State Street Corporation (STT) Earnings Call Transcript & Summary

All right. Well, thanks, everybody. We're going to get started with our next session. I'd like to welcome management from State Street. With us today are Ron O'Hanley, Chairman and CEO; and Eric Aboaf, the firm's Vice Chairman and CFO. State Street is one of the largest global asset servicing and asset management firms with over $35 trillion in assets under custody and assets under management and over $3 trillion in assets under management. While 2022 was clearly a very challenging year for the market. State Street remains focused on driving organic growth with a pretty robust pipeline of new servicing installations into 2023. And obviously, higher interest rates have been quite helpful to the business as well. I think Ron is going to kick us off with a couple of prepared remarks, and then we'll go into a fireside chat. Ron?

Thank you, Alex, and good morning, everyone. Thank you for being here. Just to remind the audience that today's discussion may contain some forward-looking statements and that actual results may differ materially from those statements due to a variety of important factors, including the risk factors in our Form 10-K and other SEC filings. Our forward-looking statements speak only as of today, and we may not update them even if our views change. So with that, this morning, I'll make some brief opening remarks, as Alex noted and then after which, Eric and I will sit down and do Q&A with Alex. 2022 has been one of the more volatile periods for global markets and for our industry, escalating geopolitical conditions, rising inflation, significant central bank actions, taken together have created a somewhat challenging environment to navigate. Against this backdrop, the power of our distinctive value proposition and diversified offerings delivered again in the first 9 months of the year. We've accomplished a great deal as we continue to execute and deliver against our strategy. This strategy anchored by our enterprise outsourced solutions provider of choice positioning, plus the resiliency of our business model has provided us -- has helped us deliver good results. Notwithstanding the macro environment, revenue was up 1% year-to-date through 3Q '22, excluding notable items, as net interest income and strong performance across our markets and software and data businesses offset headwinds driven by lower equity in fixed income markets. We continue to achieve strong sales growth and business momentum in our core business, which helps drive future revenue growth. At the end of the third quarter, we had year-to-date servicing wins of $1.5 trillion, and our AUC/A wins yet to be installed amounted to $3.4 trillion, reflecting the benefits clients have seen in our innovative front-to-back Alpha value proposition, our traditional back office offerings and our enhanced investment servicing strategy. In asset management, State Street Global Advisors is the fourth largest asset manager by AUM, with particular strengths in ETFs, institutional and cash. We've been executing against a clear strategy that targets growth in our areas of strength, including ETFs, ESG Index, fixed income, defined contribution and money market funds. And our competitive position remains very strong. Overall, I and the team are pleased what we've been able to achieve so far in 2022 and optimistic about what this means for the future success of our strategy. In regards to our key strategic priorities for 2023, I would highlight the following; the Alpha proposition, which is a clear differentiator for State Street continues to land with clients. The Alpha front-to-back platform has significantly changed and amplified our investment services go-to-market strategy and is propelling new business. In private markets, the industry revenue pool is growing faster than the core servicing revenue market. We have been providing back and middle office services to alternative clients for over 20 years. Third quarter year-to-date, our private market revenue grew 18%. We are positioned to take advantage -- further advantage of the growth opportunities in this segment, as this largely in-sourced market turns to outsourcing with the launch of Alpha for private markets. We have grown our balance sheet businesses by deploying capital efficiency and investing in technology across our FX trading, securities finance and securities lending businesses. Our global markets and global finance franchises are leading providers of value-added solutions that enhance our clients' investment processes, which in turn has earned us recognition across the industry. We continue to innovate in these markets, as evidenced by our recently launched peer-to-peer financing platform, Venturi. In global advisors, we continue to accelerate efforts in fast-growing segments of the market where we already play and can further win such as ETFs. We have the third largest ETF franchise by AUM, the second largest by revenue. We are a leader in active ETFs and mutual fund to ETF conversions. We are also innovating and growing in cash-defined contribution, ESG and systematic investing. Lastly, we continue to focus on and extend our expense discipline and those efforts continue to bear fruit in 2022. Our ongoing transformation efforts are focused on true productivity growth and are helping deliver more scale and technology across our operations. When combined with our total revenue performance, these efforts have helped us achieve positive operating leverage in the first 9 months of the year, and we expect to see positive operating leverage for full-year 2022. Now let me comment briefly on the termination of the BBH transaction, which we announced last week. After consideration of both regulatory feedback and the impact on our operating model from the potential transaction modifications, which would have limited the anticipated transaction benefits relative to original expectations, we determined that it was not in the best interest of State Street, our shareholders, clients, our employees to continue to invest time and resources in the transaction in this challenging financial services M&A environment. While we are disappointed, this was the right decision. Our franchises demonstrated core growth potential. We will continue to deepen and extend the Alpha platform while vigorously transforming and enhancing productivity in our operations. Additionally, as you'll recall, we had noted previously that if the transaction were not to go forward, we intended to return significantly more capital to our shareholders. We are starting immediately, as you have seen in our announcement this morning, and we now expect to repurchase up to a total of $1.5 billion of our common stock in the fourth quarter, up to an additional $500 million more than we announced at third quarter earnings. We continue to expect to return significantly more capital than our medium-term target payout of 80% of earnings in 2023. To conclude, I'm proud of the success we have demonstrated and confident about our path forward. While we anticipate ongoing macroeconomic challenges, we remain encouraged by the resiliency of our business model and the opportunities we see, including ongoing outstanding demand and the momentum in our pipeline, which should enable us to continue to generate positive operating leverage in 2023 and to further progress towards achieving our medium-term financial targets. We are confident in the growth trajectory of our business, and we'll continue to be deliberate in managing our capital in the best interest of shareholders. With that, Alex, I'll hand it back to you and join you for Q&A.

