Northern Trust Corporation (NTRS) Earnings Call Transcript & Summary

Okay. Thank you, everybody, for joining us. I do have a disclosure, and then we'll move on. For important disclosures, please see Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. The taking of photographs and use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. Well, today from Northern Trust, we are delighted to have with us Tom South, Chief Information Officer; and Jason Tyler, CFO. Thanks so much for joining us.

Thanks, Betsy. And congratulations. The conference is like busy. It's up 30 -- 20%, 30% this year?

Yes. From investor perspective, yes. So...

It's fantastic. A lot of great discussion. So congratulations.

Thank you so much, Jason. Appreciate it. Tom, I think we're going to kick off with a prepared remarks from yourself on the Chief Information Officer outlook here. Would you like to indicate to people about the slides?

I sure would. Thank you. If once you get done with the exciting disclaimer on Morgan Stanley's site, you can go to our site and take a look at the slides I'm going to talk about in a few minutes on our tech journey as it relates to some of our investments in technology. So -- yes, thank you, Betsy. I'm Chief Information Officer for Northern Trust and have been for the last 4 years. So if you look at the slides, you see a lot of 4-year time horizons, I'll explain to you why I'm taking responsibility for those and not anything prior to that. So -- but I do want to get a little bit of a baseline, fact based, we can work from as we have a dialogue on this topic as we go forward. And you'll see that in the first slide if you do download and follow along. And what we really talk about there is -- and it will be no mystery to anybody here, but the demand for IT services has really driven a narrative that I included there. One is our workforce. It has been a real fight for talent in IT in the last few years. It always has been, but it's really accelerated in the last few years. So in Northern Trust, we're 6,500-ish strong workforce and been growing the last few years. We'll talk about that in a few minutes in terms of the pace of growth. But we happen to have really been focused on 2 things in the last couple of years. One was balancing our footprint globally. So our -- certainly our employee footprint is about 50% U.S. and 50% non-U.S., much different than it looked 3 or 4 years ago. And the other focus is just on engagement and talent attraction. We took advantage of some of the health crisis opportunities as well as our brand opportunities to attract talent. We continue to have, what I'll call, in our industry -- end of the industry, ultra-low turnover rates, 5%, 6% has been our historic average, and really in the last -- moved back towards that in the post health crisis era. So a really strong talent base to work from. But an unabated demand for services over the last 3 or 4 years, and we've included a few metrics you see in there. I won't quote all of those to you. But demand from our businesses is up in terms of new capability for clients. Our regulators have pushed us and you'll see some of this when I get into investments, on resiliency investments and emerging technologies. And another thing that's really been a driver for us is the emerging information, cybersecurity threats and the realization of some of those over the last few years, starting in December 2020, you'll see a pretty sharp uptick if you turn over to our Investments page. I mean, the SolarWinds attack was, I think, an eye-opener in terms of the supply chain and then the successful ransomwares from there that went on in 2021 and '22. So we've been an investor there and a big -- so the demand is not from just the business, but from a risk and regulatory perspective as well. And then the last thing is we strive to make sure that, that change agenda did not impact our performance negatively in terms of our clients. They were clamoring for higher reliability, higher resiliency as well. And from a brand reinforcement perspective, a safe port in storms is sort of our model. And so -- and it isn't just about financial people, others as well. And so in the course of that huge uptick in demand we've been experiencing 20% to 25% year-over-year change volumes in IT, which doesn't sound particularly exciting, but that's more and more new capability or upgraded capability to our clients. Our change quality metric, which we're watching very closely, has stayed steady to improved every year. It's been modest, but it's been in the face of what historically for us have been 4% increase in change volumes to go to 20%, 25% was a big change. So we're pretty proud of that. So a big investment in that talent, the kind of risk resiliency and capability foundation and then the metrics around that to sort of support the fact that we're not going too fast. I guess that would be the question that we often got. And so if you move past -- that's the kind of what we've been doing from an activities perspective and the demands on us. And I wouldn't even mention that like everybody else, we built out a robust remote network at that time. We replaced every of our employees' and contractors' equipment in that time, not exciting stuff, but important to activities. I want to take us to the investments, to what that took to do all that, right? And over the last -- really, we use a 4-year time horizon with the projected '23. So I should probably disclaim this if it isn't on the slide. None of this is meant to be precise. I'll let the CFOs be precise. You invite the tech guy, now you're going to get some broad commentary on this. But I didn't -- we didn't include our -- I should -- I'll take that back. I'm going to