Good morning. And welcome to State Street Corporation's Fourth Quarter 2014 Earnings Conference Call and Webcast. Today's discussion is being broadcast live on State Street's website at www.statestreet.com/stockholder. This conference call is also being recorded for replay. State Street's conference call is copyrighted and all rights are reserved. This call may not be recorded for rebroadcast or distribution in whole or in part without expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the 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 Anthony Ostler, Senior Vice President of Investor Relations of State Street.

Thank you, Stephanie. Good morning everyone and welcome to our fourth quarter 2014 earnings conference call. With me on this call is Jay Hooley, Chairman, and CEO and Mike Bell, our Chief Financial Officer. Now to our agenda. Jay will discuss the fourth quarter highlight and Mike will discuss our fourth quarter financial results and our 2015 outlook. Our fourth quarter earnings materials include a slide presentation. Unless otherwise noted, all the financial information discussed on today's webcast will reflect operating basis results. Please note that the operating basis results are a non-GAAP presentation and this webcast includes other non-GAAP financial information. Reconciliations of our non-GAAP measures, including operating basis results to GAAP basis measures referenced on this webcast, and other related materials, such as the slide presentation referenced on this call can be found in the Investor Relations section of our website. Mike Bell, will refer to the financial highlights presentation when he provides an overview of our financial results for the fourth quarter of 2014, which he will refer to as 4Q, '14 and for the 12 months ended December 31, 2014, which he will also refer to as full year 2014. Unless noted separately, Mike will reference only the non-GAAP operating basis results in his comments today. When reviewing our results to comparisons to prior periods, Mike will primarily focus on comparing our 4Q, '14 and full year 2014 performance relative to our 4Q, '13 and full year 2013performance; unless he otherwise notes that the comparison is sequential from our 3Q, '14 results. Before Jay and Mike begin their discussion of our financial performance and 2015 outlook, I'd like to remind you that during this call, we will be making forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in State Street's 2013 Annual Report on Form 10-K and its subsequent filings with the SEC. We encourage you to review those filings, including the sections on risk factors, concerning any forward-looking statements we make today. Any such forward-looking statements we speak only as of today, January 23, 2015. The corporation does not undertake to revise such forward-looking statements to reflect events or changes after today. Now, I'd like to turn the call over to our Chairman and CEO, Jay Hooley.

Thanks, Anthony. And good morning, everyone. Welcome to our fourth quarter conference call. Our fourth quarter and full year 2014 results reflect strength across asset servicing and asset management businesses. Despite the low interest rate environment in 2014, our revenue experienced solid growth compared to 2013 from both asset servicing and asset management. As a result, operating basis total fee revenue for 2014 exceeded 2013 by 7.4%. Our focus on developing and delivering solutions to serve client's evolving need continues to position us well against strong global growth trend. As a result of this, we achieve new asset servicing commitment in 2014 of $1.1 trillion including approximately $400 billion in the fourth quarter of 2014. And net new assets to be managed of $28 billion including $7 billion in the fourth quarter of 2014. We are pleased that we have successfully completed our Business Operations and Information Technology Transformation program on schedule and at the high end of our guided range. I want to acknowledge the efforts of the entire State Street team for helping us complete this important initiative. Going forward, managing our expenses and continuing to drive efficiencies across the organization remain a priority despite continued pressure on regulatory costs. Now I'd like to provide a brief overview of economic and market developments and how our business is affected. U.S. equity market end of the fourth quarter on a robust footing. But that thinly disguise the fact the quarter was characterized by greater uncertainty. US economic news continues to surprise to the upside but the collapse in commodity prices fuel fears of our growth outside of the U.S. This prompted significant moves in commodity- linked assets from the currencies of commodity exporters such as the Russian ruble to asset such as high-yield corporate bonds of energy producers here…

Thank you, Jay. And good morning, everyone. Before I begin my review of our operating basis results, I'd like to comment on two non-operating charges included in our fourth quarter GAAP basis results. First, we recorded an after- tax charge of $40 million, or $0.10 a share, to increase our legal accrual associated with indirect foreign exchange matters. This charge pertains to indirect FX matters that we disclosed over the past few years, and it reflects our intention to seek resolve some but not all of the outstanding and potential claims arising out of our indirect FX activities. Our current efforts even if successful, will not address all of our potential material legal exposure arising out of these activities. As I am sure you can appreciate settlement discussions are confidential, and we are not able to make more specific comments on these matters at this point. Second, we record an after-tax charge of $27 million, or $0.06 a share in restructuring cost related to the completion of the Business Ops and IT Transformation program, which we completed this quarter as planned. Overall, we are pleased with the success of this program. Now please turn to Page 9 of the slide presentation, I will provide a brief overview of full year and fourth quarter 2014 operating basis results. Full year 2014 EPS increased over 12% from the prior year, driven by strong fee revenue growth and the continued execution of our common stock repurchase program. Full year 2014 total fee growth of 7.4% offset a persistent low interest rate environment which negatively impacted net interest revenue. For full year 2014, in the face of increasing and significant regulatory compliance cost, we achieved slightly positive operating leverage. 2014 ROE of 10.9% increased from 10.3% in 2013. Turning to 4Q, '14 results. EPS…

Thanks Mike. Stephanie, we are now open to responding call.

