As everyone takes their seats, we'll put up the ARS question. We've asked everyone, we wouldn't want it to take up any of our time. Next up, very pleased to have Bank of America with us. From the company, Dean Athanasia, who runs regional banking, Alastair Borthwick, who is the Chief Financial Officer. And, you know, we wanna focus most of the presentation today on Dean's world. But we fortunately have Alastair here as well. We'll grab him at the end to kind of get us up to speed on some things. But Dean, maybe just talk about your role. It's been about eight months since Brian added to your leadership responsibilities to consumer business by making you the leader of business and commercial banking.
Obviously, a big job, responsible for one of the biggest consumer banks in the world, as well as the largest commercial bank. Maybe just talk about what are the benefits to the company from the combination of these roles?
Yeah, well, just to explain it a little bit because I think we're organized a little bit differently, but I cover 100 markets, about 100 markets in the U.S. I have all the people in those markets that are covering them from consumer, small business, business banking, and commercial banking, which runs up the clients all the way up to $2 billion. So all the distribution that's out there in the market, coordinating in the market, all the products and services that serve those groups, and then behind that, digital and marketing that helps support the business. So the synergies, if you go down through it, and if you're looking at the market, one of the biggest ones we do is we have, in those markets, concentrated on our clients, but the teams in those fields are working together.
So having it all in one group and focused on working together, we've delivered over 5 million client referrals in those markets. The job of all those people is to deepen it market by market by market. So looking at all those markets in the U.S., making sure we are serving all those clients, and then trying to take share in all those markets, helping each other out. And so that number, 5 million referrals, client referrals, is up over 14% year-over-year, and we continue to invest in those markets. And I am here to make it all work together and find synergies in between all those different groups.
May you talk about, you know, just the biggest opportunities for Bank of America in consumer and commercial banking?
Yeah, it's different in each. Consumer Banking, the biggest opportunity for us right now, twofold. One, we are introduced ourselves, and we have nine new markets that we're in. So out of those hundreds, there was 9 that we didn't cover. So our model, digital and Financial Centers together, putting it in those markets and then working with all the teams in the markets from commercial bank all the way down, that's a huge, huge opportunity for us in getting everything in between, investments and deposits and checking accounts, credit cards. It helps our growth engine, not only to deepen in those markets, but then enter in these new ones, so we have our complete model going forward. And then in the commercial side, we've acquired over 1,100 new clients this year, so that machine is going.
We have people in the market, but over the last three years, we've put 40% in every market, more RMs out into our market to interact with our clients, so we can accelerate the client acquisition engine. So that opportunity keeps paying dividends. And then behind that, just like we do in commercial, since I have digital as well, we are gonna digitize the business bank, the commercial bank, to a more heightened degree and find opportunities there, not only in terms of expenses and efficiencies, but being able to reach out and connect with our clients, deliver our portal and our CashPro across all our different client sets. So there's opportunities all the way through the entire client base.
Then maybe we could shift gears and just talk about the economic backdrop. You know, this kind of notion of soft landing appears to be becoming more consensus. You know, from your seat, you know, how healthy is the consumer? You know, maybe talk about consumer spend, deposit balances, loan repayments, you know, et cetera.
Yeah. Consumer spend right now, I mean, we are... economists have pushed things out. You know, so GDP, not seeing a downturn, consumer spending not seeing a downturn out to 2025. So if you look at our economists, that's what they're looking at. So we-- when I look at the data in the consumer bank, I see our clients are still holding, versus pre-pandemic, about 27% more cash in their accounts on average. It's more acute on the lower end. They're holding between $2,500-$5,000 on average, more cash, in, in their accounts. On the credit side, they're still paying off their credit cards. I don't know what the, the last group said here, but for our group, in our specific client base, they're paying off at a higher rate than they ever have before.
