Good morning, ladies and gentlemen, and welcome to State Street Corporation’s Second Quarter 2022 Earnings Conference Call and Webcast. Today’s discussion is being broadcast live on State Street’s website at investors.statestreet.com. 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 on the State Street website. I would now like to introduce Ilene Fiszel Bieler, Global Head of Investor Relations at State Street. Please go ahead, Ilene.

Thank you. Good morning, and thank you all for joining us. On our call today, our CEO, Ron O’Hanley, will speak first. Then Eric Aboaf, our CFO, will take you through our second quarter 2022 earnings slide presentation, which is available for download in the Investor Relations section of our website, investors.statestreet.com. Afterwards, we’ll be happy to take questions. During the Q&A, please limit yourself to 2 questions and then requeue. Before we get started, I’d like to remind you that today’s presentation will include results presented on a basis that excludes or adjusts 1 or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our slide presentation. In addition, today’s presentation will contain forward-looking statements. Actual results may differ materially from those statements due to a variety of important factors such as those factors referenced in our discussion today and in our SEC filings, including the risk factors in our Form 10-K. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them even if our views change. Now let me turn it over to Ron. Ron O’Hanley: Thank you, Ilene, and good afternoon, everyone. This morning, we released our second quarter financial results. The second quarter operating environment continued to be impacted by the ongoing geopolitical events in Europe and the notable macroeconomic environment. The associated price and wage inflation, rising interest rates, years of recession are driving declining equity in fixed income markets, currency volatility and concerns over market liquidity. These factors created a number of fee revenue headwinds for our businesses. Despite the adverse market conditions, State Street performed well in the second quarter with a strong balance sheet and good sales momentum while delivering strong…

Thank you, Ron, and good afternoon, everyone. I’ll begin my review of our second quarter results on Slide 4. We reported EPS of $1.91 or $1.94 excluding acquisition and restructuring costs as detailed on the panel on the right side of the slide. As Ron noted earlier, the operating environment in the second quarter remained challenging, largely characterized by continued market volatility related to macroeconomic events and continued geopolitical uncertainties. As you can see on the left panel of the slide, strong growth in both net interest income and FX trading enabled us to partially offset significant headwinds from lower equity and fixed income markets in the quarter that impacted other fee areas. Also evidenced by today’s results, our approach to expense management remains very disciplined and deliberate. On a year-on-year basis, second quarter expenses were down even as we experienced higher-than-expected wage increases and continue to thoughtfully invest in the franchise. Lastly, you’ll see that in the second quarter, we had a lower-than-expected tax rate. The bulk of the discrete tax items that contributed to our lower taxes were due to the reassessment of a deferred tax asset worth roughly $60 million. All things considered during the quarter, our business model demonstrated resilience against the challenging backdrop. Turning to Slide 5. During the quarter, we saw period-end AUC/A decrease by 10% on a year-on-year basis and 8% sequentially. Amidst continued and uncertain economic conditions, the year-on-year change was largely driven by lower period end market levels across just about every equity and fixed income market around the world, partially offset by net new business and client flows. The quarter-on-quarter decline was largely a result of the same lower period end market levels, as we’ve also started to see industry outflows from investment products as the risk off sentiment continues.…

[Operator Instructions] Your first question comes from Glenn Schorr of Evercore.

Thanks very much. In your prepared remarks, you talked about 2Q management fees driven by markets, other step up, also a client-specific pricing adjustment. I just wondered if you could just give us a little more color on that. So we don’t know if it’s a one-off or could be other adjustments going forward?

Sorry, Glenn, and sorry you’re breaking up on the audio. Could you -- I got bits of that, but could you repeat that, please, for the...?

Absolutely. In your prepared remarks, you mentioned 2Q management fees driven by markets, which is obviously going to happen. But you also said client-specific pricing adjustment. I wonder if you could give a little more detail, say, the size and what kind of adjustment that was just in case we should be thinking about that going forward?

