Good morning, and welcome to State Street Corporation Third Quarter 2022 Earnings Conference Call and Webcast. Today’s discussion is being broadcast live on State Street’s Web site 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 in the State Street Web site. Now I would like to introduce Ilene Fiszel Bieler, Global Head of Investor Relations at State Street.

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 third quarter 2022 earnings slide presentation, which is available for download in the Investor Relations section of our Web site, investors.statestreet.com. Afterwards, we’ll be happy to take questions. During the Q&A, please limit yourself to two questions and then requeue. Before we get started, I would like to remind you that today’s presentation will include results presented on a basis that excludes or adjusts one 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, also available in the IR section of our Web site. 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 morning, everyone. 2022 continues to unfold like no other year in recent memory with the challenges faced today arising partly out of, but acutely different from, those the world faced in 2020 during the onset of the COVID-19 pandemic. And while the global operating environment continues to be very challenging, our third quarter results clearly demonstrate the resilience of our business model and our focus on maintaining and further improving State Street's pre-tax margin, which was a solid 29% in the third quarter, excluding notable items.…

Thank you, Ron, and good morning, everyone. I'll begin my review of our third quarter results on Slide 4. We reported EPS of $1.80 or $1.82, excluding acquisition and restructuring costs, as detailed in the panel on the right of the slide. As you know, the operating environment in the third quarter remained challenging with persistent market volatility related to ongoing geopolitical tensions, inflationary pressures, rapidly rising interest rates and concerns about the global economy. Despite these challenges, as you can see on the left panel of this slide, strong growth in both net interest income and our FX trading services business enabled us to partially offset the significant headwinds from lower equity and fixed income markets in the quarter. Additionally, we continue to demonstrate prudent expense management in the third quarter even as we experienced ongoing price and wage increases, while we continue to invest in the franchise. Turning to Slide 5. During the quarter, we saw a period end investment services AUC/A decreased by 18% on a year-on-year basis and 7% sequentially. The year-on-year change was largely driven by continued lower period end market levels across equity and fixed income markets globally, a previously disclosed client transition and the impact of currency translation, partially offset by net new business installations. The quarter-on-quarter decline was largely a result of these same factors. Similarly, at Global Advisors, period end AUM decreased 15% year-on-year and 6% sequentially. The year-on-year decline in AUM was largely driven by lower period end market levels, institutional net outflows and the impact of currency translation, which was partially offset by positive net flows in both our ETF and cash businesses. Turning to Slide 6. On the left side of the page, you'll see third quarter total servicing fees down 12% year-on-year, largely driven by lower average…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. And we'll take our first question from Glenn Schorr with Evercore. Your line is now open.

Hi, there. So maybe just a wrap up question on BBH, and I appreciate all the transparency along the way, but regulators hate it, more complex, market values have fallen. I definitely went with you on the strategic merits. But I guess the question people have is why not just walk away? It seems like you could do some really creative stuff with the capital now. And at what point do you just say, not worth it, not as good creative, too complex, enough said? Ron O’Hanley: Glenn, it's Ron. Maybe needless to say, we go through that calculus that you're describing every day. And that's part of what led to this. Obviously, the regulatory environment is driving the timeframe here. But what's driving our work is that tradeoff, the tradeoff between the opportunity to consolidate on a global basis a very attractive firm versus what's the alternative uses of the capital, including returning it back to shareholders. We believe there's still the possibility that we can get this -- we can structure this transaction in a way that it will work out for shareholders and to achieve that strategic objective. But as we've said in the disclosure, the likelihood of that happening is going down. So I think what you can take away from this is one of the reasons that's driving that decreased probability is the calculus that you're describing.

Okay. Well, I guess we don't have to wait that much longer. So I can chill out for another couple of months. Just one follow-up on, I think you mentioned 60% of the securities portfolio has been moved into held to maturity. It shows in the smaller AOCI hits as rates go up. What's the other side of it? Like can you calculate what the NII give up or any other offsets to moving that larger piece into held to maturity?

Glenn, it’s Eric. We’ve carefully considered what portion of the investment portfolio move to held to maturity and in what amounts. But we do as we make that consideration is the benefit is that you largely don't give up NII, right? By and large, you're earning the coupon on whether they're treasuries or agencies or MBS, just in a different accounting form and structure, but the earnings of the corporation are the same and that's what's quite attractive about HTM. The reason why you wouldn't put the whole portfolio in HTM is partly you want some flexibility, you want from time to time rebalance the portfolio, and you might want to rebalance 5, 10, 15 yards and that takes an AFS construct under which to do it. And then partly you want to make sure that you always have monetization at the front end to maximize and to maintain the liquidity contract you'd like. We've now put that in place. We can repo HTM securities in size. We test that in the marketplace. So we're quite comfortable. But there's a point where you say, look, I'd rather sit on cash or I'd rather sit on available for sale until we feel like we're at a good balance now that really provides a real positive NII trajectory and you see that. We've got it now to 28% to 30% up in NII this year. And I've also started to signal that we're positive on the NII trajectory in 2023, and partly because the entire investment portfolio, whether it's an AFS or HTM is contributing to that upswing.

