State Street Corporation (STT) Q3 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to State Street Corporation's Third Quarter 2012 Earnings Conference Call and Webcast. Today's discussion is being broadcast live on State Street's website at www.statestreet.com/stockholder. This call is also being recorded for replay. State Street's call is copyrighted. All rights are reserved. The call may not be recorded for rebroadcast or distribution, in whole or in part, without expressed written authorization from State Street. The only authorized broadcast of this call is housed on State Street's website. At the end of today's presentation, we'll conduct a question-and-answer session. [Operator Instructions] Now I would like to introduce Valerie Haertel, Senior Vice President of Investor Relations of State Street.

Thank you, Christy. And good morning, everyone, and welcome to our third quarter 2012 earnings call. You may have noticed that we made some changes this quarter to the presentation of information in our earnings materials as a result of feedback we received from many of you. We hope that the new format of the earnings press release and the addition of the financial highlights slide presentation are helpful in enabling you to access the information you need quickly and to aide your understanding of our results. Our third quarter 2012 earnings materials, including the slide presentation that Jay Hooley, our Chairman, President and Chief Executive Officer; and Ed Resch, our Chief Financial Officer, will refer to in their remarks and reconciliations of non-GAAP or operating basis measures to GAAP, measures referenced in this webcast, our financial trends package as well as other materials can be found in the Investor Relations section of our website. Before Jay and Ed begin their discussion of third quarter results, 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 2011 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, October 16, 2012. 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. Welcome. I'd like to add my welcome to the third quarter call as well. And as Valerie noted, our remarks will follow the financial highlights slide presentation that we issued with our earnings press release. And more specifically, my comments will relate to Pages 3 and 4 of the slide deck. We're pleased to report solid third quarter 2012 financial results, which I believe reflect continued strong demand for our products and services across our global client base, continued progress on our Business Ops and IT Transformation Program, as well as other cost initiatives, and our commitment to return capital to our shareholders. As you can see, the GAAP third quarter earnings per share were $1.36 and included a benefit related to claims associated with the 2008 Lehman Brothers bankruptcy and a few offsets that Ed will cover in his remarks. But from my perspective, resolution of the outstanding issues associated with the Lehman Brothers bankruptcy is a positive and we're pleased to have these matters substantially behind us. If I go to operating basis earnings, here, where you can see, we reported net income available to common shareholders of $473 million or $0.99 in earnings per common share. And before I review our business results, I want to make a few comments on the financial, economic and business environment. Since the end of the second quarter, the environment is Europe feels a little bit better. The ECB's commitment to buy bonds and the active discussion about common bank regulation in the Eurozone has given markets a sense that the probability of a tail risk event is declining, which is, I think, a very big move. I think that the European issues are far from resolved, but I think the concern up until now had…

Thank you, Jay, and good morning, everyone. My comments this morning will follow the third quarter financial highlights presentation beginning on Slide 5. As Jay stated, the GAAP results include a net pretax benefit of $277 million, which is composed of a $362 million benefit related to claims associated with the 2008 Lehman Brothers bankruptcy, partially offset by a $60 million provision for the previously disclosed litigation arising out of the financial crisis and a special $25 billion contribution to fund the company's charitable grant-making activities. Now turning to Slide 6. I'll discuss our operating basis results as defined in today's earnings release and focus my remarks on the most significant sequential quarter and year-over-year quarter changes. We performed well in a difficult global economic environment. Comparing the third quarter of 2012 with the second quarter of 2012 and the third quarter of 2011, our total revenue declined 3.2% and 2.7% and expenses declined 3.7% and 2.9% respectively, generating positive operating leverage relative to both periods. Our third quarter return on equity was 9.6%. We purchased $480 million of common equity during the third quarter resulting in 480 million average fully diluted shares outstanding during the quarter, a reduction of 8.5 million average shares in the sequential quarter comparison. Turning to a more detailed discussion of our income statement, Slide 7 details our revenue. The most significant revenue drivers for the quarter are noted in the far-right column. The sequential quarter growth of servicing fee revenue was driven by higher equity markets and net new business. Sequential quarter growth in management fee revenue was driven primarily by higher global equity valuations. Money market fee waivers were down $2 million from $7 million in the second quarter. The increases in our core businesses were not enough to offset the decline in…

