Major US Banks Report Q2 2023 Earnings: Mixed Results and Strategic Moves

Earnings call: Goldman Sachs reports robust Q2 growth, solidifies market position By Investing.com

Goldman Sachs Group Inc. (NYSE:GS) has presented a robust financial performance in the second quarter of 2024, showcasing significant growth in its global banking and markets division, as well as in asset wealth management. The firm reported a strong return on equity (ROE) of 10.9% for the quarter and 12.8% for the first half of the year. Key developments include maintaining a leading position in M&A, ranking second in equity underwriting, and achieving record revenues in asset wealth management. The company's optimistic outlook is supported by a solid US operating environment, despite geopolitical uncertainties, and the potential of artificial intelligence (AI) applications. Goldman Sachs has also demonstrated shareholder value through a $3.5 billion share repurchase and a 9% dividend increase, while navigating regulatory challenges and capital requirement increases. In summary, Goldman Sachs has demonstrated a solid performance in the second quarter of 2024, with growth across key divisions and a forward-looking strategy that emphasizes innovation and client service. The company's commitment to shareholder value, as evidenced by share repurchases and dividend increases, reflects its confidence in future growth and profitability. Despite challenges, the firm's leadership remains optimistic about its market position and the opportunities ahead. Goldman Sachs Group Inc. (GS) has shown a commendable performance in the latest quarter, underpinned by strategic initiatives and financial stewardship. The company's ability to navigate the market has been reflected in its financial metrics and analyst insights. An InvestingPro Tip worth noting is that Goldman Sachs has maintained dividend payments for 26 consecutive years, showcasing a commitment to returning value to shareholders. This is especially significant given the recent 9% dividend increase reported in the company's second-quarter earnings. Additionally, Goldman Sachs has been recognized as a prominent player in the Capital Markets industry, which aligns with its leading position in M&A and strong performance in equity underwriting. InvestingPro Data further enriches our understanding of Goldman Sachs' financial health. With a market capitalization of $166.19 billion and a P/E ratio of 18.96, the company stands as a significant entity in the financial sector. Its revenue growth over the last twelve months was 4.6%, indicating a steady upward trajectory in its earnings capability. Moreover, the firm's strong return over the last year, with a 51.53% price total return, suggests that investors have been recognizing the value Goldman Sachs brings to the table. This performance is complemented by the company trading near its 52-week high, at 99.53% of the peak price, reflecting investor confidence in its market position and future prospects. For readers looking to delve deeper into Goldman Sachs' performance and gain more InvestingPro Tips, visit https://www.investing.com/pro/GS. There are 14 additional tips available to help you make an informed decision on your investments. Don't forget to use the promotional code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. Operator: Good morning. My name is Katie and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs' Second Quarter 2024 Earnings Conference Call. On behalf of Goldman Sachs, I will begin the call with the following disclaimer. The earnings presentation can be found on the Investor Relations page of the Goldman Sachs website and contains information on forward-looking statements and non-GAAP measures. This audiocast is copyrighted material of The Goldman Sachs Group, Inc., and may not be duplicated, reproduced, or rebroadcast without consent. This call is being recorded today, July 15th, 2024. I will now turn the call over to Chairman and Chief Executive Officer, David Solomon; and Chief Financial Officer, Dennis Coleman. Thank you. Mr. Solomon, you may begin your conference. David Solomon: Thank you, operator, and good morning, everyone. Thank you all for joining us. I want to begin by addressing the horrible act of violence that occurred over the weekend, the attempted assassination of former President Trump. We are grateful that he is safe. I also want to extend my sincere condolences to the families of those who were tragically killed and severely injured. It is a sad moment for our country. There is no place in our politics for violence. I urge people to come together and to treat one another with respect, civility, dignity, especially when we disagree. We cannot afford division and distrust to get the better of us. I truly hope this is a moment that will spur reflection and action that celebrate, that celebrate what unites us as citizens and as a society. Turning to our performance. Our second quarter results were solid. We delivered strong year-on-year growth in both global banking and markets and asset wealth management. I am pleased with our performance where we produced a 10.9% ROE for the second quarter and a 12.8% ROE for the first-half of the year. We continue to harness our One Goldman Sachs operating approach to execute on our strategy and serve our clients in dynamic environments. Global banking and markets, we maintained our long-standing number one rank in announcement completed M&A and ranked number two in equity underwriting. Our investment banking backlog is up significantly this quarter. From what we're seeing, we are in the early innings of the capital markets and M&A recovery. And while certain transaction volumes are still well below their 10-year averages, we remain very well positioned to benefit from a continued resurgence in activity. We saw a solid year-over-year revenue growth across both FIC and equities as our global broad and deep franchise remained active in supporting clients' risk intermediation and financing needs. We continue to be focused on maximizing our wallet share and we have improved our standing to be in the top three with 118 of our top 150 clients. In asset wealth management, we are growing more durable management and other fees in private, banking, and lending revenues, which together were a record $3.2 billion for this quarter. Our Assets Under Supervision had a record of $2.9 trillion and total wealth management client assets rose to roughly $1.5 trillion. We delivered a 23% margin for the first-half of the year and are making progress on improving the return profile of AWM. In alternatives, we raised $36 billion a year-to-date. We completed a number of notable fund closings during the quarter, including $20 billion of total capital for private credit strategies, and approximately $10 billion across real estate investing strategies. Given the stronger-than-anticipated fundraising in the first-half of the year, as well as our current pipeline, we expect to exceed $50 billion in alternatives fundraising this year. This is a testament to our investment performance, track record, and intense focus on client experience. We are excited about the additional growth opportunities for our asset growth management platform. Let me turn to the operating environment, which remains top of mind for clients. On the one hand, there is a high level of geopolitical instability. Elections across the globe could have significant implications for forward policy. And inflation is proven to be stickier than many had anticipated. On the other hand the environment in the U.S. remains relatively constructive. Markets continue to forecast a soft landing as the expected economic growth trajectory improves and equity markets remain near all-time highs. I am particularly encouraged by the ongoing advancements in artificial intelligence. Recently, our Board of Directors spent a week in Silicon Valley where we spoke with the CEOs of many of the leading institutions at the cutting edge of technology and AI. We all left with a sense of optimism about the application of AI tools and the accelerating innovation in technology more broadly. The proliferation of AI in the corporate world will bring with it significant demand-related infrastructure and financing needs, which should fuel activity across our broad franchise. Before I turn it over to Dennis, I want to cover a couple of additional topics that are top of mind for me. First, our recent stress test results. The year-over-year increase in our stress capital buffer does not seem to reflect the strategic evolution of our business and the continuous progress we've made to reduce our stress loss intensity, which the Federal Reserve had recognized in our last three tests. Given this discrepancy, we are engaging with our regulators to better understand its determinations. Despite the increase in requirements, we remain very well positioned to serve our clients and will continue to be nimble with our capital. In the second quarter, we repurchased $3.5 billion of shares, which illustrates our ability to dynamically manage our resources and opportunistically return capital to the shareholders. Despite the increase in our repurchase activity, our common equity Tier 1 ratio ended the quarter at 14.8% under the standardized approach, 90 basis points above our new regulatory minimum and above our ratio in the first quarter. We also announced a 9% increase in our quarterly dividend which underscores our confidence in the durability of our franchise. Since the beginning of 2019, we have more than tripled our quarterly dividend to its current level of $3 a share. I'd also like to reflect on the significant milestone we hit in the second quarter, our 25th anniversary as a public company. We went public in 1999, which is also the year I joined the firm, and it's been an eventful 25-years since then. We have persevered through a number of significant global events, including through the dotcom bubble, NASDAQ crash, September 11th, the financial crisis, and the pandemic. When I look back at how we overcame these challenges, immediately think of our culture, one that has evolved, no doubt, but always stayed true to our core values. I know that the preservation of our culture is paramount to serving our clients with excellence, maintaining our leading market positions, growing our businesses, and continuing to attract and retain the most talented people. In closing, I'm very confident about the state of our client franchise. We are delivering on our strategy by leaning into our core strengths effectively serving clients in what remains a complicated operating environment. Now let me turn it over to Dennis to cover our financial results in more detail. Dennis Coleman: Thank you, David, and good morning. Let's start with our results on page one of the presentation. In the second quarter, we generated net revenues of $12.7 billion and net earnings of $3 billion, resulting in earnings per share of $8.62, an ROE of 10.9%, and an ROTE of 11.6%. Now turning to performance by segment starting on page four. Global banking and markets produce revenues of $8.2 billion in the second quarter, up 14% versus last year. Advisory revenues of $688 million were up 7% versus the prior year period. Equity underwriting revenues rose 25% year-over-year to $423 million as equity capital markets have continued to reopen. No volumes remain well below longer term averages. Debt underwriting revenues rose 39% to $622 million amid strong leverage finance activity. We are seeing a material increase in client demand for committed acquisition financing, which we expect to continue on the back of increasing M&A activity. Our backlog rose significantly quarter-on-quarter, driven by both advisory and debt underwriting. FIC net revenues were $3.2 billion in the quarter, up 17% year-over-year. Intermediation results rose on better performance in rates and currencies. FIC financing revenues were $850 million, a near record, and up 37% year-over-year. Equity's net revenues were $3.2 billion in the quarter up 7% year-on-year as higher intermediation results were helped by better performance in derivatives. Equity's financing revenues were $1.4 billion, down modestly from a record performance last year, but up 5% sequentially. Taken together, financing revenues were a record $2.2 billion for the second quarter and a record $4.4 billion for the first-half of the year. Our strategic priority to grow financing across both FIC and equities continues to yield results as these activities increase the durability of our revenue base. I'm moving to asset wealth management on page five. Revenues of $3.9 billion were up 27% year-over-year. As David mentioned, our more durable management and other fees and private banking and lending revenues reached a new record this quarter of $3.2 billion. Management and other fees increased 3% sequentially to a record $2.5 billion, largely driven by higher average assets under supervision. Private banking and lending revenues rose 4% sequentially to $707million. Our premier ultra-high net worth wealth management franchise has roughly $1.5 trillion in client assets. This business has been a key contributor to our success in increasing more durable revenues and provides us with a strong source of demand for our suite of alternative products. A great example of the power of this unique platform. We expect continued momentum in this business as we also deepen our lending penetration with clients and grow our advisor footprint. Our pre-tax margin for the first-half was 23%, demonstrating substantial improvement versus last year and approaching our mid-20s medium term target. Now moving to page six. Total assets under supervision ended the quarter at a record of $2.9 trillion, supported by $31 billion of long-term net inflows, largely from our OCIO business, representing our 26th consecutive quarter of long-term fee-based inflows. Turning to page seven on alternatives. Alternative AUS totaled $314 billion at the end of the second quarter, driving $548 million in management and other fees. Rose third-party fundraising was $22 billion for the quarter and $36 billion for the first-half of the year. In the second quarter, we further reduced our historical principal investment portfolio by $2.2 billion to $12.6 billion. On page nine, firmwide net interest income was $2.2 billion in the quarter, up sequentially from an increase in higher yielding assets and a shift towards non-interest bearing liabilities. Our total loan portfolio at quarter end was $184 billion, flat versus the prior quarter. For the second quarter, our provision for credit losses was $282 million, primarily driven by net charge-offs in our credit card portfolio and partially offset by a release of roughly $115 million related to our wholesale portfolio. Turning to expenses on page 10. Total quarterly operating expenses were $8.5 billion. Our year-to-date compensation ratio net of provisions is 33.5%. Quarterly non-compensation expenses were $4.3 billion, and included approximately $100 million of CIE impairments. Our effective tax rate for the first-half of 2024 was 21.6%. For the full-year, we continue to expect the tax rate of approximately 22%. Next capital on slide 11. In the quarter we returned $4.4 billion to shareholders, including common stock dividends of $929 million and common stock repurchases of $3.5 billion. Given our higher than expected SCB requirement, we plan to moderate buybacks versus the levels of the second quarter. We will dynamically deploy capital to support our client franchise, while targeting a prudent buffer above our new requirement. Our board also approved a 9% increase in our quarterly dividend to $3 per share beginning in the third quarter, a reflection of our priority to pay our shareholders a sustainable growing dividend and our confidence in the increasing durability of our franchise. In conclusion, we generated solid returns for the first-half of 2024, which reflects the strength of our interconnected businesses and the ongoing execution of our strategy. We made strong progress in growing our more durable revenue streams, including record first-half revenues across FIC and equities financing, management and other fees, and private banking and lending. We remain confident in our ability to drive strong returns for shareholders, while continuing to support our clients. With that, we'll now open up the line for questions. Operator: Thank you. Please stand by as we assemble the Q&A roster. [Operator Instructions] We'll take our first question from Glenn Schorr with Evercore. Glenn Schorr: Hi there. Thanks very much. So I liked your forward leaning comments on the IBC pipeline and I think I heard you say the demand for committed acquisition financing is high. Does that infer anything about us being any closer to an inflection point in private equity related M&A, sponsor related M&A? And then how much of an [Technical Difficulty] think you have as being maybe the big -- the only big bank that has a full on private credit platform, obviously DCM platform and lending platform? Thank you. David Solomon: Sure, good morning Glenn, and thanks for the question. You know, we're forward leaning in our comments, because we definitely see momentum pick up. But I just, again, want to highlight something that was definitely my part of the script. And I think Dennis amplified, which were still despite the pickup, we're still operating at levels that are still significantly below 10-year averages. And so for example, I think we've got kind of another 20% to go to get to 10-year averages on M&A. One of the reasons that M&A activity, one of the reasons, not the only reason, but one of the reasons why M&A activity is running below those averages is because sponsor activity is just starting to accelerate. And so I think, especially given the environment that we're in, that you're going to see over the next few quarters into 2025 kind of a reacceleration of that sponsor activity. We're seeing it in our dialogue with sponsors. And obviously, it's been way, way below the overall M&A activity as kind of another 20% to get to 10-year averages, but sponsor has been running below that and we're starting to see that increase. Now, as that increases, I just think the firm's incredibly well positioned, given the breadth of both our leading position. We've been top kind of one, two, three in what I'll call leverage-financed activity from a league table perspective and with the sponsor community, but we combine it with a very, very powerful direct lending private credit platform. And so I just think we're in a very, very interesting position. The size and the scope of the companies that are out there that have to be refinanced, recapitalized, sold, changed hands, the sponsors continue to look, distribute proceeds, you know, to their limited partners, I think bodes well over the course of the next three to five years. Different environments, but the general trend will be more activity than we've seen in the last two, 2.5 years. Glenn Schorr: I appreciate that. Maybe one quickie follow-up on, you mentioned in the prepared remarks, in your printed prepared remarks, that real estate gains helped drive the equity investment gains in the quarter? Can you talk about how material it was and what drove real estate gains during the quarter? Thanks. Dennis Coleman: Sure, Glenn. It's Dennis. I think the important to take away from the year-over-year performance in the equity investment line is that in the prior year period, we actually had significant markdowns as we were sort of an early mover in addressing some of the commercial real estate risk across our balance sheet. And the results that reflect in this most recent quarter do not have the same degree of markdowns as in the prior period. So that is, I think, a large explain of the delta. Operator: Thank you. We'll take our next question from Ebrahim Poonawala with Bank of America (NYSE:BAC). Ebrahim Poonawala: Good morning. I just wanted to spend some time on capital, the post, the SCB increase. One, maybe just from a business standpoint, if you could update us whether the capital requirement changes anything in terms of how the firm has been leaning into the financing business. Do you need to moderate the appetite there or business as usual? So one, how does it impact the business? And second, Dennis, your comments on buybacks moderating, should we think more like 1Q levels of buybacks going forward? Thanks. Dennis Coleman: Sure, Ibrahim. So a couple of comments. I guess first important to observe that the level of capital that we're operating with at the moment is reasonably consistent where we've been over the last several years. So we feel that at that level of capital and with the cushion that we have heading into the third quarter, which at 90 basis points is at the wider end of our historical operating range, we have lots of capacity both to continue to deploy into the client franchise. And with what we're seeing across the client franchise with backlog up significantly, there could be attractive opportunities for us to deploy into the client franchise, whether that's new acquisition financing as David was referencing, or ongoing support of our clients across the financing businesses. We have the capacity to do that, as well as to continue to invest in return of capital to shareholders. Given the $3.5 billion number in the second quarter, we thought it was advisable to indicate we would be moderating our repurchases, but we still do have capital flexibility. And based on what we see developed from the client franchise, we will make that assessment, we'll manage our capital to an appropriate buffer, but we're still certainly in a position to continue to return capital to shareholders. Ebrahim Poonawala: Got it. So assume no change in terms of how we're thinking about the financing business. And just separately in terms of sponsor-led activity, we waited all year for things to pick up. Is it a troubling sign that the sponsors are not able to monetize assets? Does it speak to inflated valuations that they're carrying these assets on? Just would love any context there, David, if you could? Thank you. David Solomon: Sure. I mean, I appreciate that. I don't think it's troubling. I wouldn't use the word troubling. But I do think that there are places where sponsors hold assets and their ability to monetize them at the value that they currently hold them leads them to wait longer and keep the optionality to have that value compound. At the same point, there's pressure from LPs to continue to turn over funds, especially longer-dated funds. And as they take that optionality to wait, the pressure just builds. And so I think we're starting to see a bit of an unlock and more of a forward perspective to start to move forward, accept the evaluation parameters, and move forward. But I just think this is natural cycle and you're going to see a pickup in that activity for sure. I'm just not smart enough to tell you exactly which quarter and how quickly, but we are going to go back to more normalized levels. Betsy Graseck: Hi, can you hear me okay? Oh, okay. Sorry, [Multiple Speakers] All right. Well, thanks very much. I did just want to lean in on one question regarding how you're managing the expense line as we're going through this environment because, we've had this very nice pickup in revenues and comp ratio is going up a little bit, but I'm just wondering is this a signaling to hold for the rest of this year? Or is this just a one-off given that some of the puts and takes you mentioned on deal activity earlier on the call? David Solomon: Sure, Betsy. So if you look at year-to-date change in our reviews net of provision, that is tracking ahead of the year-to-date change in our compensation and benefit expense. We are sort of following the same protocol that we always do which is making our best estimate for what you know we expect to pay for on a full-year basis and doing that in a manner that reflects the performance of the firm, as well as the overall competitive market for talent. So based on what we see we think this is the appropriate place to accrue compensation, but we'll obviously monitor that closely as the balance of the year evolves. Betsy Graseck: Okay and as we anticipate a continued pick up here in M&A, given everything you mentioned earlier, I would think that, that's positive operating leverage that should be coming your way. Would you agree with that or do I have something wrong there? Thanks. Dennis Coleman: No, so we are certainly hopeful that the business will continue to perform and that we will grow our revenues in line with what the current expectation is based on backlog. And we would love to generate incremental operating leverage if we perform in line with our expectations. Brennan Hawken: Good morning. Thanks for taking my questions. You flagged, Dennis, the record financing revenue, which clearly shows momentum behind the business. And it would be my assumption that given rates have been more stable for quite some time now, it seems to reflect balance growth. So one, I want to confirm that that's fair? And could you help us understand how we should be thinking about rate sensitivity as it seems as though maybe a few rate cuts might be on the horizon? Dennis Coleman: Sure. Thank you, Brendan. So we have been on a journey for several quarters and years in terms of committing ourselves to the growth of the more durable revenue streams within global banking and markets. We have our human capital and underwriting infrastructure set up in place. We have relationships with a large suite of clients that are frequent users of these products. The business is very diversified by sub-asset class, and it's a business that we are looking to grow on a disciplined basis. We've had an opportunity to deploy capital in a manner that is generating attractive, risk-adjusted returns. That's something that we're going to remain mindful of. But we believe, given the breadth of that franchise, that we should be able to continue to support the secular growth that our clients are witnessing, even as various rate environments should moderate. Brennan Hawken: Okay. And then next question is really sort of a follow on from Betsy's line of questioning. So year-to-date you've got a 64% efficiency ratio. You know, when we take a step back and think about your targets and aspirations for that metric and an environment, consider an environment that seems to be improving steadily, you know, how should we be thinking about margins on incremental revenue? You know, could you help us understand how revenue growth will continue to drive improvement in that efficiency ratio? Dennis Coleman: Sure. So, thank you for that question and thank you for observing the improvement that we're seeing. Obviously, our year-to-date efficiency ratio at 63.8% is nearly 10 points better on a year-over-year basis. Still not at our target of 60%, but we are making progress. As we continue to grow our revenues, we should be able to deliver better and better efficiency. But ultimately, the type of revenues that we grow and the extent to which they attract variable or volume-based expenses is a contributing factor. But we do have visibility, for example, as we continue to move out of some of our CIE exposures that we should be able to reduce some of the operating expenses associated with that. And we do have a very granular process internally, looking at each of our expense categories on a granular basis and trying to make structural improvements to drive efficiencies over time, while we at the same time look to drive top line revenues. Operator: Thank you. We'll go next to Mike Mayo with Wells Fargo (NYSE:WFC) Securities. Mike Mayo: Hi. I'm just trying to reconcile all the positive comments with returns that are still quite below your target. I mean, you highlight revenue growth in global banking markets and wealth and asset management. You have record financing for equities and FIC combined. You're number one in M&A. You have record management fees and record assets under supervision. Your efficiency has gone from 74% to 64%. Increase your dividend by 9% to signal your confidence, your CET1 ratios, 90 basis points above even the higher Fed requirements. David, you start off the call saying the results are solid, but then you look at the returns and you say 11% ROE in the second quarter, that's not quite the 15% where you want it to be. So where's the disconnect from what you're generating in terms of returns and where you'd like to be? Thanks. David Solomon: Yes, thanks Mike. Appreciate the question. Look, we're on a journey. And, you know, the way I look at it, our returns for the first-half of the year at 12.8%. There are, you know, I think there are a couple of things, give gets in that. One, for sure, we still have a little bit of drag from the enterprise platforms which we're working through. And so that will come out. And at some point as we work through that, over the next 12 to 24 months, we'll continue to make progress on that for the returns in the first-half of the year would be a little higher exit. And then on top of that, as we've said repeatedly on the call and have given a bunch of information, we're still operating meaningfully below 10-year averages in terms of investment banking activity. And I think that'll come back. I obviously can't predict. But if you look at the returns of the firm, we have materially uplifted the returns of the firm. And we're going to continue to focus on that. Now the next step to the puzzle is our continued progress in AWM. So you know and you can see the performance over the course of the last few years of global banking and markets, but we've said the AWM, ROE is not where it needs to be. You heard our comments about the fact that we've gotten the margin up to 23%, but the ROE is still around 10%. We think we can continue to grow the business. As we've said, high-single-digits, we can continue to improve the margin and ultimately bring up that AWM, ROE. And then you look across the firm and you have a stronger return profile. So I think we're making good progress. We didn't say and have not worked to do for sure. But we feel good about the progress. Mike Mayo: And I assume part of your expectation is a sort of multiplier effect when mergers really kick in. Can you just describe what that multiplier effect could potentially look like based on pass cycles? David Solomon: What I would say is one of the things that should be a tailwind for further momentum in our business is a return to average levels. I'm not sitting here saying we're going to go back to periods of time where we went well above 10-year averages, but there's obviously, if we did get back to that period, and there will be some point in the future where we run above average too, and not just below average, we have a tailwind for that. But as a general matter, when there are more M&A transactions, whether with financial sponsors or big corporates, there is more financing attached to that. People need to raise capital to finance those transactions. They need to reposition balance sheets. They need to manage risks through structured transactions. And so there's a multiplier effect as those activities increase. We don't put a multiplier on it, but our whole ecosystem gets more active as transaction volumes increase on the M&A side. Mike Mayo: And then lastly, for your returns, the denominator is a big factor. How does that work with the Fed? I know you can't say too much and regional people can disagree, but your whole point is that you've de-risked the balance sheet and the company and then here we have the Fed saying that maybe you haven't done so. So how does this process work from here? Will we hear results about the SEB ahead, or is this something that's just behind closed doors? David Solomon: Look, as a general matter, what I'd say, Mike, as a general matter, we're supporters of stress testing. We believe it's an important component of the Fed's mandate to really ensure the safety and soundness of the banking system. However, we've maintained for some time that there are elements of this process that may be distracting from these goals of safety and soundness. The stress test process, as you just highlighted, is opaque. It lacks transparency. It contributes to excess volatility and the stress capital buffer requirements, which obviously makes prudent capital management difficult for us and all of our peers. We don't believe that the results reflect the significant changes we've made in our business. They're not in line with our own calculations, despite the fact that the scenarios are consistent year-over-year. Now, despite all that, you know, we've got the capital flexibility to serve our clients. We'll continue to work with that capital flexibility and we'll also continue to engage around this process to ensure that over time we can drive the level of capital that we have to hold in our business mix down. But obviously we have more work to do given this result. Mike Mayo: All right, thank you. Operator: We'll take our next question from Steven Chubak with Wolfe Research. Steven Chubak: Hi, Good morning. So I wanted to start off with a question. Just want to start with a question on the consumer platform fees. They were down only modestly despite the absence of the Green Sky