[Operator Instructions] Your first question comes from the line of Ken Usdin with Jefferies.

Thanks, good morning. Mike, in your fee revenue growth outlook I just wanted to ask you to kind of flesh out more; are you expecting -- which business do you expect to drive the incremental growth? And what is the real delta between the bottom and the top end as far as what goes poorly or what goes better at the low and high end?

Ken, sure, in terms of the 4% to 7% our fee revenue growth that we expect in 2015 versus 2014. First, I'll just repeat what I said in the prepared remarks, Ken that does include a $200 million headwind from the stronger U.S. dollar. So that is built into the 4% to 7%, otherwise would be roughly 2.5 points higher than 4% to 7% range. So on a constant currency basis think of it as you call it 6.5% to 9.5% but we think again the U.S. dollar shrinking is a real headwind. In terms of what we expect to drive that, I'd really characterize it as continued strength in each of our main fee revenue categories for 2015. And specifically we are pleased with the net new business that we got in particularly in our global services business, we would expect that to continue and actually increase in 2015 relatively to what we saw in 2014. We expect continued growth in our management fees. And we are pleased with the uptick in the Sec [ph] finance revenue in Q4 and also the FX revenue in Q4. And while I wouldn't characterize as the new run rate going forward, I do think on a full year basis 2015 to 2014, we will continue to see good growth in both of those businesses. Lastly to your question on the magnitude of the range and how to think about it. I think, Ken, the major wild cards to me, number one would be again the market driven revenues. FX volatility -- pardon the pun, but FX volatility was quite volatile throughout 2014 and I think it's anybody's guess. So I'd characterize the low end of the range as being a returned or weaker volatility than what we saw in the second half of the year. Sec [ph] finance will please with the strengthening in those revenues in the second half of the year. M&A environment help with that. The enhanced custody revenue continues to be strong, that was helpful. But again we saw in the first half of the year, sec [ph] lending on the agency side, seeing very narrow spreads and certainly that could revert. Lastly, there is an overall question of client flows. We benefited in 2014 as Jay has talked about several times. We've benefited from strong flows in 2014. I'd characterize the upper end of that range is being continued strength there and the lower end a possibly some softening there. Let me see if Jay wants to add or add to those comments.

Yes. The only thing I'd probably pile on, Ken, would be that I noted that we have $406 billion and committed yet to be installed pipeline in the asset servicing business. And I'd say broadly the pipeline they are as good as they looked in several quarters. So I'd add that to the input.

Okay. My second question on capital, you mentioned the extra $750 million potential. Basel III Tier 1 common has also kind of dripped back down to 10 [ph], so can you talk to us about what drives the decision tree on the potential to issue that extra $750 million? And also if any of that also informs any differing view on how you think about your capital return ask?

Sure, Ken. It is my -- first on the pref, the main couple things driving the likelihood of the additional pref issuance in 2015 would be number one, additional clarity that at least for the foreseeable future. The SLR particularly the 6% SLR at the bank is likely to be our binding constraint. Again, I would characterize that is likely to be our binding constraint for a while. And therefore it is more economical to meet that binding constraint with pref as opposed to common just given the relative cost to capital of common versus call it 6% for -- and after tax basis for after pref, so that's number one. Number two, we've seen an increase in deposit levels particularly non operational deposits throughout 2014. Again with that occurring in 2014, we view it as more economical to meet the required capital associated with that deposit growth with pref as opposed to common. Is it relates to the risk based ratios, since we turn around and place excess deposit with the central banks that does not increase our risk weighted assets and therefore that does not had an impact on the risk based ratios, and therefore I'd again just reinforce that we think the SLR is likely going to be the binding constraint for a while.

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

Great. Good morning, guys. So my question on the operating leverages. I guess in the outlook slide you guys have kind of outlined core fee growth versus core expenses, which I think your competitors are kind of migrating towards that sort of metric as well. But when we think about the operating leverage for the entire enterprise, from your comments it sounds like unless rates go up in the middle of the year it is unlikely that you guys will achieve material operating leverage in 2015. So I just want to make sure I understand that. And then I have a follow-up.

