Northern Trust Corporation (NTRS) Earnings Call Transcript & Summary

Thank you. Wrapping up what so far has been a very successful Global Financial Services Conference for day 2. Very pleased to have Northern Trust with us like we've asked for all the companies, the first ARS questions on the screen. From the company, very pleased to have Dave Fox, Chief Financial Officer; Pete Cherecwich, Chief Operating Officer. And it's interesting. A year ago, I think it was tomorrow, we had Jason Tyler on stage, and Northern came out with a number of leadership changes, including both of you. Dave, you were sitting in the front row then, little do we know that you'll be up here today as Chief Financial Officer. Prior you're running the Global Family Office business. Pete, you were running Asset Servicing. Now you're Chief Operating Officer.

So maybe, Pete, maybe we'll start with you. This Chief Operating Officer role was a newly created role. At the time, the release said you're going to focus on ensuring operational excellence and resiliency, effective risk management and controls and scalable growth. It sounds like all important stuff. Just maybe talk to you about what you've been up to specifically and just how that's translating into dollars and cents.

All right. So first, let me just talk about dollars and cents because that's the most important, I think, to everybody here. In 2025, we will achieve $200 million in productivity. And next year, that number will be higher. And more importantly to me is that approximately 75% of the productivity is sustainable. And what I mean by that is not delaying hiring, cutting travel, it's permanent reduction in roles that are needed to do a job or negotiated contracts with vendors for less spend, et cetera. So the next piece, we talked a lot about scalable growth. Mike used that word a lot. And that's primarily with an Asset Servicing focus. So what I'll say there is that in the first half of 2025, when we look at all the wins for Asset Servicing, the average fully loaded margin was 470 basis points better as compared to all the wins in '24. So that's important. So we're taking on new business that is improving the margin in Asset Servicing in a significant manner. And when we look at the expense to trust fee ratio for the first half of ' 25 wins, that was below 100%. So in all the stats, new business is coming on better. And furthermore, importantly, we have been taking a look at our portfolio of Asset Servicing clients with an eye towards scalable growth and attaining higher margins. Specifically, if there are cases where clients do not meet the hurdles or not underperforming, we may look to exit those relationships or take further action.

I guess -- so 2026, more than $200 million in productivity savings, a little bit more, a fair amount more. Do you care to size that something you have to wait until January to get on the earnings call? And just maybe just more context to that.

It's budget season. So I'm angling for a little bit more and Mike is angling for a lot more. I'll tell you how it comes in January.

That's fair. I guess basically what you said is just how does that fit into this modernization resiliency initiative that you've been talking about for the last year or so? And just kind of where are we or what inning are we in that venture?

Yes. So it's funny. I looked at the notes from the last Barclays, and Jason was here to say that he thought that sometime in mid-'25, we'd start to bend the curve. So I'm happy to say that as far as modernization resiliency goes, all right, we have started to bend the curve and the rate of growth is coming down. So middle innings, rate of growth is coming down. That's for sure. The way we're doing that is we're really focused on the simplification of our model. And an example would be, for example, we ended up reducing the number of third-party vendors in the first half of the year by 10%, right? That's 10% less due diligence we have to do, right, filling out paperwork, managing, et cetera. So really helping for us to bend the cost curve. So middle innings, I would say we'll see that continue to come down in the next 2 years.

And I guess, Pete, as COO, you obviously also -- you're focused heavily on productivity. What are you doing to ensure the cost curve at Northern Trust really continues to bend down? And just maybe talk to how AI fits into that.