contribution. Just wanted to better understand what drove the resiliency in consumer revenues, whether the quarterly run rate of $600 million is a reasonable jumping off point as we look at the next quarter? Dennis Coleman: So, Steve, thank you for the question. I mean on a sequential basis, they're down, but that's because we have the absence of the Green Sky contribution. There actually is growth across the card portfolio. I think you've seen that the level of growth has slowed as we have sort of implemented several rounds of underwriting adjustments to the card originations and so our expectation is that on the forward you know the period-over-period growth should be more muted. Steven Chubak: Understood and maybe just one more clarifying question. I know there's been a lot asked about the SEB. Really just wanted to better understand, Dennis, since you noted that you're running with 90 bps of cushion, which is actually above normal. Just how you're handicapping the additional uncertainty related to Basel III endgame. There's certainly been some favorable momentum per the press reports and even some public comments from regulators? But just want to better understand, given the uncertainty around both the SEB and Basel III endgame, where you're comfortable running on a CET1 basis over the near to medium term? Dennis Coleman: Sure, thanks and I appreciate that question. I think obviously there's been a lot of changes, there's been some changes and expectations. And I think in highlighting that we are operating at the wider end of our range, it is to signal flexibility. And certainly embedded in that is to address some of the uncertainty which does remain with respect to Basel III endgame, both the quantum and timing of its resolution. It sounds from some of Powell's latest comments that, that may not be something that comes into effect until perhaps into 2025, but we are sort of maintaining a level of cushion that think is appropriate in light of what we know and we don't know about the future opportunity set for Goldman Sachs, but that buffer is designed to support clients return capital shareholders, while maintaining a prudent buffer with some of the lingering uncertainty with respect to future regulatory input. Devin Ryan: All right, great. Good morning, David and Dennis. A couple questions on AWM progress. So the first one is on the alts business specifically, and you're tracking obviously well ahead of the fundraising targets relative to when you set the $1 billion medium term target for annual incentive fees? And now with over $500 billion in alts AUM and obviously growing, that would seem pretty conservative. So I appreciate there's a lot of work to do to generate the returns ahead here, but how should we think about the underlying assumptions for incentive fees in a more normal harvesting environment, just given the mixed shift and the growth that you're seeing in AUM there? Dennis Coleman: So Devin, I think it's a good question, and I think we share your expectation that, that's going to be a more meaningful contributor on the forward. We laid it out as one of the building blocks at our Investor Day. The contribution coming through that line since then has been not as high as we have modeled from an internal medium to longer term perspective. We do give good disclosure that the balance of unrealized incentive fees at the end of the last quarter were $3.8 billion, so you can make you know various assumptions as to what the timing of the recognition of those fees are they can obviously you know bounce around from time-to-time it is a granular you know vehicle-by-vehicle build-up, but you know given the current outlook and status of those funds that our best expectation of what level of fees could be coming through that line over the next several years. So I think it is an important incremental contributor and should be, you know, should help the return profile of asset wealth management on the forward, couple that with the success that we're having with ongoing alts fundraising and that will help to feed future investments and funds, which in turn will generate some backlog of potential incentive fees above and beyond what's already in the unrealized disclosures. Devin Ryan: Yes, okay, thanks, Dennis. And then follow-up, this is also kind of connected, but at a recent conference, you highlighted the margin profile of all the standalone businesses and asset and wealth management of public peers so kind of as a comparison and highlighted 35% plus for alts and some of the public firms we know are obviously well above that. So I appreciate you're running the AWM segment is kind of one segment, but if alts does accelerate and we're looking at 60% of alts AUM isn't even the fee earning yet, what does that mean for segment margins relative to kind of that mid-20% target, because you're already at 23% thus far in '24. So just trying to think about the incremental margins coming from the acceleration in growth, particularly from the alts segment as well? Dennis Coleman: So that's a good question, Devin. I mean, it should be a significant unlock for us, because despite the breadth and the longevity with which we've been running our alts businesses, there is significant opportunity for us to actually improve the margin profile of the alts activities in particular relative to the overall AWM margin, particularly as we develop incremental scale by strategy. And so in addition to just overall growth in the segment, which should unlock margin improvements, actually within our portfolio of activities, the alts business, again, despite its current scale, presents a big opportunity for incremental margin contribution. Dan Fannon: Thanks, good morning. In terms of your on-balance sheet investments, you continue to make progress in reducing that this quarter. Can you talk about the outlook for this year or any line of sight in terms of exits that we can think about? Dennis Coleman: Sure. Thank you. Obviously, an ongoing commitment of ours to move down those on balance sheet exposures, also part of the equity and capital story and returns in the segment at $2.2 billion for the quarter, that was a decent reduction. We obviously have a target out there to sell down the vast majority of that balance, which is now at $12.6 billion by the end of next year. But our expectation is that we will continue to chip away at it across both the third and the fourth quarter of this year and then on into 2025. There's really no change on our commitment to sell down the vast majority of that by the end of next year. Dan Fannon: Understood. And as a follow-up, just within asset and wealth, particularly on the alts side, the fundraising target raised for the full-year given the success you've had. The private credit fund closing here in the first-half was big. Can you talk to some of the other strategies that have the potential to scale as you mentioned earlier and/or maybe are a little bit smaller that have really large or increasing momentum as you think about second-half, but also as we even into next year? Dennis Coleman: Sure. So, you know, obviously taking a step back, you're talking about the targets that we set, you know, once upon a time it was $150 billion, we moved it to $225 billion. It's now at $287 billion and with $36 billion raised through the first-half and us expecting to surpass $50 billion, that means we should be north of $300 billion by the end of this year. And I think one of the things that we find attractive about our platform is that we have opportunities to scale across multiple asset classes within alternatives, equity, credit, real estate, infrastructure. We had notable fundraisings in private credit and real estate this quarter, but you can see contribution from other strategies like equity on the forward and a number of different strategies, both by asset class and by region. So we think we have a diversified opportunity set to continue to scale the alts platform. Operator: Thank you. We'll go next to Matt O'Connor with Deutsche Bank (ETR:DBKGn). Matt O'Connor: Good morning. I was wondering if you could just elaborate a bit on the competitive landscape specifically in banking and markets. I know it's always competitive, but some of the really big bank peers, you know, are leaning in who haven't been a few years ago. And all these regional banks that I cover are also realizing that they need broader cap and market capabilities. So you're obviously an industry leader in a lot of the areas across banking and markets. And I'm just wondering how you're seeing the competition impact you at this point? David Solomon: Sure, Matt, and I appreciate the question. I just say, you know, investment banking and the markets business, the trading business, they've always been competitive businesses. I think our integrated One GS approach is a very, very competitive offering. I mean, we can have debates, but it's, I think, one of the top two offerings out there, depending on how you look at it what you look at. There's always going to be competition there are always going to be people that come in and make investments in niche areas, but broadly speaking you know we've had leading M&A share for 25-years. We have leading share in capital raising for an equivalent period of time. We've continued to invest in our debt franchises over the last more than decade. An then our trading businesses and our ability to intermediate risk I think have been second to none or viewed as second to none for a long, long time. And so the combination of our focus on serving our clients, making sure we're giving them the right resources, both human capital and financial capital, to accomplish what they need to accomplish, the fact that we have global scale positions is very well. They'll always be competitors, but I like where our franchise sits. And I don't see any reason why we shouldn't be able to continue to invest in it, strengthen it, and continue to have it operating as a leader in what's always been and will continue to be a very competitive business. Matt O'Connor: Okay helpful, it's unagreed. And then just separately, I hate to ask you about activity levels and stuff like that since the debate three, four weeks ago, but maybe I'll frame it. From your experience in presidential election periods like this, where there's maybe just more uncertainty than normal, like how do both institutional and corporate clients react? Do they kind of say, well, let's wait and see the other side? Is it just noise, because we've been going through it for some time here, but what are your thoughts on that? Thank you. David Solomon: There are always exogenous factors that affect corporate activity and institutional client activity. I don't have a crystal ball, so I can't see what the next 100 days leading up to our election will bring, but I think we're well positioned to serve our clients, regardless of the environment. And clients are very active at the moment, and I think they're probably going to continue to be active. Gerard Cassidy: Thank you. Good morning, David. Good morning, Dennis. David, you said in your opening comments that you took the board out to Silicon Valley and you were impressed with the artificial intelligence and what we could expect in the future and the opportunities for Goldman to be able to finance some of the infrastructure needs that may come of that? Can you share with us the artificial intelligence that you guys are implementing within Goldman and how it's making you more productive, generating maybe greater revenues or even making it more efficient? David Solomon: Sure, I mean, at a high level, Gerard, we as most companies around the world are focused on how you can create use cases that increase your productivity. And if you think about our business as a professional service firm, a people business, where we have lots of very, very highly productive people creating tools that allow them to focus their productivity on things that advance their ability to serve clients or interact in markets is a very, very powerful tool. So, you know we you know if you look and you think across the scale of our business I think you can think of lots of places where the capacity to use these tools to take work that's always been done on a more manual basis and allow the very smart people to do that work to focus their attention on clients are quite obvious. You can look at it in an area like the equity research area as every quarter. You're all analysts on the phone. There's lots of ways that these tools can leverage your capacity to spend more time with clients. You think about our investment banking business and the ability in our investment banking business to have what I'll call the factory of the business prepare information, thoughtful information for clients, the revolution's there. When you look at the data sets we have across the firm and our ability to get data and information to clients, so that they can make better decisions around the way they position in markets, that's another obvious use case. For our engineering stack and we have close to 11,000 engineers inside the firm, the ability to increase their coding productivity is meaningful. So those are a handful. There are others. We have a broad group of people that are very focused on this. But again, I'd step back. Well, this will increase our productivity. The thing that we're most excited about is all businesses are looking at these things and are looking at ways that it adapts and changes their business. And that will create more activity in a tailwind broadly for our businesses. People will need to make investment, they'll need financing, they'll need to scale. And so we're excited about that broad opportunity. Gerard Cassidy: Very good. And then as a follow-up, Dennis, you talked about credit, and it was impressive that you didn't have any charge-offs in the wholesale book. Can you give us some color on what you're seeing there? It seems like there must be some improvement since obviously you didn't have any charge-offs in the wholesale book? Dennis Coleman: Sure. Thanks, Gerard. As you observe, the charge-off rate for us in the wholesale is approximately 0%. What we did see in this quarter was release, and we've been able to improve some of our models and be able as a consequence to release some of the provisions in the wholesale segment. So while that was a contributing benefit to sort of call it the net PCL of the quarter with consumer charge-offs offset by that wholesale release, that's not necessarily something that we would expect to repeat each quarter in the future. And although we manage our credit and our wholesale risk very, very diligently and consistently, it is more likely the case that we will have some degree of impairments given our size and scale and representation in the business. But we're pleased that the overall credit performance in terms of charge-offs is about 0%. Saul Martinez: Hi, good morning. Thanks for taking my question. Just a follow-up on capital, I mean, it certainly is encouraging that your CET1 ratio rose 20 bps in a quarter where you bought back $3.5 billion of stock and you did have a -- I think, a $16 billion reduction in RWA as your presentation talks about credit RWA is falling this quarter? I guess, can you just give a little bit more color on what drove that reduction? And I guess more importantly, is there continued room for RWA optimization from here to help manage your capital levels? Dennis Coleman: Sure, thanks, Saul. I appreciate that question. Capital optimization, RWA optimization, is something that we've been committed to for a very long period of time. On the quarter, there were reductions both in credit and market risk RWAs. Drivers included less derivative exposure, reduced equity investment exposure and in some places lower levels of volatility. We try to get the right balance between deploying on behalf of client activity, as well as being efficient and rotating out of less productive activities or following through on our strategic plan to narrow focus and reduce balance sheet exposure. So that is something that was contributed to quarter-over-quarter benefit despite the buyback activity we executed. And it's something we'll remain very focused on just given the multiplicity of binding constraints that we operate under. Saul Martinez: Thank you, that's helpful. And maybe a follow-up on financing, FIC financing up 37% equities, the equity financing, now something close to 45% of all of your equity sales and trading revenues. I guess how much more room is there, or how should we think about sort of the size of the opportunity set, you know, to continue to grow from here? How much more space is there, you know, to use finding a thing as a mechanism to help deepen penetration with your top institutional clients? Dennis Coleman: That's a good question, Saul. I think on the FIC financing side, as I indicated, we do think that we are helping clients participate in the overall level of growth that they're seeing in their businesses. And you know, we think based on what we see currently, that we can calibrate the extent of our growth based largely on how we assess the risk return opportunities that across the client portfolio. So we're being disciplined with respect to our growth, but trying also to support clients in their growth and drive a more durable characteristic across the GBM business. In equities, the activity and the balances, et cetera, obviously have benefited from equity market inflation over the course of the year, but it's also an activity that we remain committed to in terms of supporting clients. And clients look to us on a holistic basis really across both FIC and equities to ensure that across all of the activities they're doing with us that we're finding some balance between helping them through financing activities, helping them with intermediation, helping them with human capital. So both of those activities are part of more interconnected activities with clients and something that we remain very focused on and think we can continue to grow. Saul Martinez: Okay, great, thank you. Operator: Thank you. At this time there are no additional questions in queue. Ladies and gentlemen, this concludes the Goldman Sachs second quarter 2024 earnings conference call. Thank you for your participation. You may now disconnect.

The Goldman Sachs Group, Inc. (GS) Q2 2024 Earnings Call Transcript

David Solomon - Chairman and Chief Executive Officer Dennis Coleman - Chief Financial Officer Good morning. My name is Katie and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs' Second Quarter 2024 Earnings Conference Call. On behalf of Goldman Sachs, I will begin the call with the following disclaimer. The earnings presentation can be found on the Investor Relations page of the Goldman Sachs website and contains information on forward-looking statements and non-GAAP measures. This audiocast is copyrighted material of The Goldman Sachs Group, Inc., and may not be duplicated, reproduced, or rebroadcast without consent. This call is being recorded today, July 15th, 2024. I will now turn the call over to Chairman and Chief Executive Officer, David Solomon; and Chief Financial Officer, Dennis Coleman. Thank you. Mr. Solomon, you may begin your conference. David Solomon Thank you, operator, and good morning, everyone. Thank you all for joining us. I want to begin by addressing the horrible act of violence that occurred over the weekend, the attempted assassination of former President Trump. We are grateful that he is safe. I also want to extend my sincere condolences to the families of those who were tragically killed and severely injured. It is a sad moment for our country. There is no place in our politics for violence. I urge people to come together and to treat one another with respect, civility, dignity, especially when we disagree. We cannot afford division and distrust to get the better of us. I truly hope this is a moment that will spur reflection and action that celebrate, that celebrate what unites us as citizens and as a society. Turning to our performance. Our second quarter results were solid. We delivered strong year-on-year growth in both global banking and markets and asset wealth management. I am pleased with our performance where we produced a 10.9% ROE for the second quarter and a 12.8% ROE for the first-half of the year. We continue to harness our One Goldman Sachs operating approach to execute on our strategy and serve our clients in dynamic environments. Global banking and markets, we maintained our long-standing number one rank in announcement completed M&A and ranked number two in equity underwriting. Our investment banking backlog is up significantly this quarter. From what we're seeing, we are in the early innings of the capital markets and M&A recovery. And while certain transaction volumes are still well below their 10-year averages, we remain very well positioned to benefit from a continued resurgence in activity. We saw a solid year-over-year revenue growth across both FIC and equities as our global broad and deep franchise remained active in supporting clients' risk intermediation and financing needs. We continue to be focused on maximizing our wallet share and we have improved our standing to be in the top three with 118 of our top 150 clients. In asset wealth management, we are growing more durable management and other fees in private, banking, and lending revenues, which together were a record $3.2 billion for this quarter. Our Assets Under Supervision had a record of $2.9 trillion and total wealth management client assets rose to roughly $1.5 trillion. We delivered a 23% margin for the first-half of the year and are making progress on improving the return profile of AWM. In alternatives, we raised $36 billion a year-to-date. We completed a number of notable fund closings during the quarter, including $20 billion of total capital for private credit strategies, and approximately $10 billion across real estate investing strategies. Given the stronger-than-anticipated fundraising in the first-half of the year, as well as our current pipeline, we expect to exceed $50 billion in alternatives fundraising this year. This is a testament to our investment performance, track record, and intense focus on client experience. We are excited about the additional growth opportunities for our asset growth management platform. Let me turn to the operating environment, which remains top of mind for clients. On the one hand, there is a high level of geopolitical instability. Elections across the globe could have significant implications for forward policy. And inflation is proven to be stickier than many had anticipated. On the other hand the environment in the U.S. remains relatively constructive. Markets continue to forecast a soft landing as the expected economic growth trajectory improves and equity markets remain near all-time highs. I am particularly encouraged by the ongoing advancements in artificial intelligence. Recently, our Board of Directors spent a week in Silicon Valley where we spoke with the CEOs of many of the leading institutions at the cutting edge of technology and AI. We all left with a sense of optimism about the application of AI tools and the accelerating innovation in technology more broadly. The proliferation of AI in the corporate world will bring with it significant demand-related infrastructure and financing needs, which should fuel activity across our broad franchise. Before I turn it over to Dennis, I want to cover a couple of additional topics that are top of mind for me. First, our recent stress test results. The year-over-year increase in our stress capital buffer does not seem to reflect the strategic evolution of our business and the continuous progress we've made to reduce our stress loss intensity, which the Federal Reserve had recognized in our last three tests. Given this discrepancy, we are engaging with our regulators to better understand its determinations. Despite the increase in requirements, we remain very well positioned to serve our clients and will continue to be nimble with our capital. In the second quarter, we repurchased $3.5 billion of shares, which illustrates our ability to dynamically manage our resources and opportunistically return capital to the shareholders. Despite the increase in our repurchase activity, our common equity Tier 1 ratio ended the quarter at 14.8% under the standardized approach, 90 basis points above our new regulatory minimum and above our ratio in the first quarter. We also announced a 9% increase in our quarterly dividend which underscores our confidence in the durability of our franchise. Since the beginning of 2019, we have more than tripled our quarterly dividend to its current level of $3 a share. I'd also like to reflect on the significant milestone we hit in the second quarter, our 25th anniversary as a public company. We went public in 1999, which is also the year I joined the firm, and it's been an eventful 25-years since then. We have persevered through a number of significant global events, including through the dotcom bubble, NASDAQ crash, September 11th, the financial crisis, and the pandemic. When I look back at how we overcame these challenges, immediately think of our culture, one that has evolved, no doubt, but always stayed true to our core values. I know that the preservation of our culture is paramount to serving our clients with excellence, maintaining our leading market positions, growing our businesses, and continuing to attract and retain the most talented people. In closing, I'm very confident about the state of our client franchise. We are delivering on our strategy by leaning into our core strengths effectively serving clients in what remains a complicated operating environment. Now let me turn it over to Dennis to cover our financial results in more detail. Dennis Coleman Thank you, David, and good morning. Let's start with our results on page one of the presentation. In the second quarter, we generated net revenues of $12.7 billion and net earnings of $3 billion, resulting in earnings per share of $8.62, an ROE of 10.9%, and an ROTE of 11.6%. Now turning to performance by segment starting on page four. Global banking and markets produce revenues of $8.2 billion in the second quarter, up 14% versus last year. Advisory revenues of $688 million were up 7% versus the prior year period. Equity underwriting revenues rose 25% year-over-year to $423 million as equity capital markets have continued to reopen. No volumes remain well below longer term averages. Debt underwriting revenues rose 39% to $622 million amid strong leverage finance activity. We are seeing a material increase in client demand for committed acquisition financing, which we expect to continue on the back of increasing M&A activity. Our backlog rose significantly quarter-on-quarter, driven by both advisory and debt underwriting. FIC net revenues were $3.2 billion in the quarter, up 17% year-over-year. Intermediation results rose on better performance in rates and currencies. FIC financing revenues were $850 million, a near record, and up 37% year-over-year. Equity's net revenues were $3.2 billion in the quarter up 7% year-on-year as higher intermediation results were helped by better performance in derivatives. Equity's financing revenues were $1.4 billion, down modestly from a record performance last year, but up 5% sequentially. Taken together, financing revenues were a record $2.2 billion for the second quarter and a record $4.4 billion for the first-half of the year. Our strategic priority to grow financing across both FIC and equities continues to yield results as these activities increase the durability of our revenue base. I'm moving to asset wealth management on page five. Revenues of $3.9 billion were up 27% year-over-year. As David mentioned, our more durable management and other fees and private banking and lending revenues reached a new record this quarter of $3.2 billion. Management and other fees increased 3% sequentially to a record $2.5 billion, largely driven by higher average assets under supervision. Private banking and lending revenues rose 4% sequentially to $707million. Our premier ultra-high net worth wealth management franchise has roughly $1.5 trillion in client assets. This business has been a key contributor to our success in increasing more durable revenues and provides us with a strong source of demand for our suite of alternative products. A great example of the power of this unique platform. We expect continued momentum in this business as we also deepen our lending penetration with clients and grow our advisor footprint. Our pre-tax margin for the first-half was 23%, demonstrating substantial improvement versus last year and approaching our mid-20s medium term target. Now moving to page six. Total assets under supervision ended the quarter at a record of $2.9 trillion, supported by $31 billion of long-term net inflows, largely from our OCIO business, representing our 26th consecutive quarter of long-term fee-based inflows. Turning to page seven on alternatives. Alternative AUS totaled $314 billion at the end of the second quarter, driving $548 million in management and other fees. Rose third-party fundraising was $22 billion for the quarter and $36 billion for the first-half of the year. In the second quarter, we further reduced our historical principal investment portfolio by $2.2 billion to $12.6 billion. On page nine, firmwide net interest income was $2.2 billion in the quarter, up sequentially from an increase in higher yielding assets and a shift towards non-interest bearing liabilities. Our total loan portfolio at quarter end was $184 billion, flat versus the prior quarter. For the second quarter, our provision for credit losses was $282 million, primarily driven by net charge-offs in our credit card portfolio and partially offset by a release of roughly $115 million related to our wholesale portfolio. Turning to expenses on page 10. Total quarterly operating expenses were $8.5 billion. Our year-to-date compensation ratio net of provisions is 33.5%. Quarterly non-compensation expenses were $4.3 billion, and included approximately $100 million of CIE impairments. Our effective tax rate for the first-half of 2024 was 21.6%. For the full-year, we continue to expect the tax rate of approximately 22%. Next capital on slide 11. In the quarter we returned $4.4 billion to shareholders, including common stock dividends of $929 million and common stock repurchases of $3.5 billion. Given our higher than expected SCB requirement, we plan to moderate buybacks versus the levels of the second quarter. We will dynamically deploy capital to support our client franchise, while targeting a prudent buffer above our new requirement. Our board also approved a 9% increase in our quarterly dividend to $3 per share beginning in the third quarter, a reflection of our priority to pay our shareholders a sustainable growing dividend and our confidence in the increasing durability of our franchise. In conclusion, we generated solid returns for the first-half of 2024, which reflects the strength of our interconnected businesses and the ongoing execution of our strategy. We made strong progress in growing our more durable revenue streams, including record first-half revenues across FIC and equities financing, management and other fees, and private banking and lending. We remain confident in our ability to drive strong returns for shareholders, while continuing to support our clients. Thank you. Please stand by as we assemble the Q&A roster. [Operator Instructions] We'll take our first question from Glenn Schorr with Evercore. Glenn Schorr Hi there. Thanks very much. So I liked your forward leaning comments on the IBC pipeline and I think I heard you say the demand for committed acquisition financing is high. Does that infer anything about us being any closer to an inflection point in private equity related M&A, sponsor related M&A? And then how much of an [Technical Difficulty] think you have as being maybe the big -- the only big bank that has a full on private credit platform, obviously DCM platform and lending platform? Thank you. David Solomon Sure, good morning Glenn, and thanks for the question. You know, we're forward leaning in our comments, because we definitely see momentum pick up. But I just, again, want to highlight something that was definitely my part of the script. And I think Dennis amplified, which were still despite the pickup, we're still operating at levels that are still significantly below 10-year averages. And so for example, I think we've got kind of another 20% to go to get to 10-year averages on M&A. One of the reasons that M&A activity, one of the reasons, not the only reason, but one of the reasons why M&A activity is running below those averages is because sponsor activity is just starting to accelerate. And so I think, especially given the environment that we're in, that you're going to see over the next few quarters into 2025 kind of a reacceleration of that sponsor activity. We're seeing it in our dialogue with sponsors. And obviously, it's been way, way below the overall M&A activity as kind of another 20% to get to 10-year averages, but sponsor has been running below that and we're starting to see that increase. Now, as that increases, I just think the firm's