Day, everyone, and welcome to the Bank of America Earnings Announcement Conference Call. At this time, all participants are in a listen only mode, but later you'll have the opportunity to ask questions during the question and answer session. Please note that this call is being recorded. It's now my pleasure to turn the conference over to Lee McIntyre. Please go ahead.
Good morning. Thanks to everyone on the phone as well as the webcast for joining us this morning for the Q1 results. Hopefully, everybody had a chance to review the earnings release documents that are available on the website. Before I turn the call over to Brian and Bruce, let me just remind you, we may make forward looking statements. For further information on those, please refer to either our earnings release documents, our website or other SEC filings.
So with that, let me turn it over to Brian Moynihan, our CEO for some opening comments before Bruce goes through the details. Frank?
Thank you, Lee, and good morning and welcome everyone to the earnings call for our Q1 of 2015. I'm going to start on Slide 2. So the highlights are there. We earned $3,400,000,000 after tax in the quarter, which is up both on a linked quarter and year over year basis. We continue to work to drive growth in all our core businesses.
We're beginning to see it overcome the runoff with non core portfolios in many areas. At the same time, we continue to focus on managing expenses carefully. As a result, we're beginning to see more predictable earnings with more improvement expected ahead. Both capital and liquidity remain at record levels in our company. We expect to return more capital to shareholders this year than we have in the past.
Revenue on adjusted basis was $21,900,000,000 for the quarter. From the top of the house, revenue remains challenging in an environment with below trend economic growth and rate environment which comes from that. In addition, we remain faithful to our customer strategy with strong risk management and risk appetite to ensure we do not repeat the outsized credit losses of the past. With that said, we are seeing our core business stabilizing across the drivers of the revenue. This quarter we saw continued growth in wealth management revenues and a rebound from the 4th quarter in trading revenues.
In our loan and deposit areas we saw continued core growth, albeit subject to continued spread compression. Our expense management efforts continue. Year over year expenses excluding litigation costs are down 6%. Including litigation costs, year over year expenses are down 30%. We continue to see our efficiency efforts drive forward beyond new BAC through our simplified and improved program.
We also continue to see progress on LES expense. As proof of our efforts, for the quarter, we ended with our headcount at 200 a little under 220,000 full time employees, a reduction of 4,000 employees for the quarter about 2% and 19,000 employees year over year For the quarter, this reduction came to about 35% from LAS and about 65% from the rest of the company. To put it in a broad context, we are approaching employment levels where we were in early 2008 prior to bringing over in over 100,000 people from Countrywide and Merrill acquisitions. We're doing that through the investments we're making in technology to produce costs and they continue to take hold. And we will continue to drive this effort even as the economy continues to improve and rates rise, helping keep balance to our operating leverage.
During the last year, even while we're reducing those costs and headcount, we continue to invest in the client facing growth capacity in this company. We've added financial advisors in the Red Cross, Dave and Merrill Lynch focused on building for the future. We've added commercial bankers in all our global banking areas to help fill in our franchise. We've added new financial centers in areas of opportunity. And we continue to invest in products and innovation as well as efficiency.
A simple example is in our consumer mobile banking space, where we now have 17,000,000 mobile banking customers, up over 2,000,000 from last year. Turning to Slide 3, you can see what we simply need to do. Each of the 4 core lines of businesses on the left hand part of slide earned above our cost of capital for this quarter. In addition, the aggregate earnings for all those businesses were $4,400,000,000 after tax. The LAS segment had a much smaller loss this quarter showing we're making progress.
The other area on the right hand side of the slide is affected this quarter by the impacts eligible incentive costs and the market related NII adjustments, which affect the top of the house earnings. They are booked there and distributed the business over the quarters. But this shows that we need to keep working LAS to get it to breakeven and the other will take care of itself in subsequent quarters. Turning to Slide 4. With regard to CCAR, as previously disclosed, we received a conditional non objection to our capital plan.
We received the approval for our requested capital actions that we requested our original submission, a dividend of $0.05 per share $4,000,000,000 of stock repurchase on the relevant periods. As you can see, the cushion we have increased from about $2,000,000,000 last year under the tightest constraint to over $22,000,000,000 this year, both within both those cases under the tightest constraint after all capital actions. These quantitative results bode well. However, the conditional approval is an area with which we are focusing. We're focusing our energy for the September resubmission and beyond.
Our efforts are well underway. We are bringing additional resources to task. We simply have to be the best at CCAR to meet our shareholder objectives in our company. To ensure that we achieve that success, I've asked Terry Laughlin to lead our efforts. As many of you know, Terry helped us clean up the mortgage issues over the last several years.
I can assure you that our Board and management are extremely focused on our resubmission and our core process improvement for CCAR 2016 next year. Terry has retained the team of external experts, increased internal staffing to ensure we're successful. We've had in-depth discussions with our regulators regarding the particular specified issues that we need to remediate with a resubmission and we're focused on getting that done by September. With that, I'll turn that over to Bruce.
Thanks, Brian, and good morning, everyone. I'm going to start on Slide 5. As Brian mentioned, we recorded $3,400,000,000 of earnings in the Q1 or 0 point $0.25 a share in the Q4 of 2014 and a loss of $0.05 if we go back to the Q1 of 2014. I'd like to note a few items as you review these results. Both first quarter periods include $1,000,000,000 impact in each of the Q1 periods.
The Q1 of 2015 also includes a negative market related adjustment to net interest income of $484,000,000 for the acceleration of bond premium amortization on our debt securities that's driven by lower long term rates that cost us $0.03 in EPS during the quarter. The other large item that's worth noting as you look at the comparisons is the outsized litigation amount of $6,000,000,000 in the Q1 of 2014. I'd like to spend just a moment on total revenue comparisons. Our Q1 of 2015 revenue on an FTE basis, if PBA adjustment was $21,900,000 during the quarter. If we compare that to the Q4 of 2014 and adjust for the same items, revenue is up $1,700,000,000 or 8%.
And that 8% increase is attributable to a rebound in sales and trading results as well as higher mortgage banking income and is offset somewhat by lower net interest income mostly from 2 fewer days during the quarter. We compare back to the Q1 of 20 equity investment gains as a result of monetizing a single strategic investment in the year ago period, revenue is down a couple $100,000,000 or 1% and that's from lower net interest income and lower sales and trading results. Total non interest expense during the quarter was $15,700,000,000 and included the $1,000,000,000 in retirement eligible costs as well as $370,000,000 in litigation expense. I will go through the comparisons from an expense perspective several slides back. As we look at provision for credit losses during the quarter, they were $765,000,000 and included 429,000,000 dollars in reserve release versus $660,000,000 in the Q4 of 2014.
Preferred dividends during the Q1 were $382,000,000 And as you all look to update your models, given the preferred issuances that we've had, the majority of which pay semiannually, as you look at preferred dividends, they should be roughly 330,000,000 dollars in the second and fourth quarters and $440,000,000 in the 1st and third quarters going forward based on our existing preferred footprint. If we go ahead and move to slide 6 on the balance sheet. Our balance sheet was up slightly to $2,140,000,000,000 and that was driven almost exclusively by cash balance is associated with the deposit growth that we saw during the quarter. We continued our focus on balance sheet optimization for liquidity as we continued to shift some of our discretionary portfolio 1st lien loans into HQLA eligible securities. Loans on a period end basis were down modestly, reflecting good core loan activity in both our Global Banking as well as our Wealth Management segments.