Yes, Alex, I would say that what we shared with you at your encouragement is our best thinking as we sit here today around 2015 outlook. And when you look at some of my comments what shifted in the last 90 days with regard to the general economic outlook and the likelihood that maybe the Fed delays tightening, we want to put out there they are two different scenarios. And Mike can comment at it if he like. We set every year as a goal operating leverage. We will continue to do that. And we will strive to achieve that. What we are signaling is that if in fact a rate stays stagnant, it is going to put a lot of pressure on our ability to achieve operating leverage. So -- Mike, you want to say --

Yes. Alex, the only thing I would add. I think there is arguably more uncertainty around the NIR outlook for full year 2015 than there has been for a quite while. I mean it's not loss on any of us just how soft a situation is in Europe. And while we are encouraged by number of the public comments coming out of the Fed on the possibility of increases in administrative rates in the U.S. Just given that relative divergence, we thought it made more sense to put out the two different scenarios. And that way again depending upon on your own view of the world you can model it the way you see fit. Second, I'd just emphasis, Alex that obviously the piece that we can control the most is our expense growth relative to our fee revenue growth. And we feel like that's going to be a good story for 2015. As we talked about we expect to get at least 200 basis point delta between our fee revenue growth and our overall expense growth for 2015. And that's the piece that we feel like we have the most control over. So in terms of the fundamentals on what we have the most control over, we feel good about the outlook. Obviously, we are recognizing uncertainty on the NIR.

Got it. That is helpful way to doing it. Second question just on FX, and thank you guys for the comments around just this activity on the revenues front, but as you pointed out, there is obviously an offset around expenses. So, yes, it is a big $200 million of drag on fees, but you guys should get some help from expenses. Can you help us understand, when we think again about the enterprise as a whole from a pretax earnings or a net income perspective, what is the sensitivity of State Street's model today relative to -- in an environment where the US dollar continues to strengthen? If euro/dollar goes to parity, what is the pre-tax hit that we should think, or is it not a very meaningful number because of that natural hedge in the model?

Yes, Alex, it is Mike. The shorting answer is it is not a material and the grand scheme of State Street impact on our overall EPS. I mean there is modest impact of course because the fee revenue is slightly impacted more than the overall expense level. There is also some collateral impact on our net interest revenue. But again in the grand scheme of things, that's not the risk that I'd point out is being the top five or top ten list.

Your next question comes from the line of Glenn Schorr with Evercore ISI.

Thanks. I appreciate the rising rate scenario and obviously when you compare it to the static it doesn't have a huge impact because of the timing of your rate hikes. If you follow on the forward curve, even if it is just ballpark, can you talk about maybe a full-year type impact? Like I f2016 what kind of delta could we be looking at on an operating basis NIR?

Sure, Glenn, it's Mike. First as you can imagine there will be a lot of different factors that would impact 2016. So I would characterize my comments as a directional as opposed to precise. But I think it is -- I think your comment is fair one which since the rising interest rate scenario mainly gives us the benefit in the second half of the year. You could think of the delta between the static and the rising interest rate scenario is being roughly twice that delta in 2016 versus 2015. Now, again importantly there are so many different factors that would go into 2016. I mean what are -- where our deposit levels, how is the evolution of liquidity expectations taken place, the possible divergence between Europe and the U.S., so I mean there are 100 different caveats I could give you there. But I think you are thinking about in the right ballpark is kind of half the year impact in 2015 and that would then widen obviously with a even greater impact in 2016.

Yes. I appreciate that. I'm trying to balance that all with the increased debt issuance, too. Okay. The question specifically on regulatory cost, because you noted there continues to be upward pressures there. I am curious on what is driving that, and I am reading into that line that it says the dollars would be up in 2015 from 2014 which was up from 2013. I want to make sure I'm reading that right. And just, literally, what drives it, what is left to do?

Sure, Glenn. First of all you are reading it right. We do expect 2015 regulatory cost to be higher than 2014 and 2014 was certainly higher than 2013. I would not point, Glenn, to a single area and say it is this area that's driving the higher regulatory cost. It really is the culmination of ratcheting expectations by regulators really across the globe on a higher expectation particularly for GSIBs in terms of regulatory compliance. And in many cases it is not just literal compliance with a literal rules. It is all of qualitative aspects of our management processes that end up getting evaluated by the various exams and various standards that were subject to. Let me see if Jay wants to add anything.

Yes. The only thing I would add I agree with that, Glenn. The only I add is that if you look at any one of these processes so take CCAR for instance, 2013 versus 2014 submission significant increase in our expectation. And the point I was going to add is that knowing or believing that this is a long-term gain, part of the investment that's going into this is to structurally change the way we are aggregating data so that not unlike our IT and Op Transformation program, we are looking at long -term regulation and compliance, need to be best in class, it must stand point of the results that we deliver but the way we collect data and deliver that information. So there is a pretty high effort going into creating internal data model so that we can quickly aggregate and bring together information not only for today's expectations but for tomorrows as well.

Your next question comes from the line of Ashley Serrao with Credit Suisse.

