look at the baseline, the baseline of service fees in any given period or period-over-period change is influenced by investor flows. And given that we have, proportionately, as a trust bank, higher exposure to asset managers, flows make a big difference. And if you look during the course of 2013, you have some positives. So obviously, equity markets and equity flows were very positive. But fixed income flows were pretty negative. In the second half of the year, they outstripped positive equity flows. And so you've got that factor, and then you've also got the factor of the emerging markets pullback, and the fourth quarter was also a little bit of a headwind. So I'm not sure that explains, but at least it gives you some of the ingredients that determine service fees. Mike, do you want to pick up anything else?

Sure, Alex, this is Mike. Only a couple of things I would add. First, I'll just reinforce Jay's point that it is important to note that only a little -- in fact, a little less than half of the service fee revenue line is directly driven by the basis points on assets. So that really is an important point. You would expect, in a market -- we would expect, in a market where markets are rising, that the service fees would trail the increasing assets because of that phenomenon. And then I just have rounded out. Transaction fees are between 10% and 15% of that particular number, and transactions were up just a blip relative to Q3 but were down relative to Q2. So again, transactions will tend to move, in general, with the relative bullishness or really relative to that kind of risk on, risk off in the market. And that's been something that's been a headwind for the -- that line item in the third quarter and fourth quarter. And then lastly, out-of-pocket expense recoveries also impact that line item. So again, just to give a specific example. We had lower out-of-pocket expense recoveries that -- of $6 million that's essentially the same $6 million of the drop in the information systems line item on the expense side. So again, there are going to be some things that don't matter from a P&L standpoint but can bounce around in the servicing fees line item, in particular.

Got you. So I mean, you guys didn't mention pricing in any of this, so it's fair to assume that you haven't seen any change in the way certain businesses are priced relative to what they have been or what kind of amount that you are winning?

Yes, I would say, directionally, Alex, no real change. In certain markets and certain product lines, it's highly competitive. It's less so on others. We continue to try to send signals to the market by backing away from deals that become so thinly priced in an attempt to try to establish more reasonable pricing. But that's a journey more than an event, but no marked change in pricing over the course of the last quarter.

Got you. And then, Mike, I was hoping maybe you could just flesh out a little bit more the net interest income guidance for yours for next year. Just a couple of nuances around the balance sheet size. I'm not sure how much you expect to leave in the first quarter. So what do you guys think -- are you guys thinking as far as the average size of the balance sheet goes for 2014?

Sure, Alex, well, first of all, again, we'll give more color, more detail on this at the Investor Day. But if I focus just on Q1 for a second, we did see an increase in the excess deposits on our balance sheet of approximately $6 billion, Q4 relative to Q3. So the excess deposits we estimate in Q4 was approximately $25 billion. I would expect that, that number will decline in Q1 and decline even further by the end of 2014 if, in fact, short-term rates begin to rise as we anticipate that they will. So I think it's important to factor that into the thinking. In terms of the core deposits, we do expect that over any longer period of time, we expect that there'll be growth in our core operational deposits, essentially commensurate with our overall fee revenue growth and our overall client base. Again, I would view that as sort of a small single digits over the course of the year. So therefore, I would expect a drop in the excess deposits on average to reduce our average assets for full year 2014.

Your next question comes from the line of Luke Montgomery with Sanford Bernstein. Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division: Just a quick question, follow-up on Glenn's question about the 2014 outlook. I think it was my understanding, I think, generally, people see that your -- or feel that your balance sheet is short-term liability sensitive. In the past, you said that your net interest margin could actually compress until the rates stop going up. So has there been any change in your thinking about how rates affect your balance sheet and NII, at least in the short term?