That was more than offset by seasonally lower card balances in our discretionary and consumer real estate area as well as runoff portfolios. Deposits were up $34,000,000,000 or 3% from the end of the year. And some of that obviously has to do with seasonal tax activity. We issued $3,000,000,000 of preferred stock in the quarter that benefited regulatory capital. And as you look at common shareholders' equity, you can see it improved driven both by earnings growth as well as improved OCI.
As a result of those factors, tangible book value increased to $14.79 7% higher than 12 months ago and our tangible common equity ratio improved to 7.5%. The last point that I would note is that we did add a slide in the appendix as we updated our capital allocations across the segments coming into 2015 and the returns that we show you are reflective of those updated capital allocations. Let's go ahead and flip to Slide 7 and go through loans. From several calls, we're asked frequently about the decline in reported loans, which are down modestly again from the 4th quarter levels as you can see in the upper left hand chart. I want to make a few points though as we go through this.
As we've discussed many times, much of the movement in loans has been driven by 2 pieces of non core loans. The first relates to shifts in our discretionary mortgage loan levels that are used to manage interest rate risk and predominantly recorded in the all other unit. Many times based on the investment decisions that we make, these loans are replaced with debt securities on the balance sheet. Other component as you look at loans to consider is the runoff that we have within our LAS unit, which are mostly home equity loans. As these home equity loans go away, it enables us to reduce our operating costs as we have less work to do.
As you can see over the past 5 quarters, these non core loans have declined approximately $59,000,000,000 If you adjust for that $59,000,000,000 though, and I'll go to the upper right hand box, you can see that our actually our loans have actually increased by $21,000,000 from the Q1 of 2014. Bottom chart on this slide provides the mix of this loan growth across our primary businesses. And you can see within our wealth management area, we've experienced strong demand in both consumer real estate as well as securities based lending and that's led to year over year loan growth within that segment of 10%. Within Global Banking, we saw modest growth on a year over year basis, but importantly, we saw a significant pickup in activity in the Q1 of 2015 relative to the Q4 of 2014. Over that time frame, loans were up $6,700,000,000 or 8% on an annualized basis.
We move to Slide 8 and take a look at regulatory capital. This quarter, the standardized transition reporting includes the switch from reporting RWA under the general risk based approach to Basel III and the capital number includes another year of phase in for capital deductions. With those changes, our CET1 ratio was 11.1% in 2015 under the new reporting. We go ahead and look at Basel III regulatory capital on a fully phased in basis. Our CET1 capital improved $6,000,000,000 during the quarter and was driven by earnings, lower DTA, lower threshold deductions as well as an improvement in OCS.
That translated under the standardized approach to our CET1 ratio improving from 10% in the 4th quarter to 10.3% in the Q1 of 2015, while under the advanced approaches the CET1 ratio improved from 9.6% to 10.1%. As you know from our 10 ks disclosure, we're working with our banking regulators to obtain approval of our models in order to exit Parallel Run. Our regulators have requested modifications to certain commercial and other credit models in order to exit Parallel Run, which we estimate would increase our advanced approaches RWA and negatively impact the CET1 ratio that we show here by approximately 100 basis points. If we look at supplementary leverage, we estimate that at the end of the Q1 of 2015, we continue to exceed the U. S.
Rules applicable in 2018. Our bank holding company SLR ratio was 6.3% and in our primary banking subsidiary Bana, we were at 7%. If we turn to Slide 9, long term debt at the end of the Q1 was $238,000,000,000 down 5,000,000,000 dollars from the Q4 of 2014. In the lower left box, you can see that from a maturity profile perspective, we have $16,000,000,000 of parent company debt that matures during the balance of 2015 and will be opportunistic as it relates to recurposing that indebtedness. Our global excess liquidity sources reached a record level of $478,000,000,000 this quarter and now represents 22% of the overall balance sheet.
The increase from the 4th quarter reflects the deposit inflows as well as the shift from discretionary loans into HQLA securities. Within the liquidity, our parent company liquidity remains quite strong at $93,000,000,000 and our time to require funding is at 37 months. During the quarter, we did continue to increase our liquidity coverage ratios at both the parent as well as at the bank levels. And at the end of the Q1, we estimate that our consolidated company was well above the 100% fully phased in 2017 LCR requirement. On slide 10, net interest income on a reported FTE basis was 9,700,000,000 dollars down a couple of $100,000,000 from the Q4 of 2014 driven by 2 fewer interest accrual days during the quarter as well as some spread compression.
If we exclude the previously mentioned market related adjustment, NII of 10,200,000,000 dollars was largely in line with our expectations and lower than the Q4 of 2014 given 2 fewer interest accrual days. Modest improvements in net interest income mostly from lower funding costs in the quarter were offset by some of the continued pressures that we saw on loan and securities yields as well as balances and new assets coming in at lower long term rates. This drove the adjusted net interest yield to 2.28%. If we look at the movement down in rates during the quarter, our balance sheet did become more asset sensitive compared to year end, such that a 100 basis point parallel increase in rates from the end of the quarter would be expected to contribute roughly $4,600,000,000 in net interest income benefits over the next 12 months. Slightly more than half of that $4,600,000,000 is on the long end and just under half is based on the short end.
On slide 11, if we move to expenses. Non interest expense was $15,700,000,000 in the Q1 of 2015 and included roughly $370,000,000 in litigation expense. 1st quarter 2015 once again did include $1,000,000,000 in annual $1,000,000,000 in annual retirement eligible incentive costs consistent with what we saw in the Q1 of 2014. Litigation expense during the quarter included FX and RMBS items and was significantly below what we saw a year ago, which included the cost of the FAFSA settlements. While we're on litigation, I do want to make sure that you noticed this quarter that we did get one step closer on our Article 77 settlement as the appellate court approved the Bank of New York Mellon settlement in all respects.
And I would also note that the deadline for further appeal at this point has passed. If we exclude litigation and retirement eligible costs, our total expenses were $14,300,000,000 this quarter, down nearly $1,000,000,000 from the Q1 of 2014, driven by three factors: continued progress on our LAS initiatives our new BAC cost savings as well as lower revenue related incentives within global markets. Relative to the Q4 of 2014, the expense level on an adjusted basis is up about $500,000,000 on higher revenue related incentives, mostly for the improved sales and training results on a linked quarter basis. Our legacy assets and servicing costs ex litigation were $1,000,000,000 They improved approximately $100,000,000 from the Q4 of 2014 more than $500,000,000 if we go back to the Q1 of 2014. And we remain on track to hit our Q14 target that we laid out for you of $800,000,000 in LAS cost ex litigation once again in the Q4.
Beyond the LAS business, our teams continue to do very good work in optimizing our delivery network as well as our infrastructure. And as you can see headcount was down 8% over the course of the last 12 months. If we look at asset quality on slide 12, reported net charge offs were $1,200,000,000 in the Q1 versus $900,000,000 in the Q4 of 2014. I do want to note that the Q1 of 2015 included a net impact of approximately $200,000,000 in losses associated with the DOJ settlement that was previously reserved for and that was offset in part by recoveries from certain NPL sales. Our Q4, 2014 included similar items, but with the net adjustment positively benefiting net charge offs to the tune of about $163,000,000 If we adjust for all these impacts, our net charge offs during the quarter were $1,000,000,000 which is slightly lower than what we saw in the Q4 of 2014.