Good morning, guys. So when you look at the NIR delta between the static and rising rate scenario that you painted, can you help us just bifurcate the upside there between the rise in the UK? Was it the US rates just given that they are happening at different times?

Sure, Ashley, it's Mike. We would anticipate that the rise in the Bank of England rates and the associated market increase -- market interest rate increase in interest rates from that would be round numbers worth about $20 million to $25 million US in full year 2015 versus full year 2014. And the way you might want to think about that is, think about it is we have approximately $12 billion of US dollar equivalent deposits in the UK, and we beginning a little more than half a year in terms of the impact on market interest rates and the basis point increase would be a little more than 25 because we get a little bit of an additional benefit from the second 25 increase. So that's the background of the arithmetic behind that number. And then the Fed fund increase would be approximately the remainders. So think of it is again round numbers, Ashley, of approximately $60 million of benefit from market interest rates rising modestly in advance of that Fed fund increase.

Okay. Appreciate you guys having just a lot of challenges out there from the regulatory environment and environmental as well. Should this environment persist or deteriorate further is there anything else that you could do on the expense side to help mitigate the situation?

Yes, I would say, this is Jay, Ashley; I would say two things because we think the regulatory requirements will continue to grow. So the two things that we are consciously doing, one, I already mentioned which is to replace the labor with technology like we would in any of our operating businesses, and do better job at gathering information. And the second which we did in 2014, we will continue to do in 2015 is to replace external consultant dollars which come at a premium with internal staff. We are also doing some of these work in lower cost environment so all of the techniques should expect to do the work at a high level but do it more sufficiently, we are putting into place with regard to all of the regulatory initiatives.

Your next question comes from the line of Luke Montgomery with Sanford Bernstein Research.

Good morning, thanks. So in your guidance you are forecasting the EUR1.16 to US dollar by the year end of 2015. I think we are already at EUR1.12 and possibly headed lower. So perhaps you could discuss how important that exchange rate assumption is to your NIR guidance, and then whether today's exchange rate would represent a material change in that expectation. I think I heard you downplay the risk factor in a prior response, but maybe you could be a little bit more explicit.

Sure, Luke, it is Mike. First of all, rule of thumb that I use around the euros specifically is it a 1% swing in the euro relative to the US dollar is worth approximately $10 million of annual fee revenue and a shade less than that. So call it $9.5 million of impact on full year expenses. And that's for the entire State Street enterprise. The NIR impact would be a fraction of that. So as I said, there are some very, very modest headwinds associated with the euro continuing to weaken on NIR but that is built into the range that I provided in the prepared remarks.

Okay, helpful, thanks. And then I wonder if you guys could talk us through the decision to shut down the swaps clearing business. I think the plan is to focus on futures clearing, although I think some would argue that you really don't have scale there either and you lost Pimco, which was your biggest client. So how are you gauging your prospects in the futures business? And then if you could speak to how these developments affect your ability or your appetite to offer collateral management and collateral transformation.

Sure, Luke. Let me take that and this is Jay. You are right in that I think we began this journey thinking that both OTC and futures clearing are both attractive, inter opportunities given the clearing requirement that were imposed by regulators. As it turns out what we are hearing from our customers is there is more of calling for future's clearing versus over the counter clearing, so we had taken a first steps in that journey and concluded that we were better serve to follow the futures clearing path. We think we have a very competitive offering. We've got good volumes through our futures clearing merchant, and we are optimistic that's a good additional product for us going forward. With regard to collateral management. We've spoken before we think that's nice additional service. I don't see it as having huge upside revenue potential but the need to optimize and manage collateral is ever present in the activities that we conduct for our customers. So we have the series of collateral management services that we offer to our customers and get good take up.

Your next question comes from the line of Brian Bedell with Deutsche Bank.

Hi, good morning, thanks. Just in looking at the 2015 outlook, if I am getting this right, if we look at the middle of that fee range, so call it 5.5% growth and assume about 3.5% growth in operating expenses. If we take the static NIR range and then considering the tax rate and obviously share buyback, to me that comes to around a flattish EPS result for 2015 using those assumptions. Just wanted to check if I'm doing that right by your math.

Yes, Brian, I mean roundly -- there is obviously there are number of different assumptions built in there. I think roundly your arithmetic is in the ballpark, I think importantly number one, we do believe we are going to achieve at least 200 basis points of daylight between fee growth and the expense growth and again you took obviously the 200 basis points and we think there is a reasonable chance to get some help from market interests and obviously you took the static interest rate scenario. So I am not disagreeing with your arithmetic. But the -- just recognize the implicit judgments that you are making there.

Yes, so some upside if those are a little better, okay. Then just clarification. I think I missed the revenue impact on the fee line that you cited, Mike. And then were there any fees from euro deposit charges or any bank charges that you passed along baked into the servicing fees and or do you expect those charges to come to the servicing fees in 2015 or through NIR?