Still, it's pretty heightened, 4 percentage points higher than it was pre-COVID. So they've got that, that denotes solid quality there, and they're spending at about a 5% clip. So we see that maybe coming down a little bit, but they're still spending at a pretty good clip, and they're sort of averaging down to where they were pre-COVID. So on in terms of consumer spending, that's what we're seeing. Again, this is across 64 million households out there in client base that we have, and so those are all the activities going on. They're in good shape, and they're angling down. They're spending a little bit of it, but they still have, you know, on the lower end, probably two-three times more cash than they had pre-COVID.
I guess, how long do you think that lasts?
It's a million-dollar question. You know, we think it will last, but the way we're looking at from the econ, you know, sort of the economy, it's a slow travel down on the consumer side. They're bringing in more cash. There's plenty of jobs out there. You know, obviously, they're dealing with higher interest rates, but they've got higher wages. They still have a lot of job openings out there. They can find employment, and the cash is still coming in. So I would say slow angling down, getting to more normalized period out into, you know, the first quarter of 2024. But you're just going back to where we were sort of pre-COVID, where we had, you know...
moderate 2%-3% growth in deposits and things like that, and it'll revert back into that type of economy.
And then I guess maybe, you know, what are you hearing from companies? What are they watching? What are they most concerned about?
Yeah. You know, it's different. On the lower end, they're much more optimistic than they were last year. They're able to hire people. The supply chains are coming back in line, so they're a little bit, on the small business end, a little bit more optimistic. When you get up towards the middle market and the commercial side, they're a little bit more cautious, right? They're anyone who has cash and has loans outstanding, they're paying down their debt. They don't want to pay the higher interest rates, so they're, you see those type of activities. They're not you know, their supplies have come. They don't need to build up on inventory anymore, so there's less borrowing out there, and we see them pull back on their revolvers a little bit.
You know, 2%- maybe two percentage points on the upper end, on the, on the sort of middle-tier business banking type of client, probably more like, double that, like four percentage points lower on their revolvers. So they're waiting. They're in a wait-and-see mode, and you, you see why. They're waiting to see where things are going. They're not making any... They'll do targeted investments, but they're, they're not doing-- they're not stepping up, and they're not taking excess risks, and they're being a little bit more cautious.
You know, if Brian talks a lot about organic growth, and certainly your businesses have contributed to that. I think we've seen 18 consecutive quarters of net new checking accounts. You're adding credit card accounts, record consumer investment accounts. Can you talk to me in terms of, you know, who you're taking share from? What's kind of driving these share gains?
Yeah, you know what? When you go across the board, and we've looked at this, we're taking share across— Again, it's market by market. We're taking it across the spectrum from some of the smaller banks, mid-tier banks, and the upper banks, so it's pretty consistent across the board. We like our model. Our model is we're out there with our Financial Centers, our people in our Financial Centers. We are in the most key spots. We've renovated that group of Financial Centers, so we have people on the ground in terms of our consumer team and our investment team. But we also have, you know... We, we know we compete against the fintech, so we've built up the best fintech business in the world, or the largest fintech business in the world, our digital bank. So it's those- that combination of things.
We can go against some of the smaller markets within, and smaller companies with this increased technology. We can fend off the fintechs. We can get in front of our clients. We're there with them every day. They connect with us over 1.2 billion times every month through the digital platform, and then the Financial Centers are there if they need it, if they want something more sophisticated, or if they want to do planning. So the combination of those two things allow us to beat some of the local banks and the regional banks. Helps us compete with our peers, the bigger banks, and it help us to ward off the fintechs and keep them away from our client base. So we say we're taking share across all those different groups across the board.
Commercial side, I think similarly, you're right, I think 1,100 new clients in the first half of the year, growing IB share. GTS has obviously been strong. Can you just talk about the investments you've made in those businesses and, you know, how you're driving growth there?