Thanks, Eric.

Sure.

And next we'll go to Ken Usdin with Jefferies. Your line is now open.

Hi, good morning, guys. I wanted to come back to putting the deal into context with the buyback that you announced, which you would have been clearly saying you'd want to get back into the buyback this quarter. So can you just help us understand the $1 billion sizing and if that has anything to put in context with your thoughts around how the pricing and eventual outcome if the deal goes through might end up coming through? Or is it completely separate and just based on where capital sits regardless of the deal outcome?

Ken, it's Eric. As I said in my prepared remarks, the buyback was larger than anticipated. And part of that is we do two things. We look at our current capital levels, which have trended towards that 13% CET1 mark that we had guided to. Remember that discussion we had in the first quarter. And then because - partly as we consider the capital uses over the next couple of quarters, including the possibility of the Brown Brothers Investment Services transaction. And you would expect us to factor in any downward adjustments or purchase price that we would expect, and that's effectively what we've done. So it's a mix of factors, but those are the components. And I think we're quite pleased. We can now proceed with $1 billion. As Ron said, we're planning on comfortably returning more than 80% of earnings to shareholders next year quarter-by-quarter-by-quarter, which is what our medium-term targets are, and that's still availed us the capacity to do a deal at an admittedly adjusted price if it's appropriate at the time.

Okay. And then on the denominator side, I guess of capital, can you just give us a little color on how you'd expect deposits to traject from here, pretty meaningful decline in both interest bearing and non-interest bearing just relative to where you're ending here, just your general outlook on your thoughts around deposit mix and flows? Thanks.

Yes, I think our deposit trends will probably be in line with some of what you're seeing in the industry. I think we're within that zone of -- if you look at the Fed reports, if you look at other institutions, and we've certainly begun to see that rotation out of deposits this quarter, down about 5%, both year-on-year and quarter-over-quarter, adjusted for currency translation. I think what we have seen over the last year is a series of factors that have impacted it, and this is my way to say that I can give you some guidance, but it's going to vary depending on how the factors play out. So you have U.S. dollar appreciation. So you have a -- non-dollar deposits are come down as a result. We have equity markets falling, which means the AUC/As that we custody for are coming down and with that investors, institutions, retail hold similarly lower cash amounts. And so part of what's happening here at the environment is actually affecting deposits somewhat independently of where we are with rising rates and quantitative tightening. Now we are seeing the effects of rising rates and quantitative tightening as well, so I kind of give you that as a background because I think there are four or five factors at play here which is more than expected. I think as we look forward, we continue to expect some deposit outflows in the fourth quarter. We expect those to be somewhat less than we saw in the third quarter. But we do expect some, and those are factored into our NII guide. And one of the reasons why we have a wider NII guide than usual is because there's a range of outcomes. But we're seeing what we expected. We're seeing what we expected as…

Thanks, Eric.

Thank you. Next, we'll go to Alex Blostein with Goldman Sachs. Your line is open.

Hi, Ron and Eric. Good morning, guys. I was hoping we could speak a little bit more broadly around State Street's capital allocation strategy. If BBH does not go through, what's your appetite for any other deals, whether it's in the services space or asset management space? Obviously, macro conditions are pretty volatile. So I'm sure that'll impact that as well. But curious how you thinking about the tradeoff between the accelerating buyback or other deals? And then if you do go down the path of more buybacks, should we be thinking about the upper end of your CET1 and leverage as sort of the target to which you will go to, or you might need to run with a buffer sort of on top of that, given uncertain macro conditions? Ron O’Hanley: Yes, Alex, why don't I begin on this just on how we think about M&A? It's not like we have a shopping list here. BBH is a unique opportunity to consolidate the market on a global basis. And by that I mean it's not just about adding to some particular geography, but it really does bolster us in all the major geographies that we're in. Having said that, we've got our own what we believe is a distinctive, organic strategy in the servicing area, led by our Alpha proposition, which continues to grow. There's a lot of development that was being completed this year and early next year, which will lead to a lot of new onboardings and we think even make the proposition attractive to a broader set of clients. So we always are looking in the marketplace to see if there's something that makes sense, but it's not like the money's burning a hole in our pocket. And if this doesn't work, we're immediately going to go out and come back with something else. Eric, you may want to talk to just how we think about the context of buybacks?