Sure. So, Brian, in terms of the impact of the stronger US dollar, what I said in my prepared remarks is that the currency assumptions noted on the slide would negatively impact fee revenue in 2015 full year by approximately $200 million. That would be almost entirely offset by a same kind of reduction on the expenses. So that it would have a relatively immaterial impact on overall earnings for the full year. But think of it is, again 10% shrinking in the US dollar costing us $200 billion of reported fee revenue growth for the full year. In terms of the negative interest rates in Europe, we did collect some small approximately US $3 million in Q4 from the negative interest rates that we are charging on euro deposits in Q4. We have assumed that, that will continue at least at that level into full year 2015 reflecting the fact that the ECB rate obviously is negative, the Swiss bank rate is now even more negative and so again we are making the assumption that we will continue to charge for euro deposits as long as that situation is evident.

Your next question comes from the line of Brennan Hawken with UBS.

Good morning, guys. So I understand that the rules are preliminary and somewhat fluid, but at this point do you have an estimate for what proportion of your deposit base would be considered non-operating?

At this point, you are absolutely right. It is a fluid situation, Brenn, we do estimate that our excess deposits on average for Q4, 2014 were $52 billion, but as you correctly noted the ultimate calculation, the ultimate standards that are used to determine exactly what's an operational deposit versus a non operational deposit, that work is still in progress.

But for right now you feel confident that the way you view excess is in line with your understanding of the non-operating definition?

That's correct.

Cool. Okay, thanks. And just want to follow up on what Alex and Ashley both hit on. It is certainly helpful to hear that you might moderate regulatory expenses with tech and such, but the environment -- it is certainly nothing new that the environment has been difficult and it has been brutal for like five years for pretty much all financial services firms. So it is not like it is episodic to State Street, but it seems like the message is that you all are waiting for it to get better rather than proactively dealing with it. And I guess I hear that frustration from investors. I am curious how you would counter that and what will it take for you guys to start to get maybe a bit more proactive on managing the expense front; not just for the regulatory pressures, but also for the environmental ones.

I would say on a regulatory one, I think we are doing, I think we are being proactive. And proactive means not just responding to the need but looking at over the horizon to see what's coming next to making sure we can hardened an infrastructure to do this more efficiently than anyone else going forward. And I don't have perfect visibility to what others are doing but we are taking a longer view of this. And building sustainable infrastructure but very proactive.

Okay. And maybe on the environmental front, what do you guys think there? I get it that it is really difficult and it is hard to try to figure out how long this is going to last, but is there a point at which we start seeing you maybe take some hacks at the expense base or start to tactically start to think about how you want to reposition the business?

Yes. Let me -- the environmental front, just to make sure we get the -- we are talking about the same environment. I think we've been, we've talked a lot about the rate environment and its effect on net interest revenue. We try to give you the little bit of the book and thinking on possible outcomes for 2015. We commented on 2016 as well. Environmentally given this divergence of macro economic trends, actually that's a little bit more positive for the market driven revenues and you saw some of that in the fourth quarter and our expectation for 2015 is that continues to get better. With regard to expenses, as we mentioned the IT and Ops Transformation program wound down as we concluded 2014, but we have several efforts underway which pick up on the core themes of IT and Ops Transformation and that is to increasingly drive efficiencies through operational processes, through doing work in lower cost environment. And Mike referenced some investment in technology. We continue to employ technology to replace human labor. So even though the program officially ended in 2014, our jest to continue to get more efficient has not subsided.

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

Hi, two follow-ups from prior questions. One, Mike, I guess you just kind of gave it to us straight, so if EPS is flat in a static scenario would that imply something closer to $5.10?

Mike, first of all, I would just emphasize that the -- there are number of different factors that are going to impact EPS not just the net interest revenue and not just the market interest rate. I would simply making the comment that the arithmetic that we were talking about earlier did take the conservative end of a handful of different assumptions. So flat EPS year-over-year would certainly not be by best estimate although I would respect you, Mike, if you pick your own views on both interest rates as well as how much we are going to exceed expense growth with fee revenue growth in 2015.

So I guess slide 18 the main point is that lower rates for a lot longer really hurt your NIR and there is not a whole lot you can do about that, so --?

Well, I mean certainly that's the case, Mike. And we did talk about that in detail at our Investor Day a year ago. And I am sure we will be talking about it at the upcoming Investor Day. We talked about if interest rate stayed static that we would expect the net interest margin to continue to grind down, a fair amount lower versus where it is today, all of those numbers if you recall excluded excess deposits which have grown -- it is a little different issue. But in terms of what would we do in that kind of environment. Number one is as we talked about this morning, we will look --we will continue to look for even more efficiency opportunities including as Jay talked about earlier, looking for opportunities to use IT to replace labor on a number of different fronts. We think that's good for clients and then good for our shareholders. And then ultimately if we really believe that interest rates would stay at this level forever particularly given the capital and liquidity rules, we have to over time look more holistically at pricing. And ensure that our client relationships in totality in that kind of environment are enabling add a quick return for our shareholders.