Yeah. I mentioned before, 40% more RMs in the market. We've added investment bankers out in the middle market drives 40% of our fee pool and our fee base in investment banking. So we've added 12 new markets where we have investment bankers partnering up with our middle, you know, our commercial banking RMs. So that's a huge investment for us, and we've got about a 10% share, and we think we can grow that quite handily over the next year or so. And then on top of the people aspect of it, digital. Anything we can borrow from consumer and bring over, like Erica and things like that, we are bringing over the entire platform. So our commercial and business clients use a system called CashPro. We'll make that our portal.
75% of our clients are digitally active on that portal, but we... Again, we are connecting with our commercial clients every single day through that portal, so we are putting all the products up there. They can find anyone, anything that they need at Bank of America. We could, you know, we can interact with them. So... And then we've increased the speed and efficiency of that platform, and eventually, we'll keep investing in that platform. So anything that needs to be digitized, any documents, loan documents, anything across the board, we're interacting with our client. We've created this digital mechanism to drive more efficiency and interact with our clients more effectively. On top of that, all the payment mechanisms, we added merchant banking and things like that, we can distribute through that platform.
So we've got a pretty good connect point with our clients on both sides. Eventually, you guys, if you're a Bank of America client, you have the Bank of America app on the consumer side, you're going to see the same exact integrated app on the corporate side for whoever the client is at the business, the treasurer, the CFO, the CEO, they'll be able to have that same type of capability on their side. So those are just huge investments we're going to make over the next few years or so.
In both your answers on the consumer side and the commercial side, you talked a lot about digital-
Yeah
and technology and, and how you're benefiting from that. How do some of these lesser scale players compete against that?
You know, it will be at the heart of our business model, I can tell you that. And I think it does create a huge barrier to entry for some of the smaller players. And, you know, they try to compete locally in a different way. They try to add people. So again, that's why I said we need people on the ground in those markets to compete against them, and then we add digital on top of it. It gives us, you know, the one-two punch. It's a pretty formidable process to go forward. So I mean, you'd have to ask those folks that come through, but we're investing. As I said, we're trying to build the biggest digital bank in the world, and we're going to continue to invest. It's part of our strategy.
You know, right now, 52% of everything we do in the consumer bank is digital. That should go up to 70%. We're striving for that. And then on the corporate side, I talked about that, we have 75% digitally active, and we'll do more and more and make more investments on that side, speed and efficiency, safety, security for our corporate clients. We're making all payments, making those investments across the board, and you'll start to see some of that come out in the next year or so.
And then maybe turning to kind of look at the [BAC] data, modestly-
Yeah.
Can you talk to in terms of what you're seeing with consumer commercial, businesses?
Yeah, it's gonna be a bit different, tying back to the question you asked me about. It's gonna be a little bit different story by each market. And so I'd explain it this way: on the corporate side, things have leveled out, and now deposits are starting to grow again on the upper end in that in our business side of things. On the Wealth Management space and the investment space and our wealthy clients, you see those have leveled off, and they're sort of pretty consistent and staying where they are. And on the consumer side, you're still seeing a little bit of the spend down. Again, they have all that excess cash. There's some of the rotation is through the system into investments and whatnot.
We've captured a lot of that on the investment side, but they are still sort of slowly spending that level of cash down over time. And that's, that's sort of what we're seeing. And we'll see, you know, for the next, I, I think that same scenario will play out through the end of the year.
And maybe, can you just talk to the mix of non-interest-bearing deposits in commercial, you know, how low the non-interest-bearing deposits are?
Yeah. Yeah, it's about 42% non-interest-bearing right now. I think if I compare that to 2019, check me, it'd be about, you know, the level would be about 45%. Again, obviously, short-term Fed Funds rates were, you know, three times three times higher now, so you can, you can start to see it. So I'd say, you know, around 42%, maybe go a little bit lower and tick down a bit. But that's right in line sort of where, where we were pre-pandemic, given all things being equal, and actually better, given where Fed Funds is right now.