Thanks, Ed. Let me briefly close so we can get to your questions with really 3 points. The first is that I believe our third quarter results demonstrate our continued resilience amid the difficult environment, as well as the strength of our business model. Second, we continue to invest in our business, expanding the range of solutions we can deliver to our clients. But we're balancing these investments with a clear focus on managing costs across the enterprise, and I hope you'll agree the results of this focus are evident this quarter. And finally, I continue to have confidence in the secular trends that underpin the future prospects for growth in this business. And I believe we're striking the right balance between continuing to invest for the future and aggressively managing costs during this challenging period. As always, we appreciate our ongoing dialogue with shareholders and look forward to continuing to update you on the progress of our company. And with that, I would open the call for questions.

Your first question comes from the line of Glenn Schorr with Nomura.

So I want to ask this the right way. There's been -- there's obviously changes on Wall Street on comp and the industry has adapted to the lower revenue backdrop. You guys definitely get a bunch of questions on that. And I wonder if you could speak to your views on how similar and how different obviously the business mixes are and what you can clearly control or not in the short run, so just really focus on the comp side of the equation.

Yes. Let me start that, Glenn. I would say we do have a different structure than what's traditionally referred to as Wall Street, in that we don't have a high variable incentive component of our overall compensation. It's a lot smaller than you'd find typically on Wall Street. So having said that, for us, the key drivers in managing down costs tend to be headcount-driven, efficiency in our core operating models, as well as -- and you've seen some evidence of that this quarter, managing the other cost category, the cost that we incur from outside suppliers. So those are really the big levers that we have. And I think the reason I continue to go back to the IT and ops transformation initiative that we have is that I believe that, that's fundamentally changing the cost drivers in this business. And it's going to take some time, but you'll find those changes will be durable and sustainable over time.

So you answered part of the follow-up, in that not a big percentage of the comp base is all that flexible on a short-term basis. I guess, someone put this question to me recently, so I want to put it to you. Does it make sense that the business mix would have a thereabouts 40% comp ratio when you look at say, asset managers or investment banks, that these days actually have same or lower, that attritionally are thought of as much more people-intensive, comp-intensive businesses? Is it the scaling of certain parts of the business that will put that ratio as high, if not higher than some of those other models?

Yes. I think that over time, we've hovered around 40% for a long period of time. And I think that maybe it's obvious, but I'll say it anyway, the fee-based components of the business, the service fee and management fee, I really look to the servicing fee-based business as the offset to that 40%, whereas historically, the market-based revenues, and you know what they are, they're the net interest revenue, securities, finance and foreign exchange, have provided the upside. So I would like to think that the moves that we're making today against a very constrained, market-driven revenue should put us in a position where that 40% should go down over time as we achieve something near-normalized environmental factors, which is consistent with the $600 million cost-save plan, which we're 1/3 of the way into at the end of this year. We should see that ratio go down.

Got it. One last one, I apologize if I missed it earlier. But did you mention the one but not yet funded pipeline?

We didn't, but we will. Ed, do you want to cover that?

Yes. I'll give you those numbers, Glenn. Out of the $211 billion of asset servicing mandates that we announced this quarter, $86.1 billion was installed in the quarter prior to September 30. The remaining $125.2 billion is expected to be installed during the remainder of this year and later. And then in the third quarter, we also installed approximately $115.7 billion of new business and assets to be serviced that we were awarded in prior periods.

Your next question comes from the line of Robert Lee with KBW. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: First question I had, I just wanted maybe a little point of clarification about next year's NIM guidance. The 10 to 12 basis points, is that off of where you expect this year to average or where you expect the year to end?