So the idea of the capital for labor swap, Jay, you've spoken about the movement to the digital enterprise. Can you talk about this next phase of State Street and the investments that you are making and when you can potentially see some of those payoffs, since that would seem to help out expenses over the medium to long term?

Yes, happy to, Mike, and when we do have going internally to digital enterprise as a broad based organizational effort to digitize our environment which is I think going to be critical not only to drive efficiency but if I think about some of our most attractive perspective future product sales, most likely revolve around our ability to aggregate real time information for our customers for risk management and another services. So I would put us in a little bit of transitional period between IT and Ops Transformation and the digital enterprise. And in 2014 and a little bit in 2015, one of the critical elements to getting there being more reliant on technology is to make sure we complete hardened our technology environment, internally we use the word building resilient so that it is practically impossible for our technology to go down. Once we are more of reliant on technology less on labor, you can't have technology that fails where if you have higher labor content, it is ability to recover, so we are investing in that infrastructure, but as we get there, every process within the organization is getting examined for how we can improve the process itself. And then how we can apply technology to replace labor. And I would say that, Mike, that's not just for the operational area. If you look at the finance area or just an example on our support group, that organization is going through that same thing. So we don't know what the future hold, we don't know when rates will start to rise, but we are not waiting for that. We are anticipating that it is going to be a slow environment for some years to come. And therefore we are driving efficiencies in every corner of the place.

Your next question comes from the line of Adam Beatty with BofA Merrill Lynch.

Good morning. I have two questions about asset management, so I guess I will ask them both at once. The first concerns the fixed income rebalancing that you saw in Asia and just I guess in one sense it's a positive data point for rate rises, but just what you are seeing across the complex. Do you anticipate or see in smaller fashion similar types of activity? And also and maybe more importantly, globally do you see different investor behavior across regions, maybe based on some of the currency volatility? The other question I had was about more specifically about ETFs -- I see impressive asset growth there -- and where you see opportunities there, particularly maybe in the retirement space and 401(k) platforms. Thank you.

Sure. Bunch of questions there, Adam. Let me take a swing at it. You saw -- I gave you a breakdown of our net $7 billon and net new assets under management and highlighted a $20 billion fixed income, client that laughed I would say that was certainly one off and we would hope as the client rebalances to pick up something on the equity side in time but there is little transition going on there. If you look at our asset management business, it is anchored in the passive/beta, smart beta space not exclusively but primarily and delivered through various vehicles, you mentioned ETF. When we look at where flows are coming from these days. I think beyond SSGA [ph] you see broadly a broad move into scientific or actively managed funds. Not just passive but active or passive with an active bend on it, some call it smart data, that's the term that we use. We see that as a worldwide phenomenon. It is happening everywhere. It is delivered through various vehicles. We think ETF is a preferred vehicle given a natural efficiency both tax and otherwise if delivering diversified investment. So we've made a considerable effort into expanding our ETF business not just from the standpoint of product, which we do by ourselves and I think we are the only large ETF provider that engages other managers, Blackstone, the DoubleLine, and MFS in an active equity sub advisory relationship. But we've also built out since as you probably know ETFs are largely bought through intermediaries, we built out our wholesaling force in the US and increasingly in Europe on the continent. So I would say both passive and alternatives are two big themes that we see globally. And on the alternative side well as an asset manager we don't play that. We are active, they should expect on the asset servicing side for servicing passive both hedge private equity and real estate. Last point I would make which is more of a servicing comment but it brings an interesting side light, is that in the US but trending across the globe these mutual funds that take on alternative element to them, with not only service those but that has been big source of our enhanced custody growth. So I would say broadly passive and alternative and ETF is the preferred vehicle for distribution.

So it sounds like some real synergy between the asset management and the custody?

Absolutely.

Your next question comes from the line of Steven Wharton with JPMorgan.

Hi, guys. I just had a question on the rate outlook. You are actually, in some ways to me, somewhat conservative. I recognize that the forward curve expectations have shifted outwards, so you have this first Fed rate rise starting in December. But I was just kind of wondering if the Fed has indicated, which I know could change, that they may move as soon as this summer. The dot plot keeps moving around of course. But if, for example, the Fed moved say sometime in June or July or even in August or September and you ended the year closer to maybe 50 or 75 basis points on the Fed funds rate, can you give me a sense of the benefit that might accrue to the NII forecast and the rising rate scenario?