Yes. So I'll start without AI and then I'll include AI both, right? So we can do 2 things. One, as I said, $200 million this year, it's really based on, one, is vendor management. So really looking at reducing the number and consolidating. Simply put, right, it's -- you want higher volumes and better rates. And the way to get that is to consolidate vendors, right, having fewer partners. So laser-focused on that. Workforce optimization. You hear a lot in the industry about span of control, things like that. Under the radar, we've increased our span of control by 22% year-to-date. And there's more to come. So we'll continue to focus on that. Traditional lean methodologies. This is an industry where there's a lot of customization by clients and for clients. We have to look at that, figure out how to streamline that and how to make things more scalable using low-code tools that are out there. And so the teams are working on that. But ultimately, it is about automation, full automation because then it goes away. And for full automation, we continue to invest in technology that will give us that. An example will be as we think about quality control checks, we have launched an application where all of our fund accountants instead of doing manual processes to double check if something is right, the system now does that for them. Why I bring that up is if I then layer on AI to that on top of it, I don't even need that individual to do the review of the quality controls, the system will do it for you. So AI is an interesting one and just where we are as a journey. And again, if I use your baseball analogy, it's still early innings on AI, and it's really twofold. So one is let's just talk personal productivity. So if I'm a developer, we've rolled out GitHub across the organization, and they're estimating that it's saving about 31% of their time in terms of development activity. So a huge benefit with GitHub. We've deployed Copilot. Many of you probably have Copilot. And Copilot is really something that is giving the individuals, right, the ability to just work smarter. A best example would be you'd be surprised if you look at your own firms, a number of people that take minutes, right, type things out, look at designs, how me typing out notes. If you transcribe it, you summarize it, all that can be done, huge productivity, just small examples. But those are the small things. The big ideas are really things that we're building the guardrails for. So we have a group right now that is focused on saying, here are the guardrails for the company and then focusing on things like AML, KYC DUCs, right? Document digitization. You think in this day and age, we wouldn't get documents. We still get millions and millions of documents on PDFs from our wealth clients, from GPs, et cetera, still come in. Sales and RFPs. So lots and lots of use cases that are either in production or being put in production shortly.

And then maybe one thing that I've heard Mike talk about is this whole client-centric capability model. Maybe explain to audience what that is, how it differs from your previous framework? And is this more of a productivity thing? Or could there be a growth impact?

Yes. So for me, this is the culmination of the pivot that Mike did, right, about 18 months ago when he announced this organizational structure and was heading down the path. Historically, we were organized in a vertical manner, such that the businesses controlled all their means of production and not just the 3 business lines, but also different geographies. So Luxembourg would have all of their staff report to them, et cetera, et cetera. What we did is say, we need to strip that out and come up with core capabilities that we'll organize around. And the reason we call it client-centric capability is because it's about delivering with greater consistency, speed and resilience while maintaining the trust our clients place in us. So we're not trying to be a factory. We're trying to have our business services produce products that can then be combined with other products to produce the solutions that our clients are looking for. What does that mean though for productivity and resilience? Ultimately, if I have one group doing AML, KYC across the company, I'll do it better, I'll be more efficient. One group doing trade settlements. And when think about settlements, well, I don't have a capital markets division and a custody division doing settlements separately. We have one division now that's doing settlements for both. So it truly is breaking down the barriers across all of our lines of business and creating those capabilities. Lastly, it's taking the business service and combining it with a technology partner such that a small team can manage the transformation of that capability together. And I think ultimately, in this day and age where the technology is moving faster and faster, having a technology professional that understands the domain and a business professional that understands tech combined can transform things faster and drive more productivity.

And I guess the other thing we've heard around Northern Trust is this whole kind of One Northern Trust, which I understand to be a multiyear kind of transformational approach. Maybe you can just expand on that, maybe detailing its impact and just informing us where you are in this journey?

Yes. So I'll take that because Pete actually just described a lot of what One Northern Trust is in terms of the productivity and the risk and resiliency part of it. So he's kind of already covered that. If you think about the other part, which is as important, it's the growth side of the equation. And we've got numerous examples. And in some ways, I would say that the growth part is already well on its way. And if you look at a good illustration of that would be the GFO business that I used to run. And there's other ones like family office services and private capital. We're going to take the GFO footprint. We're going to try to interject that into these other businesses. And so when you think about GFO, it effectively has representation across all 3 businesses touching that client base with transparency. And vis-a-vis the client, they only look at One Northern Trust when they actually approach us on something. So they look at it as an integrated team. They don't look at it as, oh, that's the Asset Management guy I'm talking to or that's the Asset Servicing person or that's the GFO person. They look at it as an integrated One Northern Trust model, which allows us by sharing all that information and combining those teams to offer the best solution at the right time to those -- that client base. We're kind of doing the same in alternatives, and I call it private capital. When you think about alternatives for Wealth Management and you think about it for Asset Servicing, it's more like the holistic offering we do around alternatives. And so when you think about even large wealth clients that have a huge concentration in that area, isn't just about finding the right manager and investing with the right manager. It's about the whole continuum of services you can provide around alternatives, whether it's the banking, whether it's the reporting and the structuring. So we marry those 2 things together. And when we talk about alternatives to our clients, it's from a One Northern Trust perspective. And everyone is in the room at the same time, right? So it just creates that ability to cross-sell without having to do a separate meeting and call a separate person in the room.