I guess one of the things that may surprise us from the biggest banks, and particularly Bank of America, is just how disciplined you guys have been on the consumer deposit pricing.
Yeah.
You know, given how much the Fed is hiking, do you think this will continue, or at some point, do we kind of see a catch-up?
You know, our strategy has been the same. We had never chased around short term hot cash or whatever you want to call it, so we were always checking account focused. We brought in something like 300,000 net new checking accounts in the first half of the year, or close to 500,000 investment accounts. But just core, our strategy is get the core operating accounts, bring in the checking accounts. That'll bring in sticky cash. Again, I don't, we don't have an interest rate on checking accounts, so I don't, there's no rate paid there. And so what we advise for clients who want higher rate, we put them in CD. So about...
and there's some wealth management there, so about $100 million of our deposits are in sort of higher priced types of products, and, you know. So CDs are a solution for them. We have all different types, depending on what the client wants and how long they want to stay in that particular vehicle. So we, you know, that's our model, and that's what we go through. So I don't see. You know, I see our pricing discipline just staying right where it is, and it's always been that way through the up and down cycle. And we've been pretty true to it.
Maybe, turning to kind of the, the loans side of the balance sheet, maybe just talk to consumer lending behaviors, you know, what products are they using? You know, where or how elevated are credit card payment rates? Do you see those-
Yeah, yeah. So we're all consumers, so this is not gonna be a shocking one. You know, mortgage is obviously down. You know, people are not moving out of their houses. They've locked in on rates. They've refi'd in the past. So there's not. That asset pool is sort of coming down, and there's not, you know, people paying higher, higher interest rates, so they'd have to get out into another one. So there's not a lot of supply going around. So that is a diminished asset. Auto loan is coming back strictly because I think supply is caught up. Autos are more expensive and particularly on the electric side, a little bit more expensive, but we see, we see some modest growth there.
HELOC is about, you know, sort of in line and flattish, and then so that leaves us with credit card, and we still see credit card going pretty strong. It's, you know, it's due to our consumers catching up on experiences, you know, taking a vacation, taking that extra trip on an airline, going overseas, international travel, doing the expensive vacations. So that asset continues to grow, and it's been, you know, it's been one of the ones that have carried us. So payment rates are still pretty strong. Like I said, you know, four percentage points above where we were pre-pandemic.
Still, you know, clients are spending, and they're paying off their balances at a pretty good clip, at a normal clip, where they're not getting themselves and not running themselves into a credit quality type of issue.
I guess, and then on the commercial side, you know, we've seen growth slow.
Yeah.
Kind of this debate internally, is it, you know, supply driven? You know, banks are kind of pulling back, whether it's Basel III or just they're kind of seeing loan losses going up, or demand driven, just, you know, people borrowing less, given higher rates and slowing economy. So-
Yeah.
I'd love to hear your perspective.
On our end, it's completely client driven, to be honest with you. And that's across the board. We see, as I think I mentioned it before, sort of clients pulling back a little bit on their revolvers, not, you know, not borrowing as much as they're paying down debt, and we still continue to see them being cautious. So unless they have a better sort of clearer picture of the year ahead, they're not making those investments they made before, and they've leveled out on inventory, so they don't need to borrow for that. So we are ready. We're available. We're still seeing some growth in different spots across the organization. But again, on average, it's down. It's completely client-driven.
And then credit quality, you know, we've seen credit card delinquencies come back-
Yeah
Toward 2019 levels. You know, where do you expect these will go? And, you know, do you see any signs of deterioration in the consumer?
Well, I mean, it. I would say I would describe it this way. I would say 2019 was like a decade low in terms of loss rate. So if I'm we're still so right now, we are still better than 2019. So I would say credit card loss rate will look like 17, 18, 19, a little bit, right in that area, if you if you're looking out forward. But as I said, clients got they've got plenty of cash. They are paying off their credit cards, have not seen any deterioration there. And so credit quality on average is looking really good, and we'll see where it takes us. But you know, and cash is still coming in the door. There's still plenty of jobs available, and they can find jobs. So there's not...