Sure, Glenn. Let me try to cover that. And I think you’re focused on servicing fees and management fees. So let me do them both so that we have a little bit of context for you. On Page 6 of the materials on servicing fees, about the impact of client activity and adjustments. And on a year-on-year basis, largely due to the kind of lower levels of activities and sometimes that comes through with lower markets, that was worth about 1 percentage point of headwind on a year-on-year basis and about 2 points on a quarter-on-quarter basis for that. On management fees, there was a series of impacts quarter-on-quarter. Most of that was driven by market. There was 1 client that we called out but that would have been worth at most 1 to 2 percentage points of fees for that quarter.

Okay. And then I have just -- I know this would be included in your guidance but I’m looking for a little color. When markets -- I remember when they used to go up all the time, you keep temporary enthusiasm on fee rates -- on fees in general, servicing fees because some contracts have ceilings in them. My question is, if and when we continue any downtrend in these markets, do those same contracts have floors? Should we expect more stable servicing fees if and when the markets continue to drag lower? Ron O’Hanley : Glenn, I’ll take that. You’re accurate. We have a small number. They tend to be very large clients where you just do hit the top of the fee schedule or even in some cases, the fees continued to tail down. I don’t think we’re close to that yet in terms of that being meaningful. So I wouldn’t expect to see that being a factor in the near term unless we see a much more significant kind of market downturn.

Okay. Thank you. Ron O’Hanley : Operator, the next question.

Your next question comes from Ken Usdin of Jefferies.

Ron, just following up on your opening remarks and what we saw on the forward-looking statements. Just as you go forward and try to negotiate, I guess, just -- how do you think through your optionality, meaning that, of course, a price concession is probably your best outcome. If you can’t get one, is that a go-not-go decision right there? And then if for some reason, you do walk away one side or the other, what becomes your next immediate steps in terms of either capital strategy or a go-forward strategy? Thanks. Ron O’Hanley : Yes, Ken, we’re very much in the midst of this. So I don’t want to get out ahead of it. Firstly, we remain committed to the combination on a strategic basis. But given that we foresee this being restructured in a way that it changes some of the operating model, some of the circumstances change. We do believe -- well, we know we believe some kind of a price adjustment would be warranted. I don’t want to get ahead of where we are in discussions with PBH. They remain very amicable and both sides are committed to making this happen. We’re committed to -- we like the business. We like the get there, then there’s a lot of options, and we come back to you at that time.

Okay. That’s fair. And then secondly, Eric, on your NII update, the new guy. Just wondering how much of that update is a new curve? And if you can help us understand where you are on that? And what are you getting on new securities yields now versus what’s rolling off the back book?

Yes, Ken, the uptick in the NII guide, I think probably both for the third quarter and then the full year, which we’ve updated is primarily driven by the higher yield curve and expectations in the U.S. plus some expectation that the ECB is going to start to seriously raise rates in the third quarter. And we’ve said that once the ECB crosses 25 basis point positive rate threshold, that begins to be accretive. So I think those are the major drivers. On investment portfolio yields, I think you see that in our average balance sheet. They are up on average, almost 15 basis points quarter-on-quarter. And you will expect that, that kind of increase will continue to flow through the books. To the question of exactly what a new security comes in at versus an old security rolls out at, I think the best way to estimate that because it will vary by different parts of the book, whether it’s the treasuries, whether it’s the MBS, whether it’s the foreign securities is we’re basically replenishing securities that have an average duration of 2.8 years. So you can kind of see what an older security with that vintage would look like and compare it to what’s in the market today. And you’ll see a nice pickup, and that’s what’s flowing through and giving us the kind of quarter-on-quarter increase on average that you saw this quarter. And we’ll expect to see another increase on average in that order of magnitude in the third quarter.

Your next question comes from Betsy Graseck of Morgan Stanley.

A couple of questions. First, just on the discussion around the forward look. I wanted to make sure I understood what types of things are being looked to change? Is this a function of you need to keep more data servicing processing within certain countries to satisfy regulatory requirements? Or is there something else that’s more not operational but more around what parts of the business you can do? I’m wondering if it’s an expense issue or if it’s a revenue opportunity issue.