Helpful. I guess, Dave, as we -- now we have you involved, just maybe talk to, right, 1 year in the role as CFO. I guess, any observations of no biggest surprises, positive, negative? Any particular changes in your leadership you want to highlight? I will say that we did appreciate some of the increased disclosure we got last quarter...

Yes. No, you're welcome. Listen, I ran a big part of Asset Servicing. I ran an important part of the Wealth Management business. No surprises there and getting into the numbers and things like that. I would actually tell you the biggest surprise I've had so far is the size of the prize in the wealth management, asset management opportunity inside the firm and particularly as it relates to taking some of those capabilities and pushing them into the ultra-high net worth and into the core wealth side. I think I underestimated the ability and the opportunity there. It's much, much greater than I thought it was going to be. So I think that would be one thing. In terms of the finance function, I think we've changed the way we do our financial planning. We've moved to a much more dynamic model, a more flexible model. We don't just set it and forget it at the beginning of the year. People get a plan. But very shortly after that plan is in place, we have a process we go through almost weekly. We look at the markets, we look at our sales, we look at everything. If we need to shift or change priorities, we can do that now. We've identified all of our discretionary and nondiscretionary spending, and we can use those levers if we need to in a given quarter to make sure that we're maintaining positive operating leverage. And I think that's sort of the way we're running the business today. So it's much more dynamic than it was in the past. And I think that's an important way to do that when you're in this type of environment where you've got some volatility you've got to deal with.

Makes sense. I guess on the topic of leadership changes, maybe just talk about some of the recent ones. Last week, there was an announcement kind of changing the Head of Asset Management, who's leaving. I think it was maybe a bit of a surprise to outsiders. Maybe start with that, and then we can kind of speak to some of the other leadership changes we've seen in the last year or so.

Yes. And I think the announcement about where Daniel is going out. So everyone kind of knows that. I think it was a very close call. I was involved in the recruiting effort for Daniel a few years ago, 2.5 years ago, roughly. And it was a very close call at the time whether we would go internal or external. We had very strong internal candidates. I think at the time, we were doing a bit of a shift in Asset Management, much more towards the alternative space, and I was part of that because family office, obviously, was an important part of what we were trying to do. And I think at the time, we thought an external voice at the table could kind of level set and checks what we thought was already true in terms of our strategy going forward and bring some different thought processes into that shift that we were doing. And I think it was the right decision at that time. The good news is it was a close decision, and Mike Hunstad is someone who is incredibly well respected and well known inside our institution is someone who could have done the job a couple of years ago as well. And the strategy that's been put in place was something he was integrally involved in putting together, together with Daniel. So there will be no change in the core strategy of the Asset Management business. We're now on these great sort of focused rails going forward. We know what we're doing. And he's going to just continue to execute off that original plan. So I wouldn't expect there to be any noise there. I'd also just say that it actually is a good thing that we're able to do a succession announcement so quickly. It just speaks to the strength of our bench and the fact that we've got this great team already in place.

And then I guess, this time last year, made changes to Asset Servicing and Wealth Management, the other 2 obviously big businesses. Kind of -- just any kind of updated thoughts in terms of how those businesses are run? Or is it kind of more status quo?

No, it's definitely not status quo, and I'll let Pete talk to the Asset Servicing side. But on Wealth Management, the family office services segment that they put together, I think, is going to be very powerful, and I'll tell you why. One of the big differentiators in GFO has always been your segment expertise and kind of knowing what other folks in that space are doing and why they're doing it. I think we've discovered with the cohort group that's $100 million and above, but doesn't have a family office, a lot of that same thing is true. And we actually incubated that idea in our central region Wealth Management group. And we found that by having those dedicated individuals in that particular segment, our win rate was 75% or better. So what Jason is trying to do now is take that template and apply it to the different regions inside the U.S. to make sure that when that segment comes to the table, whether a new prospect or an existing client, they're getting the same level of coverage they would get as if they were part of that segment of the central region. So we already have a test case. We already know it's working. And also, it will help the migration. A lot of these clients will migrate up to having a family office at some point, and we can make that handoff very, very easily because the GFO folks and the family office services folks are sort of co-located. So I think that synergy is going to be super powerful. The other thing Jason is doing is expanding the suite of alternative products that we have on our platform. We already had onboarded roughly $2 billion of alts onto the wealth platform, but he's already launched 4 new funds this year, has about, I think, another 8 coming down the pipe for the second half of the year and is accelerating that process. We found that our clients are really wanting to add that to their portfolios. I would say we started later than most in getting that into portfolios, and now it's really accelerating. So from that perspective, that's definitely not status quo. And the last thing I'd just say on the wealth side is that he's looking at key geographies and beefing up the teams in those key geographies, including New York and the West Coast and other areas that you think would be important to us to make sure we've got the right folks and the right sort of sales management there as well. So...