Yes. And Alex, I think I'd add that we're quite conscious that we raised almost $2 billion of equity from our investors and diluted them. We certainly expect that if the deal doesn't proceed that the bulk of our excess capital needs to go back to shareholders. That's deserved and I think expected and we would deliver on that. I think in terms of capital ratios, I had said earlier this year when the economic environment felt more benign and when we had simplified and attenuated a lot of the OCI risk in the investment portfolio that we might be willing to go down to the lower end and even below the lower end of our 10% to 11% range. I think now given the economic uncertainties, we for the time being expect to operate towards the middle of that range. That they might change over time. But for now, I think our current expectation is, we have reduced the volatility in the investment portfolio, which reduces, on one hand, the need for a capital buffer to some extent, on the other hand, the economic environment is much more -- there’s much more volatility in it. And that pushes us in the other direction. But the net of that is that I think we're quite comfortable with the 10% to 11% range and operating somewhere in the middle there.

Great, thank you. That's helpful. My follow-up question maybe around the business side of things, you guys have a very sizable pipeline of installations. And on the servicing side, a lot of them are Alpha mandates, which obviously tend to be a little bit more complex. You talked to us I think on the last call sort of the cadence of how that's going to come through on the revenue side. But I'm just kind of curious how you would contextualize any incremental investments or expenses that will need to come with it, given sort of complexity of those installations over the next 12 to 18 months? Ron O’Hanley: Yes, I'll start Alex on the investments and Eric can talk you through the pattern. On the investments, there is actually ongoing development, as I mentioned earlier, and that development, some of which is being completed this year, some which has been completed next year, but it's all part of our medium-term plan as well as our budget. So there's nothing out of the ordinary that you should expect to do this. And in fact, much of the development is behind us or will be behind us at year end. Within the 3.4 trillion, as you would expect, it's the larger, more complex Alpha mandates, in some cases, their development partners with us where we're developing new features and functionality, which will be available not just to that particular client, but more broadly to the client base. So these are important things to get done right, and we think are a good use of our investment dollars, because they'll result not just in being able to onboard that client, but to be able to broaden the offering.

And then, Alex, I'd add that we certainly need to plan and begin to set up onboarding teams. Those are well underway. And so you saw headcount tick up this quarter. For example, expenses though were well controlled. The headcount was in our hubs and some of the lower cost markets purposely. So we're navigating through that. But some of the expenses have to be put on in advance of as we're doing the onboarding and advance of the installation and the recognition of revenue, and some come as the revenue comes on. But I think, as Ron said, all this is within our expense guidance. It'll be within our expense guidance when we get to that in January for next year. And our view is that we collectively need to continue to drive margins in the right direction, given our medium-term targets. That needs to be a mix of both the revenue lift we're getting from Alpha deals as well as the expense and productivity initiatives, both within the Alpha environment and across the traditional franchise, and all that has to come together to deliver on our financial commitments.

Great. Thank you both.

Thank you. Next, we'll go to Brennan Hawken with UBS. Your line is open.

Good morning, Ron and Eric. Thanks for taking the questions. I'd like to ask on BBH. It seems somewhat unusual to be getting regulatory approval before the approvals within the company. So why is that happening? And given that there's risk of deterioration, loss of talent, customers, Ron you made reference to this during the last quarter call when you guys first said you were renegotiating. Would you have the ability to adjust price further if this process drags, or has that been set already? Ron O’Hanley: Yes, on the approvals, our Board has been actively involved in this brand as has the BBH partners on their side throughout this process. So obviously, there was an approval before we announced this in September of '21. There's an ongoing consultation with our Board. And we've walked through modifications, but we don't have a final deal yet largely because we have not actually gotten through the regulatory process and figured out what the actual structure would be that will satisfy all of the regulators. So it's not completely binary and that we're not talking to our Board until it's all done. But obviously, our Board needs to see the entire thing in total and be able to make that decision. In terms of the ongoing kind of risk to clients and people, that's there. It continues. We're spending a lot of time with clients. I think I've mentioned before, about half the client base is a shared client base, so the clients that we talk to anyway. I think there's still a strong desire on the part of our clients that if this can be completed in a way that makes sense, they'd like to see it completed. So I do not worry about further client attrition. We obviously are worried about people attrition on both sides, but largely on the BBH side. And we're monitoring that closely. And to the extent to which we felt like after the price reduction we've already negotiated that circumstances have changed sufficiently further that we needed that again. Of course, we would raise that if we needed to do that.