Great. Perfect. Thanks very much for your comments. So why don't we start with BBH, obviously, now that we have a resolution to that transaction? At the time of the deal, there was a couple of interesting strategic elements to that franchise. We talked about non-US presence. We talked about some deposit optionality that creates with the ability to sort of sweep a balance sheet. But also they had some interesting technology and data that I think you guys talked about potentially having to invest into -- on your own. So how does this deal not happening sort of change your strategy with respect to areas where you potentially needed to kind of add those capabilities?

Yes. Well, Alex, we remain quite confident in the organic potential of our business. If you think about what BBH was, it was -- from a footprint perspective, it was a subset of what we do, both in terms of geographic footprint and the business itself. So while it had some obvious scale enhancing and traction, it doesn't really change what we're going to do going forward. Certainly, on the geographic piece, we've already got a foothold in Latin America. We've been building out there for the last 5 years. We opened up in Chile this year. We've got some licensing now where we're able to do some custody and administration in Mexico that we weren't able to do. So we've been able -- we're able to achieve organically what we would have picked up for BBH. So again, it's something that we would have liked to have done, but it's certainly not going to change our strategy. And if anything, it has enabled us to focus on having seen what they have and what they're able to do, enable and focus on how we want to spend our technology dollars going forward.

Taking that comment in conjunction, I guess, with the point you made earlier that you still expect to see positive operating leverage into 2023, is it fair to assume that the pace of investments you would have to make next year to perhaps achieve some of these things doesn't necessarily change much?

It doesn't change much. I mean the -- what we talked about with the acquisition was the communications platform that they have there. We were building that out anyway. We put that on hold when we were considering them. We're just going to continue to build that out.

Got it.

In the big scheme of things, it's not a lot of money. So it's not going to change the numbers that we've given you.

Great. The follow-up to that is, obviously, around capital. Super important topic for investors for the stock. So your announcement this morning, as you pointed out as well, $1.5 billion, up $500 million. As we think about the amount of excess capital you guys had in the business, I think, given your targets on CET and Tier 1 leverage, probably around $3 billion or so at the end of last quarter that obviously included the proceeds from BBH. As investors think about the pace and timing of how quickly you plan to return that excess capital back to shareholders, what are your thoughts for 2023 share repurchases?

Alex, I think you saw us already in fourth quarter earnings announced $1 billion, $0.5 billion, another $0.5 billion this morning, right? Collectively, for the fourth quarter, that's $1 billion more than we would normally buy back. And so I think that's, in a way, both a down payment and a signal that we're going to be industrious about returning capital to shareholders. We know how to do that. The market is open and available to us. We need to be a -- there are some limitations on trading volumes and New York Stock Exchange rules that we have to conform to. So that's probably the biggest limiting factor. But that means we can return capital and do buybacks at pace here over the next few quarters and return that to shareholders. And to be honest, there's no reason to drag it out. As my mother once say, there's no time like the present.

Right. Got it.

Onward.

