Good morning, and welcome to State Street Corporation’s Second Quarter 2014 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 or 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 on the State Street website. (Operator Instructions). Now, I would like to introduce Valerie Haertel, Senior Vice President of Investor Relations of State Street.

Thank you, Stephanie. Good morning, everyone and welcome to our second quarter 2014 earnings conference call. Our second 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, such as the slide presentation referenced on the call which can be found in the Investor Relations section of our website. Mike Bell, our Chief Financial Officer, will refer to the financial highlights presentation when he provides an overview of our financial results for the second quarter of 2014. Before Jay and Mike begin their 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 indicated by these forward looking statements as a result of various important factors, including those discussed in State Street’s 2013 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, July 22, 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 everyone. Our strong second quarter results reflect growth in core servicing and management fee revenue driven by both, higher global equity markets and net new business. With respect to our market driven revenues, we experienced a typical seasonal uplift in securities lending, as well as increased demand in our enhanced custody program which has been a driver to growth over the past few quarters. Additionally foreign exchange trading performed well with higher volumes in both direct and indirect trading execution methods despite extremely low volatility for the industry. And IR [ph] also performed a bit better than we expected due to a higher level of interest earning assets from new business and higher client deposits. On the expense front, we continue to be focused on controlling expenses across the organization. While we continue to perform as we anticipate on operating expenses, we are experiencing increased pressure from regulatory compliance costs. Now I would like to provide a brief economical view on review of the second quarter global equity market performance for trading environment and how our revenues were impacted. The U.S. economy bounced back solidly during the second quarter following a very weak first quarter, lower employment, increased household wealth and improved credit conditions are combining with a still very accommodative monetary policy to support an improving outlook for the U.S. economic recovery. Global equity and fixed income market performance was strong during the second quarter. The S&P 500 daily average was up nearly 4%, the EAFE daily average was up 2.5%, and the Barclays U.S. aggregate index was up 2%. The Federal market committee’s June policy statement affirmed that the economy was rebounding, and as such, an outset of Fed would continue tapering its asset purchases each month with a view towards ending them…

Thank you, Jay and good morning everyone. This morning, I’ll start my review on slide 9. While we’ve noted several financial highlights for the second quarter, and for the six months ended June 30 which I will refer to as year-to-date. Unless noted separately, we’ll reference only the non-GAAP operating basis results in my comments today. By wins summary, second quarter results were improved in what remained a challenging operating environment. We plan to continue to focus on our top priorities, driving core revenue growth, investing in growth opportunities, controlling expenses and managing our strong capital position. Regarding the first half of 2014 EPS increased approximately 8% from the first six months of 2013. Year-to-date however revenue increased approximately 4% compared to the year ago period. Importantly, year-to-date core servicing and management fee revenue increased approximately 7% compared to the same period in 2013, primarily reflecting the benefits of higher equity markets, net new business, and the impact of the weaker U.S. dollar. EPS for the second quarter 2014 increased to $1.39 per share from $0.99 from the first quarter of 2014, and from $1.24 in the second quarter of 2013. As a reminder, our first quarter 2014 results included the seasonal affect of $146 billion of deferred incentive compensation expense for retirement eligible employees and payroll taxes. Second quarter results also reflect the seasonal increase in our securities finance business that typically occurs in the second quarter. Compared to the second quarter of 2013 the increase in EPS was primarily due to a strong increase in core servicing and management fees, a lower operating basis tax rate, and the impact of our share repurchase program. These positives were partially offset by lower market driven revenues and higher expenses. Compared to the second quarter of 2013, total expenses increased approximately…

Thanks, Mike. And Stephanie we’re now available to answer questions. So you might open the lines.

(Operator Instructions) Your first question comes from the line of Alex Blostein with Goldman Sachs. Alex Blostein – Goldman Sachs: Great. Hey, good morning guys.

Good morning. Alex Blostein – Goldman Sachs: So first question on expenses. I guess what’s changed since the prior – I mean, what did you guys learn over the course of the quarter that led you to believe that expenses on regulation will exceed that kind of the $40 million number that you provided in the past? And then secondly, I guess more importantly the question I think a lot of investors will have is, once you get through this how should we think about these level of expenses heading into 2015; i.e., is this a catch-up bet for whatever reason that you guys didn’t really anticipate in the past and not just a ramp that we’re seeing this year. And then we’ll see some easing into 2015 or how should we think I guess about expenses on regulation beyond this current period?

Alex, it’s Mike, I’ll start regarding your question around 2014. The main thing that is different from what we talked about say at the Investor Day – it’s now clear to us that expectations, really across the board by all regulators are higher than what we had previously anticipated. And, just as a reminder, I mean – we are a global company obviously, and what we have found is that expectations across the globe are higher for GSABs [ph] than we had previously anticipated and it’s really very important to us Alex that we maintain good relationships with our regulators, particularly with the Fed, and we think at this point, it’s prudent to plan to spend more resources than we had originally budgeted here for 2014. I mean as it relates to 2015, I think that’s – it’s a little early to try to comment on that. Obviously, as we get closer to the end of the year, we might have some additional updates, but at this point I don’t see any indication that the expectations are going to wretched back, but again, I wouldn’t try to comment on spending at this point.