Our loss rates on the same adjusted basis were at about 47 basis points in the first quarter of 2015 consistent with what we saw in the Q4 of 2014. And both our consumer delinquencies as well as our NPLs declined from 4th quarter levels. On the commercial front, we did see a slight tick up in reservable criticized exposure from the Q4 of 2014 as we bounce off comparatively low levels. The Q1 of 2015 portfolio, while we did see a modest increase in reserves in the commercial space that was associated with the strong loan growth that we saw during the Q1. We can flip to Slide 13 on Consumer Banking.
Hopefully, last week, you all saw and had a chance to review the filing of our recasted segment results. We mentioned to you during the last earnings call that we made changes in segment reporting, where we moved the home loans into our Consumer Banking segment from Crest, which left our legacy assets and servicing as a standalone segment. We also moved the majority of Business Banking from Consumer Banking to Global Banking segment, which is how we manage the business. All of these changes have been made retroactively. Let's go ahead and walk through then the business segment results, starting on slide 13 with Consumer Banking.
The results showed solid bottom line performance with earnings of $1,500,000,000 which is up slightly from the year ago quarter and down seasonally from the Q4 of 2014, which tends to be a better consumer spending quarter. Business generated a solid 21% return on allocated capital. Total revenue was lower compared to the Q1 of 2014 from a decline in net interest income. 2 thirds of that decline in NII was a result of pushing out in the allocation of a portion of the market related NII adjustment to the deposits business. Our non interest income was stable compared to last year, reflecting good growth in both mortgage banking as well as higher card income, but was offset by a portfolio divestiture gain last year of roughly $100,000,000 in the first quarter.
Expenses were managed tightly. Non interest expense declined from the Q4 of 2014 as we continue to reduce our financial centers and the associated costs driven by consumer behavior patterns shifting to more digital. The number of mobile banking customers continues to increase. We ended the quarter at roughly $17,000,000 and these activity from these customers accounts for roughly 13% of all deposit transactions. Page 14, we've added some additional slides here to give you a sense as to some of the trends that we're seeing in the business and key drivers.
You can see we remain a leader in many aspects of our consumer bank doing business with nearly half of all U. S. Households. If we look at fees compared to the Q1 of 2014, card income was up modestly despite some affinity portfolio divestitures over the last year. Our card issuance remains very strong.
Our balances did decline as our customers began to pay down holiday spend balance levels and our net charge offs remained low at 2.8% and risk adjusted margins remain high. If we move to mortgage banking income, it was up 60% as originations for the company ramped up during the quarter. Year over year, 1st mortgage originations were up 55 percent to $13,700,000,000 while our home equity line and loan originations increased 62 percent to $3,200,000,000 The revenue improvement was driven by these increased volumes as well as the mix of 1st lien originations that was 76% weighted towards overall refinance activity. And looking forward, the pipeline remains strong, up 50% from the end of the year. Moving to service charges.
Service charges were down versus the Q4 of 2014. This fee line continues to be muted as more of our customers take advantage of our reward plans and are opening accounts with higher balances. We also continue to reduce the number of less profitable accounts serviced and migrate customer activity to more self-service channels. As a result, we're getting the same or slightly better account fees and debit interchange from fewer accounts, which is allowing us to reduce our infrastructure. Expenses declining.
And if you look at cost of deposits, it's dropped from just less than 2% in the Q1 of 2014 to 1.87% in the Q1 of 2015. And lastly, as you can see, while we're bringing down our overall headcount in this business, I want to note that we've been increasing our sales specialists in the financial centers and their sales are driving client balances higher. For example, our deposits are up 5% from the Q1 of 2014 and our brokerage assets are up 18%. We move to slide 15, Wealth Management. It generated earnings of $651,000,000 during the quarter.
We compare this to the Q1 of 2014 to the $78,000,000 decline is the solid fee growth that we saw during the quarter was offset by lower net interest income and higher expense. Once again, the allocation of the market related NII adjustment drove the decline in NII, which more than offset the benefits that we saw from solid loan growth. Our asset management fees continued to grow driven by strong client flows and higher market levels. Our non interest expense increased from the Q1 of 2014 as a result of higher revenue related incentives as well as investments in client facing professionals. Our pre tax margin was down 23%, down last year largely impacted by the decline in net interest income.
Return on allocated capital remains strong at 22%. If we look at the activity and drivers within Wealth Management on slide 16, you can see our asset management fees continue to grow and are up 10% from the Q1 of 2014, but this is partially offset by some of the sluggishness that we've seen in transactional revenue within the brokerage line. We do continue to be an employer of choice in this business, increasing financial advisors by more than 850 individuals over the course of the last 12 months. Our client balances climbed to over $2,500,000,000,000 up $12,000,000,000 from the Q4 of 2014, driven by strong client balance inflows. Long term AUM flows at $15,000,000,000 for the quarter were positive for the 23rd consecutive quarter.
And as I mentioned earlier, when we discussed loans, we continue to experience strong demand in both our securities based and residential mortgage lending areas of the business were $1,400,000,000 which generated a 16% return on allocated capital. Earnings were up 6% from the Q1 of 2014 as the decline in net interest income was more than offset by lower expense as well as improved provision expense. As we look at NII, the year over year decline was driven by 3 things: the allocation of the market related to NII adjustment, which I've touched on in previous segments the push out of the firm wide LCR requirements, a good chunk of which goes to Global Banking as well as some year over year compression in loan spreads. Our provision expense was lower than the Q1 of 2014 by $185,000,000 as we did not build reserves to the same magnitude as we did in the Q1 of last year. Non interest expense was down 8% from the Q1 of 2014, driven by 3 factors lower technology initiative spend, lower litigation as well as lower incentive costs.
Moving to the Global Banking metrics on page 18. We chart the components of revenue, which shows stability across the quarters with the exception of NII as I just mentioned. Our investment banking fees company wide during the quarter were $1,500,000,000 down 4% from the Q1 of 2014. I would highlight during the quarter, we recorded the highest level of advisory fees since the Merrill merger, up 50% from the Q1 of 2014. This helped offset the drop that we saw within our leverage finance business as a result of the regulatory guidance that was implemented during the first half of twenty fourteen.
Equity underwriting was also up nicely, up 10% from the Q1 of 2014. And as you look at the balance sheet, loans on average were $290,000,000,000 up modestly on a year over year basis. But if you look linked quarter, as I mentioned earlier, we had a fair bit of momentum ending the first quarter with balances up $7,000,000,000 on a spot basis from the Q4 of 2014. The $7,000,000 improvement was broad based. We saw middle market utilization rates at levels that we've not seen for 6 years at this point, so we feel good about that.
And within Commercial Real Estate, we saw a linked quarter improvement as well. On slide 19, Global Markets. We earned $945,000,000 on revenues of $4,600,000,000 in the quarter. That was an 11% return on allocated capital during the quarter. Our earnings were up nicely from the Q4 of 2014, but down from the Q1 as our revenue was down 7% excluding net DVA and FDA.