talk about our strategy going forward, and then I'll talk about investments. The strategy going forward is really got 3 key pillars and some supporting activities. And they're probably not rocket science, but they're important from our perspective that they're what is going to drive our investment. The first one is continue the reimagination of our core platforms. And like a lot of firms, this includes modernization and cloud activity along with that. I know we're going to talk probably a little bit about that going forward, but a pretty big pivot for us. Just to put it out there, when I took this role on, we were -- took a position of being a private cloud company, meaning we are building mostly for private deployment, not very much public cloud usage at all. And -- that was for a variety of reasons. And in part, our risk and control environment around public cloud was uncertain. And we were coming off of a couple of really public breaches in that space. And -- from a brand perspective, if you think about why clients were attracted to us that stability, safety and reliability were a big part of that. So we took a position on private cloud at that time. We certainly have pivoted on that last year, and we expect to see substantial growth in our public cloud usage, it's happening already. But significant plans for '24, '25, '26. And that -- we shouldn't read that as all incremental investment that we'll take away from some other things we've been doing, but an exciting pivot for us that started really this year. So that reimagine our core platform is really a migration of them into our cloud infrastructure. Our next pillar isn't going away. It's on risk and resiliency. We continue to think that these are uncertain times in terms of markets and instability writ large for our clients, and we want to make sure we are their most depended-on counterparty or provider. So we have work we want to finish the swing on in terms of resiliency. Major is the ability not just to prevent service interruption, but to recover from the most unthinkable of such for our clients and for our shareholders, but also to continue to build what we think of as a more and more adaptive information security and risk posture where our capability is much more directly linked to our appetite and where some of the new emerging technologies we inevitably will talk about here today, continue to play a bigger role in some of our information security activities. So -- we've made huge investments there, and we expect some of those to moderate, but we don't want to think the job is done at this point, certainly not a mission accomplished banner going up anytime soon. And then to go along with those 2, both of them sort of iterative and adaptive kind of processes our operating models continuing to shift. The move that has been underway in our shop for 3 or so years, moving towards a product mindset, small teams, iterative development. We continue to be pushing that agenda pretty hard right now, and we think that's important from a speed-to-market perspective. Every group we have moved into our new cloud model has experienced a 5 to 10x increase in the pace of change. That's what's driving some of that change pace. And so we want to make sure the operating model is there to support that from a quality perspective and stability perspective. And then the last thing I would really say is underlying all of that is a focus on productivity. And Jason will penalize me probably from a compensation [ perspective ] if I don't mention productivity at least 3x, right? And so you think why is that important? I mean -- and I had some had some conversations earlier on this topic. There's a pretty -- we've modeled out of the cloud migration. There's a really interesting financial return in a few years out. We worry a bit about a trough of investment that goes into the J curve kind of thing, right? We worry a little about that near term. We're trying to be very thoughtful in the timing on that. But one of the best ways we can get after this is some of our near-term productivity. And so there's a fair amount of automation in our IT operations space as well as in the information delivery space that we think are really exciting. So I don't want to get into AI just yet, but we think that play has an exciting role to play in quality assurance and secure software coding practices, all kinds of areas where language-based activities code in this case can be something we can get leverage out of. So we're really we think about those 3 things operating model, reimagine our and modernize our core platforms and continue to build our risk -- adaptive risk and resiliency posture, to be underlying -- have an underlying theme around productivity that we think is really important to fund that journey and sustain it over time. And then the last thing I want to focus on really was -- that I think there will be a lot of questions around was on our investments. And we've been -- so just to give you a little bit of context and you'll see it on the next slide, if you're following along. IT spending has been growing at the firm. It's not -- Jason remind me, not coincidentally me taking on this role. So we had a plan and we started to go after that plan pretty hard. But it's been growing in double digits, it's a little over 11% CAGR as we measure it here on the slide. And we break it into 3 buckets that I think are at least useful to think about that investment. The business-driven investments make up 50% or more of that total IT investment. That's a good thing, right? We should be growing our businesses and investing in capabilities for our clients, both prospective and current. But the fastest-growing part of that center over those 4 years