Alex, let me just add just a comment on the longer term outlook – call it 2015 or whatever. With regard to regulatory compliance expectations, be it capital, be it liquidity, be it any other number of things that we’re focused on; we’ve organized internally to make sure that we not only comply with but also get organized around aggregating data, sources internally so that we create something that’s sustainable and overtime I would expect that the cost would ramp down. Now there is an effort to get things organized and effective but efficiency is also a friend of mine for instance we go through this process. Alex Blostein – Goldman Sachs: Understood, thanks for that. And my second question is just around the balance sheet. When I look at the balances, big – we’ve seen the similar trend with the other trusted banks this quarter as well. I guess, how sticky [ph] do you think these are – I mean it looks like a lot of it actually came from – in the U.S. side, so maybe you can talk a little bit to the sources of this excess cash, it just kind of keeps coming in. And then if you guys given any thought to potentially reposition the balance sheet and buy in some securities with all those excess cash that’s sitting on in with the Fed right now.

Sure. Alex, this is Mike, I will start. You’re absolutely right that we did see a significant increase in client deposits in Q2 relative to Q1. Unfortunately, most of that is in really the category of excess deposit, so we estimate that there was approximately 50% increase in excess deposits from Q2 relative to Q1 on average for the quarter. And our policy is basically to take excess deposits and place them with the central bank. So at this point there hasn’t been any change in our philosophy and we don’t think it would be prudent to turnaround and invest those excess deposits and longer term securities at this point. But again, that’s something that we’re monitoring, it’s something that we’re very cognizant of – particularly as it relates to the new liquidity coverage ratio requirements which will be effective January 1, 2015. So, more information to come there. Alex Blostein – Goldman Sachs: Understood, thanks so much.

Thanks.

Your next question comes from the line of Ken Usdin with Jefferies. Ken Usdin – Jefferies: Hi, good morning everyone. Mike, can you elaborate a little bit more on the offsets against the higher compliance costs. First of all, just relative to that, up 30 to up 40, can you size what the new increased expectation is? And then, do you also have plans to – given that this isn’t different versus original expectation, are there plans to offset those costs in either salaries, incentive compensation plans for management or other parts of the business?

Sure, Ken. First – let me talk first about the $20 million increase that we expect, Q3 relative to Q2, and then when we come back to the first part of your question. First, I’d emphasize Ken that the $20 million is obviously a current estimate so it’s subject to change, and it’s subject to some one-offs, some of our expenses, either plus or minus can be lumpy. But with that caveat out of the way, I’d point to several pluses and minuses in Q2 just along the lines of what you were alluding to. First of all, the – we did have $14 million of expense recoveries in Q2 that dampened our overall aggregate expenses in Q2 that we don’t expect to recur in Q3, so that was $14 million. We also have an extra payroll day in both, in Q3 relative to Q2 and that end up – we had the same number of payroll days in Q4 and Q3. So – but it is an increment of approximately $5 million going from Q2 to Q3. Then the other pluses and minuses that I would highlight here, first, as we said in the prepared remarks, we do expect that regulatory compliance costs will be higher in Q3 than Q2. We also anticipate that we’ll continue to have net new business over the course of Q3 that will likely require some expense to service that revenue. And then importantly, we’ve got a couple of areas of offset, we’ve got the savings Ken from the Q1 severance actions that we took, and again we expect a large amount of those savings to come in Q3. And then, we’re also looking at some other savings opportunities along the lines of what you described, and that could include redeploying existing resources to…

Yes. So Ken, first of all, at the end of Q2 we estimate that we would have been in compliance with the new requirements for LCR level one [ph] 2015, and that was the result of diverting more of our assets on our balance sheet to the level one high quality liquid assets that were required. Now I would anticipate that there will be a little more migration in the second half of the year to a higher level of level one’s and so therefore there is a little bit more dampening of NIR coming in the second half of the year, but that was reflected in the NIR estimates that I gave you for the full year. Ken Usdin – Jefferies: Okay, I’ve got it. Thanks, Mike.

Your next question comes from the line of Glenn Schorr with ISI. Glenn Schorr – ISI: Hi, thanks. On the – obviously, you have the DVARB [ph] season driving the securities on loan balances higher and producing the seasonality in the quarter. Is there anything else in there that helps drive the revenue be it like better spreads, higher interest and hard to borrows, or anything like that?

Glenn, its Mike. A couple of other things helped us out here in Q2 that I would highlight. First of all, in terms of the core servicing fees, we benefited from a couple of things that Jay emphasized in his prepared remarks. First, we did see a sequential increase in transaction revenues of approximately $5 million, Q2 versus Q1. And so that was a welcome change from the decrease that we had seen in the prior quarter, and – again, there are several moving parts there but we think some of that reflects the fact that there was some index rebalancing that took place in second quarter which again led to our clients generating more transactions. So that helped us. And then the other one was the change in the mix of flows. We saw some additional risk on behavior in Q2 relative to Q1, specifically with some cyclical rotation, back into emerging markets which was a welcome change. And then beyond core servicing fees, as I said in my prepared remarks Glenn, the – we did benefit from short-term market rates being higher than we had anticipated for the first half of the year in Europe, unfortunately that abruptly changed here in the early June with the ECB action. So – but the bottom line is, we got some benefit from first half of the year in IR that we don’t expect to repeat. And I would think of that as sequentially Q2 to Q3, us losing approximately $10 million of NIR with the change in the European conditions, those would be the ones that come to mind. Glenn Schorr – ISI: Okay, I appreciate that. I was trying to get towards that but this will be a bigger sequential drop than normally just because of the bigger sequential output.