That would be the one that would sort of deteriorate credit quality from here, if you saw, you know, you know, job loss rate go up or unemployment go up, and that would be the key, as we look forward.
And then, I guess, on the commercial side, any areas of concern that you're watching beyond?
Yeah.
Office, beyond, you know, office?
Yeah. No, I mean, nothing, nothing that sticks out here and there, client here and there, but in different industries across the board, so nothing there. I mean, and, and just for CRE is, you know, 7% of our overall portfolio, and then our office is, you know, probably about 25%. That's be talking about 2% of our overall portfolio. And then our-- we've always been very, very, trying the business to very, you know, we've watched that particular area. So we're in 75% of our office space is, you know, A-rated. So it there, there's nothing, there's nothing in there and no, no surprises that would come through from where we stand right now.
Then earlier, you were talking about, you know, these investments you continue to make in digital. Just how do you balance constantly investing, you know, in the digital, you know, while keeping it growth low and just delivering, you know, positive operating leverage?
Yeah, I mean, the way we go, we, we are, everything is efficiency, efficiency-driven for our bank, so we, we have a huge process. We know we spend on marketing, technology, and the, the FTEs I talked about, but everything goes through our group. We look at it for tech- I'll just take technology and digital, for example. Everything goes through. We evaluate every single project that comes through. What's the long term? What's the short term value to deliver? What are we spending? We, we, base it and measure it against other projects that come up. So it's a very intense project. What we're trying to do is account for every single dollar that gets spent digitally, and then we look across the bank. Can that help other areas? Can that benefit other areas?
So every dollar that we spend, we know we're going to get the most out of it. We look at that portfolio every single month, and we check where those projects are and making sure the dollars are being spent wisely. Then after the project's done, we do a postmortem, and we look back. Did it get the revenue we needed? Did it get the expense save we needed? Is it driving, you know, maybe it's credit quality or sort of some regulatory item that we wanted to automate. Anything like that, we do a postmortem. So every single dollar gets evaluated. We do the same thing on the FTE side and the same thing on the marketing side.
It's a pretty intense kind of management process all the way through, but it's all to make sure we're not just doing projects, we're getting the most out of it, and we're not wasting any money if we're going to invest.
Jason, the other thing, and we talk about this, you know, when we're talking about priorities for capital. Technology is right at the very top of that because it's what fuels our growth, and it's fueling the expense saves and the efficiency that Dean's talking about. So priority is part of it. So is when we talk about responsible growth, we talk about there are four tenets. One of them is sustainability. And so it's for us now, at this point, after ten years of this, we don't walk in thinking, is this a discretionary number? We walk in thinking, this is something we're going to prioritize. It's going to be flat to up a few percent every year. Even in pandemic, it was up.
We're just constantly committed to that because it gets to the core of the operating model that Dean's describing and how he thinks about organic growth and serving the client.
I guess, Alastair, you know, now that you have the mic, you know, Dean-
Hello
... gave us some insights into loans, deposits, data trends for the regional bank. Hoping maybe you could broaden it out a bit for Bank of America as a whole.
You had to open your mouth, didn't you, now? There you go. You know, no good deed goes unpunished.
But, I think we saw $14.3 billion of NII in 2Q. Back on the July call, you talked about $14.2-$14.3 billion for 3Q.
Yeah.
Around $14 billion for Q4. That would get us up to more than 8% for the full year. How does that view add up?
Not really. I'd say, you know, in the, for this quarter in particular, Dean just talked to the deposit side. If anything, the deposit side is more constructive for us at this point. Dean described the big three blocks of customers in some detail there, so I won't go into that, but our deposits are kind of flat to up. That's just kind of where they are right now. That's probably a little better than we thought, overall. And as Dean talked about, beginning with flattening out in consumer, flattening out in wealth, and growth in global banking. So that's been, that's been good. No changes to our thoughts with respect to rotation between interest-bearing and non-interest-bearing. No changes in terms of the way we think about pricing, as Dean talked about, so no change there.