Well, Luke, it's Mike. Obviously, I'm still relatively new here, so I can't connect all the dots from prior discussions. But here is how we're thinking about it. We're thinking about it that a rise in short-term interest rates in particular, the 30-day and the 90-day rates in particular, would be particularly helpful to us. Because remember, over half of our balance sheet is comprised of floating-rate securities. And therefore, as short-term rates rise, we get an automatic pickup in NIR from those securities. On the liability side, we would expect that liability rates would ultimately increase with short-term interest rates. But in the near term, they would likely increase at a slower pace than what we would pick up on the yield side. So if you take the combination of the benefit I just described on NIR, combined with the benefit on the securities lending business, that would be a much better environment for us to operate in if short-term rates, in particular, would rise. Now I think the question that you're asking around the long-term interest rates may tie back to our mortgage-backed securities in the portfolio. We were in a phenomenon where there was some risk of those assets extending and then that having a collateral impact on the need to reduce the duration of our portfolio. I think if there's good news is that, that issue, for the most part, is behind us. There's not a lot more extension left in that particular book. So I wouldn't expect the second-order impact of that phenomenon to hurt us in 2014. Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division: Okay, that's helpful. And then a back-of-envelope analysis would suggest that your organic growth in the custody business has been averaging somewhere around 1.5% over the last 4 years. I was hoping whether you would affirm or deny it, if that seems like a reasonable guesstimate. And then, I think given the strength of the new business wins you announced each quarter, it does seem to suggest that you're losing some mandates, and so perhaps you could kind of put that estimate in the context of how you're feeling about your market share gains or losses? And then along with that, have you given any more thought to increasing disclosure around components of organic growth? My sense is that the investment community really would like to see you and your peers move in that direction, but I think it's going to take one of you to set the disclosure bar higher for everybody. So wondering if that's going to be you.

Let me jump in there, Luke. Let me first go at the question of clients win -- client wins and losses and market share gains and losses. I think we don't win everything we compete for. There's some things that we really go after and we don't win, but I would say our win-loss rate for those things that we think are attractive where we have a differentiated position, therefore we can get decent pricing, is quite good. I point to segments like the alternative segment, which I frequently bring up. I think we have a differentiated value proposition there. We tend to compete very effectively. We don't win them all, but we do pretty well. I'd say the same thing for very involved and integrated complex asset manager sales, particularly if there is a middle office to it. Again, the number of competitors shrink and we fare pretty well there. You could say the same for some markets overseas. I would say, as a general theme, we compete more effectively in the asset manager segment versus the asset owner segment, so that's funds versus pensions as a theme, which leads you to things like offshore markets, Luxembourg, Dublin, very competitive there. Market share data is not easy to come by. There are some -- probably the deepest markets in the world for custodians would be markets like the U.S. mutual fund market. I think that's probably a market that has the clearest data. The ICI puts out information. And I would say that if you look at that as we look at that, we are gaining market share in that -- what we think is a key segment. With regard to just picking another one of your questions, the organic growth, as Mike has come on board, we've spent time with several of you in groups and individually, and we are really thinking about ways where we can express more clearly the issue of what drives organic growth and then incremental new business. And we don't yet have a conclusion on that. But I understand the point, both the interest, the keen interest in understanding the drivers of that, and also the point about somebody needs to lead.

Your next question comes from the line of Josh Levin with Citigroup.

So we've seen some turmoil in the emerging markets in terms of equity markets and also in terms of the FX markets. How do we think about how that sort of turmoil affects your business, both the positives and the negatives?

Yes, so let me start that one, Josh. The -- if you look at the core global services business, the type of asset that we're servicing is affected by the revenues or affected by the type of asset we're servicing. So in a simple example, domestic equity versus an emerging market, equity or bond is going to carry a lot more revenue per unit of asset. So that's the first thing. So as there's a retreat from emerging markets, which we saw in the fourth quarter, as well as we saw a little bit more recently over the last couple of days in the core global services business, that's a headwind. So movement into emerging markets would be a big positive given the incremental fees that we get associated with servicing emerging markets-type instruments. On the foreign exchange side, it cuts back a little bit the other way. Good market movement in and out of emerging markets and volatility would be a positive thing. Although, even though we've seen retreat from emerging markets, volatility remained pretty low throughout the fourth quarter, which you might say is a little unusual.