Let me pick that up – so, in securities lending, is that was your… Glenn Schorr – ISI: Correct.

Comments were focused. Let me just describe what the quarter looked like and then we can talk through the second quarter, third quarter transition. Spreads were less than a factor, the level of M&A has helped the specials within securities lending but the overwhelming biggest factor in – other than the seasonality of the dividend season was the enhanced custody which is kind of the alternative direct to hedge fund lending program that we invaded couple of years ago and continue to invest in, we’re starting to globalize that, moving that to Europe and Asia, is our current plan. Mike referenced in his remarks, it was 25% of our revenue in the second quarter and most of the uptake. So I would expect that we would see the drop of second quarter and third quarter but enhanced custody is a factor in us – what I believe is gaining market share in the overall securities lending business. Glenn Schorr – ISI: I appreciate the extra color Jay.

Thanks. Glenn Schorr – ISI: On the – I know we want to look at expenses in aggregate but can’t particularly – you called out some stuff last quarter like the merit increases but we’re looking at 6% year-on-year for the quarter, maybe something more like 8% or 9% for the first six months, honestly doesn’t match up with what we’ve seen on the revenue side but to your point, the fee businesses are growing, the assets are growing. Just – I guess, the question is, how do you balance all that because it speaks out to all of us when we rip in through the numbers and contributing to the lack of operating leverage?

Sure, Glenn. I mean you’re absolutely right in terms of year-over-year – the items that you described certainly have had a impact. I mean specifically, if we look at Q2 2014 versus Q2 2013, in terms of comp and benefits, you know first and foremost, I would highlight the fact that we have had growth in the quarter fee business and therefore, we’re in the service business that requires additional expense to service that higher revenue. And then the other items or the items that we’ve talked about previously which is, we did have a merit increase, saw that kicked in April 1, up 3%. We did have higher deferred management comp this year versus what we had a year ago because the performance year that we had in full year 2013 was higher than the performance we had in full year 2012 which meant that the deferred comp awards that were granted earlier in 2014 were higher. And then as we talked about last quarter and also at the Investor Day, we’ve had higher regulatory compliance expenses, some of that has manifested itself in higher staff clause, and also then in the other operating expenses around consulting expenses. And then, the final thing I would highlight Glenn would be the growth initiatives that we highlighted at the Investor Day, those continue to be key priorities for us. I’d point to something like enhanced custody where – it was a good thing that we invested in enhanced custody last few years because that’s been more than 100% of the year-over-year growth in securities finance revenues. And so, not every initiative will be a success like enhanced custody but the point is, it is important for us to invest in these growth initiatives, so we’ve remained innovative in terms of the value added services. Glenn Schorr – ISI: Okay, I appreciate it. Thanks.

Your next question comes from the line of Robert Lee with KBW. Robert Lee – KBW: Thanks, good morning. Can you – maybe Jay give us a little bit more color on the asset servicing lends, I mean how should we be thinking of that – maybe from a potential revenue impact? When you look at that anyway kind of sizing it or more of color on kind of – begin more of than the mix than how flow through revenues?

Yes, the $250 billion of which – we also said $243 I think was the number as yet to be installed. As the real mix got a little bit more of a non-U.S. tilt to it, it continues to be colored proportionally more on the alternative space and the traditional alternative hedge but also liquid off – we’ve had a couple of nice wins that are factoring through the revenue line, things that we’ve reported over the last several quarters. So I would characterize the quarter as a pretty strong quarter from a standpoint of new business committed. I’d also characterize the outlook from a pipeline standpoint as a strong – and probably stronger than it’s been in a while and a little bit more with an international spend to it. When you look at the translation into the service fee line model, I thought I was pleased with the second quarter service fee growth and it – you know, it factors in obviously the equity markets, the – pretty positive re-risking environment from the customer standpoint and this layering in of the new business. So, I think if anything tremblized a little more positive than we’ve seen from the standpoint of the quarter’s results and the outlook from the pipeline standpoint. Robert Lee – KBW: Okay, great. And then maybe just as a follow-up, just a little – maybe a little bit of modeling question. But the tax rate in the quarter was a little low and I apologize if you addressed this before, but – and I know the guidance is that all, kind of comeback I think in the second half of the year. Can you maybe talk about what simply drove the lower tax rate in the quarter?

Sure, Rob. There are two primary items that impacted the Q2 operating tax rate. The first is that we did have some favorable settlements related to prior year tax returns, so that helped us in the quarter. And then the other factor that helped us in the quarter is that the Q2 operating tax rate is impacted by the rules – the accounting rules that govern the quarterly timing of the recognition of our tax advantaged investments. And so the net impact of that was that the Q2 rate was lower than what we estimate for the full year average, but we expect the second half of the year operating tax rate to be higher than that full year average. So that was the cause of the temporary favorable in Q2. Robert Lee – KBW: Great. Thanks for taking my questions.