Betsy, it’s Eric. Those are all the kinds of areas we’re working through. And I think the heart of this when you do a banking deal, a global banking deal, this sort is the legal entity structure. And you obviously know we run a holding company, a bank, a series of banks and there’s a series of entities that we have around the world. And obviously, creating a workable and a good path of combination can be done in different ways. And part of what we’ve been working through is modifications on what might have been our original plan to make the transaction workable and attractive. That then has some ramifications to your point on the operating model that will have some amount of effect on perhaps the pace of expense -- or pace of expense or revenue synergies, and that’s what we’re working through. What we have said, and we’d want to reiterate is that we are committed to finding a way to preserve the economic accretion that in the range that we had previously disclosed back in September. And so we’re highly focused on that. And as a result, there are some changes that we’re seeking on the transaction that including price that Ron mentioned.

Okay. And then you get this in front of regulators but if they don’t agree by September 6, you’ve indicated you want to close by the end of the year. How should investors think about what you’re expected thought process is going to be between that time period September 6 to 31? Ron O’Hanley : Yes. Betsy, it’s Ron. I mean the September 6 date, it’s basically the 1-year anniversary for the deal. And like a lot of transactions, they have an outside limit. So the way you should interpret that is what we’ve said is both parties remain committed. We’ve got to work through things. I mean the regulatory world and the political world has changed significantly since we announced this deal and what we’re looking towards as a way to breakthrough and close it in a reasonable time period, and this time period doesn’t seem reasonable to anybody, but it’s actually better than some of the alternatives that we’ve been faced with. So if you think about the September 6, it’s an existing date. And assuming everything is going along fine and parties are agreeing, then we just agree to an extension of that to the close date.

Got it. Ron O’Hanley : Just disclosing and reminding everybody what the terms of the transaction are.

Okay. No, that’s helpful. And then just last for me, is I think you mentioned that given the restructuring of the balance sheet that you’ve made and the success with that, that you’re now comfortable with running potentially below management targets for CET1 SLR. Could you remind us what the targets are and how much below you’re willing to dip?

Sure, Betsy, it’s Eric. I think the best place to see our capital ratios and targets is on Page 12 of the presentation deck. You see our -- what I’ll call our standard CET1 targets, our 10% to 11% are standard leverage -- Tier 1 leverage targets of 5.25% to 5.75%. And what we’ve done, as you mentioned, is we’ve dramatically reduced the volatility risk from OCI which means that we’re quite comfortable running below that. Directionally, that means on CET1, for example, could be up to 50 basis points below that. While we run at much lower risk and volatility levels in OCI and on a leverage basis, it tends to be about half of the -- of that amount.

Your next question comes from Brennan Hawken of UBS. Please go ahead.

So Eric, you referenced that you were considering some adjustments to the pricing model which make a lot of sense. Obviously, we’re dealing with a very inflationary environment. Have you begun those discussions? And what has been the reaction from clients so far? Are you hearing from some of your clients that some of the competitors are also making similar moves just to be assured that you’re not going to be out on your own pushing in that regard because it’s normally when we think of pricing, of course, in the custody world, we typically -- it’s typically a tougher place to get price increases. So kind of curious about that. Ron O’Hanley : Brennan, it’s Ron. Why don’t I start on this and Eric will fill in. We’re early in this process, but yes, we have been out with clients and walk through our planned price increases with a few clients at this point. And there’s a whole plan as Eric alluded. It’s around the areas where we’ve got the most inflationary pressure which might be specialty areas, areas where there’s limited capacity in the marketplace, areas that are just growing very rapidly. And interestingly, the earliest ones have been in some ways, I think clients were not surprised that it was coming at them. So I’m not saying that’s the way it’s going to be. None of us enjoy paying more for something today than what we paid yesterday. But we’re going at this in a very fact-based way. These tend to be sophisticated institutional buyers, and they know what’s going on. So I can’t speak for what others are doing. I just don’t have a feel for that. But we’re running our business in the way we believe we need to. And we think this is an important component of it.

Okay. Thank you for that. And then when we think about the -- you laid out, Eric, the expectation around ECB and whatnot. But as we see potential policy rates in different parts of the world diverging. Could you give us a reminder about the currency mix of your deposit -- of your deposits as it stands now? And whether or not you expect in the next -- in the foreseeable future, that to shift at all as yield differentials widen between different currencies? Thank you.