The loan growth is definitely slower. The growth we're seeing, as Dean described, is in card, and that's, you know, we talked about that at quarter end. But the commercial side is definitely a little slower right now, and that is demand-driven. But otherwise, no changes to NII at this point. Feel good about that.
... All right, and then on maybe overall expenses, we saw $16.2 billion in Q1 to $16 billion in Q2. In July, you talked about continued decline in Q3, Q4. Any updated thoughts? Do you want to quantify that? How are you thinking about expenses?
Well, we quantified it at the time by saying we wanted to just keep going with that trajectory. We were looking for $15.8 billion this quarter. We're looking for $15.6 billion next quarter. The key to that trajectory for us is headcount. And if we went back to January, February, we were running headcount at the time, right around 218,000. We talked about the fact we wanted to end this quarter right around 213,000. I think we're in good shape for that. That should set us up well for the $15.8 billion. Then we think we just got to keep grinding away at the expense base in Q4, and we still feel good about the $15.6 billion number, so no change there.
and if and when we do that, we can do the 16.2, 16, 15.8, 15.6. At that point, that compares with 15.5 in Q4 of last year. So that's the kind of discipline that we're looking to get back to, and I think it sets us up well for the beginning of next year, when we'll start with 213,000 heads or fewer, as compared to starting last year at 218. So that's what we're trying to do as a management team, and we're on track for that.
It doesn't stop me from making sort of all the investments we talked about. We are finding efficiencies, and we're putting people in the market and making the digital investment as what... So if you put the two together, we've got to make those investments and get to where Al is just talking about. It's a net overall position.
Then, you know, no good deed goes unpunished, but, you know, eight straight quarters of operating leverage. You know, is it realistic over the next several quarters for that to continue, given the top NII comps we'll see?
Well, it's going to be harder now, no question. I think that's why we're so focused on the expense discipline part of the equation. At the same time, we were pretty good at this pre-pandemic. We had five years in a row of it. We've done a pretty good job over the course of the past couple of years, because we've now got eight quarters in a row of that, so we haven't given up the fight. The key will be for us, as Dean just talked about, we got two things at once. We got to drive the organic growth insofar as we can, and we've got to maintain the expense discipline. So it's probably too early for us to tell, but we know what we're trying to do over the course of the next year.
Then, I guess, just any thoughts on trading, investment banking in general?
Well, the big two drivers in any given quarter will be the markets and the trading piece. I'd say, around Investment Banking, you know, the fee pool's down probably 30%-35% right now, pretty significantly down year-over-year. We're not... I think we'll do slightly better than that, but that still puts our Investment Banking fees this quarter probably right around the billion-dollar mark. Around Global Markets, there's always a little bit of third quarter seasonality as compared to second. So it's probably easiest just to compare us to last year, and I think we'll be up versus last year in the single digits, sort of low single digits type number in markets, just based on our current run rate. That remains a reasonably constructive environment generally, but low single digits compared to year-over-year.
Then the next era question. As audience responds to that, and I guess, Alastair, I'll ask you to talk broadly and maybe, Dean, we can talk about your businesses separately. But, you know, Basel III endgame is obviously getting a lot of attention. You know, I'd love to kind of get your thoughts of Bank of America as a whole, maybe size the RWA impact of the potential mitigating actions. Any updated thoughts on how that shakes out?
Do you want me to take this a moment before I bias them? I've already done it.
Yeah, yeah.
Okay. So, actually, I think this is a reasonable understanding of where we think we've come out here. You know, we've seen the popular press say the big GSIB banks will be up about 20% or so. And we think that's a reasonable starting point for the mix of our business. Now, that, of course, assumes that there's no changes to the current rules. And I think I'll come back to that at the end, but there's obviously reason to hope there may be changes to the current rules. But let's just use 20% for a moment because I think it's an okay place to start. If you took our Q2 RWAs, and just grossed them up by 20%, you're going to get to a number like $1.95 trillion.
