Today, CEO Bill Demchak. Bill, thanks for joining us again.
Good to be here, John.
So we could start off talking about deposits and customer behavior. A lot of us went into the year expecting to see a slowdown in mix shift, in yield-seeking behavior, across consumers and corporates. So I guess the first question is, is that happening? Are we starting to see that slowdown in mix shift, and is higher for longer kinda rate expectations starting to have an impact, or do we not know yet in terms of that mix shift and deposit behavior?
Yeah. Well, we've definitely seen the slowdown in behavior. You know, the biggest change in value, of course, was just from non-interest-bearing or super low interest-bearing into real interest-bearing accounts. The secondary effect was beta on interest-bearing accounts, but all of that has slowed. Corporates, if you think about where were the fastest to move, and consumers, through time, kind of optimize the amount of cash they wanna keep around for transactions, which is non-interest-bearing, but also interest-bearing checking and sort of our super low interest-bearing money fund that goes along with the checking account. And, I mean, we're definitely seeing that sort of slope to an optimum level. Lots of questions, does that change in higher for longer?
And of course, at the margin, it has to, you know, because you'll continue to see some amount of bleed, but that bleed is, slowed appreciably-
Mm-hmm
... you know, during the course of the last six months.
Does that suggest what folks have left in their accounts is kind of working capital and what they need generally?
That's the hypothesis. We're actually doing some work behind that. But, you know, as a practical matter, the, the monies—the way I think about it is that, that the money that somebody thinks about as investment dollars I want a return on, has been moved. The, the money that sits in the super low interest-bearing accounts or non-interest-bearing accounts today is largely transactional. It's what you have because you're going... You know, you think about that as money you're gonna spend.
Mm-hmm. And what-
That's the behavior we're seeing.
Yeah. And what about on the bank side, in terms of the price competition? Anything surprise you there? And it feels like there's a bifurcation a bit between bigger banks that are flush with deposits and maybe competing a little bit less and then smaller. Is that true? Are you seeing that?
It is true. I mean, if you just look at excess reserves, you know, on the Fed's balance sheet, something on the order of 80% of them are held by the handful of largest banks, plus some foreign banks. And, you know, on the other side, you have, you know, a bunch of smaller banks that are short. And the Fed Funds market doesn't really work today, right? We all hold excess reserves. We don't necessarily lend those the way we used to in the Fed Funds market, because if you're a borrower, you don't get credit for the liquidity, and if you're a lender, they don't want you to give the money away. So, yeah, Tale of Two Cities.
A bunch of us are flush, and a bunch are in need, and I think you're seeing that play out in some of the back-end costs of CD rates, you know, online brokered CD rates, some of the online posted internet money. I don't know what else to call it.
Mm-hmm. And how about on the loan side? I mean, we've all kind of seen the weakness in H.8, and it just feels like utilization of lines has been low. You've talked about that. What, what are some of the drivers that are keeping folks from borrowing on the lines?
Look, I'm guessing all the same guess as you are. It seems to be a big wait and see around interest rates. I mean, there was... You know, the presumption that rates were gonna go lower. Remember, we started the year with everybody saying there's gonna be seven cuts. Well, who wants to borrow? Let's wait for the seven cuts. So I think people are trying to get in their heads, you know, what are rates gonna be through this cycle here? We have an election coming up. We have corporate margins that have been, you know, squeezed, and therefore, I think people are unwilling to expand working capital or do CapEx. All of these things cause pent-up demand.
As an aside, we're winning clients, and we're actually increasing, you know, what we call TCE or the total exposure we give to corporates. They're just not borrowing under those lines.
Mm-hmm. So we need to see some more certainty, perhaps on rates, and maybe some more M&A activity.
Well, M&A would drive it. But it's not even, I mean, certainly with respect to rates, but eventually markets meet, right? So, you know, think about M&A, right? We've had this, this disagreement between buyers and sellers on price, and I'm gonna wait for rates to go down, so my financing rate will go down, so that my price will go up. Eventually, there's a market, and I think that's gonna affect not just M&A, but it'll affect the basic loan market, where people say, "I got to run my company. I need working capital. I'm gonna borrow because I got to have inventory," and we'll get back in the normal cycle.
How much is non-bank competition, private credit, and others kinda weighing on loan growth for banks? Is there a big bid-ask spread between the two and just demand-wise, and-
I don't think so. I mean, in the first quarter, to be fair, in the first quarter, you saw a big high-yield leverage lending boom in terms of activity that included banks, you know, and non-banks in terms of investors. But the way we think about that market, you might have seen our announcement on TCW, where we formed a joint venture to hold or run a fund where we are originator and underwriter with TCW, who's been a 25-year partner, leveraged cash flow loans. For us, it's less about the asset, it's more about the relationship. So, you know, over the course of the last 20 years, we've seen a lot of really good clients be purchased by-...
Private equity, and in the course of that, because we don't want to be the capital provider, neither them nor thou, we lose a relationship. We absolutely want the relationship and the fees that come with it. This new partnership with TCW allows us to stay in the game with a lot of great clients, even if they change their ownership structure.
Mm-hmm. So if we think about the deposit side, we talked about the loan side, how does that play out in terms of kind of the outlook that you have for net interest income to kind of trough this quarter? Seems like you're relatively neutral to what happens with rates in the near term, and then maybe-
Yeah
You can kind of talk about how that rolls forward to a fixed asset reprice story into next year.
Yeah. So, our-- we've talked about trough in this quarter, we've talked about record NII in 2025, and we still hold to that view. That view is less dependent on heroic, loan growth assumptions. In fact, it's not dependent on much loan growth assumptions. It's most dependent on the mechanical maturity of fixed rate, securities, so treasury matures on a certain date or an auto loan or fixed rate assets, and then reinvesting that 1% coupon into a 4.5% coupon. So a lot of that, you know, when we look at 2025, that's kind of assuming the forward curve is correct, we kinda lock that in.
The higher rates are when that happens, the more revenue we get, offset by, if front rates are higher for longer, there's some deterioration in the cost of your deposit base. You know, thus far, what we thought and what we're seeing is that increase in term rates on the forward curve and our ability to lock those in a little bit at the margin is more beneficial than slower loan growth and, or bleed in deposit cost.
So the only real risk to that mechanical reprice would be if rates really came down on the-
A big inversion, if you, for whatever reason, had the Fed holding and just term rates, you know, really rally from here.
Mm-hmm.
Hard to imagine that given the size of the deficit and term inflation expectations, but-
Mm.
Well, you know, yes, that would be a risk.
Yeah. So it feels like we kinda flipped into a little bit just talking about your outlook on NII. Just in general, any update for the quarter or generally things as expected so far?
As expected.
Mm-hmm.
Yeah.
Okay. So, talk a little bit about M&A, and kind of how you