The decline from the Q1 of 2014 was driven by lower fixed sales and trading results. On the expense front, non interest expense was modestly higher year over year as we had $260,000,000 in litigation expense in the quarter. Ex litigation expenses were down 7% on reduced levels of revenue related incentives. If we look at the global markets metrics on slide 20, sales and trading revenue of $3,900,000,000 ex DVA and FDA, as I mentioned, was up nicely off Q4 of 2014 levels, but down 5% from the Q1 of 2014. Fixed sales and trading was down 7% on a year over year basis, while equities was effectively flat with the year ago period.
Within the macro related product areas like FX and rates, there was a solid return in volatility trading activity in the quarter, while the credit spread traded products area expected experienced lower activity in line with lower issuance levels during the quarter. And as you look at and we lay out a mix between macro and credit in the upper box upper right hand box and you can see that our activity tends to be more heavily weighted towards credit spread trading given the position that we occupy within the issuer market. And the last point I would make on markets, our asset levels were fairly flat, while VAR was below the level that we experienced last year. On slide 21, legacy assets and servicing, you can see we saw improvement in revenue and expense trends compared to both periods within Legacy Assets and Servicing. The loss in this segment narrowed to less than $240,000,000 Revenue improved as both rep and warrant was down expense expense ex litigation was $1,000,000,000 in the quarter, once again improving approximately $100,000,000 from the 4th quarter and more than 5 $100,000,000 since the Q1 of 2014.
Importantly, our 60 plus day delinquent loans were 153,000 units that were down 36,000 units or 19% from the Q4 of 2014. If we move to slide 22, all other. All other reflects a loss of $841,000,000 and that includes once again the impact of the annual retirement eligible incentive costs as well as some of the market related NII impact. We compare this quarter to the Q1 of 2014, revenues lower by about 6.80 $3,000,000 and that was driven by nearly $700,000,000 in equity investment gains in the Q1 of 20 quarter compared to about $141,000,000 in the prior year quarter. From a modeling perspective, the effective tax rate during the quarter was about 29%.
And as we look out during the balance of 2015, we'd expect the tax rate to be roughly 30% absent any unusual items. So I would just wrap up the prepared part of we end the quarter with record capital. We end the quarter with record liquidity. We'll begin our $4,000,000,000 share repurchase program this quarter. The team is very focused on addressing our CCAR resubmission.
Expense management remains a key focus across the company. Our businesses are showing good activity including a pickup in lending across several businesses in the company. Credit quality remains strong and we remain well positioned to benefit in a rising interest rate
And we can take our first question from Betsy Graseck with Morgan Stanley. Please go ahead.
Hey, thanks very much. So Brian very impressive commentary in the beginning of the call on headcount getting back to 2,008 levels before CFC and the Merrill Lynch acquisitions. The one question we get continually from investors is what's left to do on the expenses and you've already got the core expense number coming into the $13,000,000,000 range. So can you give us some sense as to where you go from here on expense management? And is it, steady as she goes?
Or is there room to become even more efficient?
A couple of things. One is that the parts of expenses Betsy in the 3 basic buckets, the litigation expense bucket, which you're seeing come down to more reasonable levels. And then there's a cost of that litigation, the external legal fees and stuff, which we'll continue to see lift in, which is in the expense numbers. Then you have the 2nd bucket LAS. We're at the $1,000,000,000 level, as Bruce said.
We expect to get that down to $800,000,000 and keep moving that to lower numbers over into 16%. And then you get a baseline. And I think the thought on the baseline is even as we reduce the headcount, we continue to reinvest in sales capacity. So just 1,000 more salespeople roughly out there selling. And so the idea is to continue to drive salespeople into the businesses.
If you think about the broad expense base, there's adjustments always in Q1, Q2 just because of revenue and stuff in terms of the aggregate amount. But we'll continue to pair away. You can look year over year quarters over the last 4 years, it continues to chip away. This year, it was 300 on the core base. We'll continue to work with that.
But I'd say that a lot of it, we're trying to make sure that we create the investment rate to continue to grow the franchise in their size. This is a matter of holding these expense relatively flat as revenues start to pick up with the expected increase in rates and economy continue to grow. If that change, we have to go aggressively push down the core also. And so we manage every day and you can see the headcount is leading indicator because that headcount reduction in the quarter really benefits us in the second
Got it. And then just separate topic on GWIM and maybe you could give us some commentary around how you're thinking about the impact of the fiduciary language that's been coming out of the Department of Labor? And also how you deal with the competitive threats coming from Silicon Valley including some of the robo advisor efforts?
On the first question, John Steele who runs Merrill Lynch for us, we're largely we're affected by the discussion fiduciary standards. Remember, U. S. Trust is actually a private bank and operates under the fiduciary standard in most of its activities. So John Field as a leader in our business, does a great job for us, has been clear.
We believe that doing what's in the best interest of your customers is absolutely the right thing to do. And while this rule has just come out yesterday afternoon and frankly, that's you to get prepared for your questions this morning. I haven't spent a lot of time examining it in detail. But a basic standpoint, we've been clear that that's we see that. On the Robo Advisor, I think that the clear segment match for us in that area in terms of what Shahab and other people are talking about is really in the Merrill Edge business, which is below the Merrill Lynch cutoff for lack of better terms.
So John and his team drive people $250,000 investable assets treated. And then, Deane Athanasian is preferred team drive with business below that. And if you look in our information, you'll see that that business has got about $118,000,000,000 of brokerage assets. It's growing faster than the industry year over year. I think the assets are up 18%.
The numbers of accounts up, the sales levels are up. And so that's really automated rebalancing portfolios and stuff like that and we're driving that through as a core execution. And by the way, they also refer tens of thousands of customers a year up to Merrill Lynch at the same time. So we're trying to have the best of both worlds.
Okay. Thanks. You've been a leader there. So appreciate that color. Thanks.
And we can take our next question from Matt O'Connor with Deutsche Bank. Please go ahead.
Good morning.
Good morning, Matt.
Any sense of when we get a clearer picture on the final impact of exiting Parallel Run, should we just assume the 100 basis point hit that you mentioned is a done deal? Or is there potential for it to be less than that?
Yes. I think what we wanted to disclose Matt is that I think that we're coming out of the disclosure that we had in the K, there were a lot of questions. And you're absolutely right that what we disclosed today was the requested amount from our banking regulators to exit Parallel Run. That was the ask on their behalf. Discussions continue, but we didn't want to put out there what the ask was.
Okay. In terms of timing of a conclusion on that?
I think those things that are always hard to predict, but we're obviously working hard to get through it over the next quarter or so.
Okay. And then just related, I mean, obviously, capital build was very good this quarter of 50 basis points. So you essentially got half that back already. But assuming that 100 basis point goes through, are there additional kind of RWA levers to pull or model adjustments in the future that we can think about?
Yes. Now you asked a very good question, which is that to the extent that there's an adjustment in the RWA, you obviously as you look to refine and improve your models always have the ability to work hard to get that back. There's obviously a lot of scrutiny with respect to models. But your point is spot on is that there would be the opportunity as we work through look to refine, improve and become better with our models to get some of that back over time.
And Matt, in a broader context, we have flipped the binding constraint in our company to some degree. You continue to look at the balance sheet, what makes the businesses and how you approach the businesses, changes again because standardized was the constraint we were focused on. It was our binding constraint. Now it's going to flip to advance as you can see in the numbers. And that's been just you expect us to be as aggressive and as adept at thinking through how we mix the businesses right to make sure that we are focused on that constraint now that's become a binding one.