has been in this risk and resiliency bucket. Part, realization of threats in the world were more real than any of us realized. Part, pressure from regulating partners that are also realizing those threats are more real than they -- than realized before. So it's not -- it's only 10% of our spend, but it's been going up very fast over the last few years. That's the part I think will moderate some, although it will not return to its pre-health crisis kind of levels. And then the third thing we talk about is really core infrastructure modernization. This is the modernization in our data centers and the eventual migration out of our data centers. So some of our middle -- we're already a pretty big consumer of VPN as a service. Desktop as a Service is growing in our shop. Our middleware messaging capabilities, we think, become cloud-based over the next few years. So there's a fair amount of migration of in-data center work out over the next few years. We've got -- as Jason reminded me, we've got to get the economic and timing model, right, but an exciting migration for us. So if I look -- that's our kind of past that risk and resiliency growing at 30-plus percent from a pretty low -- really low base. It was only about 2% or 3% of our total at one point. And then our modernization growing double digits. We expect to see some moderation on the risk and resiliency, but not a regression to the past, and we expect the growth to go back into some of the business-driven activity for our clients. So I went through that pretty quick, but I also would just point out that it's been hard to predict. Again, I would not -- when I came into this role, I didn't come into it saying, we're going to spend a lot on cybersecurity and resiliency. I think realities of the marketplace sort of help determine some of that for us. So we lay these plans pretty loosely. I think the thing we're most convicted around is the public cloud opportunity in front of us, both from an innovation perspective and a scale and cost management perspective, very exciting as well as the speed to delivery I mentioned earlier. And then I did include in here, and I probably won't spend too much time because it kind of gets to be a deeper topic. But differentiation, we try to think about what's differentiating. I included some notes in the last key slide here and talk about what we're focused on. This rapid delivery model has really been exciting for us to see the early returns on. I talked about cloud and some of the resiliency in the -- we've had a 63% improvement in reliability in the last 4 years in the face of a pretty uncertain time. That includes our remote work environment and everything else. And as I said, a 20%-plus growth trajectory on changes. So really outstanding performance and our clients have started to give us really good feedback on that. But this really key component of integrating emerging technology is really important. It's -- you can't go through any session like these are talking about AI and what implications it has for firms. We've got some thoughts on that. We can share But I did want to note that these are driving exciting business growth opportunities. I don't want to come up here and say, "Well, we're fixing a lot of plumbing." That's not what we're doing at all. I would just highlight a few things that I think are really important on the growth side that we're in the middle of right now. We're in the middle of our super exciting kind of 2.0 version of our goals-driven Wealth Management tools platform. That's a behavioral thing that's made to interact with clients were several patents -- tech patents pending on this integration and collaboration technology we built. We're incredibly excited about. We'll go to market sometime this year. We're doing the alpha work with clients and prospects already right now, massive driver of our win rate in the Wealth Management space. Our next-generation information delivery, our Data Mesh that we're building out. You're going to find -- like, we built the goals-driven work, we're doing this data delivery work with our clients. It's one of our differentiators that we build a lot of software with our clients rather than for our clients. That's really been a big shift for us in the last 2 or 3 years. You saw it just last week, there was a -- I saw it on LinkedIn, a social network for our asset owner clients. We've got 2 of our -- 2 big initiatives on asset owners, an area that I think 5 years ago, people thought wasn't a particularly exciting space. It has been and is. So the social network for asset owners and the kind of investment tools we built around them, front office solutions, we call it, that lets asset owners to get a lot more sophisticated in terms of how they might in-house manage some components of what they do. And then last 2 things I'll mention, renovation of -- a complete renovation of the way we think about our transfer agency business, starting in Europe, much more contemporary identification of individual investors. A lot of facial ID and voice ID and things like that, that we're really excited about. We're in alpha and beta work with various clients right now. And then lastly, our client engagement hub on our Asset Management business in sort of an immersive current and prospective client digital experience we haven't had before that we think puts us on footing with the most world-class of firms and engages new clients around the world to understand, to see our products in action and the ethos around those and the managers around those. So I could name a longer list, but we certainly see that building with clients and the speed at which we're starting to deliver as differentiators for our tech organization at this point.