Okay. My second question is about M&A. So there is a lot of speculation that M&A is going to pick up in the United States this year. If we do see more deals, a higher number of deals, a greater dollar value of deals, how should we think about that affecting your business?

I think the -- there is a lot of discussion, and actually, there's been some action probably in the merger and acquisition activity. I don't think you've seen much in financial markets. And I guess the way we would like at it is, break it down a little bit. In the core asset servicing business, it would have to be very special. And I can't imagine -- one, I can't imagine anything significant because I think it would get considerable regulatory scrutiny. And if it was a small add-on to us, it would have to be very attractively priced for us to be interested in it. I've said before that in the core custody business, I don't feel like we have any big gaps in our offering. Geographically, we're pretty well placed from a standpoint of asset classes with the moves we made into alternatives, pretty well placed. So I don't feel like there's a gap that we need to fill. And so therefore, any acquisition would be largely acquisition of clients. And again, size -- large-sized deals would be off the table, in my opinion, and smaller-sized deals would have to be extraordinarily attractive from a financial standpoint. I think probably off your question but a little bit on the small end of acquisitions, small software products or capabilities that would round out some products in our asset management business or in our emerging risk and analytics business, that might be interesting. But I'd say the big stuff for us is very unlikely.

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

I just want to know if we're expecting too much too soon from the Business Op and IT program, if we should collectively stretch out our expectations. I guess fourth quarter was a pause in the efficiency progress. Linked quarter, you're 70% done with the Business Op and IT program for the expense savings. You said you expect positive operating leverage this year, but a little bit less, and that's partly predicated on higher short-term rates this year. But maybe with the expense savings mostly done, should we think about the additional benefits to be less visible in your earnings? And I'll refer to a -- there's a new book out this week by your neighbors, some MIT professors, called The Second Machine Age, and it looked at 600 firms and they showed that it takes 5 to 7 years before you really get the full benefits of productivity. So are -- while the best expense savings, I think, are behind you based on your reported numbers, should we be looking out 2, 3, 4 years from now?

Yes, let me start that one, Mike, and our Mike can jump in. The -- we're entering the next-to-final year of our publicized IT and Ops transformation. We've got 130 million that we've got to achieve this year, and then there is a stub for 2015. You know because I've taken you through this before that the -- what we've done is structurally changed the cost of delivering core services here. We've centralized and standardized and leveraged offshore locations highly successfully, and now we're in that last leg of rebuilding the systems to make those processes even more efficient. And what you'll see this year and next year is the wrap-up of that. What inspired me along the way was you mentioned the MIT professors, the book that McAfee and his partner wrote on the Race Against the Machine, and this -- maybe this is Phase 2 of that book that you're referencing. But what you take away from that is that the power of technology in these transaction processing businesses is in the early innings. So I look at what we've done, and we've restructured our operations, we are applying technology, but as we look out into the future, I think it only gets more interesting, frankly, as we look at -- now that we've standardized these things, how much labor we can take out by displacing it with technology. And one of the great examples that, that book referenced, which is -- was insightful to me is the driverless car from Google and what technology can accomplish today. And I don't think, generally, the financial markets, and you might even say the financial transaction processing businesses in the financial markets, have anywhere near matured out that opportunity.

So as a follow-up, and I don't want to put words in your mouth, it sounds as though you're as confident as ever about the future, but what I think I'm hearing is a little bit less confidence about this year in front of us. And if there's one item that changed from a few years ago, when you started on this initiative, has it more than any other factor simply been the regulatory cost? Is that -- has that been the unexpected negative surprise?