Your next question comes from the line of Brian Bedell with Deutsche Bank. Brian Bedell – Deutsche Bank: Thanks, good morning.

Good morning. Brian Bedell – Deutsche Bank: Just – maybe Jay, just to go back to the servicing line – and thanks Mike for outlining the transaction impact. Can you also outline that the U.S. or the impact from these U.S. dollar weakening – and then Jay, if you can talk about to what degree are you seeing the next shift of new business, so – into alternative, helping that core fee ratio. Should we be thinking about that as an improvement in the core fee rate going forward, given you’re seeing more assets in that area [ph]?

Yes, I’ll start and then Mike can pick up to currency effect. I think – to your question Brian, I think the bigger factor in the quarter with regard to the nice uptick and service fees was probably the asset mix, the re-risking from a client standpoint. I would say that the new business layering in, it’s hard to characterize any meaningful difference. I think alternatives have been a theme for several quarters and as I spend time in the marketplace, it’s pretty clear to me that there is a converges going on between the traditional loan only managers that are getting into all, liquid all, and the alternate managers going downstream until the traditional distribution channels. So, I would say if there was a sweet spot, prospectively that would be the sweet spot. It’s alternative is moving into the traditional, the traditional moving into liquids, more of a U.S. and Europe phenomenon but growing in Asia as well. And if you believe that story, I would think that we’re well positioned for that given the work we’ve done on alternatives and given the penetration we have in the traditional asset management space where the liquid also being generated.

And so Brain, it’s Mike. Regarding your factual question on the FX impact on GS revenue, we estimate Brain that on a year-over-year basis, so Q2 2014 versus Q2 2013, it helped us by about a percentage point, so specifically about $11 million of benefit in that year-over-year comparison on $1.2 billion of revenue. And then the sequential quarter was much smaller, it was approximately $3 million benefit in the Q2 versus Q1 comparison for GS revenue. Brian Bedell – Deutsche Bank: Okay, that’s really helpful. And listening both of your comments it sounds like we have some sustainability but basically – principally on the re-risking more than anything –

That’s – I mean that your business commitment, pipeline, and re-risking are the three real pluses in my mind in the quarter. Brian Bedell – Deutsche Bank: Yes, great, thanks for that. And then, just my follow-up question would be, you were talking about sort of the market environment for generating positive operating leverage in the second half. If you can mainly characterize what type of market environment do you think you would need to do that?

Sure, Brain. So – obviously, it’s been a challenging first half of the year, on the other hand we continue to believe that our full year expectation is for revenue growth of 3% to 5% and as I said, the first half of the year it’s been 4% on a year-to-date basis but we benefited by about a point from the weaker U.S. dollar on a year-to-date basis, we’ll call it 3% on a constant currency basis. And then the mix has not been particularly helpful regarding operating leverage, the core revenues, the core servicing fees and management fees are up approximately 7% versus a year ago but the market driven revenues where we have the highest profit margins have actually been down year-over-year. So that mix has put pressure on us in addition to the fact that we have been at the lower end of that 3% to 5% range on a constant currency basis. And then on top of that as I said in my prepared remarks, the operating expenses, we’ve got some additional pressure there because of the regulatory expectations. So the bottom line Brain is, we would need to see a year-over-year increase in the market driven revenues and in particular, the – some rebound in FX volatility and some help from our market interest rates in all likelihood to be able to achieve that result. Brian Bedell – Deutsche Bank: Okay. So if we just assume your current NIR forecast for example, maybe isolating that, is it fair to say that we would need to see an improvement in FX volatility to some extent and then a continued improvement in the equity market levels and continued pace of re-risking, and that’s what you would describe as a positive environment?

Yes, I think it’s there [ph]. Brian Bedell – Deutsche Bank: Okay, great. Thanks very much.

Your next question comes from the line of Luke Montgomery with Sanford Bernstein. Luke Montgomery – Sanford Bernstein: I think last quarter you pointed a processing fees of $125 million to $135 million per quarter, and then you were below that this quarter and it looks like you also restated the first quarter result. So, maybe if you could review the moving parts with the taxable equivalent adjustment and update us on your expectations there?

Okay, sure Luke. So, first of all we did have a product reclass, specifically we provide a currency management service to our transition management clients and that revenue of $13 million in the quarter was reclassed out of processing in other and into the trading services line item. So if you added back that $13 million, then we initiate [ph] the processing fees in other would have been rate in line with what we had talked about previously. So it was that product reclass, it just moves revenue from one bucket to other that caused the lower reported number in the processing fees and other line. In terms of your question on the outwork for processing fees and other, we do expect that the second half of the year will have a higher tax equivalent adjustment, particularly driven by a higher volume of tax investments than what we had in the first half of the year. So including the higher tax equivalent adjustment in the second half of the year I would anticipate that processing fees and other would be in a range of – call it 1.15 to 1.20 for the third quarter, again that’s subject to change, obviously with different one-offs, but that would that kind of range that I’m currently thinking at this point. Luke Montgomery – Sanford Bernstein: Okay, very helpful. And then, I wondered if you could comment on the proposal around brokerage commission sharing agreements which the regulators are calling inducements, how do you anticipate that might affect your European operations, either in your capacity to broke or – or in the investment management side of the business?