That would imply we're going to need $195 billion of CET1. We ended Q2 at $190 billion. So it gives you an idea of our gap. We've been, you know, we've been adding pretty significant clips of CET1 each quarter, so we should be able to get there in a quarter or two. At that point then, the rest of the challenge is just growing to build the buffer that we want over time and to support the growth over time, and to support the growth and the dividend buyback the shares. We got five years to do that, so I think we'll have plenty of flexibility once we get through the course of the next quarter or two to just build the capital we want.
Then we get to the point where we've got a lot of flexibility, and we can just go through our usual priorities for how we think about setting up the balance sheet.
A lot in there. So maybe buyback on hold for the back half of this year, and then you kind of rethink it next year as you get to where you want to be?
Well, we said at Q2 that we were going to prioritize right now just on capital build, because we wanted to see the final rules come out, and then we wanted to see how this might all impact. I think based on where we are, we may have a little more flexibility there as we go into, you know, the fourth quarter and as we get into next year. But we've got to work through finalizing some of this stuff, and we'll give an updated earnings on how we're thinking about that.
Your response, you sound a touch hopeful there may be some changes in this proposal. Just share kind of where you see the greatest possibility of getting some easements?
Yeah, look, I think there's going to be some important points of advocacy on the part of industry and by by businesses in America, who are the ones who ultimately are going to pay for this. First, I mean, we've talked about this before, but there's a significant amount of double counting in the markets trading RWAs and in the operational risk RWAs, at least as it sets up relative to the stress capital buffer test. So that, that's a significant point of difference, I suppose, in points of view. So we'll see how that goes. I'd say third, if those are two, third would be GSIB inflation.
Now, that's one of those things where it was always anticipated that along the way, Basel III endgame, we might have a place where the GSIB numbers stop inflating based on nominal and start to be adjusted for the size of the economy. That would be meaningful. That's a meaningful thing to the very large banks, and at some point, it's appropriate that that finish. Around some of the things like equity investments, you know, if you think about what's going on with tax equity and the ESG investments, in many places, people are trying to incentivize those investments, and yet this, by being 400% risk-weighted assets, would change that totally. So there'll be a variety of things that have to get worked through, and I'm sure are going to come out in the comment period.
We're hopeful that some of this will come down, and in our favor. But if not, I think we're in a place where our capital is in a pretty good position, and then it's just about managing it over the course of the next five years. Then, of course, we get to optimize the balance sheet as well. We'll think about how we reprice everything, and we'll think about the composition of our balance sheet. We'll have a lot of levers, and we've got a lot of time. But the important thing, I think, is we have the capital that we need.
I guess, Dean, you have a good business guy here, so I would love to get kind of your perspective. Like, you're running a business.
Yeah.
Now, from your perspective, any, you know, positive or negative surprises, from Basel III endgame? And then are there any activities or areas you could see, you know, changing some pullback?
Sure.
And then any opportunities to mitigate some of that RWA inflation? I know not a lot of it's in your business, but I got to think some of it is, just how you think about that.
Yeah, product, I think where Alastair left off, the product by products, we'll look after and we'll evaluate. So mortgage has a higher RWA to it, so we'll do some pricing actions we have to take. We have to look at balance sheet loans. We have to, you know, look at the appropriate. We have to evaluate that at a different, higher capital level. Unused credit card lines, another one, there's a capital charge there. So how does that impact our strategy? Where do we go? We have clients that sort of borrow and hold balances. We have others that just transact. And so that activity will be more costly from a capital standpoint, so we'll adjust there as well. But for every, you know, for every change in there, there's a sort of we don't sit still.