I would say that's pretty fair, Mike. I think the -- unfortunately, I would have thought, 2 years ago, we would be cresting the hill and we would be declining our investment in these kinds of things. But it's not happening that way. I mean, it -- just a simple example that maybe highlights some of my frustration and some of the cost is, you look at the Volcker rule, which for a firm like State Street has a -- not a significant impact, yet the systems that we are building to report on, the trading that we're doing to prove that it's not proprietary, is just mind blowing. So I think you're right that probably one of the biggest surprises -- I guess the other thing that I would say, though, is we are also trying to walk a fine line between becoming more efficient and continuing to invest. And I think that -- so for the long term -- for the short term, we are trying to deliver good value to the shareholders, but we're also continuing to invest. And you've heard me say before that this IT and Ops transformation, probably the most exciting future aspect of it is laying in new technology which will allow us to be more agile with regard to introducing new products, both -- particularly in the data space. So -- but you're right, just to go back to your point about regulatory, and generally, compliance cost has been the biggest surprise.

Your next question comes from the line of Marty Mosby with Guggenheim.

I wanted to kind of go back to the rate sensitivity discussion. And Mike, you had mentioned that, kind of running your simulations, that you saw that short-term asset yields would go up faster than the short-term liability costs. When you report your economic value of equity, I think the brackets mean that, that's negative, which means that a rising interest rate environment, I think, would be negative to equity. I just want to make sure that I was reading the brackets right.

Yes, Marty, it's Mike. You are reading the brackets right. Now importantly, that relates to the mark-to-market on the balance sheet. So again, a little bit different phenomenon than what kind of impact would that have on our net interest margin and net interest revenue in 2014.

All right. So I just wanted to make sure, there really is a disconnect between what you're looking at there, and you're saying the major difference is just the mark-to-market on the investment portfolio?

Yes. Importantly, Marty, the EVE is the entire balance sheet. So again, it's a little bit apples and oranges. But again, there's sort of 2 different phenomenon going on here. The rise -- I'll repeat, the rise in the short-term interest rates would be particularly helpful to our net interest margin and net interest revenue for 2014. And we believe that the impact on the mark would be manageable over the period.

And I think also, what's probably building into your EVE looking so negative is the duration assumption that you're probably applying to your deposits and DDAs and transaction accounts. I mean, they have a lot longer life, so.

Marty, that's absolutely right, and that is one of the issues around EVE, which is why we really look at a variety of different risk metrics, not just the EVE, to measure our overall profile.

Okay. I just wanted to reconcile the comment you made earlier to that number. That helps a lot.

Your next question comes from the line of Ashley Serrao with Crédit Suisse. Ashley N. Serrao - Crédit Suisse AG, Research Division: So I just wanted to, first, just dig into the expenses this quarter. I guess I was surprised, if I look at info systems and communications, I was surprised by the tick-down there. And then if I look at salaries and benefits and then look over the past 3 quarters, you've managed to show year-over-year declines, and this is the first quarter where it actually went up. So just wondering whether you could provide some additional color there.

Sure, it's Mike. I'll start. The -- on the information systems line item, importantly, that did include a decline of $6 million in out-of-pocket expenses, which is really -- means that we spend that money on behalf of our client and then get that money back in service fees. So there was a $6 million downdraft in both servicing fees and the information systems costs related to that phenomenon. So I think it's a little bit of a one-off, and I wouldn't put a lot of weight into those. More importantly, on your question on the comp and benefits, first of all, the Q3 comp and benefits included a one-time benefit of $12 million from a change we made in one of our employee benefit programs. So we had talked about that on the Q3 call being one-time and that you ought to naturally think that, that $12 million, it will go back up $12 million, all things equal in Q4, and that has materialized the way we expected. The bulk of the remainder, though, in the comp and benefits is to support our new business. We are obviously pleased with our overall new business results for full year 2013 and even accounts that will be generating revenue early in 2014. And we did have an increase in the new business support costs. This would include things like the on-boarding contractors that we use. It would include the growth in the alternative investment business that Jay referenced earlier. It would include year-end sales comp. So the -- that is related to new business. And as we look to first quarter of 2014, we do expect that to normalize, other than, of course, the $150 million one-time impact we will have in first quarter from the annual incentive comp. Put that aside, we expect the comp and benefits to normalize again in Q1 as we work through that on-boarding. Ashley N. Serrao - Crédit Suisse AG, Research Division: And then, Mike, I appreciate that you'll be providing more details on your 2014 guidance on your Analyst Day. But I just want to clarify what -- the bottom end of your 3% to 5% revenue growth, does that assume a rise in interest rates?