Okay. That's very helpful. Thank you.
And we can take our next question from Paul Miller with FBR Capital Markets. Please go ahead. Yes. Thank you very much. On your legacy asset servicing,
in your discussions you said that the loans went down from 36,000 loans in the quarter.
Did you sell any loans in the quarter?
There was some servicing of loans that was moved as well as the outright sale of some non performing loans. So there was some inorganic activity. But as you look at those reductions, it was very strong from both organic as well as inorganic. And I would say the other thing that we're seeing Paul is just less new delinquencies coming in than what we would have expected. So you've got the benefit of less coming in.
You've got the benefit of working through some of what you have and then we're supplementing that with moving additional out.
Yes. I know one of the
things out there is what we're seeing or hearing is that there's a strong
We
We have been using it as an advantage. If you go back and look at the results Paul, I think we were one of the first out there that started to move those loans in the first half of twenty fourteen. We've been aggressively doing that both take the risk of the loans off as well as to move the servicing. And I think if you look at the impact of that and how it flows through different things, you really get a good sense of what when you look at some of the CCAR results where the loss content that we had particularly within both first mortgage as well as home equity has come down. So we've been at that for some time
at this point. And Paul, I think overall remember that you get further and further removed from the crisis. What's left over even though at the time when we set up LAS or set up some of these non core portfolios would have been a product or service you didn't want to continue 7 years later, you're seeing the customers are left over and paid. And so there's a good bit, but also we want to make sure we measure the economics of the portfolios. Now they are much smaller, the risk is way down.
And so we judge that really on the basis of who the customer is and whether we want to sort of roll them into the core loans in our company. And then also even though we don't own the asset, there's a strong bid. Even the agencies are moving to move some portfolios.
Okay. Thank you, guys.
Thank you.
And we can take our next question from Jim Mitchell with Buckingham Research. Please go ahead.
Hey, good morning. Good morning. Just want to follow-up on the capital discussion. You guys had pretty good progress on the advanced approach, up 50 basis points quarter over quarter. But the gap between standardized and advanced is still very large.
And I guess if you have to go through with the full 100 basis points, I guess about 120 basis point gap versus your peers that are less than half that. I guess, I. E. Is the big difference operational risk because of the larger litigation you faced over the last couple of years? And how do we think about that coming down and getting more in line with the peers?
Is that just a time sort of as you further away from that those op risk come down? Or how else do we think about the trajectory of the closing of the gap?
Yes. No, your point is exactly right, which is that as we talked about last quarter that the op risk relative to the total advanced RWA was upwards of 30%. That's obviously higher than our peers. It's something that we're working hard on to be able to drive down. And to your point, the legacy matters.
And that does take some time. Obviously, the last two quarters from a litigation perspective have been much lighter than what we experienced going back several years. So it's up to us to continue to work that and to look to convince people that the level of OpEx capital should come down given the resolution of the matters. And just highlight that once again whether you look at Article 77, there was an Ocala litigation matter that was wrapped up as well as on the RMBS front with settlements that we got through this quarter were roughly 99% of all threatened or filed litigation with respect to RMBS. So we continue to work through that and drive through that.
And ultimately the benefit from that should be lower up risk capital from an RWA perspective.
Right. And sorry, just is that sort of a negotiation process on the models with regulators? So is it could it be sort of a step function? Or is it really just time value as you move further away? I'm just trying to understand the process.
I think in all these cases, clearly that we work closely with our supervisors on all model related activity. And as you look to make changes that are to the good, you obviously need to work through your regulators to get those put through.
I think as you think forward, remember, you saw a good capital build this quarter and we'll continue to build. But remember that we keep on the course of earnings that we expect. And the issue was in CCAR last year, we went for the ASK. Remember, we came off a really low just earnings environment. And so we will retain a lot of capital between now and next time we can ask to actually change the capital position of the company and we have a big cushion.
So we'll close this gap relatively quickly and then we have a longer term question of what you're saying, which is as op risk runs off, how do you get that reflected all in your capital requirements and same with the models on the other side.
Right. And to your point, the stress test is based on standardized not advanced. But just one quick follow-up elsewhere on the FIC revenues. Just can you talk about the trajectory over the quarter? Did it improve in March?
It sounded like some of your peers had talked about a slow start about the trajectory through
the quarter.
Yes. I'm always hesitant to comment on results given that we're 9 days into a new quarter. But I think if you look at what we saw from both I would say both a sales and trading as well as an overall investment banking fee perspective, the January on the margin was a little bit slower than what we would have expected. And we saw activity and momentum build up throughout the quarter to where if you had to grade which of the 3 months of the quarter did you feel best about, it was clearly March. And like I said, we're only 9 trading days into the new quarter, but we've not seen anything change directionally.
Some of the activity that we saw in March, we've continued to see in April.
Okay, great. That's very helpful. Thanks.
And we can take our next question from Glenn Schorr with Evercore ISI. Please go ahead.
Thanks very much. A quick question on Proposal 8 and the proxy. I mean, I don't think the regulators want it to happen. I don't think it should happen. I assume you've been doing a lot of the work on this along the way for the last couple of years.
But curious why the Board is so against shareholders voting for it? And what you actually have to do if it does get the yes vote?
Well, I think as I think you read the response in the proxy, Glenn, you'll see this is a core board duty and they do look at it periodically and think about the optimal company structure, capital structure. So the idea to have a special element around it is really the whole board looks at it and that's who should look at it. So and then these technical terms of what the request is are a little hard to understand when you think about how a company really operates. But we do look at the question of do we have the optimal business mix, Is the optimal shareholders? And the Board will look at it continuously and we'll continue to look at it.
Okay.
On I appreciate the comments you made on the increased asset sensitivity. And if I remember the numbers correctly, it sounds like more of the increased sensitivity came out on the long end. So I guess my question is, it's great you make a lot more money if the curve shifts up 100 basis points, but I think a lot of people are more fearful of what happens if we get into a flattener environment. So is it as simple as you capture at least half the benefit by short rates going up and if we're in a flattener that's where it ends?
I think a couple of things Glenn. The first is that becoming in many respects we were at 3.5%, 3.6% at the end of the year and we went to 4.5%, 4.6% this quarter. Keep in mind, a chunk of what you see as far as becoming more asset sensitive is just the FAS 91 that we lost during quarter. So I'd keep that in mind. And to your point, you're exactly right.
If you looked at where we were at year end, I think we were just over in the 2.1 to 2.2 benefit from short rates moving and that has not changed materially. So to your point, the asset sensitivity is based almost solely on long term rates and given the deltas that we saw change from the end of the year to the end of Q1.
Okay. I appreciate it. Thank you.
Thank you.
We'll take our next question from John McDonald with Sanford Bernstein. Please go ahead.
Hi, Bruce. Just to follow-up on that. In terms of if rates kind of stay pretty flat, what kind of outlook would you have for the core NII if we take the 10.2% this quarter as a jumping off point? Do you have any room to lower the debt cost from here? Or how would you the core NII to trend if we don't see too much movement on rates?