Well Luke, this is Jay, I’m not sure I can answer that one. I’m roughly familiar with reclaim [ph] and it shouldn’t have a big effect on any brokerage because that’s something we don’t do directly, probably I’ll have to come back to you on that. Luke Montgomery – Sanford Bernstein: Okay, fair enough. And then, I just wanted to circle back on the regulatory spending commentary. I mean, it seems like you began communicating this pressure a little bit later than other trust banks and so many assets managers, at least one of them is that peak spending now. So, I don’t mean to just not comparative but a skeptic maybe could be a little bit later at the timing here given that you were the only one of your peers last year that posted material operating leverage and beat expectations. So maybe you could just comment on why there seems to be a delayed effect in your case and why you relied on recognizing the need to increase that spending?

I can’t speak Luke to other folk’s representations. It’s pretty clear to me that regulatory expectations are moving targets. I think that whether it’s capital, liquidity, different levels of reporting that are required; the bar gets raised all the time. And so, I think for somebody today to say that the regulatory expenses has topped out or peaked, that sees inconsistent to me with what I’m hearing from regulators. So, I think from our standpoint we are addressing the requirements and trying to do it in a way that’s durable and sustainable and looks at building internal data models so that we can aggregate information more easily and fluently going forward. So we’re trying to put in place an infrastructure that can continue to respond to what I believe will be an ongoing and increasingly challenging level of regulatory requirements. So, for us we’ve been focused on this all along, and we’re continuing to focus on it. I can’t speak to what others point of view is on this. Luke Montgomery – Sanford Bernstein: Okay, thanks a lot guys.

Your next question comes from the line of Ashley Serrao with Credit Suisse. Ashley Serrao – Credit Suisse: Good morning. Mike, going back to the LCR, are you able to size what the revenue drag was this year? And just for a context, where were you at the beginning of the year and in terms of being comply for 2015, do you mean 80% or higher?

Okay, so actually several questions there. First of all I do anticipate that we’ll be well higher, well north of 80% at year end. And again, we estimate that we’re north of 80% here at Q2. So – again, our expectation is not to be close to that 80% minimum line but instead to really demonstrate that we have ample liquidity, relative to the Fed expectations in particular. And in terms of sizing it – surround numbers by the time we get to the end of the year, I would anticipate that the higher level of high quality liquid assets represents a drag of approximately $10 million a quarter for Q4 2014 relative to what we might have been pro forma without that higher level of Level One high quality liquid assets. Ashley Serrao – Credit Suisse: Got it. So when we think about 2015 we should think about – maybe drag possibly half that size going forward or is that too aggressive?

Serrao [ph], I think that’s in the ballpark. I mean, again it’s really early for us to be giving guidance around 2015 but I think you’re sizing it approximately right, to the nearest half it would be about a half. Ashley Serrao – Credit Suisse: Okay. And then I had just a follow-up question on funding this quarter. The rate on other short-term borrowings was negative, any color there? This is supposed to reverse going forward?

Sure. Ashley, the – what that really reflects is an accounting reclass, basically this relates to a block of newly assets and a product that we use for tax free money market funds. So specifically we hit an accounting reclass that pointed now the interest rate swap to the asset side of the balance sheet rather than the liability side as indicated on the average rates page. So specifically, if you looked up at that state in political sub divisions, line item, you can see that that went down for the quarter and that’s the accounting reclass where the impact of two quarters were – of this interest rate swap got reflected in Q2 in that line item. So I would expect in all other things equal that Q3 to jump higher than the 3.3%, something closer to call it the high three’s in Q3 as the accounting reclass – disproportionate impact in Q2 gets changed. And that had been an equal offset to the other short-term borrowing rate. So I would anticipate the other short-term borrowing rate in Q3 to be something just north of zero, it would be sort of the average 1.57% in Q1 and a negative 1.2% in Q2, it would be something – about a small positive in Q3. Ashley Serrao – Credit Suisse: Alright, thanks for the color there. And just – moving onto sec lending and enhanced custody offering, it seems to be gaining a lot of fraction. I was just curious who is your incremental customer there today, is it just – are they switching just from the AGC program that you have? And how do you envision your competitors responding to this because this is pretty impressive growth that you’re putting on?

Yes, Ashley, let me take that. So I think we all know how this works. The – as opposed to lending securities to a prime broker who might lend them on to a hedge fund, we’re lending securities directly to the hedge fund on a book entry basis so there is less folks in the chain, more efficient process, attractive from a hedge fund standpoint. So most of the activity would be bypassing the client broker I think is probably a fair way to look at it, and interestingly, I think many of the prime brokers out there are evaluating with the backdrop of the new capital requirements, how much and what type of prime broking they are looking to do. So it seems like we’ve hit the market at a good juncture. Competitively, we were way out ahead of this, we were working on this for three or four years, and the last couple of years it’s really started to hit its stride. So, the traditional competitors are focused on it but quite a way is behind. I also might add that our deep penetration in the alternative servicing marketplace positions us ideally for this because we’re dealing with those kind of prioritize [ph] hedge funds, and even the liquid – place or the low leverage 1.30 funds are also used as of this enhanced custody. So that’s gives you a little color on how it came to be and what the competitive landscape looks like. Ashley Serrao – Credit Suisse: Alright, great. Thanks for all the color, and thanks for taking my questions.