There's an action to help mitigate it, reposition our balance sheet, and we'll do a product. There's some things at the macro, again, that Alastair talked about, but product by product, we're looking at that, evaluating it, and just taking actions, whether that's sort of pricing and repricing actions or just the level of pure activity. If we can offset where we put capital and put it into more useful spots and more beneficial spots for our consumers, we'll do that. So we'll constantly change it and look to offset it and mitigate as much as possible.
Great. Let's give about five minutes on the clock on our call up and see if there's any questions from the audience. Is that a third round? Robbie? You just go. I'll repeat it.
Hi, Dean, this question is for you.
Sure.
You mentioned earlier your ambitions to increase the digital nature of your bank, especially both on the commercial and retail side, and you named some ways you're going to do that. Can you talk about bill payment in particular? It sounds like you're working with Bill.com and what you're anticipate doing in terms of creating more sticky small business user base by having payments integrated into your your banking network.
Yeah, so, and fully integrated. It starts with our portal and small business. It's BA 360, and we have CashPro on the sort of upper end. So that portal will be expanded to include everything, all of our merchant products and services, which we just brought into the bank. That product will be integrated into our core operating account. So if you think of a small business as an account, everything will be integrated around that account and everything built into it, bill pay, everything, repositioned, reset the client.
So they can choose to use one of our relationship managers that are out in the field, or if they just want to completely do it themselves, they should be able to come in and do it completely digital from start to finish, open an account, operate an account, and get approval, transact, borrow, invest. You know, because we have the 401(k) side as well, which will be integrated in there. So that is the general plan moving forward. We've done that on the consumer side, and we're just bringing that same mentality over on the business side. And we're borrowing as much as we can from a technology perspective, just huge upside, right? And think of it-
... Yeah, it's great to have relationship managers out in the field, and they interact with our clients, they go visit them. But there's nothing like interacting with your client every day, through a portal and making sure you're delivering our message, making sure you're delivering advice and anything else they need, because we can see what they're doing, how they're transacting. So any way we can be helpful, we're right there in front of them every single day, and it's daily. It's not, you know, quarterly or monthly or whatever, it's every single day. That just gives us much more opportunity to build a relationship, grow relationships, and grow revenue.
One more. Good one.
This is for Alastair. It seems that the market is very focused on held-to-maturity losses. And, you know, relative to tangible book, it's a big number. I thought it'd be great to hear how you think about it, and then also when it might turn into a tailwind as those begin to mature.
Yeah. So, well, I'll answer in that sequence. So first, look, it's obviously not a capital issue. It's also not a liquidity issue for us. It hasn't been an earnings issue either, insofar as, you know, we got to a point pre-pandemic, where we had $1 trillion of excess of deposits over loans. We got to invest them somewhere. And we made a determination to invest some of those in long-term fixed and the rest in short-term and floating. And we put that out every quarter, so you can see that. You can also see over the course of time then, how the interest received and the rate received on that has gone up over the course of time as compared to the price that we pay on deposits.
That, in turn, has really helped to increase our NII. We were $9 billion in the core banking book prior to, but at the low, today we're at $14+. We've added $5 billion in NII per quarter, $20 billion a year. If you were to PV that, that would be a big number, right? Because it's not just one thing on our balance sheet, it's everything. And yet, in terms of how I think about it in terms of tailwind, it's already a tailwind. This is the week where we get pay downs. You know, we get pay downs every month from those securities, and each time that we're taking them off, we're just sweeping them into cash. At some point, we'll put those into longer-dated investments.
We'd put them into loans right now if they were ..., that's always going to be our first choice. But we're sweeping them into cash, so they're coming off the books at a low coupon. They're going straight onto the books at a much higher coupon, and obviously, we'll take the benefit of that every month as they pay down, every quarter as they pay down, and we'll continue to keep everybody updated with that progress over time.
Great. Perfect. With that, please join me in thanking Alastair and Dean for their time today.
Thank you.
Thank you.