Yes. It's something we spent a lot of time on, John. We got to the end of the Q1, we looked at and said during the balance of 2015, what's the impact that we would see if in effect we rolled a spot throughout 2015, which just means that you don't get the benefit of the curve as we go through. And if you look at that, it's roughly a couple of $100,000,000 a quarter relative to $10,000,000,000 of NII. We think that we've done between the debt footprint deposits and if you actually look at the clean yields during the quarter Q4 to Q1 that we've done a pretty good job of managing this exposure in what's been a tough environment.
But to your question, there's probably a couple of $100,000,000 a quarter in risk if you roll a spot.
Got it. Okay. And that's a couple of $100,000,000 over a couple of quarters, right?
It'd be about $200,000,000 per quarter over the next three quarters.
Got it. And that's just kind of core leakage from new stuff coming on at lower yields and you not investing much in a low rate environment?
That's correct. Yes. And continuing to
shorten the balance sheet every time we get a chance to.
Okay. And then just switching gears Bruce on the credit side. Do you see the net charge offs kind of bouncing around the 1,000,000,000 dollars per quarter level? Or is there room for those to come down? Or is that kind of stabilizing?
And how should we think about reserve releases from here relative to the $400,000,000 or so you did this quarter?
Yes. A couple of things
on that. I'd say that we continue to see John if you look at the within the overall consumer credit, the Q1 typically all other things being equal is the toughest consumer quarter in the Q1. So I think there's probably a little bit of room there if we continue to see what we see in the economy on the consumer side. The tougher piece of it is probably to judge commercial because outside of what we see in the small business lending, there really haven't been many charge offs and we'll just have to see how long that benign environment covers. On the reserve release for the quarter, one thing I want to make sure that we point out that while we released 400 plus of reserves, 200 that was from the DOJ where with the mailings you had both charge offs and reserve release.
So as it relates to just from a as you look at the provision
Okay. So that should
be something the jumping off point is more like a $200,000,000 reserve release number?
Yes. And I think we've said that we clearly expect reserve releases to moderate. So we'll have to see as we roll into the quarters. But I think you're directionally right on your charge off number and we'll see if there's anything left in the reserve releases as we go through the second and third quarters.
Okay. Last quick thing for me. In terms of rep and warrants, the slide 26, I'm not sure if you mentioned this already Bruce. There's a pickup in the claims, the new claims this quarter showed a big increase. Just what's the driver of that?
Why would those show up now? And any color you could provide on whether that's a concern or not?
Yes. I think you need
to go down to and we laid out in the footnote. But if you start up in the new claim trends, if you recall, there's a case going through where the statute of limitations on rep and warrant claims in the ACE case was found, the statute was 6 years. And if you look at the claims that you see up in the new claim trends, you can see virtually all of those claims were in the pre-two 100 and 5 through 2,006 area. So absent any tolling, a good chunk of those are going to be time barred. The other part that I would the other point that I would mention is if you go down to the footnote, you can see that the vast majority of these claims were put in with no file work done whatsoever or no individual loan work that was done.
So I think there continues to be obviously activity on that front, but there's not a lot of work being done as those claims are being filed.
Okay. Thank you.
Thank you.
We'll take our next question from Steven Chubak with Nomura. Please go ahead.
Hi, good morning.
Good morning.
So Bruce, I just wanted to touch on the preferreds for a moment. So I saw that you completed another $3,000,000,000 of issuance in the quarter. But seeing as you're already at the 150 basis point target contemplated under Basel III, whether it's fair to assume that you're now full on prefs at the moment and we shouldn't expect any additional issuance?
Yes. I think you're absolutely right that we got the bucket filled up this quarter. I think the only thing that's out there is depending on exactly where we come out from an overall RWA perspective as we exit Parallel Run that beyond 20 15 could there be a couple of $1,000,000,000 more preferred sometime during 2016? That's a possibility. But you're absolutely right that based on where we are from an RWA perspective the buckets filled up, so we've seen but not much.
Excellent. Thanks for taking that. I was just wanted to clarify for CCAR it only contemplates a standardized approach. But I just
wanted to know if that determination had been finalized
and some are speculating that the advanced approach could be incorporated within the CCAR exam going forward?
Yes. No, there is an open question out there that you're absolutely right that for the different CCAR submissions that went in, in 2015 that those submissions are against the standard ratios. And as an industry, we just don't know the answer if it will test under just standardized in CCAR 20 16 or if advanced will be brought in. I think that's an open question that's out there for the industry.
And do
you have a sense at least for the moment as to what the impact would be on RWAs if they were to incorporate the advanced approach versus the standardized?
I think if you look at the numbers you can see the difference that we have within our numbers as to Advanced. I think the open question that's out there as you look at moving to Advanced in a CCAR scenario is that under Advanced you hold capital for op risk. And then there's the open question if you go to stress test under advanced.
Around revenue generation and is there a potential catch up that we should see or expect going forward based on either markets or just activity levels?
From a high level, that team has continued to invest in growth. There's a couple of things driving that. One is they're adding more core advisors. So within the last 12 months, I think we added 120 experienced advisors and we added almost 900 total. So and that there's a carry cost to bring those up, but that's good for the future.
The second thing is there's a little bit of a business mix issue, which is that the investment management side of the business continues to grow, but it's repositioned and that sort of year over year is nothing to hit you. And then 3rd, frankly, is that the NII that Bruce pointed out earlier, just the way we businesses take an excuse for intercompany allocations. But the way we allocate year over year, a big chunk of the NII loss is just due to the way we allocate out the impact in the market and the less NII.
Okay. And then secondly, just extending that to the other some of the other consumer fee lines, card income flattish and service charges down a bit. Is this customer behavior driven or additional repositioning in there? And can you talk about growth expectations on the consumer side as well?
Yes. I think as Bruce talked about earlier, if you think about a couple of broad things. One is, as we continue to drive to be the core checking account for households, we're seeing higher sales. We're seeing higher primary sales. But with that comes less fees in the sense that the average balances are higher.
And so what you're seeing is a lower a flattening of the fees, charge on accounts overdraft and other fees, while you see an increase in the consumer balances, which in this environment were something, but what we work a lot more is rate wise to do the core checking. So there is some elements of how the business has been shifted based on our priority of getting making sure that we just don't have a lot of checking accounts. We have a lot of core checking accounts and that's caused this. So you're seeing a far faster growth in balances and actually slight decline in total checking accounts out there. When you put debit fees and other fees plus the interest rates together, which is core checking revenue, it's actually a little better picture.
But that's kind of the story there. On the credit card fees, it's basically we've absorbed most of the compression on the interchange at this point and the rebates we get. So really year over year, you had a bit of loss there because we had a divestiture of a big affinity program, 2 big affinity programs that hurt us. And you should expect to see that a little bit more in line with our spending growth going forward, which has been about 3%, 4%.
Okay. And then last one, Just Bruce, you mentioned on the discretionary portfolio and the switch out to HQLA. Can you give us a sense of just how much more of that mix shift we should expect? Or do
you at some point do you get to
a point where the loan portfolio finally starts to bottom out?
I think a couple of things. So the shift to the discretionary portfolio, you probably have about $5,000,000,000 of that in each of the Q2 and the Q3 of this year. And at that point that work is done. I would say as you look at just discretionary mortgage balances and what you're seeing from a payments for the old stuff that was put within the investment portfolio, You're probably looking at before what the new is that we put on within the business that you're in the $10,000,000,000 to $14,000,000,000 type runoff in each of the next couple of quarters. Realize all that net interest income doesn't go away because there's reinvestment of that and there's new loans coming in.