That was a great overview. And I have to say you answered half of my questions, but I have another half that have emerged from your talk. So maybe we can go through a few of those. And then also, as always, if there's questions in the audience, we'll have time for that as well. Before I dig into some of the key elements that you've mentioned, I think if we could just take it up a level and ask the question around the tech budget itself. How does Northern Trust think about the tech budget? How do you think about building that? How do you think about supporting that growth? Is that something that we should continue to expect as that 10% to 12% from here? What's the driver?

I'll be very careful. I've got the CFO here in front of me. So in a tech -- or at a tech conference, I'd be speaking very differently about -- talk real tough those conferences. So -- yes, so in all candor, particularly the risk and resiliency activities, we took an eyes-open view around incremental investments that we thought it was important from a risk and regulatory perspective. We thought it was important from a brand perspective. And so Jason made a comment earlier, but for all the right reasons, we made some of those decisions. I do think those are the right reasons. But we absolutely have a multiyear model that has this overall IT trajectory that growth slowing some and certainly into the single digits in the near term. And so we've got a plan around that. And we work -- obviously, I'm joking around, we're very collaboratively on that plan on a long-term basis. So we certainly expect that to be the case. But I do want to talk about how we think about that budget because it continues to be a differentiator. We're often in the final presentations against larger peers and the tech and service are the 2 of the big differentiators there. And so we think about -- there's a baseline and I won't get into the numbers because they're not going to be particularly meaningful year in and year out. But there's a baseline that takes to run the machine to be an elite wealth manager, a global asset servicer and an asset manager at our size. And so there's a component that's just that you have to do it every year. And then on top of that, we have really 2 things. It's our desire for growth and our appetite for risk. And those are the 2 things we are increasingly talking overtly about how they determine what goes on top of that baseline. And so I think the thing that Jason had us bring in is thinking about the growth trajectory of this relative to our core expense, right? And it's been growing almost 2.5, 3x that over the last few years. That will come into a range, and we'll have a longer-term range we'll probably establish, although we haven't done so formally.

And it feels like part of that driver is this migration to public cloud. Is that a fair takeaway from your statement?

Certainly a key part of it. Yes. And that's -- like I said, we've got to be really thoughtful about that because we're going to move, in our case, from a lot of CapEx and depreciation driven investments to a lot more real consumption-based expense. And I know people have been going though this in the last couple of years, but the model for us is when we've got to be very thoughtful around so that we're not -- we don't create too deep a trough, right, and that we use to make sure the productivity can help us cover that. So we've been pacing that out, and we will pace that out. The good news on that front that truth, is a lot of our key providers are doing some of that work for us, too, right, whether it's in our fund services business or in our Wealth Management business, we're dependent on some pretty key vendors as well. And they're moving as fast -- or faster than we are in this space. So a lot of this is coming at us with the work they're doing and the partnerships we have. So we think that's a positive for our business long term because everything about the economic modeling does tell us that it's got a positive return long term.

Okay. And then I often ask people this question around how is the tech budget split between run the bank and change the bank. And I don't know, you're the first tech person in a while I've had up on stage. So I'm just wondering, do you feel like that's a good question? Or is that a dopey financial, bank analyst question?

Well, I probably wouldn't say the second even if I really thought. But actually it's a metric we track. And again, it's not gap. It's like it's sort of some judgment that goes into it. But we've tried to keep track of that because we worry that too much of your day-to-day BAU eats up your ability to innovate and build new capabilities and new businesses. And so we're running it -- and again, depends how you slice it, running at about a little over 40% unchanged and a little under 60% [ un-run ]. It goes up and down every year. That's, again, because we made this purposeful investment in some of the risk and resiliency things, that's down a little bit from where we were. But it's on the uptick this year. It will be on the uptick in the next few years. So we'll get back to our norm because we want to make sure we're delivering as much as we can for clients. So that -- so it's -- to answer your question, whether it's a good question. On a 5-year basis, it's a really good question that I think every organization needs to ask. On an any 1-year basis, it could be a little bit of idiosyncratic in terms of impacts, and that's a little bit of our story certainly for last year, for example.

And could you just dig in a little bit or explain a little bit about what you're doing with the Wealth side that you mentioned?