Yes. Perfect. All right. Let's talk a little bit about the core business, Ron. I want to spend a couple of minutes with you on just the servicing business strategy. Obviously, it's been a very difficult market environment for equity markets, fixed income markets, lots of volatility. How is today's backdrop impacting the servicing business? Really in 3 ways to break it down; one is client retention; the second one being the new business and the new business win sort of rate. And then the third being the timing of some of these installations given you do have a very sizable pipeline, I think, north of $3 trillion pipeline as of the end of Q3.

Yes. Let me talk about each of those. In terms of retention, it's the most valuable tool for growing revenue. I mean, if you can keep that number down, it certainly helps in terms of being able to grow revenue. And our retention rates have stayed rock solid. We're certainly seeing -- I mean they've always been strong. And we've certainly seen no change in that in this environment. And in fact, if anything, we're seeing a little bit more even in our largest clients interested in doing more with us. In terms of new business, I would say that the environment and I would -- I mean, this environment was upon us well before COVID. COVID accelerated this trend towards true outsourcing on the part of mostly investment managers, but also increasingly asset owners, who are really saying and asking themselves the question, why are we doing these things? Are we as good as an outsider in terms of being able to do some of these things like invest in operations and technology. And that, coupled with our Alpha offering and the continued development of that offering has just put us in the right place at the right time and really is driving a lot of that sales. In terms of the amount to be installed, I mean, you've seen the success we've had there. Some of them are very large institutions. And some of that was done while the development -- we're still in the development path. 2023 is a big year. We expect about -- to see about 1/3 of the associated revenue coming from that in 2023 and the balance after that. So that -- I mean the only way to interpret that backlog is it's good news for growth going forward.

Yes. Great. You started your opening remarks talking about Alpha and Alpha capabilities, I guess, as one of the key pillars of your growth strategies we've heard for quite some time since really you announced the CRD transaction. So I was hoping you could help us frame the revenue opportunity you could see from cross-selling into back office and middle office and really leveraging Alpha to get into those other businesses. And if you think about the addressable market for something like that for State Street between either your existing clients or new clients, how would you frame that?

Let me describe it from a couple of angles. The back office, the core of what State Street was built on is a $30 billion revenue for them. So we have a large share of that, but there's upside and opportunity. And I think we've said consistently that for our major clients, we may have about 30%, 35% share of wallet. So there's real opportunities, both with our existing clients and with new clients. If you then think about the revenue pools across the value chain, which is kind of how we pivoted into the middle office and then the front office with Alpha and Charles River, each of those is another $7 billion, $8 billion of -- $1 billion of revenue pool that we can go after. And what's interesting is that the middle office and the front office tend to be highly fragmented, more insourced than outsourced. And so it's a real kind of open field for us to lead and to bring clients into. One way we think about it is, if you look at our -- we've talked about our global clients, the top 65, which are the majority of our revenues. Every one of those got some back-office servicing with us, maybe not for the entire base, but for a good part. About north of 40% have back office and middle office servicing, right? So you could see how we've leaned into the opportunities. And then if you say, well, how many have back office, middle office and front office with Charles River? It's just over 30%. And so what it shows is, if we have 100% -- if we have really strong coverage in the back office for all those clients, then middle office is another discussion. Front office and middle office is yet another discussion. So there's upside for us to go after. And what's interesting is back office may grow as a category of 4% a year, middle office 6%; front office 8% to 10%. And so we're kind of moving through the value chain and into higher growth segments at the same time.

Yes. What I would add to that, Alex, is the -- that back office growth number, on a real basis, it's actually the lowest growing of all of them, right? And part of that -- I'm talking about the revenue pool here. Part of that is the shift from mutual funds to ETFs. It's just taken some of the revenue out. So there's natural growth in there, but then there's also a substitute of products. What we are increasingly insisting upon in the Alpha front-to-back sale is that we get the back office, right? We can do it without it. But in terms of being able to shift share, this has become an increasingly important tool for us to shift share because that's at the back office about a shift in share.

And is that resonating? Like when it is resonating, you get into discussions with [indiscernible].

A couple of things. The main reason why it resonates is we've been able to demonstrate why things are going to work better for you if we have it all. It can work without it, and we've certainly demonstrated that. But it's going to work better for your operations if we have that altogether.

Yes. Great. Another area you talked about is actually one of my questions as well, is around private markets. So I think you mentioned that the revenue growth there has been 18% year-over-year, pretty sizable. Can you help us size the revenue pool related to private markets at State Street today? And as you kind of think about the competitive landscape, how does that differ from the traditional business that may allow you to win extra share?