You’re welcome.

Your next question comes from the line of Mike Mayo with CAS [ph].

Hi, I have two questions, one easier and one, I think harder. But the easier question is, why did the balance sheet grow as much as it did, up $20 billion? And the difference between period end assets $280 billion versus average assets $235 billion, I mean those are big numbers, so is that risk-off? Is that a bunch of client wins or some other change, and do you think those funds will be sticky?

Mike, it’s Mike. First of all, as we noted in our prepared remarks, the vast bulk of that balance sheet growth, Q2 versus Q1 was in fact an increase in excess deposit, so we estimated that the excess deposits were up, approximately 50% or $14 billion Q2 versus Q1, and that’s on average for the quarter. On your question on the spike at the very end of the quarter, again, we have seen that, the Trust banks have seen that pretty consistently, really over the last year where as funds are looking for a Safe Haven at the quarter end reporting date, we’ve been treated as that Safe Haven. I don’t anticipate that the spike that we saw at June 30 is a [indiscernible] of things to come here in Q3. I would note that the vast bulk of those excess deposits left at the beginning of July just as we’ve seen in prior quarter ends, and in terms of the excess deposits that we have, even on average for the quarter – we would anticipate that the majority of those excess deposits would likely move to a different place as short-term interest rates go up. Obviously we haven’t tested that hypothesis yet because short-term interest rates have been particularly sticky and particularly well.

And then my other question relates to – how much is the negative operating leverage for 2014, a statement on statutory [ph] versus the environment? It’s been 3.5 years since you had the IT and Ops program and 3.5 years later we’re hearing negative operating leverage. In your defense that I’ve heard you say is, look interest rates are lower if longer that hurts NII, the regulatory environment is tough for that hurts the expenses. On the other hand, I note that headcount is kind of flat year-over-year, at least in the first quarter at 29,500, and I’m just wondering how much you have left of $575 million to $625 million of savings?

Mike, on that last question, we do anticipate the – getting the stub expense saves of $50 million in 2015 as we fully capture the rest of the run rate from IT and Ops translation. The other headwind that you didn’t mention that I would add has been FX volatility, I mean FX volatility is at historic lows, that has certainly been fund helpful to us in terms of ability to generate favorable operating leverage because as we talked about the Investor Day, since market driven revenues like FX and like NIR are our highest margin revenues and it’s tough to generate positive operating leverage in that current environment.

So how much have you actually achieved of the IT and Ops of the $575 million?

In terms of the run rate, we’ve achieved on a run rate basis for the savings that we anticipated for 2014. So I – we’ll obviously capture the saves in Q3 and Q4 but they are already in the Q2 run rate. So again, we anticipate the stub of $50 million in 2015 but at this point we’ve achieved a run rate savings for 2014.

And Mike, I would just try to raise this up a level. The – you know, we’ve had some success with operating leverage. We’ve got a little bit of expense headwind that we talked about with regard to regulatory but if you look at – I’d say a real positive as the service fee, management fee, and if you look at the sustained – that kind of recurring headwind, it’s really the net interest revenue. I mean, if you look at the impact that has had on a Trust bank, as for us the percentage of revenue and the fact that that’s been grinding down over the last couple of years. We really need a turn in that, volatility would help and then I look at the health of the core service fee line, and that makes me feel pretty good. So I think in that grinding down interest rate environment, we’ve been as you’ve pointed out, becoming more efficient, that doesn’t go away, that’s embedded into who we are. Little bit of help on the rate side and the volatility side would turn operating leverage pretty quick, we’re trying to get there without that.

And then last follow-up, just – the headcount, it was 29,530 in the first quarter, what was it this quarter or if you don’t have the exact number, how are you thinking about headcount because with all the initiatives that you’ve undertaken it’s hasn’t really gone down.

Mike, I don’t have that headcount number rate at my finger tips but I think importantly, one of the things that we’re looking at carefully is around the headcount for regulatory compliance costs, relative to that trade-off with outside consultant. So we’re really trying to manage the overall velars [ph] as opposed to artificially trying to push the headcount number down which would likely show up as higher consulting expense.

The other thing I would say which I don’t think we look for but I look at intensely internally is where that headcount is located, and it’s been a steady migration of that headcount from higher cost locations to lower costs locations. So while the FTEs maybe the same, the cost per FTE is continuing to go down on a conscious basis.

And they keep one regulation, maybe that’s the different stroke – and more in regulation and less elsewhere, maybe that’s being masked?

Yes, Mike, again I wouldn’t try to give you a specific number at this point because again, I mean, we’re – in effect virtually all of us are spending more time on regulations that are trying to do a precise analysis of the FTEs related to regulatory compliance, other than saying it certainly is up, I would not try to quantify that number, I think it be past precision.

Alright, thank you.

Your next question comes from the line of Jeffery [ph] with Autonomous Research.

Hello. When you think about the Feds stuff in next year, how do you think the mechanism of tightening, whether it’s raising interest of reserves, reverse repo rates, doing something else is going to impact customer behavior than NCL, balance sheet [ph]. Do you think it matters what option they go for?