incredibly well positioned, given the breadth of both our leading position. We've been top kind of one, two, three in what I'll call leverage-financed activity from a league table perspective and with the sponsor community, but we combine it with a very, very powerful direct lending private credit platform. And so I just think we're in a very, very interesting position. The size and the scope of the companies that are out there that have to be refinanced, recapitalized, sold, changed hands, the sponsors continue to look, distribute proceeds, you know, to their limited partners, I think bodes well over the course of the next three to five years. Different environments, but the general trend will be more activity than we've seen in the last two, 2.5 years. Glenn Schorr I appreciate that. Maybe one quickie follow-up on, you mentioned in the prepared remarks, in your printed prepared remarks, that real estate gains helped drive the equity investment gains in the quarter? Can you talk about how material it was and what drove real estate gains during the quarter? Thanks. Dennis Coleman Sure, Glenn. It's Dennis. I think the important to take away from the year-over-year performance in the equity investment line is that in the prior year period, we actually had significant markdowns as we were sort of an early mover in addressing some of the commercial real estate risk across our balance sheet. And the results that reflect in this most recent quarter do not have the same degree of markdowns as in the prior period. So that is, I think, a large explain of the delta. Thank you. We'll take our next question from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala Good morning. I just wanted to spend some time on capital, the post, the SCB increase. One, maybe just from a business standpoint, if you could update us whether the capital requirement changes anything in terms of how the firm has been leaning into the financing business. Do you need to moderate the appetite there or business as usual? So one, how does it impact the business? And second, Dennis, your comments on buybacks moderating, should we think more like 1Q levels of buybacks going forward? Thanks. Dennis Coleman Sure, Ibrahim. So a couple of comments. I guess first important to observe that the level of capital that we're operating with at the moment is reasonably consistent where we've been over the last several years. So we feel that at that level of capital and with the cushion that we have heading into the third quarter, which at 90 basis points is at the wider end of our historical operating range, we have lots of capacity both to continue to deploy into the client franchise. And with what we're seeing across the client franchise with backlog up significantly, there could be attractive opportunities for us to deploy into the client franchise, whether that's new acquisition financing as David was referencing, or ongoing support of our clients across the financing businesses. We have the capacity to do that, as well as to continue to invest in return of capital to shareholders. Given the $3.5 billion number in the second quarter, we thought it was advisable to indicate we would be moderating our repurchases, but we still do have capital flexibility. And based on what we see developed from the client franchise, we will make that assessment, we'll manage our capital to an appropriate buffer, but we're still certainly in a position to continue to return capital to shareholders. Ebrahim Poonawala Got it. So assume no change in terms of how we're thinking about the financing business. And just separately in terms of sponsor-led activity, we waited all year for things to pick up. Is it a troubling sign that the sponsors are not able to monetize assets? Does it speak to inflated valuations that they're carrying these assets on? Just would love any context there, David, if you could? Thank you. David Solomon Sure. I mean, I appreciate that. I don't think it's troubling. I wouldn't use the word troubling. But I do think that there are places where sponsors hold assets and their ability to monetize them at the value that they currently hold them leads them to wait longer and keep the optionality to have that value compound. At the same point, there's pressure from LPs to continue to turn over funds, especially longer-dated funds. And as they take that optionality to wait, the pressure just builds. And so I think we're starting to see a bit of an unlock and more of a forward perspective to start to move forward, accept the evaluation parameters, and move forward. But I just think this is natural cycle and you're going to see a pickup in that activity for sure. I'm just not smart enough to tell you exactly which quarter and how quickly, but we are going to go back to more normalized levels. Thank you. We'll go next to Betsy Graseck with Morgan Stanley. Hi, can you hear me okay? Oh, okay. Sorry, [Multiple Speakers] All right. Well, thanks very much. I did just want to lean in on one question regarding how you're managing the expense line as we're going through this environment because, we've had this very nice pickup in revenues and comp ratio is going up a little bit, but I'm just wondering is this a signaling to hold for the rest of this year? Or is this just a one-off given that some of the puts and takes you mentioned on deal activity earlier on the call? David Solomon Sure, Betsy. So if you look at year-to-date change in our reviews net of provision, that is tracking ahead of the year-to-date change in our compensation and benefit expense. We are sort of following the same protocol that we always do which is making our best estimate for what you know we expect to pay for on a full-year basis and doing that in a manner that reflects the performance of the firm, as well as the overall competitive market for talent. So based on what we see we think this is the appropriate place to accrue compensation, but we'll obviously monitor that closely as the balance of the year evolves. Betsy Graseck Okay and as we anticipate a continued pick up here in M&A, given everything you mentioned earlier, I would think that, that's positive operating leverage that should be coming your way. Would you agree with that or do I have something wrong there? Thanks. Dennis Coleman No, so we are certainly hopeful that the business will continue to perform and that we will grow our revenues in line with what the current expectation is based on backlog. And we would love to generate incremental operating leverage if we perform in line with our expectations. We'll take our next question from Brennan Hawken with UBS. Brennan Hawken Good morning. Thanks for taking my questions. You flagged, Dennis, the record financing revenue, which clearly shows momentum behind the business. And it would be my assumption that given rates have been more stable for quite some time now, it seems to reflect balance growth. So one, I want to confirm that that's fair? And could you help us understand how we should be thinking about rate sensitivity as it seems as though maybe a few rate cuts might be on the horizon? Dennis Coleman Sure. Thank you, Brendan. So we have been on a journey for several quarters and years in terms of committing ourselves to the growth of the more durable revenue streams within global banking and markets. We have our human capital and underwriting infrastructure set up in place. We have relationships with a large suite of clients that are frequent users of these products. The business is very diversified by sub-asset class, and it's a business that we are looking to grow on a disciplined basis. We've had an opportunity to deploy capital in a manner that is generating attractive, risk-adjusted returns. That's something that we're going to remain mindful of. But we believe, given the breadth of that franchise, that we should be able to continue to support the secular growth that our clients are witnessing, even as various rate environments should moderate. Brennan Hawken Okay. And then next question is really sort of a follow on from Betsy's line of questioning. So year-to-date you've got a 64% efficiency ratio. You know, when we take a step back and think about your targets and aspirations for that metric and an environment, consider an environment that seems to be improving steadily, you know, how should we be thinking about margins on incremental revenue? You know, could you help us understand how revenue growth will continue to drive improvement in that efficiency ratio? Dennis Coleman Sure. So, thank you for that question and thank you for observing the improvement that we're seeing. Obviously, our year-to-date efficiency ratio at 63.8% is nearly 10 points better on a year-over-year basis. Still not at our target of 60%, but we are making progress. As we continue to grow our revenues, we should be able to deliver better and better efficiency. But ultimately, the type of revenues that we grow and the extent to which they attract variable or volume-based expenses is a contributing factor. But we do have visibility, for example, as we continue to move out of some of our CIE exposures that we should be able to reduce some of the operating expenses associated with that. And we do have a very granular process internally, looking at each of our expense categories on a granular basis and trying to make structural improvements to drive efficiencies over time, while we at the same time look to drive top line revenues. Thank you. We'll go next to Mike Mayo with Wells Fargo Securities. Mike Mayo Hi. I'm just trying to reconcile all the positive comments with returns that are still quite below your target. I mean, you highlight revenue growth in global banking markets and wealth and asset management. You have record financing for equities and FIC combined. You're number one in M&A. You have record management fees and record assets under supervision. Your efficiency has gone from 74% to 64%. Increase your dividend by 9% to signal your confidence, your CET1 ratios, 90 basis points above even the higher Fed requirements. David, you start off the call saying the results are solid, but then you look at the returns and you say 11% ROE in the second quarter, that's not quite the 15% where you want it to be. So where's the disconnect from what you're generating in terms of returns and where you'd like to be? Thanks. David Solomon Yes, thanks Mike. Appreciate the question. Look, we're on a journey. And, you know, the way I look at it, our returns for the first-half of the year at 12.8%. There are, you know, I think there are a couple of things, give gets in that. One, for sure, we still have a little bit of drag from the enterprise platforms which we're working through. And so that will come out. And at some point as we work through that, over the next 12 to 24 months, we'll continue to make progress on that for the returns in the first-half of the year would be a little higher exit. And then on top of that, as we've said repeatedly on the call and have given a bunch of information, we're still operating meaningfully below 10-year averages in terms of investment banking activity. And I think that'll come back. I obviously can't predict. But if you look at the returns of the firm, we have materially uplifted the returns of the firm. And we're going to continue to focus on that. Now the next step to the puzzle is our continued progress in AWM. So you know and you can see the performance over the course of the last few years of global banking and markets, but we've said the AWM, ROE is not where it needs to be. You heard our comments about the fact that we've gotten the margin up to 23%, but the ROE is still around 10%. We think we can continue to grow the business. As we've said, high-single-digits, we can continue to improve the margin and ultimately bring up that AWM, ROE. And then you look across the firm and you have a stronger return profile. So I think we're making good progress. We didn't say and have not worked to do for sure. But we feel good about the progress. Mike Mayo And I assume part of your expectation is a sort of multiplier effect when mergers really kick in. Can you just describe what that multiplier effect could potentially look like based on pass cycles? David Solomon What I would say is one of the things that should be a tailwind for further momentum in our business is a return to average levels. I'm not sitting here saying we're going to go back to periods of time where we went well above 10-year averages, but there's obviously, if we did get back to that period, and there will be some point in the future where we run above average too, and not just below average, we have a tailwind for that. But as a general matter, when there are more M&A transactions, whether with financial sponsors or big corporates, there is more financing attached to that. People need to raise capital to finance those transactions. They need to reposition balance sheets. They need to manage risks through structured transactions. And so there's a multiplier effect as those activities increase. We don't put a multiplier on it, but our whole ecosystem gets more active as transaction volumes increase on the M&A side. Mike Mayo And then lastly, for your returns, the denominator is a big factor. How does that work with the Fed? I know you can't say too much and regional people can disagree, but your whole point is that you've de-risked the balance sheet and the company and then here we have the Fed saying that maybe you haven't done so. So how does this process work from here? Will we hear results about the SEB ahead, or is this something that's just behind closed doors? David Solomon Look, as a general matter, what I'd say, Mike, as a general matter, we're supporters of stress testing. We believe it's an important component of the Fed's mandate to really ensure the safety and soundness of the banking system. However, we've maintained for some time that there are elements of this process that may be distracting from these goals of safety and soundness. The stress test process, as you just highlighted, is opaque. It lacks transparency. It contributes to excess volatility and the stress capital buffer requirements, which obviously makes prudent capital management difficult for us and all of our peers. We don't believe that the results reflect the significant changes we've made in our business. They're not in line with our own calculations, despite the fact that the scenarios are consistent year-over-year. Now, despite all that, you know, we've got the capital flexibility to serve our clients. We'll continue to work with that capital flexibility and we'll also continue to engage around this process to ensure that over time we can drive the level of capital that we have to hold in our business mix down. But obviously we have more work to do given this result. We'll take our next question from Steven Chubak with Wolfe Research. Steven Chubak Hi, Good morning. So I wanted to start off with a question. Just want to start with a question on the consumer platform fees. They were down only modestly despite the absence of the Green Sky contribution. Just wanted to better understand what drove the resiliency in consumer revenues, whether the quarterly run rate of $600 million is a reasonable jumping off point as we look at the next quarter? Dennis Coleman So, Steve, thank you for the question. I mean on a sequential basis, they're down, but that's because we have the absence of the Green Sky contribution. There actually is growth across the card portfolio. I think you've seen that the level of growth has slowed as we have sort of implemented several rounds of underwriting adjustments to the card originations and so our expectation is that on the forward you know the period-over-period growth should be more muted. Steven Chubak Understood and maybe just one more clarifying question. I know there's been a lot asked about the SEB. Really just wanted to better understand, Dennis, since you noted that you're running with 90 bps of cushion, which is actually above normal. Just how you're handicapping the additional uncertainty related to Basel III endgame. There's certainly been some favorable momentum per the press reports and even some public comments from regulators? But just want to better understand, given the uncertainty around both the SEB and Basel III endgame, where you're comfortable running on a CET1 basis over the near to medium term? Dennis Coleman Sure, thanks and I appreciate that question. I think obviously there's been a lot of changes, there's been some changes and expectations. And I think in highlighting that we are operating at the wider end of our range, it is to signal flexibility. And certainly embedded in that is to address some of the uncertainty which does remain with respect to Basel III endgame, both the quantum and timing of its resolution. It sounds from some of Powell's latest comments that, that may not be something that comes into effect until perhaps into 2025, but we are sort of maintaining a level of cushion that think is appropriate in light of what we know and we don't know about the future opportunity set for Goldman Sachs, but that buffer is designed to support clients return capital shareholders, while maintaining a prudent buffer with some of the lingering uncertainty with respect to future regulatory input. All right, great. Good morning, David and Dennis. A couple questions on AWM progress. So the first one is on the alts business specifically, and you're tracking obviously well ahead of the fundraising targets relative to when you set the $1 billion medium term target for annual incentive fees? And now with over $500 billion in alts AUM and obviously growing, that would seem pretty conservative. So I appreciate there's a lot of work to do to generate the returns ahead here, but how should we think about the underlying assumptions for incentive fees in a more normal harvesting environment, just given the mixed shift and the growth that you're seeing in AUM there? Dennis Coleman So Devin, I think it's a good question, and I think we share your expectation that, that's going to be a more meaningful contributor on the forward. We laid it out as one of the building blocks at our Investor Day. The contribution coming through that line since then has been not as high as we have modeled from an internal medium to longer term perspective. We do give good disclosure that the balance of unrealized incentive fees at the end of the last quarter were $3.8 billion, so you can make you know various assumptions as to what the timing of the recognition of those fees are they can obviously you know bounce around from time-to-time it is a granular you know vehicle-by-vehicle build-up, but you know given the current outlook and status of those funds that our best expectation of what level of fees could be coming through that line over the next several years. So I think it is an important incremental contributor and should be, you know, should help the return profile of asset wealth management on the forward, couple that with the success that we're having with ongoing alts fundraising and that will help to feed future investments and funds, which in turn will generate some backlog of potential incentive fees above and beyond what's already in the unrealized disclosures. Devin Ryan Yes, okay, thanks, Dennis. And then follow-up, this is also kind of connected, but at a recent conference, you highlighted the margin profile of all the standalone businesses and asset and wealth management of public peers so kind of as a comparison and highlighted 35% plus for alts and some of the public firms we know are obviously well above that. So I appreciate you're running the AWM segment is kind of one segment, but if alts does accelerate and we're looking at 60% of alts AUM isn't even the fee earning yet, what does that mean for segment margins relative to kind of that mid-20% target, because you're already at 23% thus far in '24. So just trying to think about the incremental margins coming from the acceleration in growth, particularly from the alts segment as well? Dennis Coleman So that's a good question, Devin. I mean, it should be a significant unlock for us, because despite the breadth and the longevity with which we've been running our alts businesses, there is significant opportunity for us to actually improve the margin profile of the alts activities in particular relative to the overall AWM margin, particularly as we develop incremental scale by strategy. And so in addition to just overall growth in the segment, which should unlock margin improvements, actually within our portfolio of activities, the alts business, again, despite its current scale, presents a big opportunity for incremental margin contribution. Thanks, good morning. In terms of your on-balance sheet investments, you continue to make progress in reducing that this quarter. Can you talk about the outlook for this year or any line of sight in terms of exits that we can think about? Dennis Coleman Sure. Thank you. Obviously, an ongoing commitment of ours to move down those on balance sheet exposures, also part of the equity and capital story and returns in the segment at $2.2 billion for the quarter, that was a decent reduction. We obviously have a target out there to sell down the vast majority of that balance, which is now at $12.6 billion by the end of next year. But our expectation is that we will continue to chip away at it across both the third and the fourth quarter of this year and then on into 2025. There's really no change on our commitment to sell down the vast majority of that by the end of next year. Dan Fannon Understood. And as a follow-up, just within asset and wealth, particularly on the alts side, the fundraising target raised for the full-year given the success you've had. The private credit fund closing here in the first-half was big. Can you talk to some of the other strategies that have the potential to scale as you mentioned earlier and/or maybe are a little bit smaller that have really large or increasing momentum as you think about second-half, but also as we even into next year? Dennis Coleman Sure. So, you know, obviously taking a step back, you're talking about the targets that we set, you know, once upon a time it was $150 billion, we moved it to $225 billion. It's now at $287 billion and with $36 billion raised through the first-half and us expecting to surpass $50 billion, that means we should be north of $300 billion by the end of this year. And I think one of the things that we find attractive about our platform is that we have opportunities to scale across multiple asset classes within alternatives, equity, credit, real estate, infrastructure. We had notable fundraisings in private credit and real estate this quarter, but you can see contribution from other strategies like equity on the forward and a number of different strategies, both by asset class and by region. So we think we have a diversified opportunity set to continue to scale the alts platform. Thank you. We'll go next to Matt O'Connor with Deutsche Bank. Matt O'Connor Good morning. I was wondering if you could just elaborate a bit on the competitive landscape specifically in banking and markets. I know it's always competitive, but some of the really big bank peers, you know, are leaning in who haven't been a few years ago. And all these regional banks that I cover are also realizing that they need broader cap and market capabilities. So you're obviously an industry leader in a lot of the areas across banking and markets. And I'm just wondering how you're seeing the competition impact you at this point? David Solomon Sure, Matt, and I appreciate the question. I just say, you know, investment banking and the markets business, the trading business, they've always been competitive businesses. I think our integrated One GS approach is a very, very competitive offering. I mean, we can have debates, but it's, I think, one of the top two offerings out there, depending on how you look at it what you look at. There's always going to be competition there are always going to be people that come in and make investments in niche areas, but broadly speaking you know we've had leading M&A share for 25-years. We have leading share in capital raising for an equivalent period of time. We've continued to invest in our debt franchises over the last more than decade. An then our trading businesses and our ability to intermediate risk I think have been second to none or viewed as second to none for a long, long time. And so the combination of our focus on serving our clients, making sure we're giving them the right resources, both human capital and financial capital, to accomplish what they need to accomplish, the fact that we have global scale positions is very well. They'll always be competitors, but I like where our franchise sits. And I don't see any reason why we shouldn't be able to continue to invest in it, strengthen it, and continue to have it operating as a leader in what's always been and will continue to be a very competitive business. Matt O'Connor Okay helpful, it's unagreed. And then just separately, I hate to ask you about activity levels and stuff like that since the debate three, four weeks ago, but maybe I'll frame it. From your experience in presidential election periods like this, where there's maybe just more uncertainty than normal, like how do both institutional and corporate clients react? Do they kind of say, well, let's wait and see the other side? Is it just noise, because we've been going through it for some time here, but what are your thoughts on that? Thank you. David Solomon There are always exogenous factors that affect corporate activity and institutional client activity. I don't have a crystal ball, so I can't see what the next 100 days leading up to our election will bring, but I think we're well positioned to serve our clients, regardless of the environment. And clients are very active at the moment, and I think they're probably going to continue to be active. We'll take our next question from Gerard Cassidy with RBC. Gerard Cassidy Thank you. Good morning, David. Good morning, Dennis. David, you said in your opening comments that you took the board out to Silicon Valley and you were impressed with the artificial intelligence and what we could expect in the future and the opportunities for Goldman to be able to finance some of the infrastructure needs that may come of that? Can you share with us the artificial intelligence that you guys are implementing within Goldman and how it's making you more productive, generating maybe greater revenues or even making it more efficient? David Solomon Sure, I mean, at a high level, Gerard, we as most companies around the world are focused on how you can create use cases that increase your productivity. And if you think about our business as a professional service firm, a people business, where we have lots of very, very highly productive people creating tools that allow them to focus their productivity on things that advance their ability to serve clients or interact in markets is a very, very powerful tool. So, you know we you know if you look and you think across the scale of our business I think you can think of lots of places where the capacity to use these tools to take work that's always been done on a more manual basis and allow the very smart people to do that work to focus their attention on clients are quite obvious. You can look at it in an area like the equity research area as every quarter. You're all analysts on the phone. There's lots of ways that these tools can leverage your capacity to spend more time with clients. You think about our investment banking business and the ability in our investment banking business to have what I'll call the factory of the business prepare information, thoughtful information for clients, the revolution's there. When you look at the data sets we have across the firm and our ability to get data and information to clients, so that they can make better decisions around the way they position in markets, that's another obvious use case. For our engineering stack and we have close to 11,000 engineers inside the firm, the ability to increase their coding productivity is meaningful. So those are a handful. There are others. We have a broad group of people that are very focused on this. But again, I'd step back. Well, this will increase our productivity. The thing that we're most excited about is all businesses are looking at these things and are looking at ways that it adapts and changes their business. And that will create more activity in a tailwind broadly for our businesses. People will need to make investment, they'll need financing, they'll need to scale. And so we're excited about that broad opportunity. Gerard Cassidy Very good. And then as a follow-up, Dennis, you talked about credit, and it was impressive that you didn't have any charge-offs in the wholesale book. Can you give us some color on what you're seeing there? It seems like there must be some improvement since obviously you didn't have any charge-offs in the wholesale book? Dennis Coleman Sure. Thanks, Gerard. As you observe, the charge-off rate for us in the wholesale is approximately 0%. What we did see in this quarter was release, and we've been able to improve some of our models and be able as a consequence to release some of the provisions in the wholesale segment. So while that was a contributing benefit to sort of call it the net PCL of the quarter with consumer charge-offs offset by that wholesale release, that's not necessarily something that we would expect to repeat each quarter in the future. And although we manage our credit and our wholesale risk very, very diligently and consistently, it is more likely the case that we will have some degree of impairments given our size and scale and representation in the business. But we're pleased that the overall credit performance in terms of charge-offs is about 0%. Hi, good morning. Thanks for taking my question. Just a follow-up on capital, I mean, it certainly is encouraging that your CET1 ratio rose 20 bps in a quarter where you bought back $3.5 billion of stock and you did have a -- I think, a $16 billion reduction in RWA as your presentation talks about credit RWA is falling this quarter? I guess, can you just give a little bit more color on what drove that reduction? And I guess more importantly, is there continued room for RWA optimization from here to help manage your capital levels? Dennis Coleman Sure, thanks, Saul. I appreciate that question. Capital optimization, RWA optimization, is something that we've been committed to for a very long period of time. On the quarter, there were reductions both in credit and market risk RWAs. Drivers included less derivative exposure, reduced equity investment exposure and in some places lower levels of volatility. We try to get the right balance between deploying on behalf of client activity, as well as being efficient and rotating out of less productive activities or following through on our strategic plan to narrow focus and reduce balance sheet exposure. So that is something that was contributed to quarter-over-quarter benefit despite the buyback activity we executed. And it's something we'll remain very focused on just given the multiplicity of binding constraints that we operate under. Saul Martinez Thank you, that's helpful. And maybe a follow-up on financing, FIC financing up 37% equities, the equity financing, now something close to 45% of all of your equity sales and trading revenues. I guess how much more room is there, or how should we think about sort of the size of the opportunity set, you know, to continue to grow from here? How much more space is there, you know, to use finding a thing as a mechanism to help deepen penetration with your top institutional clients? Dennis Coleman That's a good question, Saul. I think on the FIC financing side, as I indicated, we do think that we are helping clients participate in the overall level of growth that they're seeing in their businesses. And you know, we think based on what we see currently, that we can calibrate the extent of our growth based largely on how we assess the risk return opportunities that across the client portfolio. So we're being disciplined with respect to our growth, but trying also to support clients in their growth and drive a more durable characteristic across the GBM business. In equities, the activity and the balances, et cetera, obviously have benefited from equity market inflation over the course of the year, but it's also an activity that we remain committed to in terms of supporting clients. And clients look to us on a holistic basis really across both FIC and equities to ensure that across all of the activities they're doing with us that we're finding some balance between helping them through financing activities, helping them with intermediation, helping them with human capital. So both of those activities are part of more interconnected activities with clients and something that we remain very focused on and think we can continue to grow. Thank you. At this time there are no additional questions in queue. Ladies and gentlemen, this concludes the Goldman Sachs second quarter 2024 earnings conference call. Thank you for your participation. You may now disconnect.