Sure. Steven, it is Mike. I appreciate you are right, your comments and I think importantly the answer to your question would be predicated on how quickly do we see the benefit of the market expecting that sooner Fed fund administer great hike, how quickly do we see that show up for example in one month and three month LIBOR. So it is caveated on that. Historically, we've seen one month and three month LIBOR increase in advance of the administered great as the market starts to price that in. But that's really the heavy dependency. I would characterize it is as round numbers, think of it as approximately $60 million of potential benefit in 2015. If in fact we got a mid year kind of increase rather than the December that we had expected, again as long as-- I mean that would really suggest that we would be seeing probably as early as March or certainly by April, the increase in the LIBOR rate. So that's the dependency.

So the $60 million would be -- is that per 25 basis points or is that in aggregate?

Well, I was just trying to answer your question in aggregate which I heard it as if we would get in the first Fed fund increase at mid year then we get a second increase in Q4, what do I think the overall impact would that be on NIR for full year 2015 relative to the expectations that we share with you on the slide.

Okay. So that basically implies roughly two rates rise with a little bit of market rate impact ahead of it?

Correct.

Your next question comes from the line of Brian Kleinhanzl with KBW.

Hi, thanks. I had a quick question on the potential long-term debt issuance in 2015. Looking right now you have about $10 billion of long-term debt on the balance sheet and I am assuming that is being done in preparation for TLAC or NSFR. Can you give us a sense of how much that could grow? Are you looking at it as a percentage of RWA, or how much are you going to add potentially in 2015?

Sure, Brian. It's Mike. Yes, there is uncertainty around where TLAC is going specifically what kind of proposed rule will the Fed issue around TLAC. And that was really the main driver of the comment that I was making. So at this point I would not try to size it. Obviously, as we know more we will communicate more -- at this point I wouldn't try to size the potential issue and some long-term debt size, I just think there are too many uncertainties in terms of where those rules are ultimately going to go.

You mean that you won't issue until you see the rules; is that the way to interpret that?

Well, I just think there are number of difference considerations on whether we would issue or not in 2015, not the least that which would market condition, so I'd rather not try to give you a specific forecast on long-term debt. But I was acknowledging the point that you made which is accurate that if TLAC came out from the Fed and particularly if it was more conservative than then Basel rule that might encourage us to do more rather less in 2015.

Okay. Then just my second question was on the preferred issuance. It sounded like there was some optionality in that as well, meaning it is not included within your CCAR plans so you are not required to issue it. So is there a scenario where you could see yourself not having to issue preferred?

I'd obviously prefer not to talk about CCAR submission at this point. Is there a scenario that I could imagine where we didn't issue the $750 million of additional preferred? Sure, but I think that it is unlikely. I think it is more likely than not that we will issue the additional $750 million. Again, timing to be determined but I think it is more likely than not.

Your next question comes from Jim Mitchell with Buckingham Research.

Hey, good morning. Mike, can you just help us understand, given that you are assuming a flat rate environment, flat balance sheet, what are the drivers of the $100 million variance in the NII? And then secondarily, if we are assuming a flat rate environment as we have seen over the past couple years, you have had pretty steady strong deposit growth. Is there a reason why we wouldn't or shouldn't assume more deposit growth in 2015 if we have a flat rate environment?

Sure, Jim. First in terms of the NII forecast for 2015, when you talk about the $100 million, you are talking about the difference between 2014 actual and the mid --

Oh, no, I'm sorry. The range between the low end and the high end, sorry.

I understand, thank you. Well, first of all, it actually links to your deposit growth point. It is not lost on us that particularly we've seen substantial deposit growth over the course of 2014. Unfortunately, mainly that has been in the category of excess deposits which means that we've turned around and put that deposit growth with the central banks and earned a very, very small interest margin on that. And so deposit growth would be an example of uncertainty in our forecast for 2015, hence the other wide range. I'd also add to the point that we may see this divergence in 2015 by geography. So that was the thinking that was a part of that that range as well. They will be mixes in the change of -- in our portfolio and again there are just so many different moving parts here, Jim that I thought particularly given that we are so early in the year, that kind of width of range makes sense. And then your question on the deposit growth. Given the pressure that the growth particularly in excess deposits puts on our capital ratios and therefore would potentially put on the need to issue additional pref longer term, I would hope that we would not have and we would expect that we would not have the kind of growth in excess deposits over the course of 2015 that we had over 2014. I think net-net that would be a negative because again even if it evolves those excess deposit came in the US, they get placed with the central bank here currently earnings 25 basis points, that's not helpful economically with today's interest rate environment and with today's capital liquidity rules.

No, fair. So just to follow-up on your discussion there, the range is sort of dependent on deposit level. So is the upper end of the range assuming some deposit growth, or you mean it is flat and the low end of the range is assuming some deposit runoff?