Sure, Brennan, it’s Eric. And we actually added some additional disclosure in our addendum, our financial addendum this quarter. You’ll find it on Page 8. That actually breaks out the balance sheet, including the total assets, the investment securities and deposits by the major currencies, USD, euros, pound sterling and so forth because we are quite focused on navigating this interest rate environment. To be honest, securing the benefits of interest rate increases around the world, right? We position the balance sheet currency by currency. We have pricing plans and betas that are carefully developed currency by currency. I don’t think we expect a lot of change in the composition of the balance sheet. I mean, the U.S. is clearly -- the U.S. Central Bank is clearly moving much more quickly, and with not only interest rates, but quantitative tightening. And that will potentially have a downward trend on U.S. currency deposits. On the other hand, with U.S. rates prevailing rates higher than what you see around the rest of the world, there’s a natural draw into the U.S. from global investors. So it’s hard to -- I think it’s hard to actually forecast the currency composition and the deposit levels given those movements. But we’re well prepared. And in fact, some of the interest rate or some of the NII increases that you saw this quarter are coming not only by virtue of the U.S. rate rises, but also those in pound sterling and some of the other Anglo-Saxon currencies. And we’re positioning currency by currency as a result.

Your next question comes from Jim Mitchell of Seaport Global.

Eric, maybe just on the securities portfolio. You had a pretty big shift into HTM to derisk the AOCI. But I’m just looking it does have a materially higher yield. Is there something to think about in the HTM portfolio that you’ve kind of locked in longer duration or it’s a little more credit risk in there. How do I think about the HTM portfolio versus AFS and how that can evolve? Does it hold back NII sensitivity or not?

Jim, it’s Eric. We’re quite careful about managing our NII sensitivity holistically across the book. I think what you’ll see is that because we use HTM to protect against interest rate and AOCI volatility, it’s more natural that if we have a blended book of short-, medium- and longer-term securities that we would move more of the medium and longer-term securities into HTM because thereby, we get the most protection while we give up the least amount of sale optionality. So that’s why you’re just seeing a higher yield. I think you’ll see that generally be true, and you can follow that in our disclosures accordingly.

Okay. Great. And then when I think about the yet to be installed business, I mean it continues to grow. I know there’s a long tail to getting those installed. But are we at a point where this -- mean I think we’ve looked in the past, and I think we all get a little frustrated that we see these big wins, and it’s hard to determine or see it in the numbers. Are we at a point where this is getting to materiality and that we could see a nice acceleration inorganic growth next year when this stuff gets installed?

Yes. I think you’ve got the right broad time frame. I mean the -- I guess the way I would describe it is the larger the deal, the more complex and more transformative it is for our clients, right? That’s the -- they’re fundamentally changing their operating model, they’re harmonizing systems and processes, and we’re co-investing with them to build for them a front, middle and often back-office model that will suit them for a decade or more. As you think about the $3.6 trillion of AUC/A to be installed, 2023 is an important year. We expect that about 1/3. This will move around, but about 1/3 will likely be installed by the end of that year and perhaps as much as half of the revenue associated with those wins.

Your next question comes from Brian Bedell of Deutsche Bank.

Eric, if you could just repeat that comment on the 1/3 of the $3.6 trillion. Was that by the end of next year did you say? I just missed that.

Yes, that’s correct. By the end of 2023.

Got it. Just back to the BBH strategy. So good to hear that you’re both committed to this. If it -- if you are able to close it with any amended terms and amended structures, can you just remind us or I guess if you have comments on the deposit strategy, which was obviously bringing the BBH deposits on balance sheet? And then there was an opportunity to bring potentially a large portion of balances over out of -- from their $60 billion of off balance sheet or third-party bank, I should say, arrangements. Is that -- would that still be doable? Or does the structure change that calculus?

Brian, it’s -- we’re still in the process of nailing down both the legal entity and the operating model changes, and we’re working through those and working towards developing a firm view of when and how the deposit and sweep program is operated, and how we may in the future, use that program, take advantage of some of the cash and deposit optionality. But that’s in process at this point. And we’ll certainly provide an update in the course of the third quarter I expect as we nail down the modifications.