Earnings call: Wells Fargo reports mixed Q2 results, plans dividend hike By Investing.com

Wells Fargo & Company (NYSE:WFC) reported its second-quarter financial results, revealing both strengths and challenges as it continues its transformation journey. CEO Charlie Scharf emphasized the growth in fee-based revenue and strategic improvements in the credit card and corporate investment bank sectors. Despite a decrease in net interest income and average loans, the company has seen positive growth in average deposits across all customer-facing businesses. Wells Fargo also announced plans to increase its common stock dividend by 14% in the third quarter. CFO Mike Santomassimo highlighted the financials, including a 19% increase in non-interest income and a slight decline in the allowance for credit losses. However, the bank also faced increases in non-interest expenses and net loan charge-offs, particularly in the commercial real estate office portfolio. In conclusion, Wells Fargo's second-quarter earnings call presented a mixed picture of challenges and progress. The bank is actively working on strategic priorities and leveraging its strong capital position to enhance shareholder value. With a focus on efficiency, credit quality, and technological advancements, Wells Fargo is navigating through a complex economic landscape while setting its sights on future growth. Wells Fargo & Company's (WFC) second-quarter financial results indicate a company in the midst of a transformation, with a strategic focus on enhancing shareholder value. InvestingPro data and tips provide further context to the bank's financial health and market position. These insights, particularly the company's low P/E ratio relative to its earnings growth and its strong history of dividend payments, align with Wells Fargo's announced plans to increase its common stock dividend. Additionally, the company's aggressive share buyback program underscores management's belief in the bank's intrinsic value. For investors looking for more in-depth analysis, InvestingPro offers additional tips on Wells Fargo, which can be accessed at https://www.investing.com/pro/WFC. To get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, use the coupon code PRONEWS24. There are 7 more InvestingPro Tips available that can provide further guidance on investment decisions related to Wells Fargo. Operator: Welcome, and thank you for joining the Wells Fargo Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that today's call is being recorded. I would now like to turn the call over to John Campbell, Director of Investor Relations. Sir, you may begin the conference. John Campbell: Good morning, everyone. Thank you for joining our call today, where our CEO, Charlie Scharf; and our CFO, Mike Santomassimo will discuss second quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our second quarter earnings materials, including the release, financial supplement, and presentation deck are available on our website at wellsfargo.com. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today containing our earnings materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures can also be found in our SEC filings and the earnings materials available on our website. I will now turn the call over to Charlie. Charlie Scharf: Thanks, John. As usual, I'll make some brief comments about our second quarter results and update you on our priorities. I'll then turn the call over to Mike to review our results in more detail before we take your questions. So let me start with some second quarter highlights. Our financial performance in the quarter benefited from our ongoing efforts to transform Wells Fargo. We continue to generate strong fee-based revenue growth with increases across most categories compared to a year ago due to both the investments we're making in our businesses and favorable market conditions with particular strength in investment advisory, trading activities and investment banking. These results more than offset the expected decline in net interest income. Credit performance during the second quarter was consistent with our expectations. Consumers have benefited from a strong labor market and wage increases. The performance of our consumer auto portfolio continued to improve, reflecting prior credit tightening actions and we had net recoveries in our home lending portfolio. While losses in our credit card portfolio increased as expected, early delinquency performance of our recent vintages was aligned with expectations. In our commercial portfolios, losses continued to be driven by commercial real-estate office properties where we expect losses to remain lumpy. Fundamentals in the institutional-owned office real-estate market continued to deteriorate as lower appraisals reflect the weak leasing market in many large metropolitan areas across the country. However, they still remain within the assumptions we made when setting our allowance for credit losses. We continue to execute on our efficiency initiatives, which has driven headcount to decline for 16 consecutive quarters. Average commercial and consumer loans were both down from the first quarter. The higher interest-rate environment and anticipation of rate cuts continued to result in tepid commercial loan demand, and we have not changed our underwriting standards to chase growth. Balanced growth in our credit card portfolio was more than offset by declines across our other consumer portfolios. Average deposits grew modestly from the first quarter with higher balances in all of our consumer-facing lines of businesses. Now, let me update you on our strategic priorities, starting with our risk and controller. We are a different Wells Fargo from when I arrived. Our operational and compliance risk and control build-out is our top priority and will remain so until all deliverables are completed and we embed this mindset into our culture, similar to the discipline we have for financial and credit risk today. We continue to make progress by completing deliverables that are part of our plans. The numerous internal metrics we track show that the work is clearly improving our control environment. While we see clear forward momentum, it's up to our regulators to make their own judgments and decide when the work is done to their satisfaction. Progress has not been easy, but tens of thousands of my partners at Wells Fargo have now worked tirelessly for years to deliver the kind of change necessary for a company of our size and complexity, and we will not rest until we satisfy the expectations of our regulators and the high standards we have set for ourselves. While we have made substantial changes and have meaningfully improved our control environment, the industry operates in a heightened regulatory oversight environment, and we remain at risk of further regulatory actions. We are also a different Wells Fargo in how we are executing on other strategic priorities to better serve our customers and help drive higher returns over time. Let me highlight a few examples of the progress we're making. We're diverging revenue sources and reducing our reliance on net interest income. We are improving our credit card platform with more competitive offerings, which is both - which is important both for our customers and strategically for the Company. During the second quarter, we launched two new credit cards, a small-business card and a consumer card. Since 2021, we have launched nine new credit cards and are almost complete in our initial product build-out. The momentum in this business is demonstrated by continued strong credit card spend and new account growth. We are not lowering our credit standards, but see that our strong brand and a great value proposition are being well-received by the market. Building a large credit card business is an investment as new products have significant upfront costs related to marketing, promo rates, onboarding and allowance, which drive little profitability in the early years. But as long as our assumptions on spend, balanced growth, and credit continue to play out as expected, we expect the card business to meaningfully contribute to profit growth in the future as the portfolio matures. We have been methodically growing our corporate investment bank, which has been a priority and continues to be a significant opportunity for us. We are executing on a multi-year investment plan while maintaining our strong risk discipline and our positive momentum continues. We have added significant talent over the past several years and we'll continue to do so in targeted areas where we see opportunities for growth. Fernando Rivas recently joined Wells Fargo as Co-CEO of Corporate Investment Banking. Fernando has deep knowledge of our industry and his background and skills complement the terrific team Jon Weiss has put together. While we view our work here as a long-term commitment, we expect to see results in the short and medium term and are encouraged by the improved performance we've already seen with strong growth in investment banking fees during the first half of the year. In our Wealth and Investment Management business, we have substantially improved advisor retention and have increased the focus on serving independent advisers and our consumer banking clients, which should ultimately help drive growth. In the commercial Bank, we are focused on growing our treasury management business, adding bankers to cover segments where we are underpenetrated, and delivering our investment banking and markets capabilities to clients and believe we have significant opportunities in the years ahead. And we continue to see significant opportunities for consumer, small and business banking franchise to be a more important source of growth. Let me give you just a few examples some of the things we're doing here. We continue to optimize and invest in our branch network. While our branch count declined 5% from a year ago, we are being more strategic about branch location strategy. We are accelerating our efforts to refurbish our branches, completing 296 during the first half of this year, and are on track to update all of our branches within the next five years. As part of our efforts to enhance the branch experience, we're also increasing our investment in our branch employees and improving technology, including a new digital account opening experience, which has been positive for both our bankers and our customers. We continue to have strong growth in mobile users with active mobile customers up 6% from a year ago. A year after launching Fargo, our AI-powered virtual assistant, we have had nearly 15 million users and over 117 million interactions. We expect this momentum to continue as we make further enhancements to offer our customers additional self-service features and value-added insights, including balanced trends and subscription spending. Looking ahead, overall, the U.S. economy remains strong, driven by a healthy labor market and solid growth. However, the economy is slowing and there are continued headwinds from still elevated inflation and elevated interest rates. As managers of a large complex financial institution, we think about both the risks and the opportunities and work to be prepared for the downside while continually building our ability to serve customers and clients. The actions we have taken to strengthen the Company have helped prepare us for a variety of economic environments, and while risks exist, we see significant opportunities in front of us. Our commitment and the progress we are making to build an appropriate operational and compliance risk management framework is foundational for our Company, and we will continue to prioritize and dedicate all necessary resources to complete our work. We have a diversified business model, see opportunities to build a broader earnings stream, and are seeing the early progress in our results. And we've maintained strong financial risk disciplines and a strong balance sheet. Operating with a strong capital position and - in anticipation of the uncertainty the stress test regime imposes on large banks and the potential for increases to our regulatory capital requirements resulting from Basel III finalization has served us well. It also allows us to serve our customers' financial needs and we remain committed to prudently return excess capital to our shareholders. As we previously announced, we expect to increase our third quarter common stock dividend by 14% to $0.40 per share, subject to the approval by the Company's Board of Directors at its regularly scheduled meeting later this month. We repurchased over $12 billion of common stock during the first half of this year, and while the pace will slow, we have the capacity to continue repurchasing stock. I'm proud of the progress we continue to make and thankful to everyone who works at Wells Fargo. I'm excited about the opportunities ahead. I'll now turn the call over to Mike. Mike Santomassimo: Thank you, Charlie, and good morning, everyone. Net income for the second quarter was $4.9 billion, or $1.33 per diluted common share. EPS grew from both the first quarter and a year ago, reflecting the solid performance in our fee-based businesses as we benefited from the market environment and the investments we've been making. We also continue to focus on driving efficiency across the Company. I will also note that our second quarter effective income tax rate reflected the impact of the first quarter adoption of the new accounting standard for renewable energy tax credit investments, which increased our effective tax rate by approximately 3 percentage points versus a year ago. This increase in the effective tax rate had a minimal impact on net income since it had an offsetting increase to non-interest income. Turning to Slide 4. As expected, non-interest income was down - net interest income was down $1.2 billion, or 9% from a year ago. This decline was driven by higher funding costs, including the impact of lower deposit balances and customers migrating to higher-yielding deposit products in our consumer businesses and higher deposit costs in our commercial businesses as well as lower loan balances. This was partially offset by higher yields on earning assets. Net interest income declined $304 million, or 2% from the first quarter. Given the higher rate environment and neat commercial loan demand, loan balances continue to decline as expected. We saw positive trends, including average deposit balances growing from the first quarter with growth in all of our customer-facing businesses, including within our consumer business. Customer migration to higher-yielding alternatives was also lower in the quarter. This slowed the pace of growth in deposit pricing with our average deposit cost up 10 basis points in the second quarter after increasing 16 basis points in the first quarter. If the Fed were to start cutting rates later this year, we expect that deposit pricing will begin to decline with the most immediate impact from new promotional rates in our consumer business and standard pricing for commercial deposits where pricing moved faster as rates increased, and we would expect betas to also be higher as rates decline. On Slide 5, we highlight loans and deposits. Average loans were down from both the first quarter and a year ago. Credit card loans continue to grow while most other categories declined. I'll highlight specific drivers when discussing our operating segment results. Average deposits were relatively stable from a year ago as growth in our commercial businesses and corporate funding offset declines in our consumer businesses, driven by customers migrating to higher-yielding alternatives and continued consumer spending. Average deposits grew $4.9 billion in the first quarter. Commercial deposits have grown for three consecutive quarters as we've successfully attracted clients' operational deposits. After declining for nearly two years, consumer deposit balances grew modestly from the first quarter. We've seen outflows slow as many rate-seeking customers in Wealth and Investment Management have already moved into cash alternative products and we've successfully used promotion and retention-oriented strategies to retain and acquire new balances in consumer small and business banking. These improved deposit trends allowed us to reduce higher-cost market funding. The migration from non-interest-bearing to interest-bearing deposits was similar to last quarter with our percentage of non-interest-bearing deposits declining 26% in the first quarter to 25%. Turning to non-interest income on Slide 6. Non-interest income increased 19% from a year ago with growth across most categories, reflecting both the benefit of the investments we've been making in our businesses as well as the market conditions as Charlie highlighted. This growth more than offset the expected decline in net interest income with revenue increasing from a year ago, the sixth consecutive quarter of year-over-year revenue growth. I will highlight the specific drivers of this growth when discussing our operating segment goals. Turning to expenses on Slide 7. Second quarter non-interest expense increased 2% from a year ago, driven by higher operating losses, an increase in revenue-related compensation, and higher technology and equipment expense. These increases were partially offset by the impact of efficiency initiatives, including lower salaries expense and professional and outside services expense. Operating losses increased from a year ago and included higher customer remediation accruals for a small number of historical matters that we're working hard to get behind us. The 7% decline in non-interest expense in the first quarter was primarily driven by seasonally higher personnel expense in the first quarter. Turning to credit quality on Slide 8. Net loan charge-offs increased 7 basis points from the first quarter to 57 basis points of average loans. The increase was driven by higher commercial net loan charge-offs, which were up $127 million in the first quarter to 35 basis points of average loans, primarily reflecting higher losses in our commercial real-estate office portfolio. While losses in the commercial real-estate office portfolio increased in the second quarter after declining last quarter, they were in line with our expectations. As we have previously stated, commercial real estate office losses have been and will continue to be lumpy as we continue to work with clients. We continue to actively work to derisk our office exposure, including a rigorous monitoring process. These efforts help to reduce our office commitment by 13% and loan balances by 9% from a year ago. Consumer net loan charge-offs increased $25 million from the first quarter to 88 basis points of average loans. Auto losses continued to decline, benefiting from the credit-tightening actions we implemented starting in late 2021. The increase in credit card losses was in line with our expectations as older vintages are no longer benefiting from pandemic stimulus as more recent vintages - and as more recent vintages mature. Importantly, the credit performance of our newer vintages has been consistent with our expectations, and we currently expect the credit card charge-off rate to decline in the third quarter. Non-performing assets increased 5% from the first quarter, driven by the higher commercial real estate office non-accruals. Moving to Slide 9. Our allowance for credit losses was down modestly from the first quarter, driven by declines across most asset classes, partially offset by a higher allowance for credit card loans driven by higher balances. Our allowance coverage for total loans has been relatively stable over the past four quarters as credit trends remain generally consistent. Our allowance coverage for our commercial real estate office portfolio has also been relatively stable at approximately 11% for the past several quarters. Turning to capital liquidity on Slide 10. Our capital position remains strong and our CET1 ratio 11% continue to be well above our current 8.9% regulatory minimum plus buffers. We're also above our expected new CET1 regulatory minimum plus buffers of 9.8% starting in the fourth quarter of this year as our stressed capital buffer is expected to increase from 2.9% to 3.8%. We repurchased $6.1 billion of common stock in the second quarter, and while the pace will slow, we have the capacity to continue to repurchase common stock as Charlie highlighted. Also, we expect to increase our common stock dividend in the third quarter by 14%, subject to Board approval. Turning to our operating segments, starting with Consumer Banking and Lending on Slide 11. Consumer, small and business banking revenue declined 5% from a year ago, driven by lower deposit balances and the impact of customers migrating to higher-yielding deposit products. Home lending revenue was down 3% from a year ago due to lower net interest income as loan balances continued to decline. Credit card revenue was stable from a year ago as higher loan balances driven by higher point-of-sale volume and new account growth was offset by lower other fee revenue. Auto revenue declined 25% from last year, driven by lower loan balances and continued loan spread compression. Personal lending revenue was down 4% from a year ago, driven by lower loan balances and loan spread compression. Turning to some key business drivers on Slide 12. Retail mortgage originations declined 31% from a year ago, reflecting our focus on simplifying the home lending business as well as the decline in the mortgage market. Since we announced our new strategy at the start of 2023, we have reduced the headcount in home lending by approximately 45%. Balances in our auto portfolio declined 14% compared with a year ago, driven by lower origination volumes, which were down 23% from a year ago, reflecting previous credit tightening actions. Both debit and credit card spend increased from a year ago. Turning to Commercial Banking results on Slide 13. Middle Market Banking revenue was down 2% from a year ago driven by lower net interest income due to higher deposit costs, partially offset by growth in treasury management fees. Asset-based lending and leasing revenue decreased 17% year-over-year, including lower net interest income, lower lease income, and revenue from equity investments. Average loan balances were down 1% compared with a year ago. Loan demand has remained tepid, reflecting the higher for longer rate environment in a market where competition has been more aggressive on pricing and loan structure. Turning to Corporate and Investment Banking on Slide 14. Banking revenue increased 3% from a year ago, driven by higher investment banking revenue due to increased activity across all products, partially offset by lower treasury management results driven by the impact of higher interest rates on deposit accounts. Commercial real estate revenue was down 4% from a year ago, reflecting the impact of lower loan balances. Markets revenue grew 16% from a year ago, driven by strong performance in equities, structured products and credit products. Average loans declined 5% from a year ago as growth in markets was more than offset by reductions in commercial real estate, where originations remain muted and we've strategically reduced balances in our office portfolio as well as declines in banking where clients continue to access capital goods funding. On Slide 15, Wealth and Investment Management revenue increased 6% compared with a year ago. Higher asset-based fees driven by an increase in market valuations were partially offset by lower net interest income, reflecting lower deposit balances and higher deposit costs as customers reallocated cash into higher-yielding alternatives. As a reminder, the majority of WIM advisory assets are priced at the beginning in the quarter, so third quarter results will reflect market valuations as of July 1st, which were up from both a year ago and from April 1st. Slide 16 highlights our corporate results. Revenue grew from a year ago due to improved results from our venture capital investments. Turning to our 2024 outlook for net interest income and non-interest expense on Slide 17. At the beginning of the year, we expected 2024 net interest income to be approximately 7% to 9% lower than full-year 2023. During the first half of this year, the drivers of net interest income largely played out as expected with net interest income down 9% from the same period a year ago. Compared with where we began the year, our current outlook reflects the benefit of fewer rate cuts as well as higher deposit balances in our businesses than what we had assumed in our original expectations, which has helped us reduce market funding. Deposit costs increased during the first half of this year as expected, but the pace of the increase has slowed. However, late in the second quarter, we increased pricing in Wealth and Investment Management on sweep deposits and advisory brokerage accounts. This change was not anticipated in our original guidance, federal lines rates paid-in money market funds and is expected to reduce net interest income by approximately $350 million this year. Our current outlook also reflects lower loan balances. At the beginning of the year, we assumed a slight decline in average loans for the full year, which reflected modest growth in commercial and credit card loans in the second half of the year after a slow start to the year. As we highlighted on our first quarter earnings call, loan balances were weaker than expected and that trend continued into the second quarter. We expect this underperformance to continue into the second half of the year with loan balances declining slightly from second quarter levels. As a result of these factors, we currently expect our full-year 2024 net interest income to be in the upper half of the range we provided in January, or down approximately 89% from full-year 2023. We continue to expect net interest income will trough towards the end of the year. We are only halfway through the year and many of the factors driving net interest income are uncertain, and we will continue to see how each of these assumptions plays out during the remainder of the year. Turning to expenses. At the beginning of this year, we expected our full-year 2024 non-interest expense to be approximately $52.6 billion. We currently expect our full-year 2024 non-interest expense to be approximately $54 billion. There are three primary drivers for this increase. First, the equity markets have outperformed our expectations, driving higher revenue-related compensation expense in Wealth and Investment Management. As a reminder, this is a good thing as these higher expenses are more than offset by higher non-interest income. Second, operating losses and the other customer remediation-related expenses have been higher during the first half of the year than we expected. As a reminder, we have outstanding litigation, regulatory, and customer remediation matters that could impact operating losses during the remainder of the year. Finally, we did not anticipate the $336 million of expense in the first half of the year for the FDIC special assessment, which is now included in our updated guidance. We'll continue to update you as the year progresses. In summary, our results in the second quarter reflected the progress we're making to transform Wells Fargo and improve our financial performance. Our strong growth in fee-based businesses offset the expected decline in net interest income. We made further progress on our efficiency initiatives. Our capital position remains strong, enabling us to return excess capital to shareholders, and we continue to make progress on our path to a sustainable ROTCE of 15%. We will now take your questions. Operator: [Operator Instructions] Our first question will come from Ken Usdin of Jefferies. Your line is open. Ken Usdin: Thanks a lot. Good morning. Mike, I wonder if you could provide a little bit more detail on those latter points you made on the changes on the deposit cost side. First of all, I guess relative to the 12 basis points that you saw in terms of interest-bearing cost increase, which was lower than the 17%, how do you just generally expect that to look going forward? And how - and is that sweep pricing also a part of what that number will look like going forward? Thank you. Mike Santomassimo: Yes. Thanks, Ken. Yes, I mean the sweep pricing will be included in that going forward about - you saw about a - basically about a month's worth in the quarter. We made the change in June so you saw about a third of a quarterly impact already included in the number. Look, I think when you drill into what's going on in the deposit side, I'd say a few things. One, the overall - you know, we're not seeing a lot of pressure on overall pricing in deposits. On the consumer side, this migration that's been happening now for a while from checking into savings or CDs is still happening, but at a slower pace. And you can see that over the last couple of years as it's been pretty stable the last quarter or two, but it's definitely slowing as you look at the quarter. And so I'd anticipate you'd still see more migration, but continuing to slow as we look as we look forward. On the wholesale side, we - the pricing has been pretty competitive now for a while and that's the case. And so we've been pleased to see that we're able to grow good operational deposits. And so given the competitive pricing there, that puts a little near-term pressure on NII, but those deposits are going to be very valuable over a long period of time, particularly as rates start to come back down. And so the positive, I think overall is you saw deposits grow in every line of business for the first time in a long time, and that migration is slowing to higher-yielding alternatives. And so we'll see how it plays out for the rest of the year, but I think there's some good positive trends that are emerging there. Ken Usdin: Great. Thank you. And just a follow-up. The fees were really good and the trading business continues to demonstrate that it's taking market share. I guess how do we understand how to kind of measure that going forward, right, versus what the Group is doing? You guys are definitely, zigging and outperforming there. And where do you think you are in terms of market-share gains, and how sustainable do you think this new kind of run-rate of trading is going forward? Thanks. Mike Santomassimo: Yes. No, I'll take that and Charlie can chime in if he wants. As you look at trading at any given quarter, it's going to bounce around, right? So you can't necessarily straight-line any single quarter. So I'll be careful there as you look forward. But I think the good part is like we've been methodically sort of making investments in really all the asset classes, FX, credit, lesser degree in equities and other places, but we're getting the benefit of those investments each quarter on an incremental basis. I think that business is still constrained by the asset cap. And so we are not growing assets or financing clients' assets at the same level we would be if we didn't have the asset cap, which also then drives more trading flow as we go. And so I'd say we're still methodically sort of building it out and there should be opportunity for us to grow that in a prudent way for a while. But any given quarter may bounce around a little bit depending on what's happening in the market or an asset class. And we're getting good reception from clients as we engage with them more and see them move more flow to us. Charlie Scharf: And this is Charlie. Let me just add a couple of things, which is, you know, as we think about the things that we're doing to invest in our banking franchise, both markets and the investment banking side of the franchise, it's not risk-based. It's actually - it's focused on customer flows on the trading side, it's focused on expanding coverage and improving product capabilities on the banking side. So what we look at - and we're also very, very focused on returns overall, as you can imagine, as all the other large financial institutions are. So as we're looking at our progress, we do look at share across all the different categories and would expect to see those to continue to tick up. And so as you look through the volatility that exists in the marketplace, we are looking at a sustained level of growth, recognizing that we don't control the quarter-to-quarter volatility. Ken Usdin: Okay, got it. Thank you. Operator: The next question will come from John Pancari of Evercore ISI. Your line is open, sir. John Pancari: Good morning. You expressed confidence that NII should bottom towards the year-end or towards the back half of this year. Maybe you could just give us what gives you the confidence in maintaining that view just given the loan growth dynamics that you mentioned and you just mentioned the funding cost and the rate backdrop. If you could just kind of walk us through your confidence around inflection and I guess what it could mean as you go into 2025. Thanks. Mike Santomassimo: Yes. We won't talk much about 2025, John, but as you sort of look at what's happening, you're seeing this pace of migration on the deposit side flow, as I mentioned earlier. So you're seeing more stability as time goes by there. Once the Fed starts lowering rates, which the market expects to happen later in the year, you'll start to see betas on the way down on the wholesale side of the deposit base. You'll continue to see some gradual sort of repricing on the asset side as you see more securities and more loans sort of roll. And so you got to look exactly calling sort of the trough is which quarter it's going to be. Sometimes can be a little tough, but as you sort of look at all the components of it, we still feel pretty good about being able to see that happen over the coming few quarters. John Pancari: Okay. Thanks, Mike. And if I just hop over to capital buybacks, I mean, you bought back about $6.1 billion this quarter similar to the first quarter. You indicated the pace will slow. Maybe you could give us a little bit of color on how we should think about that moderation, and how long that could persist at this point and how long until you could be back at the run rate you were previously? Charlie Scharf: Yes, let me take a shot at it, Mike, and then you can add the color on this one. Listen, I think when you look at where we've been running capital, we've been trying to anticipate, as I mentioned in my prepared remarks, the uncertainties that exist around the way we find out about SEB, as well as the uncertainty that exists with where Basel III ultimately comes out. The reality of those two things are we know where the SEB is for this year at this point. We still don't know where Basel III ultimately winds up. So I think as we sit here today, we will continue - we'll be conservative on capital return in the shorter term until we learn more about exactly where Basel III will ultimately wind up, and then we can get more specific about what that means for capital return. So I think we're just trying to be very pragmatic. The reality is we're still generating a significant amount of capital and a reasonably sized dividend that's increased as our earnings power has increased. Given the fact that we have constraints, it is most of what the remainder of our capital generation goes towards capital return, but we want to see where Basel III ultimately winds up. Ebrahim Poonawala: Hi, good morning. Just maybe one follow-up first, Mike and Charlie on capital. Is 11% in-line in the sand right now as you wait for Basel and clarity there, as we - at least you're not guiding for it, but as we think about what the pace of buybacks might be, or could CET1 go below 11% still significant buffer over the 9.6% minimum? I would appreciate how you think about that ratio in the context of capital return. Charlie Scharf: I think where we are plus a little bit, probably not minus a little bit, but plus some is probably the right place to be at this point. Remember, the SEB was higher than we expected, and so that's factoring into our thinking. And so that's really what's driving our thinking in terms of slowing the pace of buybacks at this point. But again, hopefully, we'll get some more clarity on Basel III. We know what you know and then we'll be much clearer about what we think the future looks like there. But again, overall, we still have the capacity to buy back. We just as we've always been, we want to be prudent. Ebrahim Poonawala: Understood. And then just moving to expenses. So I get the expense guide increase, but remind us, has anything changed maybe, Charlie, from you first on the expense flex that's a big part of the wealth thesis around efficiency gains, which should lead to the path for that 15% ROTCE? And what are you baking in, in terms of the fee revenue for the back half as part of that guide like does it assume elevated levels of trading in IBA? Thank you. Charlie Scharf: So let me just take the first part. So just - and I appreciate you asking the question. I think, as far - from where - as we look forward, nothing has changed for us as we think about the opportunity to continue to become more efficient. That story is no different today than it was yesterday or last quarter. As we increased the estimates for the year, it's really reflective of three broad categories. One are the variable expenses that relate to our Wealth and Investment Management business where we have higher revenues that results in higher payout. And as Mike always points out, that's actually a good thing, even though it's embedded in the expense line, which causes that number to head upwards. The second thing are the