Okay. Thanks for that, Ron. And then second question is maybe a bit -- well, I'll just come right out. So why is this so strategically compelling? It seemed as though it was largely a scaled deal. Now it's deteriorated. You said earlier Ron that the accretion is probably going to be more drawn out and it's going to be lower than initially planned. It's more complicated. So you're introducing a lot of operational and legal complexity. I get it, you're lowering the price. But is this really a good use of time? Is this really a good use of management focus? Why not just understand that the environment deteriorated, the regulatory approvals didn't come through, it couldn't work as constructed. And so it's better off just to walk. Ron O’Hanley: Again, I'm probably repeating myself a little bit, Brennan, here but that's exactly what we ask ourselves every day. And you're right. It is taking a lot of management time. I think what's compelling about it is several things. One is its footprint. Many of the things that are out there or supposedly out there or rumored to be out there tend to be single geography kinds of things. And if you have a strong desire to be in that geography, maybe there's something useful there. I would describe at best tactical. This one adds scale to us everywhere where we are and really does set it apart from the other. Secondly, it's got some technology assets that we like. We've talked about those in the past. Third, it's got a set of people and professionals that we believe are equal to and sometimes even better than some of our people. And that's attractive to us. But that has to be weighed against all the factors that you and others have raised here and continue to do that, which is why we're not coming here saying to you, yep, we're ready to go. We're not ready to go. It’s also why we're coming here saying to you that we recognize this has gone on long enough and that we need to bring this to a close this quarter.

Amen to that. Thanks for all the color.

Next, we'll go to Steven Chubak with Wolfe Research. Your line is now open.

Hi. Good morning. So why don't I ask one clarifying question on NII. Some of your bank peers they've indicated 4Q exit rate could be close to the peak this cycle just as lag deposit pricing begins to catch up with rate hikes. You noted that the '23 NII Eric will be up nicely year-on-year. But do you see the potential for '23 NII coming in above that annualized 4Q level, suggesting that that fourth quarter NII guidance is not going to be representative of the peak?

I think you're trying to get deeply into our 2023 forecasts and I think it's a little premature to do that to be honest. Let's see how deposits flow and evolve this coming quarter. Let's see whether the U.S. central bank and the foreign central banks continue to have the wherewithal to tame inflation because that's important, right, or are they going to -- or not. So it's quite dependent upon all that. I think the reason I made my positive statements about 2023 is that we don't see fourth quarter as the quarterly peak. We think there's more NII upside over subsequent quarters. We also have a balance sheet that has a mix of USD and non-USD and in some cases, we tend to have more foreign deposits. And those are areas if those foreign central banks continue to hike and address the serious inflationary environments in their geographies that give us an additional tailwind that may be different than a U.S. Bank. So there's certainly momentum here. I don't want to get into fourth quarter annualized versus my current view of 2023. But I did say good continuing growth purposely. I think there's more to come on NII. But I think we'll no more than a quarter or two to be honest. But we see a trajectory that is good and reasonably positive, given what we know in the environment today.

Thanks for that, Eric. So reading the tea leaves, I may scrap my question on the expense growth algorithm and what that implies for next year. But the one area I did want to unpack on expense is the margins in the investment management segment, they're down about 600 basis points year-on-year. That's an area where you made significant progress over the last couple of years. Certainly, you're going to see some pressures given the declining market. But why you get a sense as to how much expense flexibility you have there and where you think you can actually hold the line on the pre-tax margin for that particular business?

I think I'd start answering that question by saying we're actually quite pleased by the progress we've made in growth and margins in the investment management business over, call it, the last three years. I think it had teens level margins, if you go back in time, we got into the 20s. Some of that was the market uptick, which flowed through the management fee line. Some of it was I think delivering strongly on flows and net new revenues was positive across the franchise. Cash as an example continues to be a standout. But each of the three franchises have new products and offerings have been quite good. And I think what the team has done there well is as they have secured those flows, launched those new products, they've also managed the expense base. And so just because it was a tailwind from equity markets or fixed income markets or from flows, they've actually kept expenses remarkably flat in that environment or flattish in that environment, which I think is a testament to how they've navigated the environment. I think what you should expect is that a couple of things. If equity markets continue to operate at this level, we need to continue to work on expenses and productivity becomes an even bigger focus there as it should be across the company. I think on the flipside of that if we get some kind of rebound in equity and fixed income markets that plays through the asset management business financials, I would expect expenses to continue to be disciplined there and margins to certainly go back to some of the higher levels that you saw. But I would say I think at 31% margins, we're quite pleased with where we are and I think there is -- depending on where equity markets go, I think the trajectory will continue in a generally positive direction.