So on the Asset Servicing side, a little awkward because I was there and now Teresa is taking over. What has she changed? First, obviously, the operations and all the services have come over to the COO world. But most importantly, one of the verticals we had was for asset managers and a separate one for asset owners. She's changed that now, and she's regionalized client service. So the U.K. runs all of the U.K., et cetera. The U.S. runs all of the U.S. that's enabled them to focus on more coherent strategy. And as part of the scalable growth initiative, really focusing on upmarket asset owners, global alts as well as our capital markets business. So our capital markets business has been driving a huge amount of growth on the FX line. Our brokerage line is starting to go up. And so -- and liquidity is the last piece of that. So under our liquidity solutions group, cross-organization group has been focused on how we make sure we are getting as much wallet share of our clients' total liquidity, not just deposits or FICC repo or money markets, et cetera, but the entire liquidity basket, that's helping the NII line.

Got it. And I guess maybe I was hoping to kind of delve into some of the topics going around. But global -- not global -- just private markets in general is certainly something that's come up quite a bit. The growth there is expected -- has been and expected to continue to be pretty strong. Just how does -- how is Northern Trust positioned to capture this opportunity in the Asset Servicing side?

Yes. So really, really well. So we bought, I think it was 2012 now. I bought the Omnium platform from Citadel. That group right there was started at $10 billion. That group now has -- is #4 in the market, right? The amount of AUA has grown by 49% in the last 2 years. Interestingly, 90% of the assets are equally divided between private credit and multi-strat, which I would say are the hottest part in the market and well, well positioned for growth. So that investment and that team is doing great. If I look at pure-play private capital across the globe over the last 5 years, we've seen our assets more than double. And then we just did a lift out of an organization, Igneo in Australia to give us that capability. And then one of the largest private managers in the world just appointed us to be there primary provider as well. Last piece, which is interesting on the retail side. If you look in the U.K., their new vehicle for semi-liquid products, it's called the LTAP. We have over 60% of all funds authorized by the FCA are administered by NT. And so all the big managers that are launching this LTAPs of liquid alternatives product, we are there on the ground floor, and we expect that to continue to grow. So I feel well set up because of our focus on private credit and particularly in multi-strat.

Got it. And then maybe, Dave, just back to your prior job as running Global Family Office, 8% revenue growth in the first half of the year. Just talk about opportunities to further grow that business? And just how does it kind of play into the broader wealth franchise?

Yes. So -- we've had some really significant wins internationally in GFO. And what people don't fully realize is we've had an office -- Global Family Office business in London for the better part of 25 years. And so we're pretty well established. And then we put a team out in Singapore as well to take advantage of the APAC business. We really benefit substantially off of the penetration we already have in our Asset Servicing business. And when you get overseas, there's a lot of connectivity between some of the large EMEA and APAC sovereign wealth funds and other folks and actual personal wealth. And so our reputation, primarily as an asset servicer in these markets really appeals to some of these larger big family offices. So the stuff we're going after internationally tends to be the biggest, most sophisticated family offices, and we've got a platform there that is already there. For example, like the Luxembourg business, the fund administration business there, very appealing to family offices. The GFO foundation, however, I think the really big lock domestically is this family office services segment. And what Jason recently did, which I didn't mention before, is he took the Chief Operating Officer of GFO and the Head of Business Development for GFO and made them head of all of wealth. COO all of wealth business development. And the idea behind that was to take some of the best practices we developed and growing that business and the technology we had and we're using at our disposal because a lot of the family office services folks want to access that technology and to push that more into the ultra-high net worth and even in some cases, the core wealth segment. And I think that is really going to turbocharge that business. And it's also going to make sure that we put the right clients in the right swim lanes, right? So we have a fair amount of billionaire families that still aren't part of GFO. They're sitting within the regions. We have a sliver of their business. Now we can go in there with a bigger team and make sure that we put them in the right swim lane. So that synergy between those 2 groups is going to be extremely powerful to grow that platform.