Boy, that's a difficult question to answer in a vacuum. The 3% bottom of the range does look at a more pessimistic market environment than our base-case scenario. So I would say that it wasn't quite as precise as what you're -- as the question you're asking, but I think it's fair to say that if we did not see a change in interest rates, then we'd be more likely to be closer to the 3%. But again, there are a lot of moving parts there, and I think we can give you a more thorough answer when we take the time at the Investor Day to walk through that. Ashley N. Serrao - Crédit Suisse AG, Research Division: Okay. And I guess, just then finally, alternative services has been a great business for you guys and you've had a strong presence there. Like how are you thinking about the revenue opportunity from here? What can you do organically into '14 and '15?

Yes, I think -- so I think -- let me take that, Ashley. The -- we think that we compete effectively and we do well in the hedge fund segment of alternatives. By our estimate, 70% of the hedge funds have outsourced the kind of work that we do. So there's potentially an additional market share gain. There's potentially more hedge funds, which we'll outsource. And I think that's -- maybe it’s not a certainty, but it's highly likely given the pressures that hedge funds are under to be more transparent among -- to their customers. But I guess the other thing -- the other element of alternatives, which is kind of exciting, is we have also moved into the private equity and real estate subsegments of alternatives. And by our estimate and industry estimates, only 30% of those firms have outsourced. So we would expect proportionately greater growth in those nonhedged alternative segments, and we feel well positioned.

Your next question comes from the line of Betsy Graseck with Morgan Stanley.

I had a follow-up on the other side of the revenue guidance, the 3% to 5% range that you talked about. So the 3% is a more negative outlook than your base case for interest rates. But can you give us some color around what is the assumptions behind the upper -- the boundaries on the upper end of the 5%?

Yes, Betsy, it's Mike. Again, I'd prefer to go into that level of detail at the Investor Day. But broadly speaking, we would expect a -- to -- at the 5% scenario, broadly speaking, we would expect a rise in both short-term as well as intermediate-term interest rates, certainly beginning July 1. And in that kind of environment, it's likely to be a more positive global economy. So in that kind of environment, with a more positive global economy and higher 30-day and 90-day interest rates, we would expect the sec lending business to be stronger, we would expect our trading revenue to be stronger and we would expect that to have -- mean good things for top line as well as bottom line. But let me leave it at that and save the additional detail here for Investor Day.

Okay, great, because the kind of implication is that the fee line is a plus 4 grower, and that seems a little bit modest compared to what you've done historically. So that would be great to flush out at Investor Day. And then just separately, on the expense line, you've discussed regulatory a couple of times, and I know throughout the conference calls of the prior year you've indicated where regulatory expenses has crept up. So we've had rising regulatory costs throughout the year. I guess what I'm wondering is, as we look at the year-on-year, because you called out the year-on-year would have a higher reg cost, is it a run rate from 4Q? In other words, is the higher year-on-year function effect that regulatory costs increased throughout the year? Or is it -- are you also saying that there's an increase in reg costs from your 4Q run rate?

Yes, Betsy, I would think about it as a full year to full year as opposed to a full year to the fourth quarter. The fourth quarter, in our expectation, was relatively high in a number of these legal and regulatory compliance areas. So I would think about it more year-on-year as opposed to year versus Q4.

Yes, and excluding legal, just the regulatory cost itself, what you're basically saying is your run rate in 4Q is a decent run rate for the full year?