It's off of where we expect this year to average, Rob. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. Great. And maybe talk a little bit about the ETF business. I know you touched on the strong flows there. But clearly, you've had Vanguard in their announcements, some BlackRock make some strategic announcements in their iShares business yesterday. So could you maybe talk about how, if at all, you think you are positioned within that relative to some of that changes your peers have made or how it's making you maybe rethink your approach to the business and if there's any changes you need to make in the direction or strategy?

Sure. Yes. Happy to do that. You've heard me say before and I think underpinning the BlackRock and the Vanguard statements have been an industry that's growing pretty rapidly and has a pretty attractive growth rate. From our standpoint, our strategy for ETFs, and you've seen, I think, the last 3 quarters some pretty strong net flows, including $13 billion this quarter, has been really to have some positioning in what I would say is the commoditized end of the ETF space, but most prominently SPDR, which is our S&P 500 fund, and then really differentiate through new product introduction. I referenced 54 new products. Those new products almost all have quite a bit higher management fees associated with them. So we think the strategy should be to compete in a commoditized area and in the newer area, which tend to have higher revenues, more innovation. That's where we're putting a lot of our focus from a standpoint of investment. Now the other thing I would say, which I know part of your question is anchored around fees and the movement of fees, our large SPDR fund has and has forever breakpoints in it. So it's kind of a natural -- if somebody gets to a certain size in that fund, they get a natural fee break associated with it, which I think is a little bit of an unusual structure. So we feel like we've structurally made those adjustments around volume and fees in the core products. And as I say, our orientation is primarily towards new product introduction and the other angle I would say is geographic growth. So the ETF business still is largely anchored in the U.S. I think Europe and Asia represent significant opportunities. You won't remember this probably, but we were the first to introduce an ETF in Asia. We're building on that strength. So we think it's a great product. It's got good growth trajectory, which should sustain itself. And we're trying to make sure that we're innovative on the product side so that we're not racing to the bottom on the fee side.

Your next question comes from the line of Ken Usdin with Jefferies. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: My first question, just regards to the NII outlook. Ed, on the 10 to 12 basis points for next year, can you just -- I know it's really hard to forecast, but can you try to give us some perspective of how you're expecting the balance sheet size to trend?

Yes. I mean, we're expecting low- to mid-single digit growth in customer deposits, which is our estimate at this point in time, Ken. I mean, I would tell you that relative to QE3, which is, I guess, where you're going, we feel that by putting the guidance at the top of the range, 10 to 12 basis points, use 12 for this discussion in terms of the decline next year, that, that captures the pressure that we're going to see on NIM. We've talked about this before, and our initial thinking already had the impact of lower rates included in it. And since we have a limited amount of fixed-rate runoff next year, and that's about a $6 billion number, we feel like the estimated NIR impact from QE3, which would be incremental to the earlier guidance, is in the range of $15 million to $20 million, which is about 2 basis points. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Right. So okay. And then -- so when you talk about low-single digit core deposit growth, are you also presuming at this point that the excess liquidity is sticky and that the balance sheet actually might see growth from where it currently is today?

We expect some of that excess -- those excess deposits to transition away. So we're not projecting a significant balance sheet growth next year. No. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: So the core might offset the runoff of the excess? And then there's the -- the rub is just where that ends up in.

Yes, rough. I mean, just like the rub this year, Ken, on the NIM is where excess deposits end up, right? So that's the point of friction. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Okay. And my second question, just related to NII. It just seems like you are extending duration, a decent amount, just hearing what you rattled off in terms of your incremental purchases. So how are you balancing out again this QE3 balance with incremental risk-taking? It sounds like you're buying your very high premium bonds and extending pretty decently. So what's the incremental risk you're taking on the interest rate side to get that extra yield?

Well, we're actually not taking much incremental interest rate risk. I mean, our duration gap is shorter this quarter than it was prior quarter, 0.28 was the number at September 30 versus, I think, 0.41 the prior quarter. And we have an offset with mortgage duration coming in, with prepayments accelerating a bit because of QE3. So we feel like we're taking appropriate levels of interest rate risk. And when you see our Q, you'll see the rate -- the ramp and shock are basically in line with prior quarters relative to the effect on our interest rate risk position. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Okay. And my last one is just servicing fees are still down year-over-year against a big improvement in the market levels and a lot of new business wins. And Jay, you touched on this in your written commentary in the release. How much is the negative impact from low volumes and activity? And what do we need to really see that servicing line start to do what it can do?