Got it. And maybe kind of put the next ARS question as we shift to the financials. But average deposits, I think, were $122 billion last quarter, up 6%. I know typically, we see a seasonal decline in 3Q. Maybe just kind of talk to what you're seeing on that front?

Yes. So I said in the last earnings call that I expected the deposit base to normalize. There obviously was an uptick during the "Liberation Day" and the risk-off trade that ballooned our balance sheet a little bit. And I expected it to normalize back down. August is typically a slower month because of Europe obviously takes time off, and that's transpired. So I would say that it's actually worked out pretty much exactly along the lines that I had anticipated. It's gone back to what it was before in terms of just the deposit growth growing along with the underlying client business going forward. So -- and obviously, fourth quarter -- third quarter is panning out. But fourth quarter, there's usually an uptick in deposits towards the end of the year. So again, I haven't seen that transpire, obviously, because we're not there. But I think, generally speaking, we feel pretty comfortable with that.

And then I guess, record NII in the second quarter, up 16% year-on-year. So you've talked to kind of only mid-single-digit growth for 2025. Maybe just talk to some of the near-term puts and takes. And obviously, you have a short duration balance sheet, the Fed is going to likely cut next week or I'm told so. Just how kind of we think about both the near-term and longer-term NII opportunity?

Yes. So that's another case where it's actually panned out the way we thought it would as well. We had at least 2 cuts modeled into our guide in Q2. And again, we think it could be 2, it could be 3. Even if it's 3, it won't matter because the third one would come in December and by then, it doesn't have much of an impact. So from that perspective, we feel like we're sort of on the same track that we mentioned before. In terms of '26, too soon to handicap '26. What I will say, though, is we have changed the fixed mix of our securities portfolio. So the fixed portion has gone up over the last few months. And so we've begun to think a little bit about having anticipated a lower environment, how can we protect some of our revenues going into the following year. And so you'll find that when you see the numbers come out, we're actually a bit more on the fixed side and a little less asset sensitive than we might have been before. So to try to counteract a lower rate environment.

The room expects modest growth next year for what it's worth.

Okay. Well, where interest rate is going to be next year, we'll see. Yes.

And I guess maybe on the fee income side, the markets have obviously been strong. Just maybe talk to the current backdrop, new wins, pipelines, expected trajectory. I know some of your businesses benefit from lag pricing, which is really strong. Just how should we think about that?

Yes. So I'll let Pete talk about Asset Servicing. As it relates to Wealth, our pipeline is incredibly strong in the regions. It's running well ahead of this time last year. GFO had an incredible year last year, a record year, and they're on pace to match that. And so I feel really good about the Wealth Management pipeline. In Asset Management, sort of a tale of 2 cities, obviously, in the areas where we have put a lot of our energies into what we call our right to win, whether it's our U.S. treasury fund, whether it's our liquidity funds, whether it's our tax advantage product and even our alternatives. If you look at our 50 South capital raising, that's all been very good. There are some industry headwinds. Obviously, we're grappling with, whether it's mutual funds or whether it's institutional indexing and things of that nature, and we've seen some weakness in fundamental equity managers. But that offsets that. But in the areas we've actually prioritized, we've actually seen some very decent growth and good pipelines. Pete, you want to address?

Yes. On Asset Servicing, I feel there's been strong momentum across the board. If we take our annual goal, right, we're at 80%. I'll caution everybody just because you sell something, the implementation time frames are way varied. So you can't really draw any conclusions from that, except that our sales process is being robust. If I look at where that robustness is occurring, in EMEA, right, 90% of our target for asset managers right now, and they've been delivering very strong results, partly because of our success in those liquid alternatives, right, in the LTAP funds, et cetera, but also in custody wins and standard fund accounting. In the Americas, really a shining start here is asset owners has reached 160% of its target and mostly from all takeaway wins from our competitors, University of Texas being one of the major ones. And if you ask why, it really is our front office solutions product and the references we're getting from our other clients, right? That is winning the day. Ultimately, pipeline is doing great. And one step, which I thought was interesting is that we've retained 89% of rebids globally. And so there's not that many that are out there every time, but we do -- there's always people go out and do pricing exercises, et cetera. And so we continue to maintain our client base and do very well there.