Yes. The way I describe private is it's a smaller part of the servicing revenue pool, but one of the fastest growth areas, so good. It may be 7%, 8% of our revenues or assets under custody. You've got to kind of think about it in a couple of different ways. So it's enough to matter. But this is a revenue pool as an industry that's growing 10%, 15%. Part of that is all the fundraising and investment from private equity, private credit, bank loans, infrastructure, real estate, right? It's a blossoming area. What we find is that it's also one that tends to be heavily in-sourced today and more than half of it is actually done internally. And as it grows, folks are coming to us and saying, hey, this is not our expertise to service these funds. They have complexity. And so it's an area that we find attractive. It's also one that's fragmented. We may have good share, 8%, 9%, maybe 10% in certain areas. But we're among the leaders. In fact, we're the leader among the US banks. And so it's one where, again, fragmented insourced and it's a natural venue for growth. And then finally, it's one that's open and right for product innovation, right? How do you standardize this, simplify, automate, so we grow with that intentionality that helps clients because what they get is K1 is coming out faster than the 10 months it takes today in a very manually intensive environment. We provide more front office services. So we bought a small bolt-on called Mercatus that provides some front-office servicing to some of these private servicing capabilities that we have. And so there are ways to differentiate, grow, automate, and we see this will be an opportunity for years to come.

Great. Last question for you guys around the servicing business. I want to talk about pricing. That's something you brought up early in the year. Just given the rising inflationary pressures across the business, you're starting to go to clients and say, look, it might just have to cost you more for us to sustain the relationship that we currently have. How this conversation is going? Any updates on both, kind of client feedback and your own thoughts around how this pricing discussion could change the growth algorithm that you like talking about when it comes to servicing business over time?

Yes. I'd describe it this way. I think the pricing discussions we're having are defensive in nature, right? There's inflationary pressure, wage increases. We're seeing that around the industry. And so this is a way to go back to clients and say, look, we're seeing more wage inflation, you're seeing more wage inflation, we need to cover that. And we want to provide the service and the quality of that service that you desire, that we desire. So it's actually not an awkward conversation in an inflationary time, right? So we've had a couple of hundred calls. There are clients who say, I was actually thinking you'd call me on this. And so -- and there are others, obviously, sometimes say, well, do you have to? And that creates a discussion about the balance of trade and how do we make sure we have the capabilities that they want and can reinvest in those. So I'd tell you they're healthy conversations. Is it going to be a sea change in terms of how the industry operates? No, not necessarily. Is it going to help defend some of the margin pressure we get from some incremental costs and wage headwinds? Yes. And so I don't think it changes kind of the growth algorithm. It helps protect the growth algorithm in a marketplace that's more inflationary in nature.

Great. All right. Let's shift gears a little bit. Turn our focus to the income statement a little bit more. A couple of weeks left in the year. I think Eric has some guidance to share with. So I'm not going to go one by line. I think you'll probably do that. So whatever is top of mind; fees, NII expenses, why don't we start there?

Yes. So there's just a few weeks left. So let me give you our latest expectations, Alex, on an ex-notables basis and I'll try to march through the lines. The environment has changed a bit since we gave guidance back in October. So there are some shifts. Just for context at a macro level, daily average 4Q equity markets have come in better than we originally expected. They are now expected to be down only around 2% on average, right? So down less than we had thought. The US dollar has also began to depreciate against other major currencies compared to our prior guidance, which we expect to create a relative tailwind to revenue and a headwind to our expense guides. And so you got to keep that in mind. So let me just march through the line just to be helpful. So in terms of total fee revenue, we now expect to be flat to up 1% on a sequential basis, with servicing fees down approximately 1% to 2% and management fees down approximately 2%. It's meaningfully better than our prior fee guide, which you remember was down approximately 3% back when we discussed it in October. With respect to NII, we now expect to have an increase in NII of 13% to 16% on a sequential basis, which is quite a bit higher than our prior guide of 4% to 10%, primarily driven by better-than-expected deposit levels. And while we're seeing some deposit rotation, that rotation has been at a slower pace than previously expected, potentially due to drive -- potentially driven by some risk off balances that are being kept with us and then some amount of 4Q seasonality. On expenses, we now expect to be up approximately 2%, which is up from our prior guide of roughly flat. Half of that uptick is due to the depreciating US dollar, and the other half is due to higher travel and revenue-related variable costs. And so when you take it together, revenue and expenses, we'd expect to generate positive operating leverage for the fourth quarter and for the full year of 2022, along with healthy pretax margin expansion. And then finally, folks always care a little bit about taxes. I do too. We now expect the fourth quarter tax rate to be slightly below our 18% to 19% range, which we previously guided to.

Below the 18%, 19% you said, right?

Yes.

Okay. Great. Very helpful. So maybe let's go through a couple of buckets, not necessarily for Q4, but as we sort of start to frame 2023. I don't think you have any specific thoughts to share in terms of guidance, but we'll try to sort of unpack some of the drivers perhaps. So clearly very encouraging to see the balances stabilize on the deposit side. Obviously, that's been a headwind for the industry over the course of the year. Any line of sight on the stability and the mix from here just based on what we hear, what you hear from clients? I know it sounds like some of that might have been seasonal. Volatility in the market is up. So maybe there's a little bit of access. But as you think about you sort of marching through the excess deposit balances into next year, any early thoughts from that?

It's really a tough -- It's really tough to read the balance trajectory real clearly. It moves around by month. It moves around by day. Obviously, we are tracking every currency around the world for every client. So there's -- in some ways, there's more information -- there's more data and less information coming through. What I'd tell you is that we are seeing some of that deposit rotation and outflow that we had expected. We're just not seeing quite as much as we had expected, and that's partly what's buoyed NII for the fourth quarter. So it's hard to see exactly how that's going to play into first quarter, second quarter. And they're just a number of countervailing forces here on NII. On one hand, we've got a tailwind of short rates, a tailwind of long rates, that's helping through. We've got a headwind of deposit rotation. We've got movements in deposit balances driven by assets under custody levels, right, because the funds that we custody for tend to hold cash in proportion roughly to total assets. So that's floating around. So it's -- I'm just careful at this point in the cycle to make too many predictions. We've got a quantitative tightening now that's played through consistently in the last couple of months. So that's been through. I don't know, long-winded way to say, it's hard to forecast from here.

Hard to call the bottom and deposits here.

Exactly. I think we'll continue to see some rotation. The question is at what pace, right? What pace? What mix? What currencies? And you remember, part of what we like about our franchise during this cycle relative to last cycle is that we not only have had the tailwind of US interest rate increases, which is starting to slow down, but we continue to have some tailwind of euro and pound sterling interest rate increases, just given that more than 1/3 of our balance sheet is internationally based. So lot of moving parts here. And what I'd like to do is take fourth quarter and kind of see where December really comes in, right? And then we talk some more in January.

Yes. Fair enough. We all like talking about the balances, the deposits, the NIM. But at the end of the day, it's about NII and kind of thinking about NII holistically. And I think in one of your prior comments, you suggested that Q4 '22 is unlikely to be the cyclical peak for NII as you think about the business on a forward basis. Any updated thoughts on that? And anything from an optimization perspective when it comes to the balance sheet you're thinking about, for instance, securities portfolio is still yielding substantially lower than what you can get in current markets. Any updated thoughts around sort of crystallizing maybe some of the AOCI losses that are already in your capital base and just reinvesting that into high-yielding securities.

Let me take it in reverse order. I mean, I think the portfolio is well designed and well managed for this environment because in some ways, we want to maintain some amount of duration if rates were to come down. We don't want to have too much if rates were to keep floating up. And I think there's a wide range of distribution. We do get a fair amount of capital accretion back into the equity account, right, just by moving forward in time. And that amount can be on our book, USD120 million to USD200 million a quarter, right, that is kind of coming through. So I'm not in an immediate rush to adjust the portfolio. I think it's well designed and has some good underlying dynamics, both on an interest rate management standpoint for a range of outcomes and from a kind of a capital generation standpoint. In terms of the question on NII, you're right, we focus at the end of the day on NII. Balances matter, NIM matters, but NII really matters. Hard to call where we are coming out and when is the peak. It could be fourth quarter. It could be first quarter. It could be second quarter driven by all those factors I went through earlier, whether it's rate rises, US, international, deposit levels, rotation, noninterest-bearing, interest-bearing, there's all sorts of factors. So it could be any one of those 3 quarters that we're going to come through.

Got it.

And then we'll see. Our goal here is to find a level of balances in NII and try to stabilize at that level. Now that will all depend on quantitative tightening. And we're likely to -- that's likely to continue on. But it's interesting, there's a lot of talk from the Fed around when are they going to slow down? What's the terminal rate? As a related question that's not been in the media, but we remember from the last time around is when did they slow down tightening, right? And is that first half, second half of next year, do they slow down, do they pause, do money market start to see some clunkiness? And so they want to be a little more careful there. So I think there's going to be a lot of moving parts here over the next few quarters and over the next year.

Yes.

What we do believe, Alex, is that we think that the Fed will remain resolute in terms of rate increases, and they may not be as in the -- they probably won't be in the [ 700 ] basis point range. But we also -- we do not expect to break out in 2023. So that's belief number one. Belief number 2 is that the quantitative tightening is just such a new territory for everybody. And when you think about liquidity concerns, just the overall size of the stock of debt, I think that -- I believe that the Fed will be much more cautious on quantitative tightening and highly resolute on interest rate rises.

Fair enough. Speaking of interest rates and capital, I was wondering if you guys had any updated thoughts also on AOCI into the fourth quarter, given that's actually -- the rate dynamic has been a bit of a tailwind with kind of the belly of the curve coming in a bit? And to what extent is that also kind of playing into your optimism when it comes to buybacks over the next few quarters? I think you guys are at over $2 billion, I think or so of AFS related AOCI losses in capital.

Yes. I think there are probably 2 small effects just to keep in mind. So I think for the fourth quarter, our current estimate is the accretion back into equity of the AOCI mark is probably $120 million. So it was at the low end of the quarterly range that I just provided. And that's obviously helping to support the buyback activity, right, including the incremental buyback that we announced this morning. There'll be some fluctuation in AOCI as longer rates move around. But remember, we protected quite a bit of our portfolio.

Yes. You moved a lot.

In held to maturity, I think we have less AOCI sensitivity than many others. We actually like to operate it that way. It will give us -- we'll have flexibility to reinvest when we'd like. And I think that's the other thing we're thinking about is when do you reinvest and kind of lock in some of maybe the -- some parts of the curve, where do you want to do that on the curve? And that's part of the upcoming conversations, but that's not quite yet.

Got it. Great. All right. We've got about a minute or 2 left on the clock. If anybody has a question in the room, let us know and we can send the mic around your way. Okay. Well, maybe one last one for me then. We spent a good amount of time talking about some of the organic initiatives you guys have in place. You have to invest for those. At the same time for the last 3 years, 4 years, I want to say State Street expense base has been flattish. So very well managed. So as you think about the forward -- not to kind of pin you down to any given quarter, but over a multiyear period, what's the right level of investment pace and overall expense growth we should think about in the company's kind of a couple of year growth algorithm?

Yes. The way I think about the, let's call it, the expense algorithm that we've been acting on and year-to-date is actually a good proxy for us is that we need to continue to reinvest in the franchise. And on an $8 billion base, we're reinvesting about 5% of expenses back into the franchise from a growth standpoint, sometimes onboarding new clients, sometimes it's tech investments that provide future functionality, sometimes it's geographic footprint and sometimes it's the coverage area. There is whole set of investments. So call about a 5% increment on expenses. And this is -- the year-to-date numbers kind of support that. There's always about a percentage point of just variable expenses that come through. And then with that, I think you have in both of those, so the 5 and the 1, you've got some amount of wage increases and that's what's actually been ticking up and something that we need to be careful of. And we'll probably have a little more wage increases in the coming year. Against that investment, wage increase and variable costs, right, we tend to have about 4 percentage points of productivity saves. We've done that now for 3 years, 4 years in a row. I think we're proud of that, and come away live. So every year, there's 4% productivity saves. It's hard because you got to find like what's the next 4%, but that's what we're here to do. And then this year, in particular, we've had a tailwind of the US dollar appreciating. That's been worth another 2%. So we've been kind of roughly flat on expenses. That's kind of how we operate. The US dollar appreciation, depreciation is going to move around. Wage increases will be a little probably -- we've signaled we'll be a little higher going forward than they have been in the past. But we want to be able to reinvest in this franchise, which means we have to keep driving productivity and we're going to keep doing that. We're going to keep, I think, that algorithm or that intentionality in fact.

Okay. Great. Well, thank you very much. We're out of time. Thank you for being here.

Thanks, Alex.

Great to see you.

Yes. Good to see you. Thank you.

Thank you.