Yes, I don't think I'd be quite that precise. But I think that our comments around the upward pressure on regulatory compliance costs, if you exclude legal, really related to full year '14 versus full year '13. And one of the reasons, Betsy, just in full disclosure here, it's a difficult question to answer, is that, keep in mind, we've got spending across the enterprise that's driven by these demands. So it's not like it's a discrete budget that captures all the dollars. I mean, many of us just around this table are spending a lot more time on regulatory compliance issues than we have in the past. So it -- I mean, it impacts -- it really pervades a number of different budgets. It pervades systems costs relating to the Volcker reporting that Jay referenced earlier. It increases the staff that we need in the compliance area in ERM. It increases the professional services expenses. So it's not a -- it's not that it's a -- there's not sort of a readily easy single number to point to, which is why I'm -- again, I'd just urge you to focus more on the year-over-year trend.

Yes, no, I get that. I just wanted to make sure. Your message is essentially, look, those expenses have been rising throughout the year for things we all know about. You're not -- that's what you're making the statement on, not necessarily, "Hey, there is more coming that we're anticipating from 4Q annually." So that answers the question.

Your next question comes from the line of Robert Lee with KBW. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: Just a couple of quick questions. The first thing is that I'm just kind of curious, I mean, the -- and this also occurred in 2013, but the normal seasonal bump in Q1 comp, the -- year-over-year, it's 27% increase, was pretty big of an increase this year. Is this -- is that simply just related to higher expected comp accruals as the business grows? I mean, it's pretty -- seems like a pretty outsized kind of jump.

Sure, Rob, it's Mike. In terms of relative to the Q1 bump that we saw in 2013, there are a couple of different things going on. First of all, it does reflect the fact that full year 2013 was a better result for the enterprise than full year '12. So that is reflected in what we expect the management compensation to be here in the first quarter, so that's a piece of it. Second, we have had some changes in the demographics. So the main impact that we get, of course, is the impact of those that are age 55 and have had 5 years of credited service. Again, that demographic has contributed to the increase. And then importantly, we have an approximately $10 million increase year-over-year related to some new regulations, new compensation regulations in Europe. So there was some compensation for certain individuals that had to be adjusted. And as a result, that drives that number up $10 million versus first quarter of 2013. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, great. And the -- maybe my next question is going back to trying to think about the asset servicing line and the business mix, and maybe this is something you intend to address at the Investor Day. But if I look at the assets under custody and administration, and I'm actually looking at Page 12 on the trends report, where you have the breakdown by funds, collective funds, I'm assuming the collective funds is where most of the alternative products sit. But is that -- should we think of that as a reasonable representation of those segments' contribution to the fee revenue line, or is it really not much of a correlation between their relative size and growth and how they're contributing to kind of asset servicing fees? Just trying to see if there's a way of using that data to kind of triangulate to kind of the growth expectations for servicing fees?

Yes, Rob, it's Mike. Its -- unfortunately, it's not quite that simple. And as Jay indicated earlier, it is something that we're working on now. How much of that we'll have done by the Investor Day remains to be seen. But let us work to give you an update, hopefully a down payment at the Investor Day and more to come here later in '14.

You're next question comes from the line of Jim Mitchell with Rockingham (sic) [Buckingham] Research.

Just one or two quick follow-ups, one on the balance sheet. Just your comment that you saw a spike in excess deposits around $6 billion. I'm assuming you're talking about on an average basis because deposits were up $28 billion on a period-end basis, and if you could just sort of -- is the commentary that those -- the vast majority of that $28 billion rolled off? Is that how we should think about it?

Sure, Jim, it's Mike. Yes, I was referring to the average. On average, our excess deposits in Q4 were approximately $25 billion compared to $19 billion on average for Q3. Importantly, we saw 2 significant spikes in the fourth quarter. We saw a significant spike in October around the debt ceiling crisis, and then we saw an even larger spike at the end of December that's impacting the period-end number that you're describing. And so again, it was well north even of the numbers that you were quoting. So again, we tend to focus on the period averages because that tends to be more of a driver of the net interest revenue and net interest margin.

