State Street Q2 2022 Earnings Call Transcript

Quartr
Provided by Quartr
July 14, 2022

There are 14 speakers on the call.

Operator

Ladies and gentlemen, and welcome to State Street Corporation's Second Quarter 2022 Earnings Conference Call and Webcast. Today's discussion is being broadcast live on State Street's website at investors. Statestreet.com. This conference call is also being recorded for replay. State Street's conference call is copyrighted and all rights are reserved.

Operator

This call may not be recorded for rebroadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. I would now like to introduce Eileen Fizel Beeler, Global Head of Investor Relations at State Street. Please go ahead, Eileen.

Speaker 1

Thank you. Good morning, and thank you all for joining us. On our call today, our CEO, Ron O'Hanley will speak first. Then Eric Abloff, our CFO will take you through our Q2 2022 earnings slide presentation, which is available for download in the Investor Relations section of our website, investors. Statestreet.com.

Speaker 1

Afterwards, we'll be happy to take questions. During the Q and A, please limit yourself to 2 questions and then re queue. Before we get started, I'd like to remind you that today's presentation will include results presented on a basis that excludes or adjusts 1 or more items from GAAP. Reconciliations of these non GAAP measures to the most directly comparable GAAP or regulatory measure are available in the Thanks for taking my questions. In addition, today's presentation will contain forward looking statements.

Speaker 1

Actual results may differ materially from those statements due to a variety of important factors such as those factors referenced in our discussion today and in our SEC filings including the risk factors in our Form 10 ks. Our forward looking statements speak only as of today, and we disclaim any obligation to update them even if our views change. Now, let me turn it over to Ron.

Speaker 2

Thank you, Eileen, and good afternoon, everyone. This morning, we released our Q2 financial results. The 2nd quarter operating environment continued to be impacted by the ongoing geopolitical events in Europe and the notable macroeconomic environment. The associated price and wage inflation, rising interest rates, years of recession are driving declining equity and fixed income markets, Currency volatility and concerns over market liquidity. These factors created a number of fee revenue headwinds for our businesses.

Speaker 2

Despite the adverse market conditions, State Street performed well in the Q2 with a strong balance sheet and good sales momentum, while delivering strong FX trading and significantly better NII growth year over year coupled with well controlled expenses and a healthy pre tax margin. We remain focused on executing against our strategy and intensely managing what we can control to navigate through uncertainty, drive further business momentum and achieve our medium term goals. Turning to slide 3 of our presentation, I will review our Q2 highlights before Eric takes you through the quarter in more detail. Starting with our financial performance, 2Q 2022 EPS decreased 8% year over year, but was down just 2% year over year excluding notable items, primarily a prior year gain on sale in 2Q 2021. Weaker markets were the major driver of this decline.

Speaker 2

Total fee revenue for the quarter declined 6% year over year, primarily reflecting the impact of significantly lower perform well with FX trading services revenue increasing 16% year over year benefiting from higher FX market volatility, Which drove higher spreads. Total revenue for the quarter declined 3% year over year, but was down just 1% excluding notable items as lower total fee revenue was largely offset by a strong NII result, which increased 25% relative to the year ago period. In the face of market related fee revenue headwinds in the Q2, we remain highly focused on controlling the expense base. 2nd quarter total expenses were flat year over year and declined 1% excluding notable items. Our ongoing productivity actions Largely offset higher than anticipated salary increases and planned business investments.

Speaker 2

Turning to our business momentum, which you can see across the middle of the slide, we reported a strong quarter of new AUCA asset servicing wins, which amounted to $972,000,000,000 with back office services accounting for 40% of these wins by AUCA. As a result of this quarter's good sales performance, AUCA won, but yet to be installed increased to a record $3,600,000,000,000 at quarterend. During the Q2, we also reported another Alpha client win with 12 of State Street's 20 Alpha clients now live as of quarter end. We were also awarded the title of Security Services Provider of the Year in the Financial News 20th Annual Trading and Technology Awards. Front office software and data also experienced good business momentum in the Q2 with annual recurring revenue increasing 20% year over year to $251,000,000 At Global Advisors, assets under management totaled $3,500,000,000,000 atquarterend.

Speaker 2

Overall, 2nd quarter AUM inflows were negatively impacted by the weaker equity market environment, but we still saw positive net inflows into both our cash And U. S. Low cost ETF franchises during the quarter. Even in the volatile environment, We continue to innovate and expand our capabilities to drive future growth. For example, Global Advisors continues to press forward in active ETFs and As illustrated by the launch of the actively managed Spider Nuveen Municipal Bond ESG ETF and a number of MSCI Last, in terms of business momentum, I was particularly pleased to see that State Street was recognized as the top provider in FX Services by Euromoney Magazine in the Q2.

Speaker 2

Importantly, State Street regained its number one position overall for real money clients in addition to being ranked number 1 for best service for real money clients. Our FX franchise supports and complements our core investment services business and has proven to be an effective deployment of our capital. Turning to our balance sheet and capital. Despite a continued rise in interest rates, our CET1 capital ratio improved significantly to 12.9% at quarter due to our active management of risk weighted assets and the mitigating actions we executed in our investment portfolio in the 2nd quarter. The strength of our balance sheet was highlighted in the 2nd quarter with the release of the Federal Reserve's annual CCAR stress test results in June, Following which we announced our intention to increase State Street's quarterly common stock dividend by 10% to $0.63 per share in the 3rd quarter, subject to approval by our Board of Directors.

Speaker 2

We were pleased to announce the intended increase to our quarterly common dividend as we recognize the importance of capital return to our shareholders. With that in mind, in the Q4 of this year, it remains our intention to resume our existing common share repurchase program in an amount reflecting interest rate levels and market conditions at that time. I'll now turn to our proposed acquisition of BBH's Investor Services business, which remains subject to regulatory approvals and other closing conditions. We continue to be excited about the business and its people, the franchise it represents and the opportunities the transaction represents for our collective clients and for accelerating our strategy. I've mentioned previously that we've been engaged in ongoing dialogue with U.

Speaker 2

S. Banking regulators regarding the regulatory review process and potential modifications to the transaction intended to facilitate resolution of that process. Based on those discussions, We have developed with BBH proposed modifications to the transaction structure that the parties believe present a path forward. The proposed modifications include changes to the operating model and legal entity structure and changes to the regulatory approvals required to complete the transaction. As part of the proposed modified transaction, State Street is seeking amendments to the transaction terms, including the purchase price.

Speaker 2

Both BBH and our Board of Directors would need to review and approve the modified transaction in amended terms. During the Q3, we intend to finalize the proposed structure in contractual terms and confirm our approach with regulators. Assuming the financial and operational aspects of the proposed modifications are timely finalized and contracted subject to regulatory approval and other closing conditions, The parties are aiming to close the transaction at the end of the Q4 of 2022. However, there exists significant timing uncertainty And risk that closing will extend beyond that time line. There can be no assurance that a mutually acceptable modified transaction will be entered into Or as to the timing or outcome of any regulatory approvals and other closing conditions for this modified transaction.

Speaker 2

After September 6, 2022, Either party can terminate the transaction without penalty, absent further agreement of the parties. To conclude, as we progress towards our medium term targets in this uncertain environment, we remain particularly focused on maintaining and further improving Our pre tax margin performance, which despite the challenging market conditions increased almost 29% for the quarter, excluding notable items. To help achieve this goal in the face of inflationary pressure and a challenging revenue environment, we will continue to exhibit expense discipline And to drive our automation and productivity efforts. We also remain laser focused on innovating for the benefit of our clients and driving organic growth as demonstrated by the strong AUCA wins in the Q2, all while returning capital to our shareholders. And with that, let me turn it over to Eric to take you through the quarter in more detail.

Speaker 3

Thank you, Ron, and good afternoon, everyone. I'll begin my review of our Q2 results on Slide 4. We reported EPS of 1.91 or $1.94 excluding acquisition and restructuring costs as detailed on the panel on the right side of the slide. As Ron noted earlier, the operating environment in the quarter remained challenging, largely characterized by continued market volatility related to macroeconomic events and continued geopolitical uncertainties. As you can see on the left panel of the slide, strong growth in both net interest income and FX trading enabled us to partially offset significant headwinds from lower equity and fixed income markets in the quarter that impacted other fee areas.

Speaker 3

Also evidenced by today's results, Our approach to expense management remains very disciplined and deliberate. On a year on year basis, 2nd quarter expenses were down even as we experienced higher than expected wage increases and continued to thoughtfully invest in the franchise. Lastly, you'll see that in the Q2, we had a lower than expected tax rate. The bulk of the discrete tax items that contributed to our lower taxes were due to the reassessment of a deferred tax asset worth roughly $60,000,000 All things considered, During the quarter, our business model demonstrated resilience against the challenging backdrop. Turning to Slide 5.

Speaker 3

During the quarter, we saw period end AUCA decrease by 10% on a year on year basis and 8% sequentially. Amidst continued and uncertain economic conditions, the year on year change was largely driven by lower period end market levels across just about every equity and fixed income market around the world, partially offset by net new business and client flows. On a quarter on quarter decline was largely a result of the same lower period end market levels as we've also started to see industry outflows from investment products as the risk off sentiment continues. Similarly, at Global Advisors, quarter end AUM decreased 11% year on year and 14% sequentially. The year on year decline in AUM was also largely driven by lower period end market levels and institutional net outflows, which was partially offset by positive net inflows in both our U.

Speaker 3

S. Low cost ETF complex and cash inflows in the quarter. Turning to Slide 6. On the left side of the page, you'll see 2nd quarter total servicing fees down 7% year on year, largely driven by lower average equity and fixed income market levels, normal pricing headwinds, client activity and adjustments and the impact of currency translation, partially offset by net new business growth. Excluding the impact of currency translation, servicing fees were down only 4% year on year.

Speaker 3

I'd also highlight that From a segment perspective, we continue to see excellent revenue growth in our alternatives client segment both year on year and quarter on quarter. Sequentially, total servicing fees were down 5%, primarily as a result of the same drivers lower average equity and fixed income market levels, client activity and adjustments and the impact of currency translation partially offset by positive net new business. Within servicing fees, back office fees were down 7% year on year and 5% quarter on quarter, largely driven by the factors I just described. Middle office services was down 12% year on year and 8% quarter on quarter, primarily due to decreased client AUMs driven by lower market levels and client transaction activity and adjustments. While we are seeing some compression in our legacy middle office book, It is an important component of our alpha proposition when it connects to both the front office and back office and new wins generally come with contracts of 7 to 10 years.

Speaker 3

We continue to expect to see good growth over the medium term as evidenced by our large Uninstalled middle office revenue backlog of more than $90,000,000 which I will talk more about in a moment. Even against this challenging backdrop, we continue to be pleased with our Investment Services business momentum and robust pipeline. We recorded another strong quarter of new AUCA wins worth $972,000,000,000 while AUCA won, but yet to be installed amounted to $3,600,000,000,000 at quarter end. As Ron mentioned earlier, during Q2, we reported another new Alpha win, Allspring Global Investments taking the total number of Alpha clients to 20 and now have 12 implementations live. Lastly, in response to industry inflationary cost pressures, we've undergone a comprehensive analysis of our pricing across all our products areas.

Speaker 3

The result of this analysis has led to the decision to begin to adjust our client pricing upwards in certain areas of servicing where the wage pressure is most acute and industry capacity is stretched. Ultimately, we believe these pricing changes will 2nd quarter management fees were $490,000,000 down 3% year on year, primarily reflecting lower average equity and fixed income market levels, The impact of currency translation and a specific client repricing adjustment, partially offset by the elimination of money market fee waivers and the run rate impact of net ETF inflows. Management fees were down 6% quarter on quarter, largely due to equity and fixed income market headwinds, partially offset by the elimination of the same money market fee waivers. As you can see on the bottom right of the slide, our franchise remains well positioned for growth. In ETFs, although we saw outflows in equity and commodities, we continue to see inflows into spider low cost and fixed income ETFs.

Speaker 3

In our institutional business, there's continued momentum in our target date franchise, notwithstanding outflows primarily from 1 large client with very low fee assets, which ultimately benefited the overall management fee rate this quarter. Across our cash franchise, we again saw Another quarter of strong net inflows, this time worth $15,000,000,000 in the quarter contributing to market share gains. On Slide 8, FX Trading Services had yet another strong quarter. Relative to a period a year ago, 2nd quarter FX Trading Services revenue was up 16%, primarily driven by higher FX spreads, partially offset by lower client FX volumes. Quarter on quarter, FX Trading Services revenue was down 8% as the benefit of higher FX spreads was more than offset by lower client FX volumes too.

Speaker 3

Our Q2 securities finance revenues decreased slightly year on year, primarily driven by lower agency and enhanced custody balances due to lower markets, partially offset by higher spreads. Sequentially, revenues were up 11%, mainly reflecting higher spreads, partially offset by lower agency and enhanced custody balances. 2nd quarter software and processing fees were down 11 year on year and 6% quarter on quarter, largely driven by lower front office software and data revenue associated with CRD, which I'll turn to shortly. Finally, other fee revenues of negative $43,000,000 in the 2nd quarter declined both year on year and quarter on quarter. Both the year on year and quarter on quarter declines largely reflect negative market related adjustments, while the absence of prior period positive fair value adjustments on equity investments also contributed to the sequential decline.

Speaker 3

While we saw pressure throughout the quarter, almost half of the $43,000,000 came through in the second half of June. Moving to Slide 9. Let me provide some details on the performance of our front office software and data revenue in the Q2 on the left panel of the slide. As a reminder, CRD represents the majority of these revenues, But we also include Alpha Data Services, Alpha Data Platform and Marketis revenues since they are part of our front office offering. On both the year on year and quarter on quarter basis, front office software revenue declined as expected, primarily driven by the absence of several on premise renewals in prior periods as well as some episodic fees when compared to the prior year quarter, partially offset by higher software enabled SaaS revenue.

Speaker 3

It is important to note, however, that the more durable and recurring software enabled and professional services revenues have continued to go nicely with a year on year growth of 15% demonstrating success in deploying our cloud based SaaS platform environment to more clients. Turning to some of the softer metrics enabled by CRD and ALF on the right panel, you'll see that our annual recurring revenue has grown 20% year on year as we convert more clients to SaaS, which we expect will create a stickier and more profitable business model. As for the middle office, we continue to have an extremely healthy backlog of uninstalled revenue worth $92,000,000 which is almost twice the prior year. Lastly, we are pleased to have announced another Alpha mandate win this quarter. We're also excited to have expanded an existing Alpha relationship this quarter, winning approximately $300,000,000,000 of new back office assets to custody from an asset owner client.

Speaker 3

This provides another proof point that our alpha value proposition is working as we're gaining more of the wallet share over time. Turning to slide 10. 2nd quarter NII increased 25% year on year, primarily reflecting the impact of higher interest rates and continued growth in loan balances. Relative to the Q1, NII was up 15%. The sequential increase was largely driven by the improvement in both short and long and rates, which benefited our yields, together with continued growth in loan balances, partially offset by lower investment portfolio balances.

Speaker 3

On the right side of the slide, we show our average balance sheet during the quarter. Average deposits were down 6% year on year and 2% quarter on quarter, primarily related to the impact from currency translation And dollar strengthening, which accounted for almost half of the year on year decline and 2 thirds of the sequential decline. The investment portfolio is now down modestly and we have almost 60% of our securities now in held to maturity. We're pleased that our balance sheet is well positioned to recognize this interest rate and NII tailwind and also protect OCI. Turning to Slide 11, 2nd quarter expenses excluding notable items decreased 1% year on year or increased 2% adjusted for currency translation.

Speaker 3

In response to the revenue environment, we have been proactively managing our expenses, including lowering our incentive compensation, In addition to carefully executing on our continued productivity savings efforts, which generated approximately $60,000,000 in year on year growth saves or approximately $150,000,000 year to date. These savings enabled us to continue to self fund a good portion of the 4% to 6% higher wage rates we're facing and the targeted investments in the business, including the Alpha product, Technology Infrastructure and Broader Automation. Compared to 2Q 2021, Compensation employee benefits was down 3% as lower incentive compensation and the impact of currency translation were partially offset by salary merit increases associated with wages and inflationary pressure and higher contractor spend. Excluding currency translation, compensation and employee benefits would have been up 1%. Information Systems and Communications expenses was down 2%, primarily due to the episodic credits related to vendor pricing optimization and infrastructure rationalization.

Speaker 3

Occupancy was down 4% due largely to currency translation and other expenses were up 18%, primarily reflecting higher recoverable client related expenses, which are offset in fee revenue, professional fees and travel costs. On a quarter on quarter basis, expenses were down due to seasonal expenses in the Q1. Headcount increased quarter on quarter as we continued to in source some strategic technology functions from vendors as well as support growth in Alpha. Overall, in light of the current macroeconomic environment, we have had pretty healthy pre tax margin for the quarter at approximately 29% excluding notable items, supported by active expense management and strong NII growth. Moving to Slide 12.

Speaker 3

On the right side of the slide, we show our capital highlights. We are quite pleased to report ET1 of 12.9%, up 100 basis points quarter on quarter. We're also happy with our performance under this year's CCAR with a calculated stress capital buffer well above the 2.5% minimum, resulting in a preliminary SCB at the floor. As a result, in June, we announced the planned 10% increase to our 3Q 'twenty two quarterly Common stock dividend, subject to Board approval, and it remains our intention to again begin our existing common share repurchase program in the 4th quarter in an amount reflecting market conditions at the time. To the left of the slide, we show the evolution of our CET1 and Tier 1 leverage ratios.

Speaker 3

As you can see this quarter, even against the backdrop of a challenging operating environment, we drove stronger and higher capital levels. During the Q2, we completed several of the previously announced RWA optimization actions across our trading, lending and investment portfolios, reducing RWA $12,000,000,000 quarter on quarter. We also shifted About $20,000,000,000 of AFS securities to HTM. As a result, we limited AOCI from The investment portfolio to under $500,000,000 or 40 basis points of CET1, even with a roughly 60 basis point upward Interest rate move across the 2 5 year part of the curve. You'll see a larger AOCI move in the GAAP book, But much of that is ratio hedged and offset by the appreciating dollars effect on RWA with an offsetting goodwill and intangibles as well.

Speaker 3

Given that we have now significantly reduced the OCI risk to interest rate shocks by 75%, we are now comfortable operating somewhat below Our standard target ranges for both CET1 and Tier 1 leverage ratios. Turning to Slide 13, we provide a summary of our 2nd quarter results. Despite the continued volatile market environment, I am pleased with Quarterly performance, which demonstrates the strength of our business model. The current macroeconomic environment and persistent geopolitical uncertainties notwithstanding, Our strong growth in both net interest income and FX trading services enabled us to partially offset significant headwinds from both equity and fixed income markets, highlighting the resiliency of our franchise. And our expenses remained well controlled, demonstrating the progress we are making in improving our operating model.

Speaker 3

Now turning to outlook. We would like to provide our current thinking regarding the Q3. At a macro level, while market rate expectations have been volatile, our current interest rate outlook is broadly in line with the current forwards, which suggests the year end Fed funds rate of 3.5%. We expect other major international central banks to continue raising rates With the ECB expected to start increasing rates in Q3. The current spot level of global equity markets would imply that average equity markets in 3Q would be down 7% to 8% quarter on quarter and U.

Speaker 3

S. Dollar appreciation to be about a percentage point of headwind to revenues and tailwind to expenses, which will be included in our guide. Now in terms of the Q3 of 2022 and on a standalone State Street basis. Given the implied declines in average global markets, we expect total fee revenue to be down about 2% on a sequential basis. And we expect both servicing fees and management fees to be down 4% quarter on quarter driven by weaker market levels.

Speaker 3

Turning to NII. Following one of the strongest sequential increases in NII for many years in 2Q, We expect to deliver further growth with NII expected to increase 5% to 9% quarter on quarter driven by the tailwind from Central Bank rate hikes. This outlook includes our expectation for some initial deposit outflow and rotation in 3Q. And for the full year, On a standalone State Street basis, we expect NII to increase 24% to 27%, which is significantly better than our prior full year guide of 18% to 20%. Next, we expect total expenses excluding notable items to increase just under 1% quarter on quarter, driven by inflationary pressures on wages as we continue to target productivity initiatives and execute against our strategy with a deep focus on expense discipline.

Speaker 3

This focus should enable us to drive positive total operating leverage, excluding notable items for the full year. Lastly, we would expect our 3Q tax rate to be approximately 20% for the quarter. And with that, let me turn the call back to Ron.

Speaker 2

Thanks, Eric. Operator, we can now open the call for questions.

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer One moment while we compile the roster. Your first question comes from Glenn Schorr of Evercore. Please go ahead.

Speaker 4

Hi. Thanks very much. In your prepared remarks, you talked about acute management fees driven by market Understood. But you also see the client specific pricing adjustment. I just wondered if you could just give a little more color

Speaker 3

Sorry, Glenn, it's Eric. You're breaking up on the audio. Could you I got bits of that, Could you repeat that please for the first?

Speaker 4

Absolutely. To start off, the prepared remarks you noted lower 2Q And then fees driven by markets, which is obviously going to happen. But you also said you're not specific, it's an adjustment. I wonder if you could give a little more detail, say the size and what kind of adjustment that was just in case we should be thinking about that going forward.

Speaker 3

Sure, Glenn. Let me try to cover that. And I think you're focused on Servicing fees and management fees. So let me do them both so that we have a little bit of context for you. On Page 6 of the materials on servicing fees, you asked about the impact of client Activity and adjustments and on a year on year basis largely due to the kind of lower levels of And sometimes that comes through with lower markets.

Speaker 3

So it's worth about a percentage point of headwind on a year on year basis And about 2 points on a quarter on quarter basis for that. On management fees, there was A series of impacts quarter on quarter. Most of that was driven by market. There was one client that we called out, but that would have been worth at most 1 to 2 Percentage points of fees for that quarter.

Speaker 4

Okay. And then I have just I know this would be included in your guidance, but I'm looking for a little color. When markets, I remember when they used to go up all the time, you keep temper our enthusiasm on fee rates in gen on fees in general, Servicing fees because some contracts have ceilings in them. My question is, if And when we continue any downtrend in these markets, do those same contracts have floors? We expect more stable

Speaker 2

Yes, Glenn, I'll take that. You're accurate. We have a small number. They tend to be very large clients where You just do hit the top of the fee schedule or even in some cases, the fees continue to tail down. I don't think we're close to that yet in terms of that being meaningful.

Speaker 2

So I wouldn't expect to see that being a factor in the near term unless we see much more significant kinds of Market downturn.

Speaker 4

Okay. Thank you.

Speaker 2

Operator, the next question.

Operator

Your next question comes from Ken Usdin of Jefferies. Please go ahead.

Speaker 5

Thanks. Good afternoon. Ron, just following up on your opening remarks and what we saw on the forward looking statements. As you go forward and try to negotiate, I guess just how do you think through Your optionality, meaning that, of course, a price concession is probably your best outcome. If you can't get one, is that A go, not go decision right there.

Speaker 5

And then if for some reason you do walk away one side or the other, what becomes your next immediate steps in In terms of either capital strategy or go forward strategy. Thanks.

Speaker 2

Yes. Ken, we're very much in the midst of this. I don't want to get out ahead of it. Firstly, we remain committed to the combination On a strategic basis, but given that we foresee this being restructured in a way that It changes some of the operating model. Some of the circumstances change.

Speaker 2

We do believe well, we know we believe some kind of a price adjustment would be warranted. I don't want to get ahead of where we are in Discussions with DBH, they remain very amicable and both sides are committed to making this happen. We're committed We like the business. We like the people. So obviously if we don't get there then there's a lot of options in front of us and we come back to you at that time.

Speaker 5

Okay. That's fair. And then secondly, Eric, on your NII update, the new guide, I'm just Wondering how much of that update is a new curve and if you can help us understand where you are in that and what are you getting on new securities yields now Versus what's rolling off the back book?

Speaker 3

Yes, Ken. The uptick in the NII guide, I think, probably both for the Q3 and then The full year, which we've updated is primarily driven by the higher yield curve And expectations in the U. S. Plus some expectation that the ECB is going to start to seriously Raise rates in the Q3. And we've said that once the ECB crosses a 25 basis point positive rate Threshold that begins to be accretive.

Speaker 3

So I think those are the major drivers. On investment portfolio yield, I think you see that in our average balance sheet. They are up on average almost 15 basis points quarter on quarter. And you will expect that that kind of increase will continue to flow through the books. To the question of exactly What a new security comes in at versus an old security rolls out at, I think the best way to estimate that because it will vary by Different parts of the book, whether it's the treasuries, whether it's the MBS, whether it's the foreign securities is we're basically Replenishing securities that have an average duration of 2.8 years.

Speaker 3

So you can kind of see what An older security with that vintage would look like and compare it to what's in the market today And you'll see a nice pickup and that's what's flowing through and giving us the kind of quarter on quarter increase on average that you saw this quarter. And we'll expect to see another increase on average In that order of magnitude in the Q3.

Speaker 5

Okay, great. Thanks, Eric.

Operator

Your next question comes from Betsy Graseck of Morgan Stanley. Please go ahead.

Speaker 6

Hi, thank you. Couple of questions. First, just on the discussion around the forward look, I wanted to make sure I understood what types of things are being, looked to change. Is this a function of You need to keep more data servicing processing within certain countries to satisfy regulatory requirements? Or is there something else that's more Not operational, but more around what parts of the business you can do.

Speaker 6

I'm wondering if it's an expense Is sure if it's a revenue opportunity issue?

Speaker 3

Betsy, it's Eric. Those are all The kinds of areas we're working through and I think the heart of this when you do a banking deal, global banking deal The sword is the legal entity structure and you obviously know we run a holding company, a bank, a series of banks and there's a series of entities that we have around the world. And obviously, creating a workable and a good path of combination Can be done in different ways. And part of what we've been working through is modifications on what might have been our original plan to make the transaction workable and attractive. That then has some ramifications to your point on the operating model That will have some amount of effect on perhaps the pace Spencer or PACE expense or revenue synergies.

Speaker 3

And that's what we're working through. What we have said and we'd want to reiterate is that We are committed to finding a way to preserve the economic accretion that In the range that we had previously disclosed back in September. And so we're highly focused on that. And As a result, there are some changes that we're seeking on the transaction That including price that Ron mentioned.

Speaker 6

Okay. And then you get this in front of regulators, But if they don't agree by September 6, you have you've indicated you want to close by the end of the year. How should investors think about what your expected thought process is going to be between that time period September 6 through 31st.

Speaker 2

Yes, Betsy, it's Ron. I mean the September 6 date, it's basically 1 year anniversary of the deal and like a lot of transactions they have an outside limit. So the way you should interpret that is What we've said is both parties remain committed. We've got to work through things. I mean the regulatory world and the Political world has changed significantly since we announced this deal and what we're looking towards is a way to Breakthrough

Speaker 4

and

Speaker 2

close it in a reasonable time period. And I know this time period doesn't seem reasonable to anybody, but It's actually better than some of the alternatives that we've been faced with. So think about the September 6, it's an existing date. And assuming everything is going along fine and parties are agreeing, then We just agreed to an extension of that to the close date. What

Speaker 5

we're doing is just

Speaker 2

disclosing and reminding everybody What the terms of the transaction are.

Speaker 6

Okay. No, that's helpful. And then just last for me is I think you mentioned that given structuring of the balance sheet that you've made and the success with that, that you're now comfortable with running potentially below management targets for CET1 SLR. Could you remind us what the targets are and how much below you're willing to dip?

Speaker 3

Sure, Betsy. It's Eric. I think the best place to see our Capital ratios and targets is on Page 12 of the presentation deck. You see What I'll call our standard CET1 targets are 10% to 11%, our standard Leverage, Tier 1 leverage targets 5.25 to 5.75. And what we've done is, as you mentioned, is we've dramatically reduced the volatility risk from OCI, Which means that we're quite comfortable running below that.

Speaker 3

Directionally that means on CET1 for example, could be Up to 50 basis points below that, while we run at much lower Risk and volatility levels in OCI and on a leverage basis, it tends to be about half Of that amount.

Speaker 6

Thank you.

Operator

Your next question comes from Brennan Hawken of UBS. Please go ahead.

Speaker 7

Good afternoon. Actually, good afternoon. Thanks for taking the questions. It's been a long day. So Eric, you referenced that you were considering some adjustments to the pricing model, which make a lot of sense.

Speaker 7

Obviously, we're dealing with a very inflationary environment. Have you begun those discussions? And what has been the reaction from clients so far? Are you hearing from some of your clients that Some of the competitors are also making similar moves, just to be assured that you're not going to be out on your own pushing in that regard, Because it's normally when we think of pricing, of course, in the custody world, we typically it's typically a tougher place to get price increases. So kind of curious about that.

Speaker 2

Brennan, it's Ron. Why don't I start on this and Eric will fill in. We're early in this process, but yes, we have been out with clients And walk through our planned price increases with a few clients at this point. And there's

Speaker 3

a whole

Speaker 2

plan as Eric noted. It's Around the areas where we've got the most inflationary pressure, which might be specialty areas, areas where there's Limited capacity in the marketplace, areas that are just growing very rapidly. And interestingly, the earliest ones have been In some ways, I think clients were not surprised that it was coming at them. So I'm not saying that's the way it's going to be. None of us Enjoy paying more for something today than what we paid yesterday.

Speaker 2

But we're going at this in a very fact based way. These tend to be sophisticated institutional buyers and they know what's going on. So I can't speak For what others are doing, I just don't have a feel for that. But we're running our business in the way we believe we need to And we think this is an important component of it.

Speaker 7

Okay. Thanks for that. And then, when we think about the you laid out, Eric, the expectation around ECB and whatnot. But as we see potential policy rates in different parts of the world diverging, could you give us a reminder about The currency mix of your deposit of your deposits as it stands now and whether or not you expect in the next in the foreseeable future That shift at all as yield differentials widen between different currencies? Thank you.

Speaker 3

Sure, Brennan. It's Eric. And we actually added some additional disclosure in our addendum, our financial addendum this quarter. You'll Find it on Page 8 that actually breaks out the balance sheet including the total assets, The investment securities and deposits by the major currencies, USD, euros, £1,000,000 and then and so forth, because we are quite focused on Navigating this interest rate environment and to be honest, securing the benefits of interest rate increases around the world, Right. We position the balance sheet currency by currency.

Speaker 3

We have pricing plans and Betas that are carefully developed currency by currency. I don't think we expect a lot of Change in the composition of the balance sheet. I mean, the U. S. Is clearly the U.

Speaker 3

S. Central Bank is clearly moving much more quickly And with not only interest rates, but quantitative tightening and that will Potentially have a downward trend on U. S. Currency deposits. On the other hand with U.

Speaker 3

S. Rates, Prevailing rates higher than what you see around the rest of the world. There's a natural draw into the U. S. From global investors.

Speaker 3

So it's hard to I think it's hard to actually forecast Yes. The currency composition and the deposit levels given those movements, but we're well prepared. And in fact, some of the interest rate Some of the NII increases that you saw this quarter are coming not only by virtue of the U. S. Rate rises, but also those pound sterling and some of the other Anglo Saxon currencies and we're positioning currency by currency as a result.

Speaker 3

Great. Thanks for that. Sure.

Operator

Your next question comes from Jim Mitchell of Seaport Global. Please go ahead.

Speaker 8

Thanks. Good afternoon. Eric, maybe just on the securities portfolio, you had a pretty big shift into HTM to de risk the AOCI. But I'm just looking at it does have a materially higher yield. Is there Something to think about in the HCM portfolio that you kind of locked in longer duration or is a little more

Speaker 9

Credit risk in there.

Speaker 8

How do I think about the HCM portfolio versus AFS and how that can evolve? Does it hold back NII sensitivity or not?

Speaker 3

Jim, it's Eric. We're quite careful about managing our NII sensitivity holistically across the book. I think what you'll see is that Because we use HCM to protect against interest rate and OCI volatility, It's more natural that if we have a blended book of short, medium and longer term securities That we would move more of the medium and longer term securities into HTM because thereby we get the most protection While we give up the least amount of sale optionality. So that's why you're just seeing a higher yield. I think you'll see that generally be true and you can follow that in our disclosures accordingly.

Speaker 8

Okay, great. And then when I think about the get to be installed business, I mean, it continues to grow. I know there's a long tail to getting those installed. But are we at a point where this I mean, I think we've looked in the past and I think we all get a little frustrated that we see these big wins and it's hard to determine Or see it in the numbers. Are we at a point where this is getting to materiality and that we could see a nice acceleration in organic growth next year when this stuff gets

Speaker 3

Yes, I think you've got the right broad timeframe. I mean, I guess the way I would describe it is the larger the deal, The more complex and more transformative it is for our clients, right? That's the they're fundamentally changing their operating model. They're harmonizing Systems and processes and we're co investing with them to build for them a front, middle and often back office Model that will suit them for a decade or more. As you think about the $3,600,000,000,000 of AUC8 to be installed, 2023 is an important year.

Speaker 3

We expect that about a third, this will move around, but about a third We'll likely be installed by the end of that year and perhaps as much as half of the revenue associated With those wins.

Speaker 8

Okay, great. That's helpful. Thanks.

Operator

Your next question comes from Brian Bedell of Deutsche Bank. Please go ahead.

Speaker 10

Thanks very much. Eric, if you could just repeat that comment on the 1 third of the $3,600,000,000 was that by the end of next year? Did you say I just missed that.

Speaker 3

Yes, that's correct by the end of 2023.

Speaker 10

Got it, got it. Okay. Just back to the BBH Strategy. So, good to hear that you're both committed to this. If you are able to close it With any amended terms and amended structures, can you just remind us or I guess Or I guess if you have comments on the deposit strategy, which was obviously bringing the DBH deposits on And then there was an opportunity to bring potentially a large portion of balances over out of from their $60,000,000,000 of Off balance sheet, with our 3rd party bank, I should say, arrangements.

Speaker 10

Is that would that still be doable? Or does Is the structure changed that calculus?

Speaker 3

Ryan, it's we're still in the process So, nailing down both the legal entity and the operating model changes, I know we're working through those and working It's developing a firm view of when and how the deposits and sweep program is operated, and how we may in the future Use that program, take advantage of some of the cash and deposit optionality, but that's in process at this And we'll certainly provide an update, of course of the Q3, I Back as we nail down the modifications.

Speaker 10

Yes, that makes sense. And then maybe just excluding BBAH and just looking at everything on a State Street Only basis. Should we be thinking or do you think in this cycle, we should be thinking of Deposit runoff to be sort of similar to the last cycle. I think we were down more than 15% in average deposit levels from Start of Fed hiking to the trough in 2019. Is that A reasonable starting point to think about that deposit runoff or something different in the cycle that would make you think that you wouldn't have that?

Speaker 3

I think the last cycle is always going to be indicative, but you remember there were moving parts in the last Including the SLR rule was in flux and there was we many of us on the banking I had to navigate the size of our balance sheet independently of what was happening at the interest rate environment and quantitative tightening. I think what I've said in the past Is relevant over the

Speaker 10

since the kind of

Speaker 3

the pre COVID time period, our deposits are up Roughly $60,000,000,000 We think that half of that can easily be ascribed to the quantitative Easing that we had and that will reverse out. Now that's an estimate and it's always Hard to forecast this because the interest rate environment is moving up quickly. There's also a risk off environment. So we've got to see how that plays out. I've said that we could see $6,000,000,000 to $10,000,000,000 of out flows per year per $1,000,000,000,000 of U.

Speaker 3

S. Balance sheet tightening. I do think because The interest rate environment is higher and has moved faster, right? We're likely to see closer to The $10,000,000,000 per $1,000,000,000,000 in the 1st year and then maybe lighten out in the 2nd 3rd year. But Those are all the scenarios we're working through.

Speaker 3

I think from our perspective, we're extremely flush from a liquidity standpoint. Yes, the deposits are valuable, so we're monetizing them for the purpose of the P and L. And we expect over time to be able to You don't not only get to the higher levels of NII that we have in the past, I think we were in the $695,000,000 range with our peak during the last cycle. I think our forecast and it's hard to forecast this perfectly, But the forecast that we've built put us at or above that level in this Next cycle, and part of that is that while there is some tightening and erosion of total deposit levels, you also have higher U. S.

Speaker 3

Rates, higher global rates and in particular, we'll have a move in ECB and European rates at least Based on the current forward.

Speaker 10

Right. That's great color. Thank you so much.

Speaker 4

Sure.

Operator

Your next question comes from Steven Chubak of Wolfe Research. Please go ahead.

Speaker 11

Hi, good afternoon. So, Eric, I wanted to better understand just some of the guidance items that you outlined specific to both fees and And on the fee side, certainly the guidance that you offered suggests greater resiliency Compared with some of the more acute declines that we've seen in some of the market proxies, just want to get a sense as to What's driving that better outcome? And specific to expenses, I was hoping you can give some bookends in terms of What range of expense growth we should be contemplating? You cited inflationary pressures multiple times, the need to maybe revisit pricing With some of your clients, but you also have some FX tailwinds. So I was hoping to get some perspective on what sort of expense growth range we should be thinking about

Speaker 3

Sure. Let me start on fees. The real Challenges if you just extend out the current spot levels of that equity markets are sitting at, The daily average for Q3 is going to be down 7% to 8% versus the average for 2nd quarter. And that's the basis by which we earn revenues both in servicing fees and management fees. So that's the headwind that we have.

Speaker 3

We're hoping that some of the market related, the lumpy stuff that we have in other revenues doesn't repeat And that might give us a little bit of insulation. So that's why I said servicing and management fees could be down the 4 range sequentially, but total fees, perhaps closer to 2%, so less so. And obviously, volatility levels in markets help Currency trading and other activities, but we've got to play out and see how the summer months I think on expenses, I'm just trying to guide quarter by quarter. I think if you add up 1st quarter, 2nd quarter, the guide of just under a percentage point for the 3rd quarter. Yes.

Speaker 3

And you can put a range around that and estimate the 4th quarter. And so we're I think that's what we've done from a guidance standpoint. I think what we are I'm willing to say is because we have a kind of an overall view of fee revenues for Q3, we can guesstimate into Q4 as can you. I think NII, we have quite a solid view of the full year, which we've provided. We're comfortable I was saying and we said in our prepared remarks that we expect to drive positive total operating leverage For the year, adjusted for notable, but we feel confident in that given the current market environment.

Speaker 3

Part of that is we have some visibility as we've described on fees, a good bit of visibility on NII. And to be honest, while there are some wage and inflationary pressures, because the P and L is lighter, we've proactively adjusted the incentive line to compensate for that. And we're committed to navigating through this environment In a thoughtful way and deliver results that are As positive and as appropriate as possible.

Speaker 11

That's really helpful color. And just one follow-up on the And some of the expense commentary, Eric, you offered. One of the questions we've been fielding from a lot of folks pertains to the Longer term expense growth algorithm, you guys have done a really good job of reining in expenses on an absolute basis over the past few years. Clearly, the inflationary pressures are starting to build. As we think about your efficiency agenda that you guys have prosecuted on, But at the same time, the inflationary pressure is building simultaneously.

Speaker 11

How do you see that expense growth algorithm evolving over time?

Speaker 3

Yes. This and I think we'll know more over the course of the year, but I think there are some inflationary pressures, Some of which we can look for ways to at least limit, but we can't really avoid. So let me give you an example. On the $8,000,000,000 expense base that we have about $2,500,000,000 of that is salaries. Now salaries historically have moved up About 2 percentage points a year, maybe 3.

Speaker 3

But right now, if you look at merit increases, The higher salary replacement rates for new hires versus exits, bidding back selectively at Talend, Salary costs are up closer to 4% to 6% on a run rate basis, on a base of $2,500,000,000 So you could do the math There and start to get a sense that that creates an additional headwind that we didn't have and that Headwind could be worth an extra point of expenses on the total $8,000,000,000 base. It's that kind of Environment that we're operating in, I mean, we need to see if that persists into next year. Do we have a recession or not? What happens to labor markets? And then the other part of that is working through where we are on non comp expenses, where Vendors come to us sometimes and say, look, we feel the need to adjust and we're obviously trying to Manage and rein that in and I think that's another factor.

Speaker 3

So I think we see some of those, we're trying to telegraph them, but we're also committing Committed to achieve and deliver on our medium term targets. And some of that's going to be by Finding in some ways to maybe limit or contain or offset, but in other ways they may come through. The interest rate environment will give us a tailwind. And then you heard us describe some of the selective changes that we're discussing With clients around pricing and top line pricing. So there are a number of different factors.

Speaker 3

I think I'm not It's early to give a fulsome view of what next year pertains, but I would say that We're conscious we're in a dynamic environment. We're conscious that there are some elements that we can control and others that aren't as controllable. We're also committed to getting to our medium term targets and I think that provides a good Set of goals for us and that we're committed to.

Speaker 10

Steve. Let me

Speaker 11

help us build an Ozaiq. I'm sorry, sorry, Ron.

Speaker 2

Yes, Steve, what I would add to that is that throughout this period that we've been managing expenses over the last several years, As we've been quite clear on, we've also been investing in the business, particularly around automation and technology. There's still payoffs expected from that. We've seen some. There's more in the future. So the other bit of this We'll be continuing to manage that algorithm between how much we continue to spend on automating more To get the future productivity savings.

Speaker 11

That's great color. Thanks so much for taking my questions.

Operator

Your next question comes from Gerard Cassidy of RBC Capital Markets. Please go ahead.

Speaker 9

Hi, Ryan. Hi, Eric.

Speaker 7

Guys, maybe Eric, you've in

Speaker 9

the past given us An update on the variable rate pricing of your fee revenues. What percentage of fee revenues today Would you consider variable pricing, which are greatly influenced by market levels, of course? And second, and Ron, when you talked about I'm talking about price increases for some of the products for your customers. Is that for both the variable rate type pricing as well as fixed rate pricing?

Speaker 3

Yes. Let me Gerard, let me start. Our pricing schedules, Yes. There's a lot of history behind them on the servicing fee side. I would say that, and we disclosed this in our Q With some specificity, but about half of the revenues earned through the servicing fee schedules are Market level dependent, so the kind of assets under custody levels.

Speaker 3

There's then a portion that is driven by transactional or Activity of volumes and then the balance is fixed. So there is a mix. And that's what you're seeing flowing through the P and L at this point. They are complex schedules. You can measure them with a ruler in some cases just because they span the world, they span products and regions and And entities and often have some history associated with them, but that's a broad basis.

Speaker 2

And then, Gerrard, just the second part of your question, are we going up the asset based The variable fee or the fixed fee, I mean it's a little bit of both. And again, we're trying to be reasonable Firstly, to our clients, but also to ourselves, and really tying this to where there's Real inflationary pressures, and also recognizing that we have a commitment to Generating really good service for our clients, right, service better than our competitors. So It's less about is that the variable or the fixed, it's where we're having these pressures and therefore where do we need a price increase.

Speaker 9

Very good. And then just as a quick follow-up, Eric. In the held to maturity portfolio, the duration was 2.8 years as you pointed it out. Can you share with us The OCI accretion back into capital, about how many basis points a year do you think you'll see in that? And then second, what's the average yield of that HTM portfolio today?

Speaker 9

Thank you.

Speaker 3

Sure. Let me do that in pieces. Then The HTM portfolio, I think there's good data for you and others in the financial addendum And you can find that on Page 9 of our addendum. We described the AFS portfolio Both on average and on an end of period basis in the HTM portfolio. And I think in total, The yield on AFS right now is about 91 basis points on the health of maturity about 155 basis points.

Speaker 3

That's just because of the duration that we tend to put in To maturity to protect it from OCI. In terms of the accretion that will come through, We expect the accretion to start towards The Q4 in particular, a little bit in the 3rd and then into the Q4. And we're looking at Accretion in the $100,000,000 to $200,000,000 range of capital. It'll bounce around quarter by quarter as Different maturities come through, but that's a healthy amount of capital Accretion that could be worth 10 basis points, 15 basis points of capital and could certainly help us Fund future buybacks and other returns of capital to shareholders, which as we've said, we'd like to Restart in the Q4 and continue on from there.

Speaker 8

Thank you.

Speaker 2

Sure.

Operator

Your next question comes from Mike Mayo of Wells Fargo Securities. Please go ahead.

Speaker 12

Hi. First, thanks for changing the time of your conference call given so much else happening today. So on the pricing due to inflation, I mean, it all makes sense. It's all logical. Can you actually get that done?

Speaker 12

We've talked about pricing going down for the last 3 decades. Now it seems like you have more of a reason to increase pricing than ever before. Ron, you've been on the other side of this. You're getting the phone call. Hi, this is State Street.

Speaker 12

We'd like to increase the pricing by 5%. And then you're like, well, we're going to go to these other 3 or 4 or 5 providers. So how much confidence do you have that you can pass on some of these price increases to your customers?

Speaker 2

That's a good question, Mike. I would say that what's changed over the years is Virtually everybody, you go back 15, 20 years ago, virtually everybody bought the same service. It was Custody fund accounting, it was publicly listed markets. It was fairly consistent and plain and it was very easy to Du, as you said, I think what's changed is that even certainly in the medium to Large managers, you're seeing a broad product base, some of which are actually reasonably complicated To do whether it's complicated because of the skills required, complicated because of the technology that's required and it's in those areas where We're seeing the highest inflationary pressures. And we think that we offer a Superior capability.

Speaker 2

We think that in many cases there's just limited capacity in the marketplace. And we also think that it's a time where that everybody is seeing the same kind of pressure the last 10, 15, 20 years The world's been enjoying in effect the great deflation and that's not what's going on now. So it's always dangerous to utter those words, this time is different, so I won't. But we do think there's a Set of circumstances in a targeted set of areas where pricing adjustments are required and That we believe that clients will understand. And again, very early reads, but they seem to be.

Speaker 12

And as a compromise, are you talking more about compensating deposit balances like The trust banks had in the past when rates were higher? No. Okay. It's just plain old, We want to get paid more because our costs are up for us and everybody else. And so 1 third

Speaker 3

of Wait, wait, wait. But that's on deposits, remember, we've been under earning on deposits against what caused us to hold deposits, which is preferred securities, right? For Now several years, we barely offset that at the height of the last Interest rate increase in 2017 2018. And so we're just trying to get to par on deposit And obviously as deposit rates rise, we give a reasonable proportion of that back to our clients. So we do that purposely.

Speaker 3

That's part of the social contract. But That feels like it's going back to a normalized level. The wage and salary and Non comp pressures that we're seeing are not different than what others are seeing in the rest of the economy and that on a net basis is quite different.

Speaker 12

Okay. That's good clarification. Thank you. And then just last on that, your cost going higher, I thought A lot of banks seem to have an advantage just like you, you had $2,000,000,000 of expenses, dollars 1,000,000,000 in comp, But comp in society is going up less than other inflation, right, like Food, rent, gas, everything else is going up a lot more than employee costs. And what we've been hearing at least anecdotally among the banks is that some of those employee cost pressures have been waning in the most recent months weeks.

Speaker 12

But what I hear from you is that that's not the case or even if it is the case, You're still talking about kind of 2x historical growth than in the past?

Speaker 2

Mike, what I would say is, what you say about Comp costs lagging behind other inflationary expenses. I mean, that is true and that's typical, Right. That's typically how kind of inflation works its way into and through labor markets. I would say

Speaker 13

That

Speaker 2

we've certainly seen a much higher than trend pressure on And I would venture, since we're swimming in the same pool of skills here, I would say certainly with our nearing competitors, In particularly in the skilled areas that we need and as Eric noted in some of the We're replacing somebody that's come in at a much or a significantly higher cost than before. Now, I think it's also true that if you believe That there's a recession facing us or that in any event there'll be less kind of economic growth Going forward than what we see now for a period of time, that's likely to take pressure off it, but there's still a very real Move up in select areas around our expenses. And I actually don't think It would be different for a comparable institution.

Speaker 12

All right. Thank you very much.

Operator

Your next question comes from Rob Wildhack of Autonomous Research. Please go ahead.

Speaker 7

Hi, Ron. Hi, Eric. Just a quick one for me. I wanted to ask about the drop in RWAs in the quarter. Could you talk about what the drivers are there?

Speaker 7

And what kind of RWA outlook or assumption is embedded in your guidance going forward?

Speaker 3

Yes. We, as you recall, Rob, we had in the Q1 consciously deployed more RWA in some of our business activities, in particular in trading and in lending, just because we were we had A surplus amount of capital until we put it to work and had some good revenues. This quarter, we're writing that back in partly because We were committed to driving our capital ratios upward. And partly to be honest, we found some opportunities for optimization. I talked about more than a $10,000,000,000 reduction quarter on quarter.

Speaker 3

That came across businesses and securities finance, it came in The lending book where some of the loans qualified for margin loan treatment, which comes at a different RWA level. And then, we had some amount of credit, I'll call it, sort of credit light in the investment portfolio that was 100% risk weighted that we allowed to roll off. So there were some tactical adjustments that we made in that on that basis. We also tend to have some volatility in RWA. The FX derivatives book can move around by $3,000,000,000 $4,000,000,000 and that was that we got a good balance there.

Speaker 3

So I think about a third, I'd say was Of the $10,000,000,000 to $12,000,000,000 quarter on quarter reduction was a good balance and we'll take those. But that could actually that $3,000,000,000 to $4,000,000,000 could bounce back up in the Q3 and We're obviously considering that we continue to accrete through the P and L Every quarter, and I think we're quite comfortable with our capital ratio trajectory into the 3rd quarter and also in such Such a way that we can prepare for buybacks in the Q4 as well. Very helpful. Thank you, Eric.

Speaker 2

Sure.

Operator

Your next Question comes from Vivek Junega of JPMorgan. Please go ahead.

Speaker 12

Thanks. Firstly,

Speaker 13

I want to echo Mike's comments that about changing the timing of the call. I'm glad I would take that one step further and say in the future, it would be helpful if we'd even think of another day. So it would be not on such a crazy day for all of us, so we could actually pay a little more Attention to it. But moving past that, the Price increases that you're talking about on servicing contracts, given that these are longer duration contracts, Ron, when should we expect that they could start to go So is it a year out? Or do you think you could actually go these could go into effect in a fairly short order?

Speaker 13

What kind of timing would you point to?

Speaker 2

Yes. So that's a good question. And Again, because we're trying to be very fact based and tie it to where there's increases Where we feel we need to do this, the answer is it varies. In some cases, it's Around particular transactions or asset class types where we can institute in other cases there is an agreement that we need to Pure from the client, but our goal is to I mean obviously the pressure is now. So We want to put it in as soon as possible.

Speaker 2

Again, we're early in this process, so we'll see what we accomplished in terms of overall timing. But I think given our approach, which again is based on facts and the realities of client situations, We're optimistic that we can accomplish something here.

Speaker 13

Thank you.

Operator

There are no further questions from the phone lines. At this time, I'll turn the conference back over to Mr. Ron O'Hanley for closing remarks.

Speaker 2

Well, thank you, operator, and thank you all Thank you for

Speaker 3

participating in the call

Speaker 2

and thank you for your support.

Operator

Ladies and gentlemen, does indeed conclude your conference call for today. We would like to thank you all for participating and ask that you please disconnect your lines.

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Earnings Conference Call
State Street Q2 2022
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