Yes. That makes sense. And then maybe just excluding BBH and just looking at everything on a State Street-only basis, should we be thinking do you think in this cycle, we should be thinking of deposit runoff to be sort of similar to the last cycle? I think we were down more than 15% in average deposit levels from start of Fed hiking to the trough in 2019. Is that a reasonable starting point to think about that deposit runoff? Or is something different in the cycle that would make you think that you wouldn’t have that?

I think the last cycle is always going to be indicative, but you remember, there were moving parts in the last cycle, including the SLR rule was in flux and there was -- we -- many of us on the banking side had to navigate the size of our balance sheet independently what was happening at the interest rate environment and quantitative tightening. I think what I’ve said in the past is relevant over the -- since the kind of the pre-COVID time period, our deposits are up roughly $60 billion. We think that half of that can easily be ascribed to the quantitative easing that we had, and that will reverse out. Now that’s estimated. It’s always hard to forecast this because the interest rate environment is moving up quickly. There is also risk off environment. So we’ve got to see how that plays out. I’ve said that we could see $6 billion to $10 billion of outflows per year per $1 trillion of U.S. balance sheet tightening. I do think because the interest rate environment is higher and has moved faster, right, we’re likely to see closer to the $10 billion per $1 trillion in the first year and then maybe lighten out in the second and third year. But those are all the scenarios we’re working through. I think from our perspective, we’re extremely flushed from a liquidity standpoint. The deposits are valuable, so we’re monetizing them for the purpose of the P&L. And we expect over time to be able to only get to the higher levels of NII that we have in the past. I think we were in the $695 million range with our peak during the last cycle, I think our forecast -- and it’s hard to forecast this perfectly. But the forecast that we’ve built put us at or above that level in this next cycle. And part of that is that while there is some tightening and erosion of total deposit levels, you also have higher U.S. rates, higher global rates and in particular, we’ll have a move in ECB and European rates, at least based on the current forwards.

Sure. Your next question comes from Steven Chubak of Wolfe Research. Please go ahead.

So Eric, I wanted to better understand just some of the guidance items that you outlined specific to both fees and expenses. And on the fee side, certainly, the guys that you offer suggest greater resiliency compared with some of the more acute declines that we’ve seen in some of the market proxies. Just want to get a sense as to what’s driving that better outcome? And specific to expenses, I was hoping you can give some bookends in terms of what range of expense growth we should be contemplating? You cited inflationary pressures multiple times, the need to maybe revisit pricing with some of your clients, but you also have some FX tailwinds. So I was hoping to get some perspective on what sort of expense growth range we should be thinking about for the remainder of this year?

Sure. Let me start on fees. The real environmental challenge is if you just extend out the current spot levels of that equity markets are sitting at, the average -- the daily average for third quarter is going to be down 7% to 8% versus the average for second quarter. And that’s the basis by which we earn revenues both in servicing fees and management fees. So that’s the headwind that we have. We’re hoping that some of the market related -- the lumpy sub that we have in other revenues doesn’t repeat and that might give us a little bit of insulation. So that’s why I said servicing and management fees could be down the 4% range sequentially, but total fees, perhaps closer to 2%, So less so. And obviously, volatility levels in markets help currency trading and other activities. But we’ve got to play out and see how the summer months happen. I think on expenses, I’m just trying to guide quarter-by-quarter. I think if you add up first quarter, second quarter, the guide of just under 1 percentage point for the third quarter. And you can put a range around that and estimate fourth quarter. And so we’re -- I think that’s what we’ve done from a guidance standpoint. I think what we are willing to say is because we have kind of an overall view of fee revenues for third quarter, we can guesstimate into fourth quarter as can you. I think NII, we have quite a solid view of the full year, which we’ve provided. We’re comfortable of saying and we said in our prepared remarks that we expect to drive positive total operating leverage for the year, adjusted for notables. But we feel confident in that given the current market environment. And part of that is we have some visibility, as we’ve described on fees, a good bit of visibility on NII. And to be honest, while there are some wage and inflationary pressures because the P&L is lighter, we’ve proactively adjusted the incentive line to compensate for that. And we’re committed to navigating through this environment in a thoughtful way and deliver results that are as positive and as appropriate as possible.