fact that we've had higher customer remediations and FDIC expenses in the first half of the year, than when we contemplated the expense guidance. On the customer remediations, we've said it's - they're not new items. They're historical items. We're getting closer to the end of finalization in these things. And as that occurs, things like response rates and making sure that we've identified every - the full amount of the population gets all fine-tuned and that's what's flowing through. But that's a - it really rates to historical matters and not something that's embedded in what we see in the business going forward. So what you're left with is the rest of the earnings, I'm sorry, the expense base of the Company and it's playing out as we would have expected. And so as we sit here and look forward, all the statements I've made in the past are still true, which is we're not as efficient as we need to be. We're focused on investing in growing the business. We're focused on spending what's necessary to build the right risk and control infrastructure and we're focused on driving efficiency out of the Company and that lever is as continues to be exactly what it's been. Ebrahim Poonawala: Got it. And you assume fees staying elevated in the back half as part of the guidance? Mike Santomassimo: Yes. I assume equity markets are about where they are today, yes, it's still staying pretty elevated. Ebrahim Poonawala: Got it. Thank you so much. Operator: The next question will come from Erika Najarian of UBS. Your line is open. Erika Najarian: Hi. Good morning. First, I just want to put context to this question, because I didn't want to ask it just in isolation because it seems ticky-tacky, but it's not. So the stock is down 7.5%, and if I just take consensus to the higher end of your NII range to 9%, that would imply that consensus would adjust 3.5% in isolation. So this is just a context of why I'm asking this question on expenses. So your expenses went up in terms of from your original guide, $1.4 billion. I guess and you laid out those three bullets and you quantified FDIC special assessment. I guess, I'm just wondering, if you could give us a little bit more detail on how much more of the remediation expenses and op losses were up versus your original expectation because I think what the market wants to understand is, PP - you know, NII, okay, we get it, that's happening because of deposit repricing. But is core - you know, are the - is core PPNR outside of that in turn going up, right? Just sort of want to have that assurance in terms of is the EPS going to be down as much coming out of this as the market is indicating. Mike Santomassimo: Yes. No, Erika. It's Mike. I appreciate the question. We give you the operating loss line in the supplement so you can see that. And if you - based on what we had said in January, if you assume that the $1.3 billion on a full-year basis was just split evenly across all the quarters, you can see that the operating losses are up about $500 million year-to-date over that run-rate. So that's the way to think about approximately what the impact of that is year-to-date in the first half. Charlie Scharf: So then you take that, you add the FDIC to it. Mike Santomassimo: Right. And the remainder is roughly the revenue-related expenses in wealth management. Charlie Scharf: So that's why, Erika, when I was talking before, when you look at what's driving the increase in the expense guide, it is remediations in the first and second quarters. It's the FDIC expense that you've seen, and it's the increase in variable expenses. Everything else is playing out as we would have expected. Erika Najarian: Got it. Okay, that makes sense. And just maybe some comments on how you're thinking about credit quality from here. It looks like you continue to release reserves in the second quarter. Is this a message that you feel like you've captured most of the CRE-related issues, of course, absent of a further deterioration in the economy, and how should we think about the trajectory of the reserves from here relative to your charge-offs? Charlie Scharf: Well, when you say - well, I think when we look at the reserves, you have to bucket into different pieces. Our exposures are coming down in parts of the consumer business. And our - based on underwriting changes we've made, it's not just balances, but also the actual losses. So that's what's driving the reductions in that part of the loss reserves on the consumer side. And on the credit card side, it's really driven - the increase is really driven by balances. So you've got two very different dynamics going on there with the releases being just representative of a smaller higher credit quality credit portfolio. And then on the wholesale side, what we - the losses that we've seen and the credit performance in our CIB office CRE portfolio is playing out no worse than we would have expected when we set our ACL, but there's still uncertainty there so we're maintaining the coverage. So overall, there's really - in terms of our expectations, no real change from what we're seeing in the CRE portfolio, which is where the lost content is actually coming through. And elsewhere, things are still fairly benign other than some episodic credit events in part of the wholesale business, but no real trend there. Matt O'Connor: Good morning. Can you just elaborate a bit on why you increased the deposit costs for wealth? Was it to keep up with the competition? Was it trying to get ahead of some potential pricing pressures? Or what was kind of the logic there? Mike Santomassimo: Yes. Hi, it's Mike, Matt. So this was very specific to a sweep product in the wealth business. So it's a portion of that overall deposit, and it doesn't have any bearing on any other products. So I would just leave that very specific to that one individual product in fiduciary accounts or advisory accounts. Matt O'Connor: Okay. And how big is that - those deposit balances? Mike Santomassimo: We didn't - we don't - that's not something we normally have out there. But you can see the impact is, - I sort of highlighted the impact is roughly $350 million for the rest of the year - for the second half of the year. And - so I would just use that as - and that's already embedded in sort of the guidance we gave. Matt O'Connor: Okay. And then just a separate topic here. I mean, the credit card growth has been very good. You highlighted rolling out some new products. And the question as always, when you - anybody growth kind of so much in a certain category, you mentioned not growing too quickly, the loss rates have gone up maybe a little more than some peers, not as much as some others, obviously in line with what you were targeting. There was that negative Wall Street Journal article on one of your cards. So just kind of taken together, what kind of checks and balances you have to make sure that a somewhat new initiative for you that you're growing at the right pace? Thank you. Charlie Scharf: Yes. So, Mike, why don't I'll start, and then you can chime in? So first of all, we - when we look at our credit card performance, we do not look at it in total, right? We look at each individual product. We look at all of the performance broken out by vintage, and we compare the results that we're seeing, both in terms of balance build as well as credit performance, not losses, but starting very early with early-on book's delinquencies, and we look at how they're playing out versus pre-pandemic results as well as what we would have anticipated when we launched the product. As I've said, we look at the actual quality of the consumers that we're underwriting and the overall credit quality. We haven't compromised credit quality at all. We've probably tightened up a little bit as time has gone on relative to where we had been, but the actual performance when you look at the vintages is it's really spot-on with what we would have expected. So what you're seeing in terms of the increase in loss rates is just the maturing of the portfolio. And the last thing I'll just say is just when you think about the Wall Street Journal article, you know, that - we've launched a lot - a bunch of new credit cards. That is a - relative to the size and the scope of all of the cards that we issue and what our strategy is, that's a very, very, very small piece of it. Mike Santomassimo: Yes. And I would just add one piece. As you look at new account growth, we're not originating anything less than 660. So, as Charlie mentioned, some of the credit tightening with 660 FICO, sorry. So as Charlie mentioned, the credit box has not been brought in really at all. And when you look at some of the bigger products like cashback, like the cashback card, active cash, the new originations are coming in at a higher credit quality than the back-book was. And so at this point, as Charlie said, we go through it at a very, very granular level each quarter and the results are kind of right where we expect. And if we start to see any kind of weakness at all, we're adjusting where needed. Charlie Scharf: And just one last comment here, which is, again, because I appreciate the question. Whenever it's - you know, whenever you see a lot of growth in a product that has risk in it, it's always the right thing to ask the questions. We're not - this isn't - the people that are doing this, both in our card business, club who runs consumer lending myself like it. This is not a new product for us. We've seen this happen in the past. We've seen people do this well and we've seen people not do this well. And so we're very, very conscious of the risks that you're pointing out as we go forward, just as we are on the other businesses that we're investing in. Matt O'Connor: Okay, that's helpful. And obviously, you talked about card losses going down in 3Q, so that's consistent with everything that you said as well. So thank you for the color. Betsy Graseck: So just wanted to make sure on the expense guide I get the point that a bunch of that is related to better revenues from wealth management. And so your - we should be anticipating as a part of that, that revenues for wealth management in the second half is going to be at least at one-half or maybe even a little higher. Is that fair? Mike Santomassimo: Yes. I mean, I - Betsy, I covered that in my script too. So as you look at the advisory assets there, they get price-based on - and most of them get priced in advance for the quarter. So you know what third quarter looks like based on where we are now. And obviously, it's not all equity market. There's some fixed income in there as well. But you should see a little bit of an increase as you go into the third quarter based on where the markets are now and then we'll see what the fourth quarter looks like when we get there. Betsy Graseck: Yes, okay. So I just wanted to make sure we balanced out the expenses with the rev. So I know you're not guiding revs up, but interpretation leads you down that path. And so then I guess the other piece of the question I had just had to relate with the loan balance discussion that was going on earlier, and what's your view of interest in leaning into the markets business today? I realize there is opportunity, there's still the asset cap constraint, but you're not at the asset cap. So there is room for you to lean in. There are players who are a little bit more constrained on capital than you even in that space. So is this an area that you would be interested in leaning into, especially when C&I and CRE and other types of loans are low demand right now as you indicated earlier? Thanks. Charlie Scharf: Well, let me start. I think - so first of all, relative to where the balance sheet is running, we're not - let me say, we want to - we're careful about how we run the overall balance sheet, right, which is we don't want to operate at the cap on a regular basis because you've got to be prepared both for a customer appetite in terms of lending and deposits when you see it, as well as we lived through COVID where there was an event and all of a sudden there were a bunch of draws and we have to live within that asset gap. So running it with a cushion is a very smart thing we think for us to do, even though you can argue we're giving up some shorter-term profit. So that's just the reality of where we live. And so as we think about the markets business and what that means, yes, in the perfect world, we - you know, we're allowing them to finance some more. There are more opportunities out there for us to be able to do that. But what we are doing is, as we think about inside the Company optimizing the balance sheet and where we get the most returns and where there is more demand and less demand, there has been less demand in other parts of the Company and there's been more demand on the trading side. So our assets are actually up 15%-ish. Mike Santomassimo: Yes, trading. If you go to the supplement, that's the trading assets on an average basis are up 17%, a little more on a spot basis. Charlie Scharf: So we're just trying to - so we're reflective of what those opportunities are but we've got to keep capacity for the reasons I mentioned. Betsy Graseck: Got it. Okay. Thank you. Operator: The next question will come from Gerard Cassidy of RBC Capital Markets. Your line is open. Gerard Cassidy: And Charlie, you mentioned in your opening comments about Fargo - you guys launched Fargo over a year ago, I guess, and you're having real good pickup. Can you share with us any other AI-orientated programs that are in work in progress right now that could lead to increased efficiencies, or cost savings, or even revenue enhancements as you go forward? Charlie Scharf: Sure. Yes. As we - first of all, when we think about AI, we do break it into different categories, right? There is traditional AI and then there is GenAI. We have a huge number of use cases already embedded across the Company with just traditional AI. And that is - it's in - it's in our - it's in marketing. It's in credit decision-ing. It's in information that we provide bankers on both the wholesale on the consumer side about what customers could be willing or might be willing to entertain a discussion about. And so that is - in a lot of respects, that's business-as-usual for us. The new opportunity that exists with GenAI is where AI creates something based upon whether it's public data on our own data in terms of things that haven't existed. We are most focused in the shorter term on things that can drive efficiency, but it also contributes to just quality of the experience for our customers. So great examples of things like that are call centers. We take a lots of phone calls and we've got lots of opportunities through AI to answer those questions before someone gets to a call center rep. But once they get to a call center rep, we put a lot of effort into answering that question correctly, but also making sure that we're capturing that information, understanding root cause across all these calls we get. That means bankers have to go - telephone bankers have to go in, actually enter what the call was about, what they think the root cause is. We then have to aggregate that and so on and so forth. Through GenAI, that can be done automatically. It could be done immediately and the work can be done for us to identify that root cause, so then we can go back, look at it, make sure that's the case and make the change. So ultimately, that results in, fixing defects going forward, but it also takes so much manual effort out of what we do. And so that's - and so any place where something is written, something is analyzed by an individual, we've got the opportunity to automate that. Those things exist on the wholesale side as well as the consumer side. And to the extent that they impact a consumer, we're going to move very slowly to make sure we understand the impact of that. And so the work is a meaningful part of as we think about prioritization in terms of our tech spend. Gerard Cassidy: Very good. I appreciate those insights. And then just as a quick follow-up. You also mentioned about improved adviser retention in the quarter. And when you look at your Wealth and Investment Management segment, I recognize commissions and brokerage service fees are not the main driver, and investment advisory and other asset-based fees are in revenues for this division. But I noticed that they've been flat-to-down this year, they were up over a year ago. Is it seasonal in the second quarter that, that line of business just gets softer? Or is it the higher-rate environment where customers are just leaving more cash in - more assets in cash because they're getting 5% or so? Mike Santomassimo: Yes. There really is no rhyme or reason necessarily, Gerard, to exactly how that moves one quarter to the next necessarily. And obviously, if there's like large balance of volatility, you might see more transaction activity. That certainly hasn't been the case necessarily in the equity market in the second quarter. But to some degree, as that line item - over a very long period of time, that line item probably declines more and advisory goes up. And that's actually a really good thing from a productivity and from an ongoing revenue perspective as well. Gerard Cassidy: Yes. Okay, super. Okay, appreciate it. Thank you, Mike. Operator: And our final question for today will come from Steven Chubak of Wolfe Research. Your line is open, sir. Steven Chubak: Thanks, and good morning, Charlie. Good morning, Mike. Just given the sheer amount of, I guess, investor questions that we've received on the deposit pricing changes in wealth, I was hoping you could provide some additional context given many of your peers have talked about cash sorting pressures abating, or at least being in the very late innings. And want to better understand what informed the decision to adjust your pricing? Was it impacting advisor recruitment, or retention? Was it impeding your ability to retain more share of wallet? And - or is this an effort to maybe go on the offensive and lead the market on pricing and sweep deposits and force others to potentially follow suit? Mike Santomassimo: Yes, Steve. It's Mike. I'd say just a couple of things. One, this is not in reaction to cash sorting. We are seeing cash sorting slow in the Wealth business, just like we're seeing that in the consumer business. So this is not a reaction to that in any way. It's a relatively small portion of the overall deposits that sit within the - in the Wealth business, and it is very specific to this product, which is in an advisory account where there's frictional cash there. So it's not a reaction to competitive forces that we're seeing or us trying to be proactive somewhere to drive growth. Steven Chubak: Understood. And just one follow-up on the discussion relating to expenses. And just given the fee momentum that you're seeing within CIB and Wealth, and you're clearly making investments in both of those segments, at the same time, the incremental margins have actually been quite high, especially in CIB where it's running north of 75% on just first-half this year versus last. I was hoping to get some perspective as we think about some of that fee momentum being sustained, what do you believe are sustainable or durable incremental margins within CIB and Wealth recognizing the payout profiles are different? Mike Santomassimo: Well, let me start on the Wealth side and I'll come back to the I-banking or banking side. So on the Wealth side, what's really going to help us drive a margin expansion in that business over time are really kind of two things. One is continued productivity and growth in the advisory asset side, which you can see happening, and then two, and we've talked about this in other forums. It's doing a much better job penetrating that client base with banking and lending products. When you look at our loans in the Wealth business and you look at the overall asset base or the advisor for us, we're much less penetrated than some of the peers. And so I think those things really help drive us to get to more best-in-class margins, which are higher than where we sit today. And that takes some time on the lending side. In this rate environment, it's a little harder to drive that growth. And as rates start to come down, you'll probably see more demand there. And so there are some cyclical aspects of it that sort of come to from a timing perspective. But those are things that the - you know, Barry Sommers and the whole management team in Wealth are very focused on and making sure we've got the right capabilities, the right sales force, the right support for the sales force and so forth. On the I-banking side, we've been making investments in that business now for the better part of two-plus years, a little longer than that probably. And as we're adding good people, we're also not necessarily - we're also making sure that we've got the right people in the right seats. And so you're not seeing this really huge increase in overall senior headcount, you're actually - we're making sure we have the right people in the right seats, and so you've seen some reductions as you've seen some growth. And so that's helping also moderate the overall investment. And then also, as we brought those people on, you're paying them full freight when you recruit people, right? So what you're seeing is you're getting the benefit of those investments by adding the revenue piece now, but you've already got the expense in the run-rate to some degree. And so I think you'll see that pace of margin expansion moderate over time, but what you're seeing is what you should expect, which is like we made the investments, you're paying the people, now they're becoming productive incrementally each quarter and that's good to see. Steven Chubak: That's a really helpful color, Mike. Thanks for taking my questions. Operator: Thank you all for your participation on today's conference call. At this time, all parties may disconnect.

Earnings call: JPMorgan Chase posts strong Q2 results, buoyed by Visa gains By Investing.com

JPMorgan Chase & Co. (JPM) has reported a robust financial performance for the second quarter of 2024, with a net income of $18.1 billion and earnings per share (EPS) of $6.12 on revenue of $51 billion. These figures include a substantial net gain from the sale of Visa (NYSE:V) shares and a philanthropic contribution. Stripping out these one-time items, the adjusted net income stands at $13.1 billion, with an EPS of $4.40 and revenue at $43.1 billion. The company's Corporate and Investment Bank (CIB) and Consumer and Community Banking (CCB) segments showed strong performance, alongside a solid contribution from Asset and Wealth Management (AWM). JPMorgan also announced an increase in its quarterly dividend to $1.25 per share. JPMorgan's financial report for Q2 2024 reflects a company that is navigating a complex economic environment with a disciplined approach. Despite some headwinds, the bank's diversified business model and strategic capital management have contributed to a strong performance. As JPMorgan continues to monitor market conditions and adjusts its strategies accordingly, investors and stakeholders will be watching closely how these factors play out in the second half of the year. JPMorgan Chase & Co. (JPM) stands out with its latest financial performance, and a deeper dive into the InvestingPro data and tips can provide further clarity for investors. The company's market capitalization remains robust at $583.07 billion, reflecting its substantial presence in the financial industry. Additionally, JPMorgan's price-to-earnings (P/E) ratio of 11.44, which adjusts to 10.66 on a last twelve months basis as of Q2 2024, indicates that the stock may be trading at a reasonable valuation relative to its near-term earnings growth. This aligns with one of the InvestingPro Tips, highlighting the company's low P/E ratio in comparison to its earnings growth potential. Investors seeking stability in dividend income might find JPMorgan particularly attractive, as the company has not only maintained but also raised its dividend payments for 54 consecutive years. The recent dividend increase to $1.25 per share is testament to this commitment, and with a dividend yield of 2.24% as of mid-2024, it stands as a solid choice for income-focused portfolios. Revenue growth is another bright spot, with a substantial increase of 19.38% over the last twelve months as of Q2 2024. This growth is reflective of the strong performance across JPMorgan's segments, particularly in the Corporate and Investment Bank (CIB) and Consumer and Community Banking (CCB). For investors interested in further insights, there are several additional InvestingPro Tips available, which can be accessed through the dedicated InvestingPro page for JPMorgan at https://www.investing.com/pro/JPM. Utilize the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking a wealth of data and expert analysis to inform your investment decisions. Operator: Good morning ladies and gentlemen. Welcome to JPMorgan Chase's Second Quarter 2024 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. The presentation is available on JPMorgan Chase's website and please refer to the disclaimer in the back concerning forward-looking statements. Please stand by. At this time I would like to turn the call over to JPMorgan Chase's Chief Financial Officer Jeremy Barnum. Mr. Barnum, please go ahead. Jeremy Barnum: Thank you and good morning everyone. Starting on Page one, the firm reported net income of $18.1 billion, EPS of $6.12 on revenue of $51 billion with an ROTCE of 28%. These results included the $7.9 billion net gain related to Visa shares and the $1 billion foundation contribution of the appreciated Visa stock. Also included is $546 million of net investment securities losses in corporate. Excluding these items, the firm had net income of $13.1 billion, EPS of $4.40, and an ROTCE of 20%. Touching on a couple of highlights, in the CIB, IB fees were up 50% year-on-year and 17% quarter-on-quarter, and market revenue was up 10% year-on-year. In CCB, we had a record number of first-time investors and strong customer acquisition across checking accounts and card and we've continued to see strong net inflows across AWM. Now before I get more detail on the results I just want to mention that starting this quarter we are no longer explicitly calling out the First Republic contribution in the presentation. Going forward, we'll only specifically call it out if it is a meaningful driver in the year-on-year comparison. As a reminder, we acquired First Republic in May of last year, so the prior year quarter only has two months of First Republic results compared to the full three months this quarter. Also in the prior year quarter most of the expenses were in corporate whereas now they are primarily in the relevant line-of-business. Now turning to Page 2 for the firm-wide results. The firm reported revenue of $51 billion, up $8.6 billion, or 20% year-on-year. Excluding both the Visa gain that I mentioned earlier, as well as last year's First Republic bargain purchase gain of $2.7 billion, revenue of $43.1 billion was up $3.4 billion or 9%. NII ex-Markets was up $568 million or 3%, driven by the impact of balance sheet mix and higher rates, higher revolving balances in card, and the additional month of First Republic related NII, partially offset by deposit margin compression and lower deposit balances. NIR ex-Markets was up $7.3 billion or 56%. Excluding the items I just mentioned, it was up $2.1 billion or 21%, largely driven by higher investment banking revenue and asset management fees. Both periods included net investment securities losses. And markets revenue was up $731 million or 10% year-on-year. Expenses of $23.7 billion were up $2.9 billion or 14% year-on-year. Excluding the foundation contribution I previously mentioned, expenses were up 9% primarily driven by compensation including revenue related compensation and growth in employees. And credit costs were $3.1 billion reflecting net charge-offs of $2.2 billion and a net reserve build of $821 million. Net charge-offs were up $820 million year-on-year, predominantly driven by Card. The net reserve build included $609 million in consumer and $189 million in wholesale. Onto balance sheet and capital on Page 3. We ended the quarter with a CET1 ratio of 15.3% up 30 basis points versus the prior quarter, primarily driven by net income, largely offset by capital distributions and higher RWA. As you know, we completed CCAR a couple of weeks ago and have already disclosed a number of the key points. Let me summarize them again here. Our preliminary SCB is 3.3%, although the final SCB could be higher. The preliminary SCB, which is up from the current requirement of 2.9%, results in a 12.3% standardized CET1 ratio requirement, which goes into effect in the fourth quarter of 2024. And finally the firm announced that the Board intends to increase the quarterly common stock dividend from $1.15 to $1.25 per share in the third quarter of 2024. Now, let's go to our businesses, starting with CCB on Page 4. CCB reported net income of $4.2 billion on revenue of $17.7 billion, which was up 3% year-on-year. In banking and wealth management, revenue was down 5% year-on-year, reflecting lower deposits and deposit margin compression, partially offset by growth and wealth management revenue. Average deposits were down 7% year-on-year and 1% quarter-on-quarter. Client investment assets were up 14% year-on-year, predominantly driven by market performance. In home lending, revenue of $1.3 billion was up 31% year-on-year, predominantly driven by higher NII, including one additional month of the First Republic portfolio. Turning to Card services and Auto, revenue was up 14% year-on-year, predominantly driven by higher Card NII and higher revolving balances. Card outstandings were up 12% due to strong account acquisition and the continued normalization of revolve. And in Auto, originations were $10.8 billion, down 10% coming off strong originations from a year ago, while continuing to maintain healthy margins. Expenses of $9.4 billion were up 13% year-on-year, predominantly driven by First Republic expenses now reflected in the lines-of-business, as I mentioned earlier, as well as field compensation and continued growth in technology and marketing. In terms of credit performance this quarter, credit costs were $2.6 billion reflecting net charge-offs of $2.1 billion up $813 million year-on-year, predominantly driven by Card, as newer vintages season and credit normalization continues. The net reserve build was $579 million, also driven by Card, due to loan growth and updates to certain macroeconomic variables. Next, the Commercial and Investment Bank on Page 5. Our new Commercial and Investment Bank reported net income of $5.9 billion on revenue of $17.9 billion. You'll note that we are disclosing revenue by business, as well as breaking down the banking and payments revenue by client coverage segment in order to best highlight the relevant trends in both important dimensions of the wholesale franchise. This quarter, IB fees were up 50% year-on-year, and we Ranked Number #1 with year-to-date wallet share of 9.5%. And advisory, fees were up 45%, primarily driven by the closing of a few large deals in a week prior year quarter. Underwriting fees were up meaningfully with equity up 56% and debt up 51%, benefiting from favorable market conditions. In terms of the outlook, we're pleased with both the year-on-year and sequential improvement in the quarter. We remain cautiously optimistic about the pipeline, although many of the same headwinds are still in effect. It's also worth noting that pull-forward refinancing activity was a meaningful contributor to the strong performance in the first half of the year. Payments revenue was $4.5 billion, down 4% year-on-year, as deposit margin compression and higher deposit related client credits were largely offset by fee growth. Moving to markets, total revenue was $7.8 billion, up 10% year-on-year. Fixed income was up 5% with continued strength in securitized products. And equity markets was up 21%, with equity derivatives up on improved client activity. We saw record revenue in Prime on growth and client balances amid supportive equity market levels. Security services revenue of $1.3 billion was up 3% year-on-year, driven by higher volumes and market levels, largely offset by deposit margin compression. Expenses of $9.2 billion were up 12% year-on-year, largely driven by higher revenue related compensation, legal expense, and volume related non-compensation expense. In banking and payments, average loans were up 2% year-on-year due to the impact of the First Republic acquisition and flat sequentially. Demand for new loans remains muted as middle market and large corporate clients remain somewhat cautious due to the economic environment, and revolver utilization continues to be below pre-pandemic levels. Also, capital markets are open and are providing an alternative to traditional bank lending for these clients. In CRE, higher rates continue to suppress both loan origination and payoff activity. Average client deposits were up 2% year-on-year and relatively flat sequentially. Finally, credit costs were $384 million. The net reserve build of $220 million was primarily driven by incorporating the First Republic portfolio in the Firm's modeled approach. Net charge-offs were $164 million, of which about half was in office. Then to complete our lines-of-business, AWM on Page 6. Asset and wealth management reported net income of $1.3 billion with pre-tax margin of 32%. Revenue of $5.3 billion was up 6% year-on-year, driven by growth in management fees on higher average market levels and strong net inflows, as well as higher brokerage activity, largely offset by deposit margin compression. Expenses of $3.5 billion were up 12% year-on-year, largely driven by higher compensation, primarily revenue-related compensation, and continued growth in our private banking advisor teams. For the quarter, long-term net inflows were $52 billion, led by equities and fixed income. And in liquidity, we saw net inflows of $16 billion. AUM of $3.7 trillion was up 15% year-on-year. And client assets of $5.4 trillion were up 18% year-on-year, driven by higher market levels and continued net inflows. And finally, loans and deposits were both flat quarter-on-quarter. Turning to corporate on Page 7. Corporate reported net income of $6.8 billion on revenue of $10.1 billion. Excluding this quarter's Visa-related gain and the First Republic bargain purchase gain in the prior year, NIR was up approximately $450 million year-on-year. NII was up $626 million year-on-year, driven by the impact of balance sheet mix and higher rates. Expenses of $1.6 billion were up $427 million year-on-year, excluding foundation contribution expenses were down $573 million year-on-year, largely as a result of moving First Republic related expense out of corporate into the relevant segments. To finish up, we have the outlook on Page 8. Our 2024 guidance, including the drivers, remains unchanged from what we said at Investor Day. We continue to expect NII and NII ex-markets of approximately $91 billion, adjusted expense of about $92 billion, and on credit, Card net charge-off rate of approximately 3.4%. So to wrap up, the reported performance for the quarter was exceptional and actually represents record revenue and net income. But more importantly, after excluding the significant items, the underlying performance continues to be quite strong. And as always, we remain focused on continuing to execute with discipline. And with that, let's open the line for Q&A. Operator: For our first question, we'll go to the line of Steven Chubak from Wolfe Research. Please go ahead. Steven Chubak: So, I wanted to start off with a question on capital. Just given some indications that the Fed is considering favorable revisions to both Basel III endgame and the GSIB surcharge calculations, which I know you've been pushing for some time. As you evaluate just different capital scenarios, are these revisions material enough where they could support a higher normalized ROTCE at the Firm versus a 17% target? And if so, just how that might impact or inform your appetite for buybacks going forward? Jeremy Barnum: Right, okay. Thanks Steve. And actually before answering the question, I just want to remind everyone that Jamie is not able to join because he has a travel conflict overseas, so it's just going to be me today. Okay. Good question on the capital and the ROTCE. So let me start with the ROTCE point first. In short, my answer to that question would be no. It's hard to imagine a scenario coming out of the whole potential range of outcomes on capital that involves an upward revision on ROTCE. If you think about the way we've been talking about this, we've said that you know before the Basel III endgame proposal, we had a 17% through cycle target and that while you can imagine a range of different outcomes, the vast majority of them involve expansions of the denominator. And while we had ideas about changing the perimeter and repricing, all of which are still sort of in effect, most of those would be thought of as mitigants rather than things that would actually increase the ROTCE. And I don't really think that answer has particularly changed. So as of now, that's what I would say, which is a good pivot to the next point, which is yeah, we've been reading the same press coverage you've been reading and you know, it's fun and interesting to speculate about the potential outcomes here, but in reality, we don't know anything -- you don't know. We don't know how reliable the press coverage is. And