No, absolutely, but so you're saying that the -- that won't have any -- the period-end balances won't have any real impact on the average going into first quarter because they rolled off. Is that the...

That's correct, Jim. They rolled off at the beginning of January, not the whole 25, but the spike that we saw at year end rolled off. And I would expect, on average for Q1, it to be below 25, again, barring another crisis in Washington here later in the quarter.

Right, or in emerging markets, I guess. Just a follow-up also on the conversation, you mentioned you would expect it to normalize in 1Q. I wasn't quite sure I understood what you were referring to. Was that sort of the seasonal kind of uptick in incentives? Or -- it wasn't clear to me what you were referring to.

Yes, let me just go back to that point. First of all, we will have this $150 million increase in Q1 related to the annual compensation cycle. So put that piece aside. If you strip that out of our Q1 2014 numbers, what I was saying was that if you strip that out, if you took the Q1 2014 versus the Q4 2013, we would expect the comp and benefits to decline over that period, mainly because we don't anticipate those expenses that supported the new business in Q4 to continue through Q1.

And any ballpark on that number?

Well, it was the bulk of the rest of the increase from Q3 to Q4 if you strip out the $12 million of the benefit plan change in Q3. So round numbers, call that $15 million. I would, again, anticipate that $15 million not being there in Q1 of '14.

Your last question comes from the line of Cynthia Mayer with Bank of America Merrill Lynch.

Just a follow-up on the asset servicing question. If 50% is driven by asset levels and 10% to 15% is transaction, is it possible to generalize about the biggest drivers for the remaining 40%? So is it just number of accounts or the type of service provided, which we really can't see?

It tends to be the latter. It tends to be fixed fee arrangements or other particular services, again, just not specifically tied to either transactions or basis points on assets. So again, an example -- I keep harping on it, but just to give the example, $6 million of the -- of the servicing fees from Q3 went away in Q4, and these were out-of-pocket expense recoveries where we do spend money, in this case on information systems, but charge the client dollar for dollar for that. So again, there is a drop in information systems but a drop in revenue. So it's those kinds of things, Cynthia. Again, we'll look to add some transparency on that over time.

Let me just give you one other example, Cynthia, because it's a meaningful line item. With each portfolio, if we're doing portfolio accounting, there's a fixed fee to provide that fund accounting, so obviously, that would be driven by the number of portfolios that we add versus assets, just as another example.

Okay, got it. And then on your outlook for '14, it sounds like you're assuming improvement in market conditions for both sec lending and trading. And I guess the sec lending, it sounds like you think, will be helped by better short-term rates. But what gives you confidence on the trading? And any color you can give on what you're seeing so far this quarter, since 4Q was so slow?

Yes, I look on the -- you're right with regard to securities lending. I'd also add another little element which could be helpful, and it came up earlier in the call, that the M&A activity has picked up. And to the extent that stays robust, that would increase the number of special securities, and so that's a helper to securities lending as well. With regard to foreign exchange, it's -- our comments are probably more a reflection of the unusual decline in volatility in the second half of the year, that we don't think that's a normal state of markets. And I think you can look at the Fed pulling back, you can look at some of the emerging economies and some of their actions as indicators that our base case would be we'd see a little better volatility in this year, 2014, than we saw in '13. And by the way, volumes in our foreign exchange business have been pretty good. So it's really more of a factor of volatility.

Okay. And any color on what you're seeing so far this quarter?

Too early to tell.

At this time, I'll turn it back over to management for closing remarks.

Yes, we would just thank you for your attention this morning and look forward to hopefully seeing most of you in a little more than a month in New York on February 27, where we'll host our annual analyst call. Thank you.

Thank you. This concludes today's conference. You may now disconnect.