And then just maybe on the expense front, you talked to -- we'll put up the next ARS question why I asked this. But you talked to less than 5% expense growth this year. Is that still the case? How are we thinking on going about that?

Yes. I mean, obviously, I would have wished the dollar to have hung in there better. But having made that commitment, we've definitely -- we put it out there, and we're sticking to it.

Got it. And then I guess, less than 5% this year is better than you did last year. So I guess how do we start to think about 2026? Could we do maybe less than 4% next year? You've also talked to this 105% to 110% expense to trust fee ratio and pretax margin targets. When do you think you can get to those?

So what I'm trying to do is redirect everybody to positive operating leverage as being the primary goal, right, as opposed to just a given number because everything is interconnected in terms of how we do it. And so when I took over the role, I knew that we had some credibility gap in terms of our ability to control our expenses. And so what I wanted to do is I put a target out there to say it's going to be below 5% because we have the intestinal fortitude to do that and the systems and the people that want to do it. And so we've proven we can do that, right? And we've built this financial model in such a way that if we have to flex, we can flex. And it can flex as low as we want it to a certain extent, right? So from my perspective, it's going to depend to a large extent on the state of the markets and our pipeline and our business and everything else. But what I don't want to do is starve the businesses of growth investments, right? So if you were to see us do something, it would be more on the growth side. And then I want to marry it together with the productivity that Pete is doing. So they go hand in hand. So together with his productivity, we're looking at a model that can definitely flex every quarter and produce the kind of expense control we're looking for. I'm hoping -- Mike has always put the target out there that we want 3% organic growth, 3% market growth, so that's 6% revenue growth and 4% expense growth. That's sort of nirvana for us. That's sort of our overall goal, right? Overall goal is like 2 points of operating leverage, right? We throw it out there as sort of our financial model that we're trying to attain. And so -- but we have to be flexible, right? So yes, if I need to take it down, I'll take it down. I know how to do that, right? So I just want you to understand that a particular number isn't the way I look at it. It's really positive operating leverage in all circumstances. That's sort of the way to look at it.

Got it. And then second quarter was record share repurchase, but you still have so much capital. I mean, I think over 500 basis points of excess capital, if you look at the most recent stress test, the next highest bank is like 350. So I know the customer comes first, but like can you do more here?

Yes. So we've returned 116% of earnings so far this year. And we've already said that the second quarter earnings call, we're going to do like 100% for the year if things are panning out the way they should, which is pretty darn good, okay? In terms of our capital, only -- if you -- every $700 million of RWA is basically 10 basis points of CET1. And we have a lot of clients that come to us without really any notice, which is fine because we have some very big, big clients. And they may borrow large sums of money in the billions, okay? So when you think about running at 12.9% was way too high, running at 12.2%, we're still above our target range of 11% to 12%. When we get closer to 12% or below, right, we're in the range, but we still have to have enough buffer that if these large clients come to us, it's not going to drive us too far down. The second thing I would just say is we have some very large clients, particularly overseas, that like the fact that we have that excess buffer, right? And so to the extent that we look at the other firms and the regulatory environment, and we think that we can maybe run a bit lower, we might do that. But at the end of the day, we want to have that relative buffer over our peer group because we just think it's important given the size of our clients and our asset size, right? So we'll be very careful about that. So 11% to 12% is sort of -- is going to remain the target for now.

Got it. And then I guess, in July, you kind of increased the ROE target from 10% to 15% to 13% to 15% is like 15% the ceiling? Or do you think kind of the successful execution of a lot of stuff we talked about today, including that One Northern Trust strategy, can get you to something higher eventually?

Not the ceiling. And obviously, the Wealth and Asset Management businesses already attain that and more. I think the idea behind moving it was we want to be able to consistently be at the top end of our range, right? And that's why we took the 10% away, right? So we thought, okay, we can -- 13%, okay, that's good. If we can consistently be at 15% for a certain period of time, we can think about raising the target. It's definitely not a ceiling. But right now, that we have to prove that out. And we also don't -- one thing to consider, we don't manage to an ROE number. At the end of the day, it's a byproduct of everything else we're doing, right? We could manipulate ROE if we wanted to, right? But that's just not how we run our business.