so in that sense, I feel like on the overall capital return and buyback trajectory, not much has actually changed relative to what I laid out at Investor Day, the comments that I made then, the comments that Jamie made then, as well as the comments that Jamie made subsequent week at an industry conference. So maybe I'll just briefly summarize for everyone's benefit what we think that is, which is one, we do recognize that our current practice on capital return and buybacks does lead to an ever-expanding CET1 ratio. But obviously we're going to run the company over the cycle over time at a reasonable CET1 ratio with reasonable buffers relative to our requirements. So after all the uncertainty is sorted out, the question of the deployment of the Capital one way or another is a matter of when, not if. On the capital hierarchy, it's also worth noting that's another thing that remains unchanged, so I'll review it quickly. You know, growing the business organically and inorganically, sustainable dividend, and in that context it's worth noting that the Board's announced intention to increase it to a $1.25 is a 19% increase prior to last year, so that's a testament for our performance and that is a return of capital. And then finally buyback, but that hierarchy does not commit us to return 100% of the capital generation in any given quarter. And so, as we said here today, when you look at the relationship between the opportunity cost of not deploying the capital and the opportunities to deploy the capital outside the Firm, it is kind of hard to imagine an environment where that relationship argues more strongly for patients. So given all that, putting it all together I'm sorry for the long answer, we remain comfortable with the current amount of excess capital. And as Jamie has said, we really continue to think about it as earnings in store, as much as anything else. Steven Chubak: No need to apologize, Jeremy. That was a really helpful perspective. Maybe just for my follow-up on NII. You've been very consistent just in flagging the risk related to NII over earning, especially in light of potential deposit attrition, as well as repricing headwinds. In the second quarter, we did see at least some moderation in repricing pressures. Deposit balances were also more resilient in what's a seasonally weak quarter for deposit growth. So just given the evidence that some deposit pressures appear to be abating. Do you see the potential for NII normalizing higher? And where do you think that level could ultimately be in terms of stabilization? Jeremy Barnum: Yes. Interesting question, Steve. So let's talk about deposit balances. So yes I see your point about how balance pressures are slightly abating. When you look at the system as a whole, just to go through it, Q2 is still a bit of a headwind. Loan growth is modest and not enough to offset that. And RRP seems to have settled in roughly at its current levels, and there are reasons to believe that it might not go down that much more, although that could always change and that could supply extra reserves into the system. But on balance, net across all those various effects, we still think that there are net headwinds to deposit balances. So when we think of our balance outlook, we see it as flat to slightly down maybe, with our sort of market share and growth ambitions offsetting those system-wide headwinds. So in terms of normalizing higher, I guess it depends on relative to what. But I think it is definitely too early to be sort of calling the end of the over earning narrative or the normalization narrative. Clearly, the main difference in our current guidance relative to what we had earlier in the year, which implied a lot more sequential decline, is just the change in the Fed outlook. So two cuts versus six cuts is the main difference there. But obviously, based on the latest completion data and so on, you could usually get back to a situation with a lot more cuts in the yield curve. So we'll see how it goes. And in the end, we are kind of focused on just running the place, recognizing and trying not to be distracted by what remains some amount of over earning, whatever it is. Saul Martinez: Hi, good morning. Thanks for taking my question. Jeremy, can you give an update on the stress capital buffer? You noted, obviously, that you think there is an error in the Fed's calculation due to OCI. Can you just give us a sense of what the dialogue with the Fed looks like? Is there a process to modify the SCB higher? And if you could give us a sense of what that process looks like. Jeremy Barnum: Yes. So I'm not going to comment about any conversations with the Fed. Not to confirm or deny that they even exist, that stuff is private. And so -- and then if you talk about like the timing here, right? So you know that the stress capital buffer that's been released 3.3%, is a preliminary number. By rule, the Fed has to release that by August 31, it may come sooner. You talked about an error in the calculation, we haven't used that word. What we know -- what we believe, rather, is that the amount of OCI gain that came through the Fed's disclosed results looked non-intuitively high to us. And if you adjust that in ways that we think are reasonable, you would get a slightly higher stress capital buffer. Whether the Fed agrees and whether they decide to make that change or not is up to them, and we'll see what happens. I think the larger point is that if you look at the industry as a whole and if you sort of put us into that with some higher pro forma SCB, whatever it might conceivably be, you actually see once again, quite a bit of volatility in the year-on-year change in the stress capital buffer for many firms. And just sort of reiterating and -- another example of what we've said a lot over the years, that it's volatile, it's untransparent, it makes it very hard to manage capital of a bank. It leads to excessively high management buffers, and we think it's really not a great way to do things. So I'll leave it at that. Saul Martinez: Okay. Got it. That's helpful. Just following up on capital returns on Steve's question. I think you highlighted in response as a matter of when not if. And obviously, Jamie is not there. You can't speak for Jamie. But seems to have shown limited enthusiasm for a special dividend or buybacks at current valuations. Can you just give us a sense of how you're thinking about the various options? Any updated thoughts on your special dividend? And can you do other things like for example, have a material increase in your dividend payout sort of a step function increase, where -- keep that flat and grow into that grow your earnings into that over time? Can you just maybe give us a sense of how you're thinking about what options you have available to deploy that capital. Jeremy Barnum: Yes. I mean I would direct you to read -- actually, I have Jamie's comments at the industry conference where you participated the week after Investor Day, because he wanted just a good amount of detail on this stuff addressing some of these points. And I think his comment there about the special dividend was that it's not really a preference. We hear from people that many of our investors wouldn't find that particularly appealing, and he said as much that it wouldn't be sort of our first choice. So I think the larger point is just that -- a little bit to your question, there are a number of tools in the toolkit, and they're really the same tools that are part of our capital hierarchy. So first and foremost, we're looking to deploy the capital into organic or inorganic growth. And then the dividend, I think, we are always going to want to keep it in that like sustainable, and also sustainable in a stress environment. So that continues to be the way we think about that. And then at the end of it, it is buybacks. And Jamie has been on the record for over a decade, I think over many shareholder letters, talking about how he thinks about price and buybacks and valuation, and price is a factor. So that's sort of the totality of the sort of options, I guess. Operator: Next, we'll go to the line of Ken Usdin from Jefferies. Please go ahead. Ken Usdin: Thanks a lot. Good morning Jeremy. Jeremy, great to see the progress on investment banking fees, up sequentially and 50% year-over-year. And I saw you on the tape earlier just talking about still regulatory concerns a little bit in the advisory space. And we clearly didn't see the debt pull-forward play through, because DCM was great again. I'm just wondering just where you feel the environment is relative to the potential. And just where the dialogue is across the three main bucket areas in terms of like how does this feel in terms of current environment versus a potential environment that we could still see ahead? Thanks. Jeremy Barnum: Yes. Thanks, Ken. It's progress, right? I mean we are happy to see the progress. People have been talking about [depressed] (ph) banking fee wallet for some time, and it's nice to see not only the year-on-year pop on the low base, but also a nice sequential improvement. So that's the first thing to say. In terms of dialogue and engagement, it's definitely elevated. So as the dialogue on ECM is elevated and the dialogue on M&A is quite robust as well. So all of those are good things that encourage us and make us hopeful that we could be seeing sort of a better trend in this space. But there are some important caveats. So on the DCM side, yes, we made pull-forward comments in the first quarter, but we still feel that this second quarter still reflects a bunch of pull forward, and therefore we are reasonably cautious about the second half of the year. Importantly, a lot of the activity is refinancing activity as opposed to for example, acquisition finance. So the fact that M&A remains still relatively muted in terms of actual deals has knock-on effects on DCM as well. And when a higher percentage of the wallet is refi, then the pull-forward risk becomes a little bit higher. On ECM, if you look at it kind of at [remove] (ph), you might ask the question, given the performance of the overall indices, you would think it would be a really booming environment for IPOs, for example. And while it's improving, it's not quite as good as you would otherwise expect. And that's driven by a variety of factors, including the fact that as has been widely discussed, that extent to which the performance of the large industries is driven by like a few stocks, the sort of mid-cap tech growth space and other spaces that would typically be driving IPOs have had much more muted performance. Also, a lot of the private capital that was raised a couple of years ago was raised at pretty high valuations. And so in some cases, people looking at IPOs could be looking at down rounds, that's an issue. And while secondary market performance of IPOs has improved meaningfully, in some cases, people still have concerns about that. So those are a little bit of overhang on that space. I think we can hope that, over time that fades away and the trend gets a bit more robust. And yes, on the advisory side, the regulatory overhang is there, remains there. And so we'll just have to see how that plays out. Ken Usdin: Great. Thank you for all that Jeremy. And just one on the consumer side. Just anything you're noticing in terms of people who just have been waiting for this delinquency stabilization on the credit card side. Obviously, your loss rates are coming in as you expected, and we did see 30 days pretty flat and 90 days come down a little bit. Any -- is that seasonal? Is it just a good rate of change trend? Any thoughts there? Thanks. Jeremy Barnum: Yes. I still feel like when it comes to Card charge-offs and delinquencies, there's just not much to see there. It's still -- it's normalization, not deterioration. It's in-line with expectations. As I say, we always look quite closely inside the cohort, inside the income cohorts. And when you look in there, specifically, for example on spend patterns, you can see a little bit of evidence of behavior that's consistent with a little bit of weakness in the lower income segments, where you see a little bit of rotation of the spend out of discretionary into non-discretionary. But the effects are really quite subtle, and in my mind definitely entirely consistent with the type of economic environment that we are seeing, which, while very strong and certainly a lot stronger than anyone would have thought given the tightness of monetary conditions, say, like they've been predicting it a couple of years ago or whatever, you are seeing slightly higher unemployment, you are seeing moderating GDP growth. And so it is not entirely surprising that you're seeing a tiny bit of weakness in some pockets of spend. So it all kind of hangs together in what is sometimes actually not a very interesting story. Operator: Next, we'll go to the line of Glenn Schorr from Evercore ISI. Please go ahead. Glenn Schorr: Hi, thanks very much. So Jeremy, the discussions so far around private credit and you all, your recent comments have been the ability to add on balance sheet and compete when you need to compete on the private credit front. I do think that most of the discussion has been about the direct-lending component. So I'm curious if you are showing more progress and activity on that front. And then very importantly, do you see the same trend happening on the asset-backed finance side, because that's a bigger part of the world, and it is a bigger part of your business? So I'd appreciate your thoughts there. Thanks. Jeremy Barnum: Yes. Thanks, Glenn. So on private credit, so nothing really new to say there. I think -- I guess one way the environment is evolving a little bit is that as you know, a lot of money has been raised in private credit funds looking for deals. And sort of a little bit to my prior comment, in a relatively muted acquisition finance environment, at this point you've got a lot of money chasing kind of like not that many deals. So the space is a little bit quieter than it was at the margin. Another interesting thing to note is some of this discussion about kind of lender protections that were typical in the syndicated lender finance market making their way into the private market as well, is sort of people realize that even in the private market, you probably need some of those protections in some cases. Which is sort of supportive of the theme that we've been talking about, about convergence between the direct lending space and the syndicated lending space, which is kind of our core thesis here, which is that we can offer best-in-class service across the entire continuum, including secondary market trading and so on. So we feel optimistic about our offering there. I think the current environment is maybe a little bit quieter than it was. So it is maybe not a great moment to like kind of test whether we are doing a lot more or less in the space, so to speak. And then on asset-backed financing, you actually asked me that question before. And at the time, my answer was that I haven't heard much about that trend, and that continues to be the case. But clearly, there must be something I'm missing. So I can follow up on that and maybe we can have a chat about it. Glenn Schorr: That's great for you if you are not hearing much about it, so we can leave it at that. Maybe just one quick follow-up in terms of your just overall posturing on -- you were patient and smart when rates were low, waited to deploy, worked out great. We know that story. Now it seems like you have tons of excess liquidity and you are being patient and rates are high. And I'm curious on how you think about what kind of triggers, what kind of things you're looking for in the market to know if and when you would extend duration? Jeremy Barnum: Right. I mean on duration, in truth we have actually added a little bit of duration over the last couple of quarters. So that's one thing to say, that was more last quarter than this quarter. But I guess I would just caution you from -- a little bit away from looking at kind of our reported cash balances and our balance sheet, and concluding that when you look at the duration concept holistically, that there is a lot to be done differently on the duration front. So clearly, it is true that empirically, we've behaved like very asset sensitively in this rate hiking cycle, and that has resulted in a lot of excess NII generation sort of on the way up in the near-term. But when we look at the fund's overall sensitivity to rates, we look at it through both like the [EAR type lens] (ph), the short-term NIR sensitivity, but also a variety of other lenses, including various types of scenario analysis, including impacts on capital from higher rates. And as I think Jamie has said a couple of times, we actually aim to be relatively balanced on that front. Also, given like the inverted yield curve, it's not as if extending duration from these levels means that you're walking in 5.5% rate. In fact, the forwards are not sort of that compelling given our views about some sort of structural upward pressures on inflation and so on. So I think when you put that all together, I don't think that kind of a big change in duration posture is a thing that's front in mind for us. Matt O'Connor: Good morning. I was just wondering if you can elaborate on essentially the math behind the ROTCE being too high at 20% and normalized at 17%. Obviously, you've pointed to over-[earning NII] (ph). And I guess the question is, is that all of it to go from 20% to 17%? And if so, is that all consumer deposit costs? Or are there a few other components that you could help frame for us? Jeremy Barnum: Sure. Good question, Matt. I mean, I guess the way I think about it is a couple of things. Like our returns tend to be a bit seasonal, right? So if you kind of build yourself out a full year forecast and make reasonable space on your own, or analyst consensus or whatever, and you think about the fourth quarter, better look at this on a full year basis when you think about the returns than the quarterly numbers, and you obviously have to strip out kind of the onetime items. And so if you do that, like whatever you get for this year is still clearly a number that's higher than 17%. So yes, one source of headwinds is normalization of the NII, primarily as a result of the expected higher deposit costs. That's -- we've talked about that. Part of it is also the yield curve effects. Some cuts will come into the curve at some point. And in the normal course, if you kind of do a very, very, very supplemental model of the company, you would have like expenses grow -- revenue is growing at some organic GDP like rate, maybe higher, and expenses growing at a similar slightly lower rate, producing a sort of relatively stable overhead ratio. But even if the amount of NII normalization winds up being less than we might have thought at some prior point, you still have some background -- you still have some normalization of the overhead ratio that needs to happen. So as much as our discipline on expense management is, as tight as it always has been, the inflation is still non-zero. There are still investments that we're executing. There is still higher expense to come in a slightly flatter revenue environment as a result of in part, the normalization of NII. And then the final point is that whatever winds up being the answer on Basel III endgame and all the other pieces, you have to assume some amount of expansion of the denominator, at least based on what we know so far. So of course, any of those pieces could be wrong, but that's kind of how we get to our 17%. And if you look at the various scenarios that we showed on the last page of my Investor Day presentation, it illustrates those dynamics and also how much the range could actually vary as a function of the economic environment and other factors. Matt O'Connor: Yes. That was a really helpful chart. Just one follow-up. On the yield curve effects, I guess, what do you mean by that? Because right now, the yield curve is inverted, maybe you're still leaving any impact of that. But kind of longer-term, you'd expect a little bit of steepness of the curve, which I would think would help. But what does you mean by that? Thank you. Jeremy Barnum: Yes. I mean you and I talked about this before. I guess I sort of -- I guess I don't really agree fundamentally with the notion that the way to think about things is that sort of yield curve steepness above and beyond what's priced in by the forwards is a source of structural NII or NIM for banks, if you know what I mean. Like I mean people have different views about the so-called term premium. And obviously, in a moment of inverted curve and different types of treasury supply dynamics, people thinking on that may be changing. But I think we saw, when rates were at Zero and the 10-year note was below 2%, everyone sort of -- many people were kind of tempted to try to get extra NIM and extra NII by extending duration a lot. But when the steepness of the curve implies -- is driven by the expectation of actually aggressive Fed tightening, it's just a timing issue and you can wind up kind of pretty offside from the capital and other perspectives. So there are some interesting questions about whether fiscal dynamics might result in a structurally steeper yield curve down the road and whether that could be sort of -- earning the term premium, so to speak, could be a source of NII, but that feels a bit speculative to me at this point. Mike Mayo: Hi. Jeremy, you said it's too early to end the over earning narrative, and you highlighted higher deposit costs and the impact of lower rates and lower NII and DCM pull-forward and credit cost going higher. Anything I'm missing on that list? And what would cause you to end the over earning narrative? Jeremy Barnum: No. Actually, I think that is the right list Mike. I mean, frankly, I think one thing that would end to be over earning narrative is if our annual returns were closer to 17%. I mean to the extent that, that is the through-the-cycle number that we believe and that we are currently producing more than that, that's one very simple way to look at that. But the pieces of that or the pieces that you talked about and the single most important piece is the deposit margin. Our deposit margins are well above historical norms, and that is a big part of the reason that we still are emphasizing the over earning narrative. Mike Mayo: You're 17% through-the-cycle ROTCE kind of expectation, what is the CET1 ratio that you assumed for that? Jeremy Barnum: I mean we would generally assume requirements plus a reasonable buffer, which depending on the shape of rules, could be a little bit smaller or a little bit bigger. And the small part as a function of the volatility of those pools, which goes back to my prior comments on SCB and CCAR. But obviously, as you well know, what actually matters is less the ratio and more of the dollars. And at this point, the dollars are very much a function of where rules land and where the RWA lands, and obviously things like GSIB recalibration and so on. So we've done a bunch of scenario analysis along the lines of what I did at Investor Day that informs those numbers, but that is obviously one big element of uncertainty behind that 17%. Which is why at Investor Day, when we talked about it, both Daniel and I were quite specific about saying that we thought 17% was still achievable, assuming a reasonable outcome on the Basel III endgame. Mike Mayo: Let me just zoom out for one more question on the return target. I mean when I asked Jamie at the [2013] (ph) Investor Day would it make sense to have 13.5% capital, he was basically telling you take a hike, right? And now you have 15.3% capital and you're saying, well, we might want to have a lot more capital here. I mean at some point, if you're spending $17 billion a year to improve the company, if you're gaining share with digital banking, if you're automating the back office, if you're moving ahead with AI, if you're doing all these things that I think you say others aren't doing, why wouldn't those returns go higher over time? Or do you just assume you'll be competing those benefits away? Thanks. Jeremy Barnum: Yes. I mean, I think in short, Mike, and we've talked about this a lot and Jamie has talked about this a lot, it is a very, very, very competitive market. And we are very happy with our performance. We are very happy with the share we've taken. And 17% is like an amazing number actually. And like to be able to do that, given how robust the competition is from banks, from non-banks, from US banks, from foreign banks and all of the different businesses that we compete in, is something that we're really proud of. So the number has a range around it, obviously. So it's not a promise, it's not a guarantee and it can fluctuate. But we are very proud to be in the ballpark of being able to think that we can deliver it, again assuming a reasonable outcome on Basel III endgame. But it's a very, very, very competitive market across all of our products and services and regions and [line] (ph) segments. Betsy Graseck: So I did want to ask one drill-down question on 2Q, and it is related to the dollar amount of buybacks that you did do. I think in the press release, right and the slide deck, it's $4.9 billion common stock net repurchases. So the question here is what's the governor for you on how much to do every quarter? And I mean I understand it is a function of okay, how much do we organically grow. But even with that, so you get the organic growth which you had some nice movement there. But you do the organic growth and then is it how much do we earn and we want to buy back our earnings? Or how should we be thinking about what that repurchase volume should be looking like over time? And I remember at Investor Day, the whole debate around I don't want to buy back my stock, but we are right? So I get this question from investors quite a bit of how should we be thinking about how you think about what the right amount is to be doing here? Jeremy Barnum: Yes. That's a very good and fair question, Betsy. So let me try to unpack it to the best of my abilities. So -- in no particular order. One thing that we've really tried to emphasize in a number of different settings, including in our recent 10-Qs actually, is that we don't want to get into the business of guiding on buybacks. So we're going to buy back whatever we think makes sense in the current moment sort of -- and we prefer the right to sort of change that at any time. So I recognize that not everyone loves that, but that is kind of a philosophical belief. And so I might as well say it explicitly. It was pretty clear in the [Q] (ph) also, but I'm just going to say that again. So that's point one. But having said that, let me nonetheless try to address your point on framework and governors. So generally speaking, we think it doesn't make sense to sort of exit the market entirely unless the conditions are much more unusual than they are right now, let's say. Obviously, when for whatever reason, if we ever need to build capital in a hurry, we've done it before and we are always comfortable suspending buybacks entirely. But I think some modest amount of buybacks, is a reasonable thing to do when you are generating your kind of capital. And so we were talking before about this $2 billion pace, we're kind of trying to move away from this notion of a pace, but that's where that idea comes from, let's put it that way. You talked about the $4.9 million, which I recognize may seem like a little bit of a random number. But where that actually comes from is the other statement that we made, that we have these significant item gains from Visa. And if you think about what that means, it means that we have, post the acceptance of the exchange offer, a meaningful long position and liquid large cap financial stock, i.e. Visa, which realistically is highly correlated to our own stock. And so in some sense, why carry that instead of just buying back JPMorgan stock. So we talked about, Jamie talked about as we liquidate the Visa, deploying those proceeds into JPM, and that's what we did this quarter. So that is why the 4.9% is a little higher. And it's consistent with my comments at our Investor Day around having slightly increased the amount of buybacks. And beyond that what you are left with is answer to Steve's question, which is that, to your point about buying back earnings or whatever, when we are generating these types of earnings and there is this much organic capital being generated, in the absence of opportunities to deploy it organically or inorganically and while continuing to maintain our healthy but sustainable dividend, if we don't return the capital, we are going to keep growing the CET1 ratio, the levels of which -- if you think about the long strategic outlook of the company, are not reasonable. They're just artificially high and unnecessary. So one way or the other, that will need to be addressed at some point. It's just that we don't feel now is the right time. Operator: Next, we'll go to the line of Gerard Cassidy from RBC Capital Markets. Please go ahead. Gerard Cassidy: Jeremy, can you -- I know you touched on deposits earlier in the call in response to a question. I noticed on the average balances, the non-interest bearing deposits were relatively stable quarter-to-quarter versus prior quarters when they have steadily declined. And this is one of the areas, of course investors are focused on in terms of the future of the net interest margin for you and your peers. Can you elaborate, if you can, what you're seeing in that non-interest-bearing deposit account? I know this is average and not period end, the period end number may actually be lower. But what are you guys seeing here? Jeremy Barnum: Yes. Good question, Gerard. I have to be honest, I haven't focused on that particular sequential explain i.e., quarter-on-quarter change and average non-interest-bearing deposits. But I think the more important question is the big picture question, which is what do we expect? I mean how are we thinking about ongoing migration of non-interest-bearing into interest-bearing in the current environment, and how that affects our NII outlook and our expectation for weighted average rate paid on deposits. And the answer to that question is that we do continue to expect that migration to happen. So if you think about it in the wholesale space, you have a bunch of clients with some balances in non-interest-bearing accounts, and over time for a variety of reasons, we do see them moving those balances into interest-bearing. So we do continue to expect that migration to happen, and therefore, that will be a source of headwinds. And that migration sometimes happens internally, i.e., out of non-interest-bearing into interest-bearing or into CDs. Sometimes it goes into money markets or into investments, which is what we see happening in our Wealth Management business. And some of it does leave the company. But one of the things that we are encouraged by is the extent to which we are actually capturing a large portion of that yield-seeking flow through CDs and money market offerings, et cetera, across our various franchises. So big picture. I do think that migration out of non-interest-bearing into interest-bearing will continue to be a thing, and that is a contributor to the modest headwinds that we expect for NII right now. But yes I'll leave it at that, I guess. Gerard Cassidy: Very good. And as a follow-up, you've been very clear about the consumer credit card charge-offs and delinquency levels. And we all know about the commercial real estate office, and you always talk about over-earning on net interest income of course. One of the great credit quality stories for everyone, including yourselves, is the C&I portfolio, how strong it's been for -- in this elevated rate environment. And I know your numbers are still quite low, but in the Corporate and Investment Bank, you had about a $500 million pickup in non-accrual loans. Can you share with us what are you seeing in C&I? Are there any signs of cracks or anything? And again, I know your numbers are still good, but I'm just trying to look forward to see if there's something here over the next 12 months or so. Jeremy Barnum: Yes, it's a good question. I think the short answer is no, we are not really seeing early signs of cracks in C&I. I mean, yes, I agree with you, like the C&I charge-off rate has been very, very low for a long time. I think we emphasized that at last year's Investor Day, if I remember correctly. I think the C&I charge-off rate we are seeing 10 years was something like literally zero. So that is clearly very low by historical standards. And while we take a lot of pride in that number, I think it reflects the discipline in our underwriting process and the strength of our credit culture across bankers and the risk team, that's not -- we don't actually run that franchise to like a zero loss expectation. So you have to assume there will be some upward pressure on that. But in any given quarter, the C&I numbers tend to be quite lumpy and quite idiosyncratic. So I don't think, that anything in the current quarter results is indicative of anything broader, and I haven't heard anyone internally talk that way, I would say. Operator: Next, we'll go to the line of Erika Najarian from UBS. Please go ahead. Erika Najarian: Hi, good morning. I just had one cleanup question, Jeremy. The consensus provision for 2024 is $10.7 billion. Could you maybe clarify for once and for all sort of Jamie's comments at an industry conference earlier and try to sort of triangulate if that $10.7 billion provision is appropriate for the growth level that you are planning for in Card? Jeremy Barnum: Yes. Happy to clarify that. So Jamie's comments were that the allowance to build and the Card allowance, so we are talking about Card specifically, we expected something like $2 billion for the full year. As I sit here today, our expectation for that number is actually slightly higher, but it is in the ballpark. And I think in terms of what that means for the consensus on the overall allowance change for the year, last time I checked, it still looked a little low on that front. So who knows what it will actually wind up being, but that remains our view. One question that we've gotten is how to reconcile that build to the 12% growth in OS that we've talked about because it seems like a little bit high relative to what you would have otherwise assumed if you apply some sort of a standard coverage ratio to that growth. But the reason that's the case is essentially a combination of higher revolving mix as we continue to see some normalization revolve in that 12%, as well as seasoning of earlier vintages, which comes with slightly higher allowance per unit of OS growth. Operator: And for our final question, we'll go to the line of Jim Mitchell from Seaport Global Securities. Please go ahead. Jim Mitchell: Hi, good morning. Maybe just one last question on sort of deploying excess capital. It seems like the two primary ways to do that organically would be through the trading book or the loan book. So maybe two questions there. One, trading assets were up 20% year-over-year. Is that you leaning into it or just a function of demand? And is there further opportunities to grow that? And then secondly outside of Cards, loan demand has been quite weak. And any thoughts from you on if you're seeing any change in demand or how you're thinking about loan demand going forward? Thanks. Jeremy Barnum: Thanks, Jim. Good question. So yes, trading assets have been up. That is basically client activity primarily secured financing related sort of matchbook repo type stuff and similar things that are -- grows up the balance sheet quite a bit, but are quite low risk and therefore quite low RWA intensity. So while our ability the supply that financing to clients is something that we're happy about and it's very much represents us leaning into the franchise to serve our clients. It's not really particularly RWA, and therefore capital intensive, and therefore it doesn't really reflect an aggressive choice on our part to deploy capital, so to speak. On the loan demand front, yes, I mean, unfortunately, I just don't have much new to say there on loan demand. Meaning, to your point, loan demand remains quite muted everywhere except Card. Our Card business is, of course, in no way capital constrained. So whatever growth makes sense there in terms of our customer franchise and our ability to acquire accounts and retain accounts, and what fits inside our credit risk appetite is growth that's going to make sense. And so we're very happy to deploy capital to that. But it's not constrained by our willingness or ability to deploy capital to that. And of course, for the rest of the loan space, the last thing that we are going to do is have the excess capital mean that we lean in to lending that is not inside our risk appetite or inside our credit box, especially in a world where spreads are quite compressed and terms are under pressure. So there is always a balance between capital deployment and assessing economic risk rationally. And frankly, that is in some sense, a microcosm of the larger challenge that we have right now. When I talked about if there was ever a moment where the opportunity cost of not deploying the capital relative to how attractive the opportunities outside the walls of the company are, now would be it in terms of being patient. That's a little bit one example of what I was referring to. Operator: Thank you all for participating in today's conference. You may disconnect your line and enjoy the rest of your day.