Helpful color, Eric. Thanks for taking my questions.

Sure.

Next, we'll go to Brian Bedell with Deutsche Bank. Your line is now open.

Great. Thanks very much for taking my questions. Just one quick clean up on BBH. Can you close that deal if it all works well? Can you close that on December 31 or earlier and buyback the 1 billion? And do you need to have that Tier 1 leverage ratio be within or above your target range? In other words, can you do this and be at say the low end of the target range just temporarily for 4Q or even below?

Brian, it's Eric. I think the timing of this feels quite uncertain given where we are. We've not been able to complete the regulatory process and there's still -- so I think thinking about this in months as opposed to quarters is premature. We've done the buyback calculation though fully considering the reduced price that would be part of a Brown Brothers transaction. And so whether the timing is quarter X or quarter Y, we're comfortable proceeding with $1 billion. We're pleased to get it started in the coming days. And regardless how that plays out, be able to return as I said and as Ron said comfortably more than the 80% that we've committed to throughout next year at a minimum.

That's great. And then just one on the deposit betas. Maybe if you can just talk about or how you see them right now as they exist in terms of like how you're defining them for both the U.S. versus the non-U.S.? And then as we move into next year, maybe sort of an outlook without giving NII guidance, of course, but just sort of a range of where you think the terminal betas could be in the U.S. versus the non-U.S., even if it's a fairly wide range?

Yes, let me describe it this way and let me cover U.S. and non-US because both matter in a positive way for our books. I think the betas this quarter in the U.S. were in the 55% range. We're pleased to see that. Those are up from about 35% last quarter, but exactly where you'd expect us to be where we expect it to be given the uptick in rates. And next quarter if we go from 55% this quarter to 65% betas next quarter would be quite comfortable, and then it just continues to inch up. That's just how it plays through. In euros, we're also in that 50% range as we've started to cross into positive territory for central banks, and we expect that to continue. So part of the reason for the NII forecast into fourth quarter and into next year is that we expect betas in this 50% to 60% range in euros. The market operates a little differently than the U.S., but that would be in the range. And then in pound sterling, betas are lower. They tend to be in the 30% to 35% range there. And then you can keep going; Aussie dollars, Canadian dollars and so forth. And we have a balance sheet that is prepared for rate rises across those currencies as well. And then you'll just see betas notch up quarter-over-quarter. I think at the terminal level, there's always some amount of lagging that you do, that's just how it happens. You never get to 100% beta or anything near that, because you have some non-interest bearing and you have some lag deposits, but we'll see. We're comfortable where we are in the 50% range going to 60% and I think it will play out well for the NII and the balance sheet accordingly.

Okay. Thank you. That’s great color. Thank you.

Sure.

Next, we'll go to Jim Mitchell with Seaport Global. Your line is open.

Hi. Good morning. Eric, maybe just one last question on NII and I apologize, but as we think about big picture, Fed funds being potentially 20 basis points or more higher than 2018, European rates being positive versus negative back then, do you see anything conceptually to suggest your NIM shouldn't be higher than back then or just want to get your thoughts on that?

Jim, it’s Eric. I'm a little more focused on NII than on NIM. And the reason we've done that is because we've actually changed the shape of our balance sheet over time. Remember we added some deposit initiatives which tend to be at lower NIMs, but they are NII accretive and positive. And we do that because sometimes we want to balance currencies around the balance sheet, we want to raise deposits where we want to land. We need to keep deposits for intraday. There lots of reasons why we have different mix of balancing, and we've done that purposely and in an engaging way with our clients over the last two, three years. So I don't think -- as a result, the balance sheet is bigger. And part of the reason we've allowed it to be bigger is that the leverage ratio is not particularly constraining on us. And so what our intentionality is, is actually to maximize NII as opposed to NIM. So I think as you play that out, I think our NIMs are lower at this point than they were last time in the cycle, and I think they'll likely be below the -- the NIMs will be below the highs of the last cycle. On the other hand, I think if you calculate the forecast we've given you for NII for fourth quarter, so the next quarter that we're about to print, that will be a new high of NII relative to what we had seen in the last cycle. And that's where we're a little more focused, because that's what comes back to shareholders and what creates earnings and earnings momentum that contributes to the bottom line.

Okay, fair enough. And just maybe on the BlackRock ETF transition, how much is left and do you see that as a material -- any kind of a material impact on forward revenues?