Got it. And I got to bring up the late June Wall Street Journal article, particularly because one of my Sunday nights. But it mentioned Bank of New York approached Northern to express interest in merging and the CEO has talked. I know Mike was pretty direct on the earnings call in July that we never really entertained discussions regarding the sale of the company nor do we intend to. So I guess 2 questions. First off, why don't you think it makes sense to at least entertain discussions? And then maybe secondly, what leads you to believe that appendance is the right approach, just given these are scale businesses and you're not the largest player?

Yes. So just first and foremost, I think there was a -- I'll let Pete answer the scale side of it because I actually think it's not as important as people say it is, particularly with the advent of AI. But in terms of what Mike said at the last earnings call, I think it's important to note, and one of your fellow analysts has this quote that banks are sold, they're not bought, right? And that's very true. And we needed to make certain that our clients, and we had a lot of phone calls from clients and our shareholders knew that we, as an institution, had not initiated a process to sell the bank, okay? There is a reason why people come to Northern versus their alternatives. They don't like the alternatives. They like our business model the way it is. And so from that perspective, we had an active pipeline. We still do. We've got clients that have large sums of money with us, not just on the wealth side, but on the institutional side. And we needed to basically take what was, in effect, a rumor and make sure they understood that we, as a management team and as a Board, we're not initiating a sale of the company, right? I think that's incredibly important for them to know that. And that's really what Mike was saying. Take into consideration, too, you've got -- Mike is a former investment banker, a former FIG investment banker, right? So he knows about M&A in the FIG space. I was an investment banker as well. And so when you think about shareholder value and inorganic opportunities and things of that nature, we're looking at stuff all the time, right? I mean we know what's out there. We know what the art of the possible is. And our Board understands their fiduciary responsibilities very deeply, and they hold us to account. They're tough on us. But at the end of the day, when you look at our independent plan that we've got in place to grow the company and reach our financial targets, we have a high degree of confidence in hitting those targets as our current business is structured today, right? The other thing I would just say is when you think about the growth of our business going forward, it's going to be primarily in Asset Management and in Wealth Management, right? It doesn't -- it's not going to be in custody, right? And so I think I want Pete now to address the scale issue, which I think I want to take off the table going forward because I think we feel like we can compete very effectively right where we are right now in that business. So Pete?

Scale. So there's 2 ways to get scale. One is volumes and rates. The other is being really smart about how you spend your money. So on the volumes and rates, yes, if someone has a data bill and they're bigger and they use more data, they might get a better deal. But I would argue that better deal is going to be on the margin. Where you get real scale is back to the capability is having one platform that services everything across your company and focus on only changing that one platform and managing that one platform. For an example, we right now are in the midst of implementing a cloud-native accounting platform. And I would argue the success of a cloud-native accounting platform, we put AI on top of that. That will dramatically increase our ability to scale because the number of FTE you would need to run accounting goes way down. And because of our size and nimbleness, we will be able to get on to that platform much quicker than anybody else, right? So being in the middle where you have the capital to spend on the technology that you need, but you're at the size where you can actually convert and change, that actually is kind of the sweet spot right now given how fast tech is moving.

I guess, Dave, you opened yourself up to the last question, but you brought up your investment banking background, Mike's investment banking background. I guess on the flip side, just what -- do acquisitions play a role in kind of Northern Trust's future in terms of being a buyer?

Yes. Well, of course, they do. I mean, I think look at our history. So up until 2010, most of our acquisitions were either scale or geographic, and Pete was involved in many of those. And then if you look at 2010 onward, it's been more capability driven. If you think about Parilux and you think about Aviate and Omnium and a bunch of the other tack-on, those were more about capabilities, right? And as you look at the Wealth Management business, I would say it's got a very solid platform. And so capability-wise, I think they're focused on alternative investments, right? So how do we get that across the table? It doesn't have to be an acquisition, right? There are partnerships. There are joint ventures. There's other ways of doing it, distribution agreements, huge focus for Jason right now. Asset Servicing, I think, has everything they need, right? So I wouldn't expect anything there. And then Asset Management is going to be -- I do think product will be an issue for Asset Management, looking at new product, whether on its own organically or with a partner, not on the level of possibility.

Great. On that note, please join me in thanking Pete and Dave for their time today. See you all back here at 7:30 tomorrow morning.