But you do have probably 2 more quarters where we'll move stuff into securities. And obviously, there does continue to be a runoff of that portfolio as well.
Thank you.
Thank you.
We'll take our next question from Eric Wasserstrom with Guggenheim Securities. Please go ahead.
Thanks very much. Just one quick question on the legal expense that was incurred in this period. Are those issues now the FX and the RMBS, are those issues now settled or are they ongoing?
The RMBS piece I quoted, there were both amounts in litigation for things that were settled as well as accruals during the quarter. And once again, Eric, I'd go back to that the from an RMBS perspective at this point, we're either 98% or 99% were through. So that's where we are with the RMBS. With respect to the FX piece, I think if you go back and look at to where we said that we were in October that we resolved the matter with the OCC. The top up that we saw in the quarter related to FX with respect to other banking regulators.
And there was also the resolution and we're working through the final documentation of the civil piece of the overall FX work. And that's all included within the litigation reserve during the quarter.
Okay. And sorry just so I understand that last point, the civil component is that with the DOJ or some other kind of authority?
No. It's the civil piece with respect to a class action type matter not the DOJ.
Oh, I see. Okay. But that was contained within the accrual in this period?
That's correct.
Okay, great. Thank you for the clarity.
Thank you.
We'll go next to Mike Mayo with CLSA. Please go ahead.
Hi. What are your financial targets for 2015 2016?
So, Mike, as we said, our goal is to continue to drive towards the 1% return on assets. And depending on where we end up with capital between 7.5% 8% tangible common equity ratio that would translate into 13% to down to 12% return on tangible common equity. In this quarter, we moved to where we have our return on tangible common equity was 8%. And so our return on assets was 64 basis points. So we're sort of 2 thirds of the way to that goal.
And what time frame do you expect to get then?
Well, I think if you adjust our earnings this quarter for a couple of things, the FAS 123, the FAS 91 and then continue to think of LAS normalizing. You see us get close to that goal and that should happen between now and the end of 2016 because we just keep chunking away at LAS as we described. To you.
So is that your specific financial target to I mean what's your target for 2015 when it comes to your financial metrics?
Yes, Mike. I think the way you ask that, we basically have to give you our earnings estimates for 2015 and we just don't do that. But our targets long term, we told
you each time you ask is
to say 1% return on assets and a 13% 12%, 13% return in tangible common equity based on where we think our tangible common equity ratio will settle out.
Okay. I guess when I look back at 2014, I asked myself the question did Bank of America meet its financial targets? And I have trouble because I'm not sure if you had specific targets just for the year 2014 as opposed to your longer term targets.
We made 4 $1,000,000,000 in change last year because the expectation by you and your colleagues of I don't $15,000,000,000 So clearly we didn't meet the financial targets due to litigation we took last
year. Okay. Let me just ask a separate question then. Glenn Schorr brought up Proposal 8 in the proxy. And I guess my reaction is why not give more information on the trade offs of the business model?
One of your competitors gave 3 slides on this topic at their Investor Day. They weren't asked to do this and they have some higher ROE and ROA. So more information I think would be good. And the in the proxy it says that your Board believes that the proposal would not enhance stockholder value. If that's the conclusion of the Board, just why not share of the insights of the Board to investors?
Well, the insights we have, if you look at the returns on page 23 of materials show that the core businesses return above our cost of capital. And that the mix between them and the revenue synergies and the diversity we get have been there. But let's back up. What a lot of people are looking at here, Mike, is can you simplify your company to make it tighter? We started that in 2010 with about $2,400,000,000,000 in assets, we're down to $2,100,000,000 We started with about $7,000,000,000 in capital or $8,000,000,000 in capital, up to $140,000,000,000 And we started by getting rid of 60 operating businesses.
And so we've done a lot of simplifications. What's really left and this is one of the reasons why our market business is more constrained its growth prospects potentially in some other people's because we keep it to about a third of the franchise in terms of size. So in that market business, it's really focused on driving value of our issuer side customers going to the market and then with our investor side customers providing sources of capital for that. So there's a very synergistic basis. So we'll continue to provide insight.
But if you look at it, the businesses return on the cost of capital and then if we put them out there, the question would be what will we look like after and we'd have capital we can't deploy and we'd have less earnings power.
All right. Well, if you can share additional insights into that conclusion in addition to what you just gave us that would be great at least in the future. Thanks a lot.
And we can take our next question from Nancy Bush with NAB Research. Please go ahead.
Good morning, guys.
Good morning.
I have sort of one straightforward question and one that's more existential. I'll ask the straightforward one first. Brian, could you just restate your position on paying or raising the dividend? I know the CCAR this year has distorted that a bit. And if you could just state how you feel about dividends versus buybacks?
Well, I think number 1 on terms of we received approval for what we'd asked for which is a nickel share dividend and $4,000,000,000 of stock buyback in the CCAR. And we had to be conservative in that ask. We decided to modeling another question, but just had to be conservative base ask because if you think about it, our run rate of earnings was such that we're coming off of $4,000,000,000 plus earnings quarter, we had to keep our head on in terms of how we're accumulated capital, make sure we earn the capital before we paid it out. The second thing is that the $20,000,000,000 cushion shows that based on all the work of CCAR, we have a strong cushion going forward. So the key for us to be able to increase the dividend and continue to push forward is to get that normalized earnings stream in a couple of quarters, dollars 3,000,000,000 plus in earnings we're getting.
Long term, we've said many times our ultimate goal is to take about 30% of our recurring earnings to pay it out in dividends and then use the rest for capital management. At this price, we'd be buying stock back. And if there's a different scenario where our multiple to book and earnings multiples are higher, we might pay additional dividends. But the goal would be about 30% payout ratio of recurring earnings as we get there. Okay.
Thank you. The second one is this and this is maybe a little bit more difficult to answer. You had a good trading quarter, but we've seen one of your competitors have a much better trading quarter. And I know that there is a mix issue there. But also as I kind of look at the composition of your businesses there, have you sort of derisked the trading desk to the point where you can't really take full advantage of the volatility in markets.
And I'm wondering if you see that as the case. And secondly, if there will come a time when you're able to do some rerisking there?
Well, I think the Nancy, what you asked is really the core question, which is if you look a few years ago, we put core capital global markets out as a separate reported segment to ensure that people saw that that was a less volatile earning stream than people perceived. And it was not the earning stream in the Global Banking segment, I. E. Investment Banking, which you can see the fees move up or down, were relatively stable and clearly the loan book in the treasury services. So we try to sort the businesses so people can see what we're doing in global markets.
Based on our capital and based on our view of how the franchise fits together, we keep that business about a third of our total size. So this total balance sheet deployed is under $600,000,000,000 and has been for years. That then requires Tom and the team to make a series of choices how they deploy that based on our appetite for risk expressed by our appetite for size expressed by the $600,000,000,000 which other people have far bigger balance sheets deployed to business and that then does limit their ability to take risk and do certain things. So there is a mix issue based on this quarter and other quarters. We performed better relatively and that's the issue.