Our guidance has been pretty consistent on this. And I think you'll find it in our 10-Qs and Ks that we estimate that the revenue outflow is about 2 percentage points of fees. So that hasn't changed. You saw some of that begin to come out this quarter that was worth about 5 million this quarter. If you kind of get to the full quarter amount, it'll be just under 10 million for fourth quarter. And that was worth about $1 trillion of AUC/A. So that did occur, and we'll continue to keep you updated on that. But as we previously disclosed and talked about, deconversions just take time and it will play out sometime towards the second half of 2023 and then into 2024 will probably be the majority of it, but we'll just see. We're working closely with BlackRock. We continue to be quite pleased with all the existing business we do with them and the work we do for them in the alternative servicing area, which we're one of the largest providers and certainly help them as they want to evolve, diversify and support their other plants.

Okay, great. Thanks.

Thank you. Next, we'll go to Gerard Cassidy with RBC. Your line is now open.

Thank you. Good afternoon, Eric and Ron. Eric, can you remind us, you talked a little bit about it in your prepared remarks about fee revenues and the pricing pressure that you see every year. Can you remind us if that number has changed a bit at all? And second, as part of that, I think you've also indicated in the past, you needed a certain amount of assets under custody to neutralize that pressure. I don't remember, I think it was 1.5 trillion, but I could be wrong of new business wins to neutralize that downward pricing pressure?

Gerard, let me start that and it is an area that we continue to work on. The pricing headwinds are just a condition of our industry. Why? Because as you remember, pricing is AUM or AUC/A based. And so as equity markets go up, clients expect some of that to come back to them. The pricing headwinds on an aggregate basis in the servicing fee line are about 2 percentage points of headwinds a year. And when we saw that bubble in 2017, '18, '19, that's come back down. That ticked up and then it's been well managed back down to that 2% or so level. And that's what we are seeing today. We're not seeing anything different than that. And it's well within our expectations. In terms of wins, we always want to focus on net new business and for net new business to drive a positive impact on the revenues as they did this quarter. I was clear in my prepared remarks that that net new business was positive. We had some nice wins. We actually had some nice wins and nice fee rates, right, because both matter to your point. The benchmark I've put out there is that we expect about 1.5 trillion of AUC/A wins a year to be in a good positive direction and trajectory for net new business. But to be honest, as the CFO, I always like to see a little more and you've seen last year was particularly strong. This year, year-to-date, I think we're already comfortably at that level, and we still have another quarter to go. So the sales momentum continues. And what I find important is it continues to close both our traditional customer accounting business and our Alpha offerings, and so it's been broad based. Ron O’Hanley: Gerard, what I would add is on the topic of pricing, we mentioned to you at the end of the second quarter that we launched a targeted repricing initiative that is well underway. And it's focused on the areas of high value or where costs are increasing higher than in other places. And that is intended to and is to achieve margin preservation. In other words, to offset the cost of delivering something high value or to offset the increasing costs in areas, for example, where we have disproportionate market data and things like that. So that initiative is well underway. When we talked to you last time, it had just launched. So we were in the dozens of clients. Now we're in conversations with triple digit number. So we're pleased with that progress too.

And has it been well received or understood, I should say, nobody likes price increases, but the clients understanding of why this conversation has to take place? Ron O’Hanley: Yes, I think understood is the right word, Gerard. I think that these are sophisticated institutions themselves. They see what's going on. So I think it's been for the most part understood.

Very good. And then, Eric, as a follow up, can you remind us what percentage of assets under custody or under management are variable rate priced products, meaning your customers paying basis points on the assets under custody? And so therefore, to your point, when the value goes up and down, obviously, it affects revenues.

Yes, it's a bit of a mix across different segments and across geographies, but a good rule of thumb is 50%, 55% are assets under custody base, so move up and down with market. There's another 20% of the pricing tends to be based on transactional activity and we actually saw transactions, volumes, DTCC trades, wire transfers, derivatives, transactions, so forth come down this quarter. And then the last 20%, 25% tend to be relatively fixed or sometimes semi fixed, the number of funds you custody for or some flat fees.

Gentlemen, thank you.

Thank you. Okay. Next, we'll go to Mike Brown with KBW. Your line is now open.

Hi. Good afternoon. Thanks for taking my questions. I guess on BBH, I suppose it's been a while since we've gotten a financial update on the business and how it's performed in this volatile environment year-to-date. And clearly there's a possibility that we have a resolution that could not end up moving forward with the acquisition. So as we think about our models here and getting those kind of aligned with how BBH is performing, anything you can share on how the company has performed year-to-date?