That’s really helpful color. And just 1 follow-up on the -- some of the expense commentary Eric, you offered. One of the questions we’ve been fielding from a lot of folks pertains to the longer-term expense growth algorithm. You guys have done a really good job of reining in expenses on an absolute basis over the past few years. Clearly, the inflationary pressures are starting to build as we think about your efficiency agenda that you guys have prosecuted on, but at the same time, the inflationary pressure is building simultaneously. How do you see that expense growth algorithm evolving over time?

Yes. And I think we’ll know more over the course of the year, but I think there are some inflationary pressures, some of which we can look for ways to at least limit, but we can’t really avoid. So let me give you an example. On the $8 billion expense base that we have, about $2.5 billion of that is salaries. Now salaries historically have moved up about 2 percentage points a year, maybe 3 but right now, if you look at merit increases, the higher salary replacement rates for new hires versus exits, bidding back selectively talent, salary costs are up closer to 4% to 6% on a run rate basis on a base of $2.5 billion. So you could do the math there and start to get a sense that, that creates an additional headwind that we didn’t have and that headwind could be worth an extra point of expenses on the total $8 billion base. It’s that kind of environment that we’re operating in. I mean we need to see if that persists into next year. Do we have a recession or not, what happens to labor markets. And then the other part of that is working through where we are on non-comp expenses, where vendors come to us sometimes and say, look, we feel the need to adjust, and we’re obviously trying to manage and rein that in. And I think that’s another factor. So I think we see some of those. We’re trying to telegraph them, but we’re also committing to -- committed to achieve and deliver on our medium-term targets. And some of that’s going to be by finding in some ways to maybe limit or contain or offset. But in other ways, they may come through. The interest rate environment will give us a tailwind. And then you heard us describe some of the selective changes that we’re discussing with clients around pricing and top line pricing. So there are a number of different factors. I think I’m not -- it’s early to give a fulsome view of what next year portends. But I would say that we’re conscious, we’re in a elements that we can control and others that aren’t as controllable. But we’re also committed to getting to our medium-term targets. And I think that provides a good set of goals for us and that we’re committed to. Ron O’Hanley : Yes, Steve, what I would add to that is that throughout this period that we’ve been managing expenses over the last several years as we’ve been quite clear on, we’ve also been investing in the business, particularly around automation and technology. There’s still payoffs expected from that. We’ve seen some. There’s more in the future. So the other bit of this we’ll be continuing to manage that algorithm between how much we continue to spend on automating more to get the future productivity savings.

Your next question comes from Gerard Cassidy of RBC Capital Markets.

Hi, Ron. Hi, Eric. Guys -- maybe Eric, you’ve, in the past, given us an update on the variable rate pricing of your fee revenues. What percentage of fee revenues today would you consider variable pricing, which are greatly influenced by market levels, of course? And second, and Ron, when you talked about -- talking about price increases for some of the products for your customers, is that for both the variable rate type pricing as well as fixed rate pricing?

Yes. Let me -- Gerard, let me start. Our pricing schedules, there’s a lot of history behind them on the servicing fee side. I would say that -- and we disclosed this in our Q with some specificity, but about half of the revenues earned through the servicing fee schedules are market level dependent. So the kind of assets under custody levels. There’s then a portion that is driven by transactional or activity of volumes and then the balance is fixed. So there is a mix. And that’s what you’re seeing flowing through the P&L at this point. They are complex schedules. They -- you can measure them with a ruler in some cases, just because they span the world. They expand products and regions and entities and often have some history associated with them. But that’s a broad basis. Ron O’Hanley : Yes. And then, Gerard, just the second part of your question, are we going at the asset-based fee, the variable fee or the fixed fee? I mean, it’s a little bit of both. And again, we’re trying to be reasonable firstly, to our clients, but also to ourselves and really tying this to where there’s real inflationary pressures. And also recognizing that we have a commitment to generating really good service for our clients, right? Service better than our competitors. So it’s less about is that the variable or the fixed, it’s where are we having these pressures and therefore, where do we need a price increase.