Well, a lot actually. And so the first thing I -- the tools that I mentioned is kind of goals-driven Wealth Management practice we built is just that. I mean, I sort of described it. It's very much a goals-driven tool set that a lot of firms have been using over the last 7 or 10 years. We started developing this on the heart of last financial crisis, I don't know which crisis we're on. But in 2008, and we started building this out. We started with an acquisition, actually, as Jason mentioned somewhat earlier, we built upon this -- and it's -- the process is not just about kind of slider bars and goals, it's meant -- we're getting involved with a family in the room and kind of going through their financial lives and their lives in general. Actually really -- I have been through it myself and my family, it's pretty enlightening. So we're building a cloud-based version of that to allow us to do a lot more of what-if modeling with clients in front of them in a real-time way. It's really exciting. I've actually played with the new version now. And so they can start to ask questions and where we would say, "well, let's take those as notes, we'll come back with proposals around this," doing all this in real time because of the cloud compute capacity that's available to us, and the different data sets available. So we're quite excited about that. But our Wealth Management business in general, is our digital platform for our clients, our mobile platforms for the clients are all either cloud-enabled, they're moving to public cloud in the next year or 2, so a big shift. That business has made a big shift. Once we got our risk and control comfort around that, we started to make a big pivot here. And what we've seen is even on the digital platforms, our -- that's one of those groups where the number of releases have gone from months to weeks to days and hours at this point. So pretty exciting to be able to fix or and/or deploy new capability to our clients in hours or days. And so with that entire business is really making an important pivot over the next couple of years.

Okay. Interesting. Yes. We actually did some work on Wealth and 2.0, 3.0 last year, and it's good to hear that you are leading the way.

We're trying, certainly.

On the flip side, it's been maybe a decade since I used the words funds transfer. Is that -- was that it? Transfer agent. Transfer agent, I remember back a decade ago, we talked a lot about transfer agent, but I haven't in a while. So could you update us on what the opportunity set is there. I know it sounds a little niche, but it's interesting to hear these nuggets that are providing opportunity for you.

It's niche unless you like funds flowing in and out of your -- the funds that everybody manages. When we want cash flowing in and out, it's pretty important. And so in that space, we've got -- we codename everything. We've got a project named there that we've been working in the last few years, to really change what is a largely pretty manual one-off business right now, depending on who the fund manager is and how their clients get in and out of those funds. So -- it's a complete digitization of that process. And we've worked with the third partner on building this out. I don't want to talk too much about it because we haven't sort of launched in market, but we're doing this with a few firms today. And it does allow individual investors to discover your fund, identify themselves in and put money into your fund in minutes basically. It's pretty exciting. And so it's got some caveats around know your clients and all the other things that go around that source of cash. But it's meant to be as near straight though as it can be. And we're -- like I said, we're not broadly out there with it, but we're excited to see that come to fruition and then see it start to spread around the world and started in Europe because of a unique opportunity with some clients that wanted to build it along with us and our business there is sizable enough to make it matter.

Okay. Interesting. I don't want to leave Jason out of conversation. I have one last question for Tom here on the topic of the year, maybe decade, AI, right? So maybe you could give us a sense as to how you're thinking about leveraging AI. And is this something that is near term, long term? Is it more revenue or expense? How should we be thinking about what it could do for you?