Sure. You're right about the year-over-year, and I would say it's -- the most material factor underpinning that is this -- a derisking that I tried to come on to, which is as our customers shift their asset allocation more to less risky assets, fixed income and money market versus equity, global equity, emerging market equity, there is a meaningful change in revenue per unit of asset. And that's not even including the foreign exchange associated with that. So I think that it's a little bit frustrating, particularly against a backdrop of better equity market, although that equity market growth is based on some pretty thin volumes. And we're just not seeing any broad-based movement to rerisking. So I think the other question you asked, Ken, is what would it take to change that. I intentionally in my prepared remarks talked a little bit about Europe, which to me feels better. I think that if we could -- if Europe looks like just a long, grinding recovery versus high event risk, and I think we're moving to that second phase, where the likelihood of event risk declines. And then I think the focus has moved to the U.S., elections, fiscal cliff. You could paint a scenario that as Europe continues to reduce its tail risk and the U.S. gets through the end of the year and the first part of next year, if there was a scenario where the fiscal cliff got resolved, I think the confidence level, which underpins the thing that's pressuring our service fee revenue, I think you could make an argument that, that's a real positive. And that would cause people to move into riskier assets, which would have a pretty meaningful effect on our revenues. So same assets but allocated differently, and then you'd also bring on the foreign exchange volumes, the volatility, so, so. That tries to explain why the year-over-year is where it is and attempts to give you a scenario where maybe confidence improves, rerisking occurs. And that should result in some pretty meaningful upside to us.

Your next question comes from the line of Brian Bedell with ISI Group. And his line disconnected. Your next question comes from the line of Howard Chen with Crédit Suisse. Howard Chen - Crédit Suisse AG, Research Division: Jay, just as we see some time lines to U.S. derivatives reform, I was hoping you could update us on just where we are in some of these tactical opportunities that I know you're excited about and positioning the firm for in asset servicing side, things like collateral management and derivatives. How long is this going to take to play out in your mind?

I think it's -- stubbornly, it's taking a little longer than anybody thought. The CFTC is pushing hard, but the rulemaking has been a bit slow although steady. We have -- and as you rightly point out, we've put a fair amount of investment into both derivative-clearing initiatives as well as collateral management. And we have customers onboard, so we're even ahead of the final rules from the CFTC regarding derivatives clearing. The buy side is moving to essentially clear some of these things even before they have to, which maybe isn't surprising. And so we're starting to see customers, we're starting to see small amounts of revenue. I think that as the rules get finalized with specific dates, we should start to see a steady stream of revenue associated with these initiatives. And we think it could be material over time. So we still believe in it and the regulations have been slow, but it hasn't deterred us from investing in the platforms and the expertise to position ourselves for it. Howard Chen - Crédit Suisse AG, Research Division: Okay, great. And then Ed, just follow up on the reinvestment environment. Just looking at 2013, putting aside frictional deposit impact, just how much of the floating portfolio do you anticipate is scheduled to roll off? And just what are some of the examples of securities you're investing in, I mean, that kind of land us at that 10 to 12 basis point compression?

Yes. About $9 billion or so of floating rate, we expected to reset next year for a total of about $15 billion for the year, Howard. And the way that we get to the QE3 effect, which again is incremental to what we said previously and puts us at about 12 basis point decline in NIM year-over-year, is the following, okay? Our fixed-rate runoff yield is about 3.2%. Our new purchases that we expect next year, about 1.2%, principally mortgage-backed securities. The difference is 2%, obviously. Already in the 10 to 12 basis point was about 150%, so the effect of QE3 is an incremental 50 basis points. And 50 basis points on the $6 billion of fixed-rate runoff is $30 million. We're going to average that over the year, so that's how I get the $15 billion. And I say $15 million to $20 million of NIR effect. Howard Chen - Crédit Suisse AG, Research Division: That's very helpful. And just, I mean, given the challenging environment, I mean, are you all thinking about anything different on the funding cost side?