Very good. And then just as a quick follow-up, Eric, in the held-to-maturity portfolio, the duration was 2.8 years, as you pointed out. Can you share with us the OCI accretion back into capital? About how many basis points a year do you think you’ll see in that? And then second, what’s the average yield of that HTM portfolio today? Thank you.

Sure. Let me do that in pieces. Then the HTM portfolio, I think there’s good data for you and others in the financial addendum. And you can find that on Page 9 of our agendum. The -- we described the AFS portfolio both on average and on an end-of-period basis in the HTM portfolio. And I think in total, the yield on AFS right now is about 91 basis points, on the held-to-maturity about 155 basis points. And that’s just because of the duration that we tend to put in held-to-maturity to protect it from OCI. In terms of the accretion that will come through, we expect the accretion to start towards the fourth quarter, in particular, a little bit in the third and then into the fourth quarter. And we’re looking at accretion in the $100 million to $200 million range of capital. It will bounce around quarter-by-quarter as different maturities come through. But that’s a healthy amount of capital accretion, and that could be worth 10, 15 basis points of capital and could certainly help us fund the future buybacks and other returns of capital to shareholders, which, as we’ve said, we’d like to restart in the fourth quarter and continue on from there.

Your next question comes from Mike Mayo of Wells Fargo Securities. Please go ahead.

First, thanks for changing the time of your conference call, given so much else happening today. So on the pricing due to inflation, I mean, it all makes sense. It’s all logical. But can you actually get that done? We’ve talked for the last 3 decades. Now it seems like you have more of a reason to increase pricing than ever before. Ron, you’ve been on the other side of this, you’re getting the phone call. “Hi, this is State Street. We’d like to increase the pricing by 5%.” And then you’re like, “Well, we’re going to go to these other 3 or 4 or 5 providers.” So how much confidence do you have that you can pass on some of these price increases to your customers? Ron O’Hanley : It’s a good question, Mike. I would say that what’s changed over the years is virtually everybody. You go back 15, 20 years ago, virtually everybody bought the same service. It was custody fund accounting. It was publicly listed markets. It was fairly consistent in playing and it was very easy to do, as you said. I think what’s changed is that even -- certainly, in the medium to large managers, you’re seeing a broad product base, some of which are actually reasonably complicated to do, whether it’s complicated because of the skills required complicated because of the technology that’s required. And it’s in those areas where we’re seeing the highest inflationary pressures. And we think that we offer a superior capability. We think that in many cases, there’s just limited capacity in the marketplace. And we also think that it’s a time where -- that everybody is seeing the same kind of pressure the last 10, 15, 20 years, the world’s been enjoying, in effect, the great deflation. And that’s not what’s going on now. So it’s always dangerous to utter those words. This time is different, so I won’t. But we do think there’s a set of circumstances in a targeted set of areas where pricing adjustments are required. And that we believe that clients will understand. And again, very early reads, but they seem to be.

And as a compromise, are you talking more about compensating deposit balances, like the trust banks had in the past when rates were higher? Ron O’Hanley : No.

Okay. Just why don’t -- we want to get paid more because our costs are up for us and everybody else. And so 1/3...

Mike, that’s on deposits, remember, we’ve been under-earning on deposits against what cost us to hold deposits, which is preferred securities, right, for -- now several years, we barely offset that at the height of the last interest rate increase in 2017 and ‘18. And so -- we’re just trying to get to par on deposit spreads. And obviously, as deposit rates rise, we give a reasonable proportion of that back to our clients. So we do that purposely. That’s part of the social contract. But that feels like it’s going back to a normalized level, the wage and salary and non-comp pressures that we’re seeing are not different than what others are seeing in the rest of the economy. And that on a net basis is quite different.