Sure, Jeffery, it’s Mike. First, we do expect that we may see some Fed tightening next year which ideally would lead to higher short-term interest rates, that certainly has the potential to help out our net interest revenue for next year. In that kind of situation as I said earlier, we do anticipate that perhaps a large chunk of the excess deposits that we had on our balance sheet at Q2 would migrate off the balance sheet and find a different home. And while there would be a small negative impact from that in IR, I would remind you that we’re only earning approximately 20 basis points of net interest margin on those access deposits, so that impact I would expect to be manageable and probably more than offset by the favorable impact of an increase in short-term market interest rates. And of course, longer term Jeffery, that’s also helpful – some shrinkage in the excess deposit is also helpful in terms of managing our capital ratio. So again, net-net I would view that as a positive impact if that happens in 2015.

I think there – it’s an insightful question because you’ve heard from the Fed – I think they signaled pretty clearly that it could be different this time around with regards to using other tools other than just rate tightening, paying more in excess deposits, using repo. I mean, I think Mike’s right which is – as rates go up, funds will find better uses for their excess deposits than State Street. On the other hand there is a point at which if the Fed increases the rate that they pay in excess deposits, it will depend on where overall rates are, that could be a real positive for us if given the excess deposits we’re holding if the rates go up on that.

And then how does those deposits are actually seeing impact on LCR, is there any impact or is it just a wash because you lose the high liquid assets or those deposits are assumed to go out anyway under the LCR calculation?

Yes, we would expect that to be a wash Jeffery because as you said, the excess deposits are assumed to run-off at 100% in the calculation.

Thank you.

Your next question comes from the line of Cynthia Mayer with Bank of America. Cynthia Mayer – Bank of America: Hi, thanks a lot. You mentioned some costs associated with installing net new business in 3Q and I’m just wondering is that more than normal and why you would call that out. And I guess bigger picture question is, do some types of wins like alternatives require more upfront costs than others, and what is your mix shift mean for your upfront costs of installation?

I think to the first question Cynthia, we always call it out, I think the nature of – I think what Mike was getting at is the nature of, when the revenue is driven by service fees it comes with certain amount of cost, generally implemented at business but supported on an online basis. With regard to the amount of upfront cost, it really is probably less relevant to – whether it’s a traditional alternative or a pension fund and more related to the size, sophistication, or the implementation itself – I would say in a more simplified traditional implementation is called a quarter – a two quarter which is probably 70% of the new business. This tends not to be an extraordinary upfront – there is some lead expense. In that 30% where you have large sophisticated multi-jurisdictional implementations, DFA comes to mind, most recently – there is a little bit more upfront cost which would precede the implementation. Cynthia Mayer – Bank of America: Okay, great. And then, more big picture question on regulatory costs. I think – way back when you guys used to talk about regulatory pressures as also a business opportunity because you’re clients are seeing it too, and it seems like the commentary has really shifted too. You guys are getting hit by a lot of regulatory costs but we’re not hearing so much about whether you’re still seeing it as a business opportunity for your clients. I mean just wondering, are you still seeing it as an opportunity or is it the type of regulatory costs that are just really different lawyers [ph] etcetera from the type of services you provide. Do you still see that as an opportunity?

Yes, absolutely Cynthia. And in fact, I would summarize that the banks are ahead of the investment managers in the pension funds with regard to what I call a regulatory tsunami that’s coming. But when you look at our investor services business that have requirements for risk management, for compliance, for reporting, for data aggregation, it is extreme. We organize in the last year a new set of activities under what we call global exchange which is designed to focus on that opportunity and it’s been very active. Customers in the investment management and the asset owner segment are really struggling with their ability to get their arms around that data that feed compliance regulatory risk management system. So, I would say the opportunity is ever present and it’s probably bigger prospectively because of this lag effect of banks that are being first through the pipe here. Cynthia Mayer – Bank of America: Okay, great. Thanks a lot.

Your next question comes from the line of Jim Mitchell with Buckingham Research. Jim Mitchell – Buckingham Research: Hey, good morning. I’m just going to dive a little bit more into the custody fees. I think the sequential improvement was – or is the biggest we’ve seen since the end of 2012, you highlighted the increased activity levels being about $5 million but the rest seemed to be from new business wins in market. Can you give us a little bit more – I think here you’ve highlighted emerging markets as a big driver on the downside in the fee rate, it seems like we’ve got a little bump on the fee rate this quarter. Is that the biggest delta X – the pickup in volumes or what else is driving that big sequential jump? And, I guess I’m just trying to get a sense of how we think about momentum into the third quarter.

Sure, it’s Mike. First, yes, the single biggest help in that ratio of fees to assets as you correctly concluded was the mix shift change into emerging markets that was particularly helpful to us in the quarter. Now – again, I would emphasize just as we have in prior quarters that we do think that ratio of fees to assets is relatively imprecise nature but to answer your question factually, yes, that mix shift plus the $5 million sequential improvement in transaction fees was the – what I would particularly highlight there. Jim Mitchell – Buckingham Research: Okay, that’s helpful. And then maybe just a follow-up on the deposit side, I mean, I appreciate your comments that most of the deposits is a runoff. But I think we’ve said that for four quarters in a row and the average balance sheet is growing every quarter. So have you guys – is there any insight on what’s driving this dramatic – sort of quarter-over-quarter growth that we’ve seen over the last four quarters. And, what’s your conviction level that it does run off and stay off because it seems like we’re always continuing to raise our balance sheet expectations going forward?