Not really. I think we're pretty low. Howard Chen - Crédit Suisse AG, Research Division: Okay, great. And then just final one from me. With respect to the foreign exchange business, I mean, Jay, you noted the low volatility. But I mean, you've been discussing kind of the channel mix shift within that business pretty actively for the past year. I mean, what inning are we in? How much left do you all see here?

We see some movement away from -- well, let me back up. The movement from custody FX to its other forms, our pricing is in the service we have, daily electronic servicing tied to an index. That movement has ground away for years, it's accelerated a bit over the course of the last year or so. Middle innings, late middle innings, yes. So it's -- some of it is work-through. I think I would say an additional way to look at it, the way we're looking at it, is there's some inevitability to these trading businesses as they go electronic. And for us, the objective is to retain the volume, to move it to platforms that fit customer needs. And by the way, some customers believe that custody FX is the right fit for them. And in addition, if you look at the foreign exchange franchise that we have here, there's a fair amount of noncustody business. So we've demonstrated that we can grow that business independent of the custody franchise. And we view this as an opportunity to gain share. So we think we've gained share. We know we have the widest variety of options to trade foreign exchange, at least among the trust bank universe. And so what we're doing is trying to gain more volume through more options to offset the natural compression spread that occurs from a voice-traded security to a electronic-traded security. But probably middle innings.

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

Just one more on the portfolio. That was good color on the reinvestment side of it. Just the 1.2% MBS reinvestment yield that you mentioned, Ed, for your sort of projections for next year. Is that also the current yield that you would be investing in right now? Or are we a little bit lower than that right now?

We're a little bit lower. I mean, it went down, I think, about 85 basis points when the QE3 was first announced. And I think we're a little bit below the 120 level now.

Okay. So you're assuming a little bit of steepening in that in your NIM guidance for next year?

Yes.

Yes. Okay. And then on the premium amortization, the coupons that you're buying at are pretty -- or the premium that you're buying at is fairly low. But was there a significant impact of premium amortization acceleration this quarter, given prepayment speeds going up?

Well, we're not buying premium mortgages, Brian. No, I mean, we had some prepayments in the U.S. in the quarter that served to actually depress our net interest revenue a bit in the quarter.

Okay, great. And then just to switch back over to the comp-to-revenue outlook so can you just remind me then what that guidance implies for the fourth quarter comp-to-revenue ratio if the revenue environment, let's say, stays stable in the fourth quarter versus the third quarter?

If the revenue environment stayed stable, I think we'd probably be in the position where we're considering some adjustments as we work through the quarter. So speaking on that basis with that assumption, I'd say we're probably in the 39% or a little bit below type range for the fourth quarter, Brian.

Okay. And then Jay, as you mentioned earlier, going into 2013 to get the comp-to-revenue below 40% and obviously, as the IT and ops transformation program helps that. If we do stay in, let's say, a flattish revenue environment in 2013, do we still think you can get significantly below the 40%? Or would you be more right around 40%, inclusive of that first quarter additional noncash comp?

I would say it's probably a little premature to comment on that. What I can say is, as you know, we've got, I think, it's $200 million of saves associated with IT and ops next year. So that should be a big factor. But we're still, as you'd expect, going through the overall planning for 2013 to determine where we'll peg revenue based on different scenarios and what expense actions we're going to take. So I'd prefer to hold on that one until we get to the fourth quarter and give you maybe a more informed response to that.

Yes. Sure. No, that makes sense. And then just lastly, if you can comment, Jay, on the repricing environment. Obviously, we continue to be in a fairly subdued market-based revenue environment, as you talked about. What is your outlook, say, over the next 6 to 12 months and sort of your ability to generate higher revenue realization rates off of the assets that you're administering? And if you can include comments of -- or include in that -- within that a cross-sell of additional services -- your expectation of cross-sell of additional services into that cost inside [ph] base?