But from a core standpoint, Sify bought it lower to have our overall risk lower and demand a company, which is really customer focused on the core banking middle markets franchise and the core investor, it still be big enough to be very impactful number one research house in the world and have $3,500,000,000 dollars 4000000000 of revenue in a given quarter. We had to basically optimize around size, capital, capital deployment business and then the risk we were willing to put in the P and L that's where we ended up. And that's resulted in having 100 basis points less SIPI buffer requirement than other people. And we think that's balanced because with our book of business, if we increase that, we got to carry that 100 basis points across the whole franchise, not just the markets business and that extra capital in our balance would really increase the capital requirements that really not needed for our core banking business.
So basically you're happy with the trading desk as it is?
Yes. I mean, no, we're always never happy because we always wanted to do better. I mean, that's not but on the other hand, it's fair to say that we are not unsatisfied when you make almost $1,000,000,000 after tax in the quarter where they were where they had a couple of big elements, this mix in the macro businesses, which we are as positioned in on purpose. And then secondly, remember, core part of our business we're still adjusting to which was the leverage finance transaction business which you can look at is down dramatically every year as we adopted the guidance and what was acquired. That's through the numbers now and then we'll go back based on our business doing it the way that meets the regulatory standards.
So happy we're never happy with any business. We're always pushing them to do better. But given the constraints, there's an understanding I'd say more than happiness of where we've ended up.
Okay. Thank you.
We'll take our next question from Brennan Hawken with UBS. Please go ahead.
Good morning, guys. A quick follow-up on the operators questions. So if we still have pending settlements out there on a few of the remaining sort of large issues, could that lead to op risk at least sustaining at elevated levels? And could it even potentially cause a little bit of an up uplift
there? Yes. I think at this point we've walked through and as we said on the last call that we are at the level that we need to be from an overall OpEx perspective. And to your point, if we look at the last two quarters relative to when that op risk capital was set, we've seen fairly sizable declines in overall litigation expense. You obviously work through that, but our belief over time is that number should be less not more, but we need to deliver that to the shareholder.
Yes. No, I mean from your lips to God's ears, but we that come down. Isn't that somewhat reasonable?
Yes. Listen, very quick. Just as we said, there's a bid ask on the RWA related to commercial credit factors and models. There was a bit ask on operating risk. We closed that out and we've actually moved our RWA to the number that was asked.
And then from then, you just look at it very simply, think about the last 4 quarters versus last year, it's just picking up the 3rd Q4, you have a complete change in amount of litigation expense that's gone through the enterprise and you'll see that keep rolling through. It will take a while for that to average out, but basically assume that we've agreed to an amount that which is which was requested to bring our op risk and we put that through last quarter.
Okay. Thanks. And then, it seems some high level turnover in your equities business. Can you comment maybe on what's driving some of those departures? Any potential implications and what you're doing about it?
Yes. I mean, we've had some retirements. People worked in the business for 25 years, Henry and the team. And it's just the ebb and flow of the business. I don't think there's any major issues going on there.
I think that back and I and team have done a good job and stabilized that business and brought it back. We continue to work on the prime brokerage side to make sure that we can be positioned to sort of restart that engine of growth. Now we had to hold the business back. We've got the operating platform in place to where we want it. The initiative arose not this past fall, but the fall before.
So I think you shouldn't read anything into that other than the news will have been flow of people deciding to do other things.
Okay. Thanks for that color. And then last one for me following up on Ken's question. It sounds like the FA headcount adds are sort of biased a little more to the junior side. So should we count on a bit of a headwind from that on your productivity metrics in GWIM?
And maybe could you also comment on the recruiting environment currently? And if you still think that comp may moderate as some of those deals with FAs from crisis level sunset?
The average deal last year I think was 100 for highest end producing FAs which were 100 up 120 up, the average deal was like 127 times trailing 12 or something like that or slightly less than that. It still don't hold numbers to think of conceptually. So the rumors about these payouts are probably far and exit. The reality is only 120 people or so. So take whatever number.
So let's broaden out the productivity question. The productivity per advisor in our business is extremely strong and is sort of structurally been strong for many years and continues to increase. You wouldn't mind alluding that to get faster long term growth prospects for the business and broaden out the business and that's what John and team are doing. Whether it goes down or not,
it's really going to be
a factor of how fast the revenue stream grows and it has been outgrowing that impact of investing in the loan business. But we aren't yes, so I wouldn't I would say it's going to go down or up on the added younger advisors. But let's flip that and say that there's the way we think this business has to drive for our competitive advantage of the franchise is the linkage from preferred to Merrill Lynch Wealth Management and the interaction between the financial services centers and the people come in there and the tens of thousands of people that get referred to Merrell as a competitive advantage for Merrell. And we will continue to drive that and that part of that connectivity is we're now putting Merrell team based brokers in the branches to work with clients and ultimately move physically onto the it could dilute the productivity a little bit, but it would be immaterial because of the strength of the core franchise so strong.
Thanks. And our final question from Jeff Harte with Sandler O'Neill. Please go ahead.
Good morning, Jeff.
Good morning, guys. A couple from me. First of all, all, you mentioned the commercial utilization rate being up a lot. Can you give me some or give us some idea of how much of that is energy complex driven versus maybe coming from other less stressed industries? Yes.
Most of all that, given that the number I quoted was within the commercial bank, that's almost exclusively outside of the energy space. So it has nothing to do with anything distressed. It's just core commercial clients drawing more. Those numbers bottomed out in the low 30s and they're now up in the high 30s. Yes.
Take that. When we
say commercial, that's middle market, general middle market for us, not the corporate bank where the energy exposure would be. So it's back to basically where it was, not the highest point because it ran up right before the crisis. But if you look back, it's higher than it was in say 4 and 5 at this point or right on it. So you're starting to see a normalization of that borrowing, which is good news because that means that people are borrowing the money to do so.
Okay. And looking at the balance sheet, I mean, can you talk a little bit about the plans and kind of the level of excess cash? I mean, 22% of assets and cash, a 7% plus SLR ratio, it would seem awfully tough to generate ROE or ROE earnings with that much of the balance sheet sitting in cash. Is there something you can do there? Yes.
Look, I think that the first thing as you look at that that you have to consider is that as we went through with the different regulatory metrics we needed to get to that the last metric that we needed to solve for and we wanted to get behind us was the satisfaction of where we needed to be from an LCR perspective in 2017 at both the bank level as well as the parent. And we're to the point where we've gotten to that point. So from an overall liquidity HQLA perspective, we feel very good about that progress. As you look at on a go forward basis, obviously, the big focus and the reason as a company that we're looking to drive the loan growth that we have is to basically take the excess deposits today that are within the investment portfolio and release them from the investment portfolio into core loan activity to do more with our clients. So as you look at the changes in mix in the balance sheet as far as the build that you've seen with cash, I think we're at the point where from an overall balance and where we need to be with the different metrics that we've satisfied that at this point and it will be more of a normal course on a go forward basis.
I think generally thematically if you think about as we see rules come up, we try to get in full compliance as fast as possible even though there's delayed dates. And then you can then work back on how to continuously improve the way you get there. But the
first thing you got to
do is get over the hump because it affects every other aspect of franchise. So I think the LCR is another case that we got over the hump. 2017 is 2 years away. So and we're in compliance. And then the idea is then you keep to figure out how to work the dials to make it more and more shareholder friendly over time.
But the first thing I want to do is show you can do it.
Okay. Thank you. I think that was the last question. Thanks for joining today and we'll talk to you next quarter.