Yes, obviously, Jim, there are a lot of different factors that the deposit would be a piece of it. But I just think, again where our spread going to go in 2015, what kind of portfolio opportunities do we have in 2015, how do the rules get and answer to one of the earlier question, I think it was Brennan's that -- where is the final interpretation of the operational deposit rules for LCR come out, there are just a lot of different uncertainties that could push at either or up down.

Fair enough. And just one last question just on the prior discussion you have had a couple of times around at the low end that implies flat earnings. Was that discussion, and maybe I missed it, reflecting or contemplating lower share count from the buyback or not, when you think about flat earnings at the low end?

Yes. I'd rather not get into share count and forecast just given that, that would imply certain things about CCAR but I would just simply try to point out that the our view is that we are going to have EPS growth in 2015. We obviously recognized the risk factors and we try to be very transparent about the pluses and minuses. I think most importantly I think the things that we can most control, we feel good about what we are going to execute on for 2015.

Your next question comes from the line of Geoffrey Elliott with Autonomous Research.

Good morning. If I think about capital ratios declining a little bit, the GSIB surcharge potentially stepping up from 100 basis points to 150 basis points, then just conceptually how do you think about the right proportion of earnings that you should be returning to shareholders? Not so much thinking about this year, but just going forward, given that there is some growth in the business, how long can you keep giving everything back before you have to start retaining something?

Sure, Geoff, it is Mike. First, I think they are really two different questions embedded in your question there. One is the GSIB buffer. I would emphasize that my comment on it, it potentially increasing is based upon our interpretation of the Fed's proposed rule and in particular that our non operational deposits get picked up on to our interpretation, our non operational deposits get picked up in what they are characterizing as short -term wholesale funding despite the fact that those dollars are literally placed with the central bank which we view as the epitome of a risk free transaction. And we view it as the antithesis of a hot money kind of risk. So GSIB buffer, we will certainly put in the common letter and we would hope that reason would ultimately prevail there. So I think it's way too early to attribute a change in philosophy or anything, a change in game plan related to that. I think your question on-- more importantly which we will talk about some more at our Investor Day in February is our longer-term plans around capital management. And in a nutshell, Geoff, our game plan has not changed there which is that we would expect to return -- if you think about our overall ROE, we would expect to payout a portion of that in common stock dividends, a portion of it would need to be retained to fund a growing balance sheet over time, but that again assuming that we limit the growth in the required capital from a growing balance sheet to small single digit number so that provides ample opportunity over the long haul for share repurchase and using that as a vehicle to return capital to shareholders.

We have time for one final question. Your final question comes from Gerard Cassidy with RBC.

Thank you. Good morning, guys. You mentioned that with the negative deposit rates at the European Central Bank and other central banks customers are starting to pull out some deposits. Others are paying those fees. Can you guys give us some color on the sensitivity analyses you might be doing; if those numbers become more negative at the central banks, how many more customers may decide to leave rather than paying the fees? And then would you shrink the balance sheet accordingly? And as part of that, I heard in response to some answers about the amount of fees you received in the fourth quarter was $3 million. And I didn't know if that was just for the month of December which, Jay, you mentioned that is when you started to charge and then, Mike, you said that was for the full fourth quarter. So is it a $9 million run rate or is it just $3 million?

Gerard, let me start that one and Mike can jump in maybe on the $3 million question. It is probably too early to tell as to what the sensitivity, at what price balances find different homes. But as you rightly point out it is -- to me one of the most important elements of what we are doing by charging for euro deposits, is trying to determine or establish at what price deposit stay versus go. And if you carry that forward that would be a pretty powerful weapon for us with regard to having some control is probably a too stronger word but some ability to influence excess deposit which obviously have big consequences for the capital that we hold. So early days, we've only been added for a couple of months but we are spending a lot of time at the individual client level trying to understand deposit behavior, trying to understand what alternatives there are and what point a price causes somebody to move because we think it has pretty important implications far beyond charging for euro deposits.

And, Gerard, it is Mike, just to add on your question on the timing. So we did start charging for deposits in December. So the $3 million all came in December, it was reported in net interest revenue at this point and so again think of it as on approximately $30 billion, 15 basis points on an annual basis, one month worth is the $3 million.

Great. Then as a follow-up question can you give us some color on the loan portfolio? Obviously on an average basis it is almost $18 billion; that is up nicely from the beginning of the year. The color I am interested in, are there any big energy credits in there? Are you part of any syndicates that you have energy exposure in that portfolio?

The short answer is no, Gerard.

I would now like to turn it back over to management for closing remarks.

Thanks, Stephanie. I'll be brief. Thanks for your attention and questions this morning. Hopefully, we look forward to seeing all of you on February 25 in New York City. We will be in a position to talk a little bit more about our long-term strategy, and I am sure we revisit 2015 outlook as well. Thanks, everybody.