Earnings call: BNY reports solid growth and strategic initiatives By Investing.com

BNY Mellon (NYSE:BK) (BNY) has reported a solid financial performance in its 2024 second quarter earnings call, with notable growth in earnings per share and revenue. CEO Robin Vince highlighted the company's improved earnings per share (EPS), which increased by 16% year-over-year (YoY) to $1.52. Total revenue also rose by 2% YoY to $4.6 billion, driven by a 5% growth in investment services fees and a 16% increase in foreign exchange revenue. BNY's focus on strategic initiatives, such as capitalizing on its security services and the growth of its wealth advisory platform, Wove, has contributed to this performance. The company also emphasized its commitment to shareholder returns, detailing over $900 million of capital returned to shareholders and a common equity tier 1 (CET1) ratio of 11.4%. BNY Mellon's second quarter earnings call showcased a company in the midst of strategic growth and optimization, with a strong focus on client services and shareholder returns. Despite some challenges, the company's executives expressed confidence in their ability to navigate the current financial landscape and continue delivering value. BNY Mellon's (BK) recent performance in the second quarter of 2024 is further illuminated by key metrics and insights from InvestingPro. With a market capitalization of $47.74 billion and a price-to-earnings (P/E) ratio that stands at 15.52, the company shows a robust financial stature. The adjusted P/E ratio for the last twelve months as of Q2 2024 is even more attractive at 12.11, suggesting a favorable valuation relative to near-term earnings growth. InvestingPro Tips indicate that BNY Mellon has maintained a strong track record of dividend growth, raising its dividend for 13 consecutive years, which aligns with the company's commitment to shareholder returns mentioned in the earnings call. Additionally, analysts have revised their earnings upwards for the upcoming period, reflecting a positive sentiment towards the company's future performance. The company's shares are trading near their 52-week high, with a price percentage of 99.64% of the peak, highlighting investor confidence and the stock's momentum. This is corroborated by a significant one-year price total return of 57.42%, which underscores the company's strong return over the last year. For readers interested in further insights, there are additional InvestingPro Tips available at https://www.investing.com/pro/BK. And for those looking to delve deeper into these metrics, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. Operator: Good morning and welcome to the 2024 Second Quarter Earnings Conference Call hosted by BNY. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY's consent. I will now turn the call over to Marius Merz, BNY Head of Investor Relations. Please go ahead. Marius Merz: Thank you, Operator. Good morning, everyone, and thank you for joining us. I'm here with Robin Vince, President and Chief Executive Officer, and Dermot McDonogh, our Chief Financial Officer. As always, we will reference our financial highlights presentation, which can be found on the Investor Relations page of our website at bny.com. And I'll note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures are available in the earnings press release, financial supplement, and financial highlights presentation, all available on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, July 12, 2024, and will not be updated. With that, I will turn it over to Robin. Robin Vince: Thanks, Marius. Good morning, everyone, and thank you for joining us. Before Dermot reviews the financials in greater detail, I'd like to start with a few remarks about our progress in the quarter. In short, we delivered another quarter of improved financial performance with positive operating leverage on the back of solid fee growth and continued expense discipline. And we continued to make tangible progress on our path to be more for our clients, to run our company better, and to power our culture. Last month, we celebrated our company's 240th anniversary with our people and many of our clients. Even with this rich history of operating across four centuries, I believe that our best days remain ahead of us. That bank with around $0.5 million of capital in 1784 today oversees roughly $50 trillion in assets and powers platforms across payments, security, settlement, wealth, investments, collateral, trading, and more for clients in over 100 markets around the world. As the world changes and global financial markets evolve, so do we. Earlier this year, in January, you heard us lay out our strategy, which maps out what we need to get done and how we need to do it. Last month, we introduced changes to our logo and simplified and modernized our company brand to BNY to improve the market's familiarity with who we are and what we do. This rebranding better aligns the perception of our company to the substance of what we're doing to unlock our full potential as one BNY. Now referring to Page 2 of the financial highlights presentation. BNY delivered solid EPS growth as well as pre-tax margin and ROTCE expansion once again on the back of positive operating leverage in the second quarter. Reported earnings per share of $1.52 were up 16% year-over-year. And excluding notable items, earnings per share of $1.51 were up 9%. Total revenue of $4.6 billion was up 2% year-over-year. This included 5% growth in investment services fees led by continued strength in Clearance and Collateral Management, Asset Servicing and Treasury Services, as well as 16% growth in foreign exchange revenue. Net interest income decreased by 6%. Expenses of $3.1 billion was down 1% year-over-year. Excluding notable items, expenses were up 1%, reflecting further investments in our people and technology while we also continued to realize greater efficiencies. Margin was 33%. And in what is seasonally our strongest quarter, we reported a return on tangible common equity of 25%, 24% excluding notable items. These financial results were against the backdrop of a relatively constructive operating environment. The market calling for a gradual and shallow easing of policy rates, inflation pressures easing, and investor confidence growing. On average, equity market values increased, while fixed income markets finished slightly lower compared to the first quarter. A couple of weeks ago, the Federal Reserve released the results of its annual bank stress test, which once again showcased our resilient business model and our strength to support clients through extreme stress scenarios. The test confirmed that our preliminary stress capital buffer requirement remains at the regulatory floor of 2.5%. And we increased our quarterly common dividend by 12% to $0.47 per share starting this quarter. In May, the transition to T+1 settlement in the US, Canadian and Mexican markets represented one of the more significant market structure changes that our industry has seen in a couple of decades. BNY's critical role in the financial system gives us the opportunity to help clients through major shifts like this, further strengthening their trust in us and deepening our relationships with them. By running the company better, we are starting to capitalize on BNY's truly powerful combination of security services, market and wealth services, and our investments and wealth businesses to serve our clients more effectively across the entire financial life cycle. As an example, this past quarter BNY was awarded a significant mandate by a premier global asset manager with over $100 billion in assets under management. We were selected based on our ability to deliver custody, fund servicing, ETF and digital fund services, Treasury Services, and Pershing. Our holistic offering will power their future growth strategy. In another example, AIA, the pan-Asian life insurance group, announced a new collaboration with BNY and BlackRock (NYSE:BLK) as AIA transforms its investment platform. AIA has announced that they will implement BNY's specialized investment operations, data management services, and technology with BlackRock's Aladdin to create a connected and scalable ecosystem to support the company's evolving investment activities. We also continue to be pleased with the growing interest in our wealth advisory platform, Wove. Global Finance recently named Wove as one of the top three global financial innovations as part of its annual Innovators Awards for 2024. At INSITE, Pershing's annual flagship wealth services conference in June, we announced a suite of new solutions on the platform. Wove Investor, a one-stop client portal. Wove Data, a cloud data platform designed for financial professionals at wealth management firms, and Portfolio Solutions, a set of enhancements to the platform that will help advisors move more efficiently from researching investment products, to aligning them to a client's risk objectives and adding them to a portfolio. We also introduced a new ONE BNY offering that enables clients to easily access multiple BNY capabilities, including our managed accounts platform, asset allocation and manager selection, investment management products, customized tax solutions, the interoperable Wove platform for advisors, and custody and clearing services from Pershing. We're a comprehensive unified package leveraging the breadth of BNY to make clients' wealth advisors lives easier. And we have proof points. Example, a fast growing full service regional bank recently selected Pershing to provide custody and clearing services private wealth business. But they are also adopting [Dreyfus Cash Management] (ph), direct indexing, and private banking. As we've said many times, our culture and people are a critical part of being more for our clients and running our company better. We are pleased to see that our actions are enabling us to be a top talent destination for recent graduates and experienced leaders alike. This summer, we're welcoming our largest ever intern and analyst classes, a total of over 3,500 individuals chosen from over 150,000 applications. And we recently announced several new appointments to our leadership team. Shannon Hobbs, our new Chief People Officer joined us in June. Leigh-Ann Russell will join us in September as Chief Information Officer and Global Head of Engineering. Jose Minaya will also join us in September, lead BNY's Investments and Wealth. To wrap up, halfway through the year, we're pleased with the progress that we have made and how it is reflected in both improved financial performance to date as well as our building momentum. One of my favorite quotes comes from Alexander Hamilton, our founder, who famously said that he attributed his success not to genius, but to hard work. We have been hard at work, and we've laid a solid foundation. Our team is in full execution mode and we're starting to demonstrate the power of our franchise and of operating as one BNY for our clients and our shareholders. With that, over to you, Dermot. Dermot McDonogh: Thank you, Robin, and good morning, everyone. Picking up on Page 3 of the presentation, I'll start with our consolidated financial results for the quarter. Total revenue of $4.6 billion was up 2% year-over-year. Fee revenue was up 4%. This includes 5% growth in investment services fees on the back of higher market values, net new business, and higher client activity. Investment management and performance fees were flat. Firm-wide AUC/A of $49.5 trillion were up 6% year-over-year and assets under management of $2 trillion were up 7% year-over-year, primarily reflecting higher market values. Foreign exchange revenue increased by 16%, driven by higher volumes. Investment and other revenue was $169 million in the quarter on the back of strong client activity in our fixed income and equity trading business. And net interest income decreased by 6% year-over-year, primarily reflecting changes in balance sheet mix, partially offset by higher interest rates. Expenses were down 1% year-over-year on a reported basis and up 1% excluding notable items, primarily in the prior year. The increase from higher investments, employee merit increases, and higher revenue related expenses was partially offset by efficiency savings from running our company better. Notable items in the second quarter of this year primarily included an expense benefit from a reduction in the FDIC's special assessment, which was largely offset by severance expense. There was no provision for credit losses in the quarter. As Robin highlighted earlier, we reported earnings per share of $1.52, up 16% year-over-year, a pre-tax margin of 33% and a return on tangible common equity of 25%. Excluding notable items, earnings per share were $1.51, up 9% year-over-year, pre-tax margin was 33% and our return on tangible common equity was 24%. Turning to capital and liquidity on Page 4. Our Tier 1 leverage ratio for the quarter was 5.8%. Average assets increased by 2% sequentially on the back of deposit growth. And Tier 1 capital increased by 1% sequentially, primarily reflecting capital generated through earnings, partially offset by capital returns to common shareholders. Our CET1 ratio at the end of the quarter was 11.4%. The quarter-over-quarter improvement reflects lower risk-weighted assets coming off the temporary increase in risk-weighted assets at the end of the previous quarter, and CET1 capital increased by 2% sequentially. Over the course of the second quarter, we returned over $900 million of capital to our common shareholders, representing a total payout ratio of 81%. Year to date, we returned 107% of earnings to our common shareholders through dividends and buybacks. Turning to liquidity. The consolidated liquidity coverage ratio was 115%, and our consolidated net stable funding ratio was 132%. Next, net interest income and the underlying balance sheet trends on Page 5. Net interest income of over $1 billion was down 6% year-over-year and down 1% quarter-over-quarter. The sequential decrease was primarily driven by changes in balance sheet mix, partially offset by the benefit of reinvesting maturing fixed rate securities in higher yielding alternatives. Average deposit balances increased by 2% sequentially. Interest bearing deposits grew by 3%, and non-interest bearing deposits declined by 2% in the quarter. Average interest-earning assets were up 2% quarter-over-quarter. Our average investment securities portfolio balances increased by 3%, and our cash and reverse repo balances increased by 1%. Average loan balances were up 4%. Turning to our business segments starting on Page 6. Security Services reported total revenue of $2.2 billion, flat year-over-year. Total investment services fees were up 3% year-over-year. In Asset Servicing, investment services fees grew by 4%, primarily reflecting higher market values and net new business. We continue to see strong momentum in ETF servicing with AUC/A of over $2 trillion, up more than 50% year-on-year, and the number of funds serviced up over 20% year-on-year. This growth reflects both higher market values as well as client inflows, which included a large ETF mandate in Ireland from a leading global asset manager. In alternatives, fund launches for the quarter continued their recent activity in private markets. Investment services fees for alternatives were up mid-single-digits, reflecting growth from both new and existing clients. And in Issuer Services, investment services fees were up 1%, reflecting net new business across both Corporate Trust and Depositary Receipts, partially offset by the normalization of elevated fees associated with corporate actions in Depositary Receipts in the second quarter of last year. We're particularly pleased to see the investments and new leaders in our Corporate Trust platform beginning to bear fruit. Against the backdrop of a significant pickup in CLO issuance in recent months, we've been moving up the ranks and improved our market share as trustee for CLOs by about 4 percentage points over the past 12 months to 20% in the second quarter. In the segment, foreign exchange revenue was up 16% year-over-year, and net interest income was down 11%. Expenses of $1.6 billion were down 1% year-over-year, reflecting efficiency savings, partially offset by higher investments, employee merit increases, and higher revenue-related expenses. Pre-tax income was $688 million, a 7% increase year-over-year, and pre-tax margin expanded to 31%. Next, Market and Wealth Services on Page 7. Market and Wealth Services reported total revenue of $1.5 billion, up 6% year-over-year. Total investment services fees were up 7% year-over-year. In Pershing, investment services fees were up 2%, reflecting higher market values and client activity, partially offset by the impact of business lost in the prior year. Net new assets were negative $23 billion for the quarter, reflecting the ongoing deconversion of the before-mentioned lost business. Excluding the deconversion, we saw approximately 2% annualized net new asset growth in the second quarter, and we renewed a multi-year agreement with Osaic, one of the nation's largest providers of wealth management solutions. Pershing has supported Osaic since its founding in 1988, and we are proud to help the company drive its growth strategy for years to come. Client demand for Wove continues to be strong. In the quarter, we signed 12 additional client agreements. The pipeline continues to grow, and we are on track to meet our goal of $30 million to $40 million realized revenue in 2024. In Clearance and Collateral Management, investment services fees were up 15%, primarily reflecting higher collateral management fees and higher clearance volumes. US securities clearance and settlement volumes have remained strong throughout the quarter, supported by a grown market and active trading. And we are excited about the opportunity to do even more for clients. Having realigned Pershing's institutional solutions business to Clearance and Collateral Management, we can offer clients a choice across a continuum of clearance, settlement, and financing solutions for those that sell clear as well as those seeking capital and operational efficiency through outsourcing. This allows us to not only deepen our relationships with clients, but also drive continued revenue growth. And in Treasury Services, investment services fees increased by 10%, primarily reflecting net new business and higher client activity. Net interest income for the segment overall was down 1% year-over-year. Expenses of $833 million were up 5% year-over-year, reflecting higher investments, employee merit increases, and higher revenue related expenses, partially offset by efficiency savings. Pre-tax income was up 8% year-over-year at $704 million, representing a 46% pre-tax margin. Moving on to Investment and Wealth Management on Page 8. Investment and Wealth Management reported total revenue of $821 million, up 1% year-over-year. In our investment management business, revenue was down 1%, reflecting the mix of AUM flows and lower equity investment income and seed capital gains partially offset by higher market values. And in wealth management, revenue increased by 3%, reflecting higher market values, partially offset by changes in product mix. Expenses of $668 million were down 2% year-over-year, primarily reflecting our work to drive efficiency savings and lower revenue related expenses, partially offset by employee merit increases and higher investments. Pre-tax income was $149 million, up 15% year-over-year, representing a pre-tax margin of 18%. As I mentioned earlier, assets under management of $2 trillion increased by 7% year-over-year. In the quarter, while we saw $2 billion of net inflows into long-term active strategies with continued strength in fixed income and LDI, partially offset by net outflows in active equity and multi-asset strategies, we saw $4 billion of net outflows from index strategies and $7 billion of net outflows from short-term strategies. Wealth management client assets of $308 billion increased by 8% year-over-year, reflecting higher market values and cumulative net inflows. Page 9 shows the results of the Other Segment. I'll close with a couple of comments on our outlook for the full year 2024. Starting with NII, I'm pleased to report that the first half of the year came in slightly better than we had expected, as we saw the decline in non-interest-bearing deposits decelerate, and we continue to grow interest-bearing deposits. While we are cautiously optimistic, we remain humble as we head into the seasonally low summer months, and for now we will therefore keep our NII outlook for the full year 2024 unchanged, down 10% year-over-year. Regarding expenses, our goal remains to keep expenses excluding notable items for the full year 2024 roughly flat. As Robin put it earlier, BNY is in execution mode and we're embracing the hard work ahead of us. We continue to expect our effective tax rate for the full year 2024 to be between 23% and 24%. And lastly, we continue to expect to return 100% or more of 2024 earnings to our shareholders through dividends and buybacks. Our Board of Directors declared a 12% increased common dividend for the third quarter, and we plan to continue repurchasing common shares under our existing share repurchase program. As always, we are calibrating the pace of our buybacks, considering various factors such as our capital management targets, the macroeconomic and interest rate environment, as well as the size of our balance sheet. To wrap up, we enter the second half of the year on the back of solid fee growth, a better than expected NII performance to date, and continued expense discipline, which gives us incremental confidence in our ability to drive positive operating leverage in 2024. With that, Operator, can you please open the line for Q&A? Operator: [Operator Instructions] Our first question is coming from Ken Usdin with Jefferies. Please go ahead. Ken Usdin: Good morning. Just like to go -- just ask Dermot about that NII humbleness for the second half. Can you just walk us through what the moving pieces would be, including the seasonality that you mentioned and any other things that might have been over-earning in the NII in the first quarter so that you would seemingly in your maintain guide still expect a meaningful ramp down in NII, which I don't think is what seems to be the base case given how well the balance sheet has held up so far, as you pointed out, relative to your expectations? Thanks. Dermot McDonogh: Thanks for the question, Ken. I guess the best way to answer the question is a little bit to, in some ways, look back at last year where Q1, Q2, typically strong quarters for us. Q3, typically a seasonally lower quarter, summer months, clients taking their foot off the gas in terms of activity, and then we pick back up again in Q4. Now, as you've seen from this quarter's numbers and the first half overall, we're very pleased with the performance. I guess we've outperformed our expectations for the first half, and that's in large part due to underlying activity within our core businesses, and in my remarks, I particularly called out corporate trust, where we saw like elevated activity in the CLO space which in turn drives deposits. So when our core businesses are doing well, which they've all performed well, that has a knock-on impact in the number of deposits that we have And so we outperformed our expectations in the first half. Notwithstanding that, when I look out at the rest of the year and when we gave the guidance of down 10% in January, the market at that time was roughly calling for six rate cuts. Now we're in the middle of the summer. We had a slowdown in inflation print yesterday. Let's see how Jay speaks on Monday and how he guides out of [Jackson Hole] (ph) and into a September potential rate cut. But we kind of take all of those levers and we just kind of say for now, there's no point in me changing guidance to change guidance again in September or October at the next call. So we're cautiously optimistic. I think I used the word last year in March, askew. So we're playing for the best outcome, but we do expect Q3 to be somewhat seasonally quieter. And that's why we didn't change our guidance. Ken Usdin: Okay, and then just can you -- that follow up, just on the size of the deposit, so you're just expecting the size of the deposit base to decline or is it the mix or just trying to understand what pieces of it would revert given that seasonality? Dermot McDonogh: So when I think about deposits, I kind of -- I think there are three components to it. One is interest bearing deposits where we outperformed plan, NIBs where we outperformed plan. And so pleased with that, but that really reflects clients showing up in a different way with us and we showing up in a different way with clients. So, good. And then the third thing, and I've talked about this a number of times on previous calls, really the strength of the collaboration and teamwork between our treasurer, our CIO, and our global liquidity solutions platform, where we think about liquidity as a $1.4 trillion ecosystem. And we've been very much in offense mode this quarter. And our GLS team has really shown up in a positive way. And we've really managed to gather good, liquidity-friendly deposits, which is kind of fueling the growth of our balance sheet, and that's allowed us to do more loans. So I think in terms of specifically to your question, it's both, I think the overall balance will come down, and as a consequence, I would expect NIBs from here to grind a little bit lower, which is the main driver of the NII change. Ken Usdin: Right. Okay. Thank you. Operator: Our next question is coming from Glenn Schorr with Evercore ISI. Please go ahead. Glenn Schorr: You alluded to the -- hello. You alluded to the higher Clearance and Collateral Management, higher clearance volumes. I'm just curious if you can parse out how much of that is just clients being more active during a more active second quarter versus winning new business and organic growth. It just might help for the thoughts on the go forward and how to model? Thanks. Dermot McDonogh: Thanks, Glenn. I think it's a combination of both. So, clients are for sure doing more. Rate volatility in Q2 was there for all to see. So as a consequence, more activity in the treasury market, more treasury issuance and which feeds volumes. So, overall, very healthy volumes, and we have a high-margin scaled business, which the platform was able to benefit from that increased level of activity. Also, I think as we did last year, we continue to innovate for clients in the domestic market. And as we said on our January call, the international business is also a key growth opportunity for us and our teams are innovating and developing new products and solutions for our clients internationally. And so I think it's a combination of all the factors that we've talked about on previous calls, kind of showed up as a nice tailwind for us this quarter. And for Clearance and Collateral Management, I think I do expect that trend to continue in the near term. Glenn Schorr: Thanks, Dermot. You piqued my interest. In the opening remarks, you all talked about T+1 coming in into the market and that helping -- you helping -- help clients. I'm curious now that it's built, now that it's in the run rate, just a couple of quickies of, is there a cost runoff now or is that not big enough? Does T+1 come with lower spread for you, but does it free up capital with more frequent settlement? I'm just curious what the net impact of it all is. Dermot McDonogh: Hey, Glenn, I would describe it in terms of like the raw P&L impact, which is sort of the second part of your question, is really pretty de minimis. We spent a bunch of time preparing for this over the course of the past couple of years. So it wasn't like there was some big hump in the cost curve in order to really do it. We sort of worked the process over time. But for us, I think the biggest opportunity associated with T+1 is whenever there's a market inflection like this, and this was one of the most significant ones, but we're looking ahead to treasury clearing is another good example of something like that, it gives us the opportunity get closer to our clients. It creates uncertainty for our clients. How is it going to work and they need help navigating it. And so the combination of uncertainty and a need for assistance is really the macro opportunity for us. And we've leant into that. We'll continue leaning into those types of market changes, again, with treasury clearing being another good example. And I would say overall, these types of changes create things that create more efficiency in the market, things that can reduce risk in the market, things that improve efficiency. Sure, they do sometimes call on more of our products and solutions, which, of course, is great, but it's also just a good thing for the market to improve the effectiveness and efficiency of market operation. And I think over time, we're also a beneficiary of that. Ebrahim Poonawala: Maybe just one follow-up, Dermot, for you on NII. I guess in response to Ken's question, you talked about Fed policy and that having an impact. Remind us the positioning of the balance sheet if the Fed does decide to cut rates come September and we get 100, 150 bps of cuts? Remind us how the balance sheet will behave, how we should think about NII in that backdrop? Dermot McDonogh: So, thanks for the question. So I will kind of give a couple of different perspectives on that is, one, cumulative betas are roughly unchanged quarter-over-quarter, which feels like I really believe our book to be fairly priced. As you will remember, our book is largely institutional. We pass on the rates and so cumulative betas are in good shape. So for the dollar portfolio, roughly low 80s, 80 range. And then for euros and sterling we're in the high 50s, low 60s. And so we kind of do a range of scenarios and at the beginning of the year, we're positioned roughly -- we're roughly flat. So if Chairman Powell cuts in September and then cuts again, I guess, which is the general view of the market, we're kind of basically NII, okay, it doesn't really impact the book that much. So for small moves, we're well positioned in terms of expectation. Ebrahim Poonawala: Understood. And separately, I guess, maybe Robin, for you just in terms of the fee revenue momentum that you talked about at Pershing and elsewhere, just give us a sense around what the drivers we should be thinking as we think about sort of the medium-term outlook on fee revenue outside of just pure markets activity that could drive fees in a world where NII might be stable to lower as we think about sort of momentum on the positive outlook. Robin Vince: Sure. Revenue growth in any given year is somewhat market-dependent because, of course, interest rates, equity fixed income markets, volumes volatility, that stuff all moves around, but our strategy has been, of course, to fuel the organic growth of the company, but also to try to position our businesses to be able to respond as well as they can to growth tailwinds that exist just in markets. And so in answer to Ken -- the question earlier on around the treasury market, we've positioned that business to be able to benefit from what we think is a secular growth in activity in the US treasury market. So that's a place where we're benefiting, yes, from the market, we're also benefiting from the investments that Dermot detailed. And as we go through what's next for our fee growth, we talked a lot about our ONE BNY campaign quarters ago. And we talked last quarter and in January about the fact that we're sort of operationalizing more and more what started off as a movement of ONE BNY into referrals, into new targets, into our commercial model and our Chief Commercial Officer joining and really then getting into the client coverage, the practices, the integrated solutions, which we talked about in our prepared remarks, the fact that we can now bundle individual products into true solutions for clients. So there are a lot of levers on the fee growth, and we've been working very methodically through our plan to build momentum in that space, but also to position the business to be able to take advantage of macro things going on in the market. Operator: Our next question is coming from Steven Chubak with Wolfe Research. Please go ahead. Steven Chubak: So I guess I wanted to build on that earlier line of questioning, but really focusing more on repo activity. It's been a big area of investor focus. You've certainly benefited from recent strength on the repo side. And I was hoping you could potentially quantify the benefit year-on-year from elevated repo activity and just longer term, like, how you're thinking about the durability of the recent repo strength? And what are some of the factors supporting that view? Dermot McDonogh: Thanks for the question, Steven. So I would say in terms of year-on-year activity, it's not a kind of a -- cleared repo is not a game changer for us in terms of the overall year-on-year NII story. It's about -- overall in its totality, it makes up about 5% of our NII today. I think I would just echo our follow-on from Robin's answer to the last question in terms of it's a product. Clients want us we're meeting them where they want to be, we're innovating. This come under the $1.4 trillion liquidity ecosystem. Laide runs that business, does a terrific job for us in the clear repo business specifically, we're a top three provider. And so we have a large installed client base who are looking for products and we can meet them with our cleared repo product. And so it's just another tool in our toolbox. And I would say, again, we're positioned, we're investing, we're a scale player and we can provide automated solutions for our clients. So I do expect that business to continue to grow, but in terms of the year-over-year to your specific question, it's not a material driver of the year-over-year change. Robin Vince: Steven, I would add one thing to it, which is just remember that in the context of our business, we're really the only global solution provider in the space because we're