Yes, we’re obviously monitoring the business performance closely; monthly, quarterly. And I think it's -- you should expect -- you can go back to some of the materials that we had shared a year ago, September, as the base case, but you could take that Mike and extrapolate some of what you've seen in our book of business, right. We're an asset management oriented custodian. You can even look at some of our peers as benchmark. And I think you'd find what we've seen, which is that there's a sharp boost in NII in their book or NII plus fees, because of the mix of programs that they run for their clients cash, partially offset I'd say with some downdraft in servicing fee rates, equity and bond markets. And then you'd see a bit of an uptick on the FX services kind of business. So I think it's ours and other large custodians are parallel to what you've seen. And so it's something worth considering. But as we talked about earlier, we're conscious that we need to think about this from a couple different perspectives, but it's performing in line with what we and you would expect at this point.

Okay, understood. Thanks for that color, Eric. Maybe just one last cleanup one for me. How should we think about how the unrealized losses on the AFS portfolio could creep back over the next call it 12 to 24 months as we think about your capital ratio, or how that will impact the capital ratios over that time period?

Yes, it is part of our capital forecasting now. And it was actually included in some of the buyback and capital return estimates that we provided not only for the fourth quarter, but also for our intentions related to next year. I think this quarter the accretion was worth $60 million or so of capital and that's just the reversal of that mark accreting back as the bonds mature. There tends to be a little lumpiness to it, but that's the start of the accretion. And so it did provide some amount of modest tailwind and we'll certainly factor that in, right, because just like earnings create an opportunity to return capital to shareholders, the accretion does as well. And that'll be part of that builder capital ratios, which then we can share back with shareholders.

Okay. Thank you for taking my questions.

Thank you. Next, we'll go to Mike Mayo with Wells Fargo Securities. Your line is now open.

Hi. Just to clarify, so in the next 10 weeks, we should either expect you to say that you'll proceed with the BBH deal or that you won't be proceeding and maybe they'll be an extra $2 billion buyback. Am I interpreting that correctly? Ron O’Hanley: What you should take away from what we've said, Mike, is that by the end of this quarter, we will have a decision on whether to proceed forward or not to proceed forward. On the buyback, first, we need a Board authorization for a further buyback and we'll communicate what we're intending on buybacks after that authorization.

Okay. And just I know that the first question of this call was why not just walk away and that's been the topic. Let me just take the flipside. I'm sure you've invested a lot of resources and time and thought into this. Is the real issue just the regulators? And I'm just wondering, it's like roughly what, like 10% of your size? Are other G-SIBs either 10x to 15x larger? When I worked at the Fed 30 years ago, it'd almost be considered de minimis, right? And I'm just trying to figure out the change. We all know the change of mindset as it relates to mergers generally. But I'm just wondering, does this put you at a permanent strategic penalty box that you can't pursue any mergers? Or is it something unique to this deal? Now I know you can't talk particulars about this deal in general. But can you make any broader statements like when [indiscernible] to that, it gets extra scrutiny or it's not as easy to get through anymore? Ron O’Hanley: Yes, Mike, what I would say is that the timing of our announcement in this deal in retrospect probably couldn't have come at a worse time, because if you think about the regulatory agencies, many of them to some extent were going through some kind of personnel change. So that itself has slowed things down. In some cases, it's driven a very significant change in philosophy. Whether that change in philosophy will be permitted or not, I don't know. I'd like to think not. But to answer I think the nub of your question is did anything change from beyond the regulatory situation? The answer is no. For all the reasons that we've stated to going back to September of last year, we feel like the deal is strategically compelling. In terms of longer term, what does this mean for our position? Again, that's something that we think about and that's something that we certainly have conversations about with our primary regulator. And I think there's some sympathy to all that. But I don't want to talk about something in the abstract beyond the transaction that we're in, which is the BBH deal. It's not all regulators, it's a subset. And it’s a situation that we're going to work our way through, but work our way through very cognizant of what it means for our shareholders, what it means for clients, et cetera.

And then last follow up on this, is there anything that you can do to help control the outcome of this at this time? Or is it simply based on the analysis by the regulators? Ron O’Hanley: Well, we've talked about modifications to the transaction and the modifications are meant to meet either regulatory concern or to navigate -- or to do what we believe is required to navigate through regulatory concern. So that's what we're up to now.

Okay, all right. Thank you.

Next, we'll go to Betsy Graseck with Morgan Stanley. Your line is now open.