Okay. That’s good clarification. Thank you. And then just last on that, your cost is going higher. I thought a lot of banks seem to have an advantage just like you. You had $2 billion of expenses, $1 billion in comp, but comp -- and society is going up less than other inflation, right, like food, rent, gas, everything else is going up a lot more than employee costs. And what we’ve been hearing, at least anecdotally, among the banks is that some of those employee cost pressures have been waning in the most recent months and weeks. But what I hear from you is that that’s not the case? Or even if it is the case, you’re still talking about kind of 2x historical growth than in the past? Ron O’Hanley : Mike, what I would say is what you say about comp costs lagging behind other inflationary expenses, I mean, that is true, and that’s typical, right? That’s typically how kind of inflation works its way into and through labor markets. I would say that we’ve certainly seen a much higher than trend pressure on us and I would venture since we’re swimming in the same pool of skills here. I would say certainly with our nearing competitors in -- particularly in the skilled areas that we need. And as Eric noted, in some of the -- when we’re replacing somebody that’s come in at a much or a significantly higher cost than before. Now I think it’s also true that if you believe that there’s a recession facing us or that in any event, there will be less kind of economic growth going forward than what we see now for a period of time. That’s likely to take pressure off it, but there’s still a very real move up in select areas around our expenses. And I actually don’t think it would be different for a comparable institution.

Your next question comes from Rob Wildhack of Autonomous Research.

Ron, just a quick 1 for me. I wanted to ask about the drop in RWAs in the quarter. Could you talk about what the drivers are there? And what kind of RWA outlook or assumption is embedded in your guidance going forward?

Yes. We -- as you recall, Rob, we had, in the first quarter, consciously deployed more RWA in some of our business activities, in particular in trading and in lending, just because we were -- we had a surplus amount of capital and so we put it to work and had some good revenues. This quarter, we’re writing that back in, partly because we were driving -- we were committed to driving our capital ratios upward. And partly, to be honest, we’ve found some opportunities for optimization. So I talked about more of a -- more than a $10 billion reduction quarter-on-quarter. That came across businesses and securities finance that came in the lending book where some of the loans qualified for margin loan treatment, which comes at a different RWA level. And then we had some amount of credit, I’ll call it, sort of credit-light in the investment portfolio that was 100% risk weighted that we allowed to roll off. So there were some tactical adjustments that we made in that -- on that basis. We also tend to have some volatility in RWA. The FX derivatives book can move around by $3 billion, $4 billion, and that was -- that we got a good balance there. So I think about 1/3, I’d say, was of the $10 billion to $12 billion quarter-on-quarter reduction was a good balance, and we’ll take those. But that could actually that $3 billion to $4 billion could bounce back up in the third quarter, and we’re obviously considering that we continue to accrete through the P&L every quarter. And I think we’re quite comfortable with our capital ratio trajectory into the third quarter and also in such a way that we can prepare for buybacks in the fourth quarter as well.

Your next question comes from Vivek Juneja of JPMorgan. Please go ahead.

Firstly, I want to echo Mike’s comments that about changing the timing of the call, I am glad. I would take that 1 step further and say in the future it will be helpful if you even think of another day, so it will be not on such a crazy day for all of us, so we can actually pay a little more attention to it. But moving past that, the price increases that you’re talking about on the servicing contracts, given that these are longer-duration contracts, Ron, when should we expect that they could start to go through? Is it a year out? Or do you think you could actually go -- these could go into effect in a fairly short order? What kind of timing would you point to? Ron O’Hanley : Yes. That it’s a good question. And again, because we’re trying to be very fact-based and tie it to where there’s increases and where we feel we need to do this. The answer is it varies. In some cases, it’s around particular transactions or asset class types where we can institute in other cases. There is an agreement that we need to secure from the client but our goal is to -- I mean, obviously, the pressure is now. So we want to put it in as soon as possible. Again, we’re early in this process. So we’ll see what we accomplished in terms of overall timing. But I think given our approach, which, again, is based on facts and the realities of client situations, we’re optimistic that we can accomplish something here.

There are no further questions from the phone lines. At this time, I’ll turn the conference back over to Mr. Ron O’Hanley for closing remarks. Ron O’Hanley: Well, thank you, operator, and thank you all for participating in the call, and thank you for your support.

Ladies and gentlemen, this does indeed conclude your conference call for today. We would like to thank you all for participating and ask that you please disconnect your lines.