Yes, it is impossible to go anywhere without talking about it. But I want to -- and I know this isn't a tech audience, but I caution folks, if you get into tech audiences, we'll remember that the Metaverse was the topic of the decade 2 years ago, and distributed ledger technology and blockchain was the topic of the decade 2 years or before that. So there's hype and then there's what's substance at that point. AI feels -- does feel more visceral and concrete in terms of its impacts than some of those other technologies. Faster, the curve on this thing is like something people have never seen before. So in our business -- funny you should bring this up, I spent part of the plane ride here yesterday formalizing some notes of conversations I've had with our business leaders in all 3 of our businesses to talk about opportunities that I see in those because I happen to be in the company a long time, I know those businesses as well, to see AI opportunities there. And I can say they are both in the area of services -- I won't call them new businesses, but services and products we don't deliver today that might be possible with technology like this. Those get a little bit of traction on people, but I don't think people have quite gotten their head around it because there's a lot of uncertainty on the technology's repeatability. If I ask it the same question 2 times a row, can I get the same answer? It's a pretty dicey proposition as an asset manager to say, "Well, I just ran a Monte Carlo, and it gave you 2 different answers in 2 minutes. What does that mean to me?" If that had been the case, we wouldn't use it. So I think there are some top-line opportunities that are exciting. But I expect, like a lot of firms, that we're going to start to realize bottom-line impacts first. And I'll give you a few examples that are concrete. Most people don't want to talk about -- and I don't -- we don't have -- we're not rolling anything. There's no announcement here today. We're experimenting like I think a lot of firms are. And we've got a lot of guardrails. By the way, our compliance and other folks are asking what the guardrails are around -- our regulators are asking the same thing as they are probably everybody else. So we're in that experimentation phase right now in research. But I can tell you right now, places where -- and I heard some [ guest ] say this earlier, it's really around language where the huge power is. And there are places where language plays a large part in our servicing business right now. I talked about our Wealth Management business. A lot of the families and individuals we aim at have very complex financial lives, generally run by multiple layers of trust agreements and family partnership operating agreements, things like that. These are not terse documents. These are very long documents over a century or more sometimes written by attorneys at the time. They've got to be read and kind of dissected for what they really mean and what we -- what action we should take on behalf of that family. You could see a tool like this, learning from our best fiduciary officers and trust attorneys to try and become the expert here. You actually see the same thing in our alternative fund services and you think about capital call letters and things like that. A lot of these things come as written narratives still. And we provide a lot of those services so helping us dissect and take action upon those. And I also think there's a lot of client service that goes into this. We -- our -- one of our differentiators being client service. I think the ability to look through every call report, go through every recorded phone call, those kinds of things, I think, are really powerful in both client servicing units. And then lastly, I think the group that approached me first to sort of lift some of our restrictions on this was our Asset Management business, everything from basic equity research to fund sentiment and dialogues on the fund service center in places like that, there's places where language matters, and we're either intaking it to make investment decisions or selling our own thoughts and sentiments on things. And so it doesn't take long to scratch the surface where those things that take us hours and days, it could take minutes or come to you synthesized already that are pretty powerful. And then the last one, I'd be remiss if I didn't mention, I do think these play a powerful role in the IT groups of most large organizations. I talked about quality assurance and things like that because I think that's easy in the near term. But I'd be lying if I said this wasn't going to be writing cybersecurity defense scripts for us intuitively, helping us write better code, more efficient code, and eventually becoming -- if you've got any people that -- I've got a college student in cybersecurity, uses it to write half of the code for him before he starts an assignment. And the universities and educational institutions are largely encouraging this. So most of the new talent coming to our organizations in the IT side are going to be used to using these tools as accelerators. And if we don't have them, they're going to be looking at us as a pretty ancient-looking organization to them just in a few years. So big things afoot on the bottom-line returns. And I think big opportunities as yet unquantified on the top line.

And is that something that I should think will you will be benefiting from over, say, a 3-year time horizon? Or is that more like 5 to 10?

Well, I think most firms -- I think understanding the technology, we can get around the repeatability and manageability of this. I think I -- we're nearing on the bottom line on some things. I think we -- we're doing some experimentation. We'd like to see -- show returns in the next 12 to 18 months. Again, my third caveat on this, a lot of risk and regulatory and control work to do around this, I think, in the industry.

Yes. I totally get the point that you have other people you have to please before you execute. But if it was just you and your mousetrap and you could start delivering expense results even sooner.

Probably. Right. And I just think it's important to note because I just -- I named off a couple of other technologies that were the thing at one time in the last 3 or 4 years. I never had any of those where people in our businesses were calling me saying, "Can you give me open access to this thing. And give me some data. I can use with it." Nobody was doing that on distributed ledger technology, they didn't understand it. And it was probably true with the Metaverse in a lot of ways, and I could go through others. This is the first one where businesses are pushing tech much -- they want access and they want to start playing around with this. So I think that's a good sign in terms of the curve staying steep even in highly regulated industries.

Now are they responsible for any of that tech budget that they're asking you to engage in?

Yes. That's interesting that you make that point. In terms of the change agenda, more than half of that is the businesses determine what they get spent on. They ask for advice, but they don't always take it. But they certainly ask for it. So I think it's really -- again, when we talked about differentiators, we can talk about a long list of more subtle ones, the fact that the businesses direct so much of the change budget, tells me that if they see promise, this will be an area that as their general contractor, I got to become very adept in, which is why we're doing so.