Hi. Just a couple of quick follow ups. One, I know you've had some M&A charges, merger integration charges over the past few quarters. If any of that is for the BBH deal? Was there anything in a walk away that you would be refunded for? I'm guessing the answer is no, but I just want to make sure I understand how that works.

Betsy, it’s Eric. No, those are incurred charges that are about primarily our staffing and then some of the service providers. But we've also -- what we have done is avoided some of the -- obviously there are costs that are continued on deal closing, some of the advisory fees, et cetera, those have not played through there and those would not be incurred. So those are kind of the base level expenses.

And then --

There's no tail on those by and large.

Right. Okay. And is it possible to size how much of those were for or have been for BBH or --?

Since earlier this year, they primarily have been around the BBH transaction work.

Okay. And then we've had two quarters of very strong dollar performance here, dollar strengthening Q-on-Q. I see it in the deck the ins and outs on the drag on revenues, the benefit to expenses, a little bit of a drag on the AUC/A, AUM volumes. You've got some benefit from volatility and the trading one. So just wanted to get your sense of how has the dollar strengthening all-in impacted you and how do you think about managing? That was just generally speaking. Thanks.

Yes. Betsy, it’s Eric. What I'd describe to you is that the dollar has an effect as do all of the currencies on our P&L and balance sheet. But it's relatively symmetric and thus I'll say almost neutral. And I say that in EBIT terms and in balance sheet terms. Dollar strengthening reduces revenues, but also reduces expenses, not in all currencies and all the time, but it tends to have almost an EBIT neutral impact on the P&L. And then on the balance sheet, you also have a similar effect where as deposits are revalued downwards and foreign jurisdictions as U.S. appreciates, so are the assets in those jurisdictions. And so you have some symmetry. So by and large, it's I'll call it roughly neutral, which is why we don't do any particular hedging on it, because we find that we can manage through it in a comfortable manner. Except that it makes our reporting to all of you in the investment community a little more complicated, but that's just what needs to happen.

And when you think about the footprint that you have today and the effort to continue to get scale in that footprint, is the international exposure strategically important from a diversification perspective or do you feel that the growth outlook for the non-U.S. markets is higher, just wondering? Ron O’Hanley: Betsy, it’s Ron. Let me take that. I would say that we've got a good geographic mix now. And so the way we think about it in virtually all of our locations, it's not like we're not at minimum efficient scale. But to the extent to which we can achieve more scale there, we'd like that. I think in general, the non-U.S. markets have continued in most circumstances, not all to grow faster than U.S. markets on balance. If we could get a little bit more there, we'd like that.

Got it. Thank you.

Next, we'll go to Vivek Juneja with JPMorgan. Your line is now open.

Thanks. Sorry to beat a dead horse, but going back to BBH, given that you talk about buying back $1 billion of stock, the deal value was 3.5 billion, that's a pretty substantial percentage. Would you still be buying the full entity you had intended to when you announced the deal, or is there some elimination of a part of it? And flip it the other way, could you buy just a piece of it or is it only available as a whole thing?

Vivek, it’s Eric. Kind of the outlines, the perimeter of the deal with Brown Brothers hasn't really changed. It's around their investment services business. That's the business that we're attracted to. And that's the one that they'd like to transact. So there's not been any real change there. Ron O’Hanley: Yes. And Vivek, we were never buying the whole business.

What I meant was the whole investment services business. Could you buy a piece of it since it's different geographies, given the regulatory complexity to sort of, if they're geographies are more attractive and more difficult to replicate on your own? Ron O’Hanley: Yes, I suppose that's something we could explore, Vivek. Then the attraction goes down even more so. And not clear that that accomplishes what Brown Brothers itself is trying to accomplish, which is they'd like to exit the business not have even a smaller bit than they already have now.

Ron, I want to go back to a different topic. You mentioned about the price increase discussions you're having and you said the operative word is understood with your clients. Should I interpret understood as understood and agreeing to it or understood but not necessarily open to it and shopping it around with other providers? Ron O’Hanley: So I would say, again, this has been highly targeted, Vivek, so it's not like we've said, there's an X% across the board kind of thing. We've really tied it to one where our costs are under the most pressure. And two, where there's a high value added delivered to the client. And so I think you should interpret understood as -- we understand why you're asking for this. There's certainly some talk around it and is that the right number, et cetera. But I would say in more cases than not, in fact far more cases than not, we're getting agreement on it.

Great. Thank you. Ron O’Hanley: Thank you.

This concludes today's question-and-answer session. I'll now turn the call back over to Ron O’Hanley for any additional or closing remarks. Ron O’Hanley: Well, thank you, operator and thanks to all of you for joining us on the call.

Ladies and gentlemen, this concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.