First of all, Jim, we are yet to see a period where market interest rates have increased, so we have to test the hypothesis that what happens to these excess deposits if short-term rates rise. We do have conviction that those deposits will likely find it more economic to find a different home in that environment but until we test that hypothesis with some real data, there is not much else we can do to prove it to you. And as a result, the Trust banks continue to be Safe Havens at quarter-end for a number of our clients. Jim Mitchell – Buckingham Research: Right, fair enough. And are you assuming – did you disclose that your assumptions are for the remainder of year on your balance sheet side in terms of your NIR forecast?

Yes, it assumes that the range that I provided in the prepared remarks assumes a flat level with average Q2 levels. Now, again – there is going to be variance around that, I don’t know whether it will end up being plus or minus but given that we only earn approximately 20 basis points of net interest margins on those excess deposits, I don’t think that will be a significant overall factor NIR for the full year. Jim Mitchell – Buckingham Research: Right, okay. Thanks a lot.

Thanks.

Your next question comes from the line of Brennan Hawkins with UBS. Brennan Hawkins – UBS: Good morning.

Good morning. Brennan Hawkins – UBS: Just a quick question on the planned preferred equity capital raise that you guys have mentioned in the past, any change to your thinking around that or any clarity on timing?

Sure, no – the short answer is, no change in our thinking around the prefs. We do believe that ultimately we will issue at least another $500 million of prefs in order to optimize the ratios under the Basel III risk based capital ratios. So – and in terms of the timing, we’ll continue to look at market conditions and a number of other factors, at this point I wouldn’t have anything else to communicate on when the timing of that ultimate $500 million. Brennan Hawkins – UBS: Okay. And then a quick one, I know we’ve sort of beaten the hell out of this dead horse but I want to give it another shot. I hear you that the environments been rough and it doesn’t exactly bode well as far as the operating leverage, but we’ve been saying that for a while and continuing to wait for the revenue environment to get better can probably feel like we’re waiting for gondola [ph] here. So, what – do you all have something in mind where there is some sort of line to cross that would get you more aggressive to think about another cost cutting program? How much – how can we think about how much flexibility do you have in your expense base? I mean, from the color I would think you really don’t have any but sometimes you find when push comes to the show that there is greater flexibility than you had previously thought off. Is there any way that you can help us think about that?

Brennan, let me give it a shot. The – we’re trying to strike the right balance between investing and in spite of all this pressure that we have, we are investing. If you look at IT as just a proxy for that it’s been pretty consistent throughout that and we think that this period will at some point change and rates will go up and volatility would change. In the meantime, we’re trying to scrape along and extract some operating leverage plus still spending for the long-term. And, so there is always expense leverage but we’re trying not to take away from the future. So we’re trying to manage expenses to create operating leverage which is our goal for this year. And – that’s how I respond to that. Brennan Hawkins – UBS: Okay, thanks.

Thank you.

Your last question comes from the line of Gerard Cassidy with RBC. Gerard Cassidy – RBC: Good morning.

Good morning. Gerard Cassidy – RBC: You guys reported that the pretax operating margin improved in the quarter, I think you said to 32%. On the new business, how long does it take for – your new business wins to reach that type of operating margin?

It depends, Gerard – I’d go back to my earlier reference to – let’s say two-third’s, three quarters of the business is more routine, somebody brings up a new fund, we convert a small mid-size pension fund for 30 to 90 days. It doesn’t take long in most cases for us to achieve profitability – target profitability, you have some preparation at a time but it doesn’t take quarters to get to profitability. In the case of the larger and more complex, that might let out a little bit just because of the implementation cost and getting things settled in. So that will be my response. Gerard Cassidy – RBC: Okay. Mike, regarding the LCR, in the proposal there is some changes that apparently are coming to the calculation of the LCR. Have you guys seen or heard of any of those changes, and would they benefit you and that your LCR ratio would actually be greater than where you think it is now if those changes actually come to past?

Yes, Gerard, it’s like – we’re obviously monitoring that situation very carefully. I wouldn’t anticipate that having a major impact on the comments that I made earlier in terms of the impact but I don’t want to try to speculate anymore than that until we see what the final roles are. Gerard Cassidy – RBC: Okay. And then lastly, Mike, you talked in your prepared remarks about obviously what the ECD did with the interest rates overnight – overnight rate going to a negative number and you’re exploring different options now or considering different options, as well as monitoring the competitors. What are some of the options that you guys are considering if that actually becomes more negative or just stays this way for an extended period of time?

Gerard, this is Jay. If market rate actually went negative we could charge for deposits and that’s not unprecedented, we’ve done that in two European markets over the course of last couple of years. And – that’s one option we could – we minimally have conversation with customers that are leaving deposits and explain that the economic predicament and help them determine whether they want to continue to leave deposits with a cost or find some other economic option to that. But it’s not unprecedented, we did it in Switzerland and one other market, in Denmark, over the last couple of years, actually charged for deposits. Gerard Cassidy – RBC: Great, I appreciate the insights. Thank you.

At this time there are no additional questions. I’ll turn it back over to management for closing remarks.

Thanks, Stephanie. And we would just thank you for your participation today and look forward to talking to you at the end of the third quarter. Thanks.