Okay. Great. Well, that's a super, not walkthrough, but just real in-depth understanding of how Northern Trust is impacting business with the technology investments you're making and there's obviously a huge partnership there that came to life today. Appreciate that. Jason, over to you for just how you're thinking about this tech investment spend, how you manage that within the context of overall operating leverage goals that you have for Northern Trust. And then maybe we could get even a little more pedantic and talk about the quarter.

Yes. Well, yes, this is much more interesting than Basel III Endgame. So I think you can tell, Tom and I spend a lot of time together. And I -- my view on this is that if you think about where even Betsy, you, and my roles were 10 or 15 years ago, we didn't have to know about technology as much. And I didn't want to just comment this saying spend less, spend less, spend less and -- so Tom is a teacher to me first, and we work really closely together thinking about how technology is going to be part of Northern Trust and our overall ecosystem going forward. It's our second biggest cost. And we spend over $1 billion a year. And so we have to be good at it. And frankly, our clients are asking -- it's a big part of how we engage with clients. And so it's very much woven into the fabric of what we're thinking about strategically for the company. That said, we also have to be very careful about the spend around it and make sure that we're doing what we should do and what's appropriate, but that we're prudent in the pacing and the depth and scope of what we do.

Okay. So you have room in the budget for it.

We make -- we have to. And I think the last few years, it's been higher than what it will be 5 years from now in terms of growth rate. But Tom didn't even get into some of the -- we got a lot accomplished over the last few years in, an era where a lot of things were demanded of us to take place. And another thing we didn't talk about we have to have technology that's consistent with our brand. And our brand is about integrity. It's about resiliency, it's about meeting client needs. And that's -- this is what we've got to ensure as part of the technology, not just technology budget, but the execution of it.

Okay. All right, appreciate that. So in our last couple of minutes here, maybe we could just talk a little bit about anything you're seeing in the quarter specifically that you want to update us on?

Yes, I'll be short. There are 2 things that, as I think about the income statement and look at the forecast jump out. One is -- and it was ironic to hear Eric talk about it an hour ago, but capital markets activity is light, foreign exchange trading is light. And instead of just giving it a 100-foot example through the first 2 months of the quarter, $32 million in total, and that compares to low 50s at the end of last quarter. So trending to be less than what it was in first quarter. We think that's very largely -- and it was echoed or pre-echoed by Eric, it's very much about activity in the marketplace, but like -- two, balance sheet, always of interest people lately. And volumes are still strong. It's similar to the April earnings call where we indicated that deposits were about $105 billion at that point. Hung in very well since then in a good way, very good client activity and hung in around that level since then. And -- but then I'll say also cost of deposits, very, very high, just the competition level for deposits -- a lot of phone calls from clients saying, I want to leave my deposits there, but this is what I'm hearing from 3 other institutions. In some instances, we're saying sounds great. But in some instances, we're saying we want to keep that in the house. And so that's -- there's going to be a pressure on NIM there. And -- but overall, volumes good, costs high.

Okay. And so your noninterest expense target for full year '23, just on that front, anything there?

Yes. Productivity office is getting off the ground well. It's continuing to focus on the pillars that we've talked about. They are -- they get to -- even some of the things Tom talked about, vendor strategy, vendor engagement. I'm spending -- Tom and I are spending a lot of time together talking about how do we consolidate and ensure that we've got good productivity from a vendor perspective. Secondly, workforce analytics, our largest -- the only thing bigger than technology cost is our labor cost. And so we've got to ensure that we've got the right people, the right number, right places at the right cost. The third thing is investment governance. And that doesn't get to how are we investing in the stock market. It's analyzing the investments we're making in the business. And that can be capital, but it can also be expense investments, where we've got projects, initiatives small areas of the company that aren't at the margin or returns that we want, making sure we're pushing on those faster. We're saying, "maybe we shouldn't be doing this and pursuing it at this point in time." And then lastly, in general, the thing we've been talking about for the last half hour, specifically around technology and making sure that we're doing all the right things there. I feel really good, frankly, about noninterest expense and where -- how the productivity office has gotten off the ground. So more to come on that, but feel like good early traction.

All right. Well, that's a great update. Thanks so much, Jason, and Tom, thanks for joining us today.

Thanks, Betsy.

Thank you.