Yes. I would say pretty good progress, Brian. I think I mentioned in a prior quarter that we've got a fairly structured and organized approach to client profitability, where people fall below margins. We've gone out with a couple of waves, waves being groups, hundreds of customers, where we have proposed fee increases, and the take has been good. The clients largely have accepted fee increases, as you'd expect, where we're starting towards the lower end of our account base. But we've been pleased with the response, and so we're moving up the client base. I think your cross-sell comment is pertinent here because we're a little bit indifferent to how we improve the economics of an individual account relationship. And in fact, we probably prefer to sell them more services, which would collect the net income deficit that we have on our side and grow our revenue stream. And I think we're particularly well positioned when you think about the range and breadth of product that we have to do that. So you'll see -- I think you asked over the next 6 to 12 months. Progressively, we'll work up the account base and make sure that we get to all the relationships that we have. And as I say, I think we have the best toolkit available in order to remedy situations where client profitability has dropped below our target margin. So good progress.

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

Ed, I wanted to kind of touch upon something you talked about a couple of quarters ago, which is once everything is said and done, the pretax margin benefits should be about 400 basis points from the time you announced the program. So given the fact that it feels like the revenue environment is a little worse, especially in some of the higher-margin bucket, NII, FX declining, et cetera, do you guys still feel comfortable around that 400 basis point margin expansion? Or do you need to do more on the cost side to achieve that target?

Well, we're going to continue to work on the cost side. As we've said many times on the call, Alex, the ops and IT transformation program is progressing on track. But I think that you have to go back and look at the basis upon which we said the 400 basis points would be achieved. And that was pegged off of the 2010 results, with all else being equal. And obviously, the world has changed since then. But let me try to break down for you where we think we are relative to the operating margin on a pretax basis, given the success that we've had on the transformation program. And I'll do it comparing September year-to-date this year versus September year-to-date last year. And I think that's the best way to do it. And given what we've done on the transformation program, that should drive 120 basis points of margin improvement, okay? We consider that to be part of the core of the company, of the business. You have to adjust, secondly, for the one-time items that occurred in both '11 and '12. And that actually depresses margin by about 50 basis points, and those are principally securities gains and some nonrecurring items that we've called out over time. So you've got a depression of 50 basis points on the margin. You have 120 basis points of improvement in ops and IT. And that leaves you with the core, okay, including the ops and IT achievement, of up about 40 basis points for your -- I'm sorry, down about 40 basis points for about your 90 basis point decline in margin, okay? So we break it down really those 3 buckets, the ops and IT achievement, the effect of that on the core, and then the adjustment for the one-timers.

Got it. That's very helpful. And my second question is, Jay, you mentioned we're heading back into CCAR times. So when you guys think about the preference for dividend over buyback -- I don't know if it's too early to talk about it, but clearly, it feels like there's preference for dividends for some of the financial institutions that could pay it out. What's your appetite for bumping up the dividend maybe closer to, I don't know, like a 30% payout versus what it is now or maybe even above that?

Yes. A good question, Alex. And as you pointed out, we're in CCAR season, almost into CCAR season. And you'll also recall, I think, it's the fourth cycle that with regard to dividends, the Fed has been -- has provided some guidance, let's say, around appropriate levels of dividends. And 30% is the number that we've all been kind of managed to. I think that as we go into the stress test, my comments about Europe, which I think have kind of broadly understood, hopefully it will cause the Fed to, as they have in the previous years, provide a little more latitude or a little bit more nuance to banks that are very well capitalized such as ourselves versus others. So we would expect more and more flexibility as time goes on. The dividend versus the -- first off, I should say that our expectation, and I think Ed referenced this, is that returning capital to shareholders is our #1 priority. So the rate that we're running at today, we would hope to at least be the same going into the next cycle. And depending on what other signals we get from the Fed, that could be adjusted. With regard to the mix of dividend versus buyback, we look at that every year. If we have flexibility, we'll look at whether or not it makes sense. And by the way, we derive a lot of our input from talking to shareholders over time. We'll make that determination. But up until now, there hasn't been too much latitude. I think you're aware of this. The latitude changes, then we'll assess the mix, as well as the overall return level.

Your next question comes from the line of Greg Ketron with UBS.

In terms of thinking about the revenue environment or the current environment and the impact that it's had on revenue, go back earlier this year, you'd made the comments predicated on moderate revenue growth, you would have a certain comp payout ratio. The fact that revenues have trended to more of a kind of a flat year-over-year growth basis, is the way to think about the revenue opportunity being flat versus moderate growth, more of that takeaway is due to just lower activity, lower volatility levels and, I guess, impact on margin? And then if we did see that return, that would get you back to more of the moderate revenue growth that you were maybe expecting earlier this year?

Absolutely. And I would, further to that, Greg, say that this derisking thing, which is a newer phenomenon in the past several quarters, same applies. So I take it back to confidence the world gets better, investors more likely to take more risk. As investors take more risk, they move out into equity, global equity, emerging equity that drives higher revenues, that drives higher activity volumes as in trading volumes, higher FX. So the other way of responding to your question is we're working very hard to make sure that the core revenue lines have the appropriate level of expense offset against them. We're working in this constrained environment, where low confidence levels, low interest rates are casting a pall on many of our variable revenues. I think as we move through this and get our -- right-size our expenses against those core revenues, there should be a lot of leverage on the upside once things break and confidence restores. And that's what we're playing for.

Great. Thanks for the color on that, Jay. And then Ed, maybe on the excess liquidity or if you look at the deposit levels, do you have a sense for how much in excess deposits you have today and what kind of impact that is having on the margin?

They're staying about where they were in the third quarter, Greg. No significant increase or decrease at this point, so in that $15 billion, $16 billion average range.

Okay. And how much that may be weighing on margin?

Well, I mean, we said at the beginning of the year, that we expected excess deposits to average about $11 billion for the year. Unless something significant happens in the fourth quarter, that probably won't materialize. And predicated on that assumption, we put the range of our NIM out for the year, Greg, 145 to 155. So if excess deposits are higher, which we probably expect above the $11 billion average, that's the basis for us saying we'll probably be around the middle of the range for the year in terms of NIM. If the opposite were true, we'd obviously be in a higher position relative to NIM.

Okay. And then the charges that are out there potentially for deposits in certain parts of Europe, do you expect that they have any meaningful or noticeable impact?

You're talking about our announcement that we're going to charge negative rates, relative to Swiss and krona?

Yes.

No, we don't expect that to have a significant effect. They're fairly immaterial currencies to us.

Your next question comes from the line of Jeff Hopson with Stifel, Nicolaus. J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division: Just on the asset management trends. I know there were a couple of larger items. But anything beyond the ETF business that we've already talked about, anything else that would be driving the pipeline? And then on the asset management flows, were those through the full quarter? I know the ETFs were particularly strong in September. But was the other mandate in for the full quarter?

Yes. Let me take that one, Jeff. As far as overall trends, a little bit of reflection of my broader comments, which is we're seeing flows into passive asset categories, cash. I think cash was up $5 billion in the quarter. So it tends to be the more conservative asset classes. Having said that, our new products, the 54 new products that we introduced, good flows into those, too. So mixed, but anchored around lower-risk assets. With regard to the large Asian-based passive fixed income mandate, that was installed in mid-September, so kind of later end of the quarter. J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division: Okay, great. And then finally on the expenses in Q4 in regard to the comp number, anything that we should think about in terms of accrual adjustments, et cetera, that would affect the number otherwise?

Well, I mean, we'll determine where we're going to set the incentive comp levels up the chain with the normal year-end process. And out of that could come some accrual adjustments, certainly. It depends on how the year ultimately sorts out from a performance standpoint.

That does conclude our question-and-answer session for today. I hand the program back over to Mr. Jay Hooley for closing remarks.

Yes. Thanks, Christy. And thanks, everybody, for your attention and good questions. We look forward to talking to all of you at the end of the year. Thanks.

This does conclude today's conference call. You may now disconnect.