scaled in Asia, we're scaled in Europe, we're scaled in the United States. And in a world where folks are looking at repo as a collateral tool and an investment tool, the opportunity to be able to help clients navigate the whole world in this product, provide the seamless connectivity between repo and margin and collateral management the connectivity to other things that we do, there's a real appeal, to use Dermot's phrase again about meeting clients where they are. There's a real appeal here for clients in terms of the breadth of what we can offer, but also the innovation that he referred to earlier on in the call where we're creating these new solutions. And so this is another example, along with the US treasury market, but there are so many others in our business of saying there's a macro evolution going on, and we have the opportunity to participate in that as long as we're front-footed with clients and as long as we're innovating. Steven Chubak: Thanks for all that color. And just for my follow-up on the Pershing business. I know that the core underlying strength has been obscure to some degree by some large client departures. I was hoping you can give some perspective on what some of the core organic growth trends look like in that business? What the pipeline looks like in that business given some of the recent excitement of our Wove platform and the offering? And have we lapped those headwinds at this point, or is there still some remaining pressure on the come? Dermot McDonogh: Okay. So I would say nobody is happier to see the ongoing deconversion of the clients to come to an end. So we expect that to be fully out of the portfolio by Q3. As I've said on previous calls, we believe in our ability to earn our way through that deconversion. It happens in life. And so I think the team has been very resilient in terms of earning their way through it and growing. In my prepared remarks, I talked about the re-sign of Osaic on a several year contract. So we're very pleased about that. You take a step back and you look at where we were 12 months ago, we just came off the INSITE conference in Florida where we announced Wove, 12 months later we've announced a new suite of products to support the Wove. We have signed 21 clients so far this year for Wove. The momentum is building, the clients like us. We -- I kind of reiterated my guidance on prepared remarks about the $30 million to $40 million of revenue for this year. And then just I'll remind you that we're a $3 trillion player in the wealth tech space, number one with broker-dealers, top three with RIAs. And in previous quarters, I've kind of guided mid-single-digits of underlying core growth through the cycle. We continue to believe that, notwithstanding on any given quarter, it may be slower or better. But we believe we're in good shape, and there is good momentum in what is a very, very large market, and in which we're a very big player. Operator: Our next question is coming from Brennan Hawken with UBS. Your line is open. Please go ahead. Brennan Hawken: Good morning Robin and Dermot. Thanks for taking my questions. So we saw the ECB cut rates this quarter. And while I know euro is in a huge exposure for you in terms of your deposit base, curious about what impact you saw that on your deposit costs in that currency. And maybe how does that experience and the market reaction inform your expectations for beta and customer behavior around rate cuts in other currencies? Thanks. Dermot McDonogh: So I would say, overall, euros is roughly 10% of the total portfolio. To -- in answer to the earlier question, I think where we feel very well positioned for the range of outcomes that the forward curve is implying in euros, sterling and dollars, we prepare for it. We talk about it a lot. And so I kind of feel like the way the CIO book is currently set up, where we still have a reasonable amount of securities rolling off into higher-yielding assets. So I just feel like the combination of where our deposit book is in terms of our betas to reiterate again for dollars, low 80s sterling and euros high 60s. And the CIO book kind of still room to grow. And so on rate cuts in terms of how we kind of position the book, we're broadly symmetric in terms of -- on the rate cut side. So I think Chairman Powell has done a job of telegraphing to the market how he wants to do it. So I don't think it's going to be a volatile move in rates when it happens. So he's allowed us time to position and manage and get into the right place. So I think overall, I feel very good about where we're at. Brennan Hawken: Yeah. But what I was asking -- I appreciate that. What I was trying to understand was the actual experience with -- in the actual marketplace beyond like the expectation. Did the 50% to 60% beta, I think you said in euros, did that hold when the cut went through? And did you actually experience that? Dermot McDonogh: So specifically, yes, we did experience that, and it held up. It behaved as expected. Brennan Hawken: Excellent. Thank you for that, Dermot. I appreciate that. Issuer Services very solid. You flagged some CLO trustee gains on the back of a market that's seen solid volume. Could you help us understand maybe how much of the strength and the growth that you saw in that line was attributed to that, which I assume would be in the in the Corporate Trust business and then maybe how to think about the Depositary Receipt fees, just so we're thinking about the right way to baseline and move forward with our models? Dermot McDonogh: For sure. Look, Corporate Trust, I think, is, for us, a good opportunity, a very good opportunity. I actually talked about it at some length at the RBC Conference in March when I was chatting with Gerard Cassidy. And I think over the last number of years, Corporate Trust for BNY is a business that's been underinvested in both technology and leadership. And in both Robin and I's prepared remarks, we did emphasize leadership has been a continuous change for us. And we've made a very -- couple of very important hires over the last 12 months in Corporate Trust, and we have new leadership overseeing the business. And it's that investment and in technology, products, leadership that is showing up. And specifically, we've doubled our activity in CLOs over the last 12 months. We've improved our market share. And as Robin said, a couple -- in an answer to another question, we really want to position Corporate Trust as a business that really can take the advantage of scale, a lot of manual processes, a lot of room for AI, a lot of room for digitization and we can improve the operating leverage of that business. We can improve how we show up for clients, client service. So we feel like in Corporate Trust specifically, we have a lot to play for. Depositary Receipts, we have good market share. We punch above us and we expect that to continue. Betsy Graseck: Two quick questions. One, just to wrap up a little bit on the T+1 discussion earlier. Could you give us a sense of how much did T+1 drive sequential revenue growth this quarter? And can you give us a sense as to if there's enough revenue growth you're expecting from this to impact the expense ratio since you've already made the investment? And then I have a follow-up on Wove. Thanks. Dermot McDonogh: Hi, Betsy, it's Dermot. So the point I would make about T+1 is not so much a revenue or expense topic. It really is -- it speaks to resilience as a commercial attribute kind of point that we make on behalf of BNY in terms of it's been a large-scale infrastructure change that's been coming to the markets over the last couple of years. And as we are a key player in the financial market infrastructure, it's very important that we execute that to an A+ standard. And what I would say is BNY has shown up for clients and delivering an A+ execution of a very big project. It's not really about revenue or expenses, it's really about delivering a complicated change project for our clients and the ecosystem at large. That's really, I think, the point we're trying to make on T+1. Betsy Graseck: Okay. Yeah, I just think if you're in a better spot than others, you could pick up some incremental share on the back of that, but that's maybe a couple of conference calls from here. All right. Then separately on Wove, I know you mentioned that you added new clients to Wove. I just wanted to understand, is this new clients of the firm or this is clients who had been yours for a while and they moved to Wove? Dermot McDonogh: So I would say it's both. And so I guess the questions that we've had on previous calls, Betsy, are we cannibalizing existing clients? And the answer to that is most definitely no. And I think it speaks to the point of us innovating. Wove is a very big investment for us in terms of technology over multiple years. Existing clients like the fact that we're willing to put money to work for them and give them better solutions and as a consequence of that, we had over 1,500 people show up to Wove in Florida last year, in Nashville this year. And for those that are there, there's real excitement. And as Robin said in his prepared remarks, it's winning awards. So there's a flywheel effect of, BNY is showing up in the wealth tech space and delivering new solutions for us, we want to see what they have to do. So the network effect of that shouldn't be underestimated. Robin Vince: Betsy, let me double-click on it for one second as well because when we started on the Wove journey, and we announced it, as Dermot said, last year, it was initially really focused on that singular KPI of making advisors' lives easier. And so it was a technology front end that went from wealth planning and help clients with wealth planning all the way through to portfolio construction and then getting into market. Now what's evolved since then and what we talked a lot about this year, one year later in the Wove journey was the fact that now we have the opportunity to link all of these other BNY capabilities to be able to deliver to our Pershing and Wove clients. So you can be a clearing and custody client of Pershing, you can be an adviser taking advantage of that initial set of tooling from Wove, but what you can now also do is you can have that ability to manage and aggregate data, including across multiple custodians. We can connect you to models in the investment management space. By the way, we can fulfill those models because we've got active equity and indexing and all these capabilities that come from BNY investments. And so Wove is becoming a bit more of a delivery vehicle for the various capabilities of the firm and it's also opening the aperture of how clients of Pershing think about us in terms of our ability to solve other problems for them, banking-as-a-service which is a Treasury Services business. But we stimulate the conversation for that because people see us as being more than what we used to be in Pershing. We also, to your question, are attracting people who don't necessarily need the clearing and custody service, but who want to take advantage of these other components, which is why Dermot said both because it's both and delivering the breadth of ONE BNY. Mike Mayo: Hi. Could you put a little more meat on the bones for the ONE BNY initiative in terms of products for customers where you're talking about more bundled solutions. Thematically, I understand it. And I guess you're having higher core servicing fees, but connecting from the higher core servicing fees from the high level, let's bundle, let's have everyone work together. I'm just trying to connect the dots a little more. Robin Vince: Understood, Mike. And you'd asked me a question, it's probably about more than a year ago now, where you had essentially challenged the fact that in order for something like ONE BNY to be successful, it can't just be hearts and minds, it's got to be deeply operationalized. And we talked at that time about some of our future ambitions for how to really bring it home. So the way that I would now answer your question is, we are rallying around the three strategic pillars that Dermot and I both have talked about a bunch, and this is about being more for our clients. And that's not just words anymore. It's not just a movement. It's just appealing to our people to be able to do -- to be client-obsessed. It's about elevating the effectiveness of our sales organization and the process driving client service differently than we used to. It's about the innovative new products, as we were just talking about Wove, that's a good example. We are being more for clients in that example. And we are also delivering the whole of the company. So it is a great ONE BNY example. Pershing, which used to be somewhat off to the side in the company a few years back, now very much at the heart and benefiting from that integration with all of the other capabilities that we have. And then you hit on a critical word, which is solutions, because that next journey to use the term that Dermot used earlier on of meeting our clients where they are, it's not just about us selling a bunch of great products and client platforms to our clients, it's about the fact that when we look at the challenges that our clients have, they actually need things that cut across multiple parts of our company. And rather than going in disconnected and showing them individually and trying to have them piece it all together, we can now show up and we can actually show them these solutions which bring all the componentry together to solve their needs. And both Dermot and I talked a bit about that in our prepared remarks, and that's the next level of the maturity of that ONE BNY work that we're really doing. That's [involving] (ph) from an initiative and hearts and minds to making everything that we're doing in our commercial organization, the sales practices, the sales targets, the way that we're bringing people together, the account management process, the client service, the digital delivery of tooling and the way that we're thinking about everything that equips our salespeople to be effective across training, we're bringing all of those things together and maturing our commercial model. And over time, we think there's a lot of value both in the process and in what we're actually delivering to clients. Mike Mayo: And so when you wrap it all up, I mean, what wallet share do you have per customer today? Where was it a few years ago? Where do you hope that to go just in terms of a ZIP code of expectations? Robin Vince: Got it. I think some of those metrics as we think about ways in which to show you that story more over time, some of those metrics will be in our future. Right now, I'm going to point you to two things. There are a whole bunch of inputs. I described a bunch of them. And I think over the course of the past couple of years, we've been trying to really show the key inputs, which we think are the leading indicators for performance. And then you have to actually look at the fee growth result, and you saw that in the first quarter. You've seen that in the second quarter, and that's some of the output. But the story that Dermot and I are trying to describe is a story of a maturing of a process, but with still a distance to go and opportunity ahead. Dermot McDonogh: Mike, just to put a metric on us, it's just to give an indication because we need to mature the metrics as we proceduralize all the strategic comments that Robin has just outlined. Year-over-year, the amount of business that we've won that touches more than one line of business has increased by a third of albeit a very low base. So I wouldn't draw too much into the metric, but just the fact that we are showing up in a different way and clients are buying products and services from more than one line of business because we can deliver integrated solutions. And that's the key that over time, we'll be able to track that and communicate that in a more objective way as that strategy takes root. Mike Mayo: Understood. So when all said and done, core servicing fees over time, whether it's aspiration or a specific target, where should core servicing fee growth be? Robin Vince: My answer to that, which I recognize is a little bit unsatisfying, is we're going to keep pointing you back to the positive operating leverage, which is really how we're focusing for our own growth. We think that each quarter, each year has a different composition to it, but higher fee growth over time is a very important part of that combination of solutions. But any individual quarter or a year is going to have a different composition. We're controlling the things that we can control, albeit we're stoking the engine for growth of organic fees over time. Alex Blostein: Hi, good morning. Thanks for squeezing me in on this. I wanted to touch on expenses and operating leverage. So, expenses up a little bit year-to-date year-over-year. It sounds like you guys are still targeting flat expenses for the year despite the fact that revenues are obviously shaking out a little bit better than you hoped. So maybe kind of walk us through where you see the flex in the expense base to keep it kind of at that flattish run rate. But I guess more importantly, you guys had a target for pre-tax margin to be at 33% plus recently. You're doing 33% this quarter and obviously you don't want to get too carried away with a single quarter, but it feels like you have an ability to reset the bar. So maybe talk a little bit about what that plus within the 33% could look like a couple of years out? Dermot McDonogh: Thanks, Alex. So I guess I would start with the margin part of this. We need to consistently do it. And so one quarter doesn't a medium-term target make. So I'm very pleased that we've done this, but now I want to see it next quarter, the following quarter, the following quarter. So, execution is key. And just showing up in a very disciplined way every day is really important to delivering out that. We don't want to be known as a one-hit wonder. So while I'm pleased that we've managed to do it, I want to see it repeated on a consistent basis. So that's what I would say on margin. On expenses, you and I talked in Madrid a few weeks back at your conference. And I kind of said a little bit like we're in the ZIP code of flat for the year. It's all about running the company better. It's very important that we have 53,000 people wrapped around the same aspiration that we as a leadership team have and everybody is focused on doing it. So there is a real momentum on running the company better, which is the input to how we show up with expenses were being where they are as opposed to a top-down approach. So very different cultural experience within the firm in terms of how we're doing it. And the reason why we're a little bit above trend in the first couple of quarters this year is what I said to you at the conference is revenue-related expenses. And so I kind of anchor that in overall where we are for positive operating leverage in the year. And in my remarks, I kind of said I feel optimistic about delivering positive operating leverage for the year, which in a down 10% NII environment, BNY hasn't really executed to that level before. And so -- and also, Q2 is a seasonally strong quarter for us, which would feed the margin of 33%. So I feel good about expenses. I feel good about flat, notwithstanding there's pressure to that from a revenue-related expense part, but we're very determined to deliver positive operating leverage to our shareholders this year. Alex Blostein: Excellent. Great. Well, my second quick question around the balance sheet. There's a lot of discussion around deposits, but I wanted to zone in on the asset side of the balance sheet for a second. We've seen pretty nice growth from you guys in both the securities portfolio and loans sequentially. So could you just spend a minute on sort of the sources where you're investing and then your outlook in maybe deploying some of the liquidity that seems to be perhaps a bit more sticky into both loan growth and securities? Dermot McDonogh: So yeah, look, very -- feel very proud of the CIO book team, what they've accomplished over the last couple of years, which is really from Q3 of '22. It really has been just a terrific collaboration with inside the firm. And we're deploying where we think we can see opportunity. Our CIO likes to use the word nibbling, and so we're kind of seeing where the next leg is, and we're deploying where we think we can see opportunity to continue to grow NII. So it's opportunistic at the moment, but we feel overall very good about that aspect of us. We're still rolling off the book into higher-yielding securities. We're picking up to 200 basis points, and so that's feeding NII. And then on loan growth, I think the GLS team is doing a really good job of getting very liquidity-friendly deposits, which allows us to extend credit to our clients. And I think we're showing up in a different way to our clients who are important to us and extending our balance sheet to them as they look to buy products in more than one line of business. So where we need the balance sheet to support business activities, that's what we're doing. And it's a kind of a -- it's a strategic tool in our kit for doing that. Alex Blostein: Awesome. Thanks very much. Operator: Our next question is coming from Gerard Cassidy with RBC. Please go ahead. Gerard Cassidy: Dermot, can you share with us, now that we're entering into a phase with monetary policy of quantitative tightening easing up a bit, you guys obviously have been through QE, you've seen the initial stages of QT, do you have any thoughts on how this could affect your balance sheet over the next 12 to 18 months? Have you guys done any type of modeling to see what kind of effect the QT as it shrinks could have on your balance sheet? Dermot McDonogh: So, we do a lot of work on that, Gerard. And look, CCAR forces us to do that work as well. And so rates up, rates down, quantitative tightening, quantitative easening. We look at it every which way to Sunday. But the thing that I would kind of remind you and everybody who's listening in is our balance sheet is one of our strengths. In -- this time last year, in Q1 of last year, we kind of -- we called our balance sheet a port in a storm for our clients and you see that fly to quality. So we're kind of very proud of our balance sheet. It's vanilla, it's liquid, it stands stress tests and it allows us to be there for our clients. So it's kind of -- it's short in duration. We repositioned it going into the higher-for-longer rate environment. As you will remember in Q4 of '22, we repositioned it. And so we've taken a lot of proactive steps to make our balance sheet durable and liquid and to withstand a wide range of scenarios. Robin Vince: And, Gerard, I'm just going to add that it's easy to think that just because at this very moment in time, we're looking out, there seems to be some greater consensus than we've had for a little while around what might happen with the Fed in the fall across September and the balance of the year. It's easy to think somehow that the range of risks has somehow narrowed as a result of that. But there's still a lot of uncertainty in the world. We've got all bunch of other types of geopolitical risks out in the world. We're sort of continuing to grind through elections that we've talked about through the course of the year. There are all sorts of other things happening. We've still got wars going on. And so our approach to all of these questions, and Dermot really made the point, is to be prepared for all the different types of outcomes that are possible. And so you can see us, we run conservative on liquidity, we run conservative on capital. You can see it in our ratios that we talked about and that Dermot outlined in his prepared remarks. And that's a very important anchor point for us so that we can be agile according to however things play out because the one thing we can be absolutely sure of is they won't play out exactly the way anybody expects. Gerard Cassidy: Very good. And then just as a follow-up, Robin, you talked about the new business wins in the quarter, and you talked about ONE BNY as well. It appears that you're having success in chipping down or breaking down some of the silos that many organizations always struggle with. Can you share with us some of the tools you're using to break those silos? And how -- I would assume you're not 100% complete breaking them all down, but how far along are you in actually breaking them down? Robin Vince: Well, the company's been around for 240 years, and we've acquired a lot of different businesses and companies over time. And so these things do build up over a period of time. But the short answer to your question is, we passionately believe as a whole leadership team that the answer to the question is culture. And so I've said before in a slightly pithy way and quoting other people or sort of paraphrasing them, if you will, that culture eats strategy for breakfast, as it was once famously said by Peter Drucker. And we add to that, execution eats strategy for lunch. That's just a long way of saying that the power our culture pillar, which is one of our three pillars, is the thing that's enabling us to run our company better. And that, in turn, is allowing us to be more for our clients. And so the trick to this for us has been investing in our people. It's been creating the benefits, the experiences, the employee experience, the pride, association with the company, the feedback loop that shows that when we do these things, we get better outcomes for our clients, and that translates into better outcomes in the bottom line. And so there's a flywheel effect here that actually builds on itself. And the spring in the step of our employees is now powering that forward, and that's what gives us confidence that we've really turned the corner on it. People want to throw in with the whole because they see that it's not only better for the company, it's actually better for their business because joining their products with other products around the company is allowing us to be more for clients. And it actually feels good to see the benefits in the ultimate results. So that's, for us, the North Star of how we're doing it. And while we've certainly got a distance to go, the early results have been pretty encouraging. Brian Bedell: Great. Thanks. Good morning, guys. Great. Maybe if I could just come back to the -- sticking with the NII guide of down 10%. I'm having trouble getting there. The -- just to confirm, it sounds, Dermot, like what you're saying is it's really almost totally a deposit-driven guide on a seasonal basis. And I just wanted to sort of confirm that given how you've outlined the balance sheet sensitivity to different rate scenarios is pretty strong. And of course, you have the benefit of securities portfolio reinvestment. So is it really simply just the seasonal deposit dynamic? And then if you can just talk about how NIB is factored into that seasonal deposit dynamic. And then, of course, as you move into next year, in 1Q seasonally, of course, that we should be back positive again. I just want to confirm that. Dermot McDonogh: So, I guess, Brian, in the way you've asked the question, in some ways you've answered the question to yourself. So I will kind of confirm, a, how you're thinking about it in terms of the seasonal decline and it's a deposit story. And I would just kind of reference last year as the guide in terms of, in January of last year, we guided 20% for the year. And then we started out the gates well. And, you as a collective, put pressure on me to change the guidance, which I didn't do. And we ended the year at 24%. And so last year, we used the word skewed to the upside but humble about the fact of what lies in front of us. And I would say the percentages are different this year, the environment is different, but the sentiment is the same. I'm humble about what the outcome could be and uncertainty is -- can be -- is there because, as Robin said, for sure, what we think is going to happen is not going to happen. But I would say we're cautiously optimistic and your point is it is a deposit story. And within the deposit story, it really is the mix between NIBs and IBs. Brian Bedell: Right. Okay. Yeah. Fair enough there. And then maybe just back to the operating leverage dynamic, and this can be for both Dermot and Robin. Obviously, you're starting off really well with, like, 100 basis points plus of positive operating leverage as we move into the second half, notwithstanding market movements, that would obviously influence the fee revenue dynamic. But given the traction that you're showing sequentially in your core business growth and core business sales and, I guess, the fact that you've made these investments already, so I just wanted to get a sense of whether you feel like you're able to scale those investments in the second half. And obviously, with your flat operating expense guidance, it would seem that's the case. If the revenue does turn out to be better than expected from an organic growth perspective, would we see the expense base creep up a little bit notwithstanding, of course, you'd still generate positive leverage? Dermot McDonogh: Okay. A lot of questions in that second question. So, I would say, like, when I talk to the teams, right, and this is quite -- you're kind of hitting on a very important point in that I really focus on running the company better, and then we kind of focus on the operating leverage, not expense as a means to an end. And if revenue-related expenses creep up, that we starve businesses of investments to solve for a flat number because that's what we said we were going to do. I think that's quite important. And it's important to get the balance right that investment and running the company better, it kind of is the same thing. And so that's a cultural transformation that's underway with all of our people. And so we really are focused on getting value for money. We spend a lot of money. We spend over $12.5 billion every year. And so we want to get the best value we can for that, and we do that in a number of different ways. So some of the investments that we've made over the last couple of years, we're beginning to see the scale impact in that. And you can see that in our most profitable segment, Market and Wealth Services. It's a mid-40s margin. We continue to invest at the margin, which is what you want to see from us. And we continue to digitize, we continue to automate, we continue to reduce manual process which ultimately will feed into headcount and better quality jobs for our folks and better careers. So, I think over time, if organic growth plays out, it will feed into a better outcome in operating leverage, not us just growing expenses because revenues are better. Robin Vince: And I just want to draw out one additional thing that Dermot said as well, Brian, which is we have a lot of work to do. There's no question about it. He used the term skew and slightly optimistic, but staying humble when it related to NII. This one is just about a lot of hard work and really focusing on this point about running the company better. But as a double-click into the way that we're thinking about it, if you look at the second quarter, I mean, we've talked a lot about the fact that it's been a seasonally strong quarter. But if you double-click into it, and the Market and Wealth Services point that Dermot just mentioned, that's an investment story because, as we've said, we're in a good spot on the pre-tax margin of that segment. So we just want more that's growth. We don't want to dilute the margin, but we're not trying to save expense dollars there. But in Securities Services and in Investment and Wealth, where we said there is, in fact, a margin journey that we have ahead of us, that's where you can actually see negative expenses in both of those segments for the quarter, which is a sign of the fact that we're both investing but we're doing even more discipline in those businesses. And so that's how the whole thing comes together for the company. Brian Bedell: Great. That's great color. Thank you so much. Operator: And our final question is coming from Rajiv Bhatia with Morningstar. Please go ahead. Rajiv Bhatia: Yeah. There was some progress on the Investment and Wealth Management margin in the quarter. I guess my quick question is, are your margins different on the asset management side of the business versus the wealth management side? And do you have a timeline for getting back to that 25%-plus margin? Dermot McDonogh: So I don't think we kind of get into the detail of the split between the two. And so the segment overall, I guess, we've said over the last several quarters, we believe we can go back to the 25% margin over a period of a few years. And, like, just to follow on from Robin's answer to the last question, we've shown, I think, good expense discipline over the last 12 months in terms of, okay, revenues have been a little bit challenged in the segment due to a variety of reasons, and we've taken tough decisions. And so that's allowed us to grow the margin by 200 basis points over the last year, which really is kind of the financial discipline [about it] (ph). And we do believe where we are now with distribution as a platform, very, very strong performance in fixed income and LDI and Insight, that the momentum is there within the segment to grow. And as Robin said, the addition of Jose to the leadership team joining in September, giving his fresh perspective, gives us confidence about what we can do in the future. Operator: This concludes today's question-and-answer session. At this time, I will turn the conference back to Robin for additional or closing remarks. Robin Vince: Thank you, operator, and thanks, everyone, for your time today. We certainly appreciate your interest in BNY. If you have any follow-up questions, please reach out to Marius and the IR team. Be well and enjoy the balance of the summer. Operator: Thank you. This does conclude today's conference call and webcast. A replay of this conference call and webcast will be available on the BNY Investor Relations website at 2:00 p.m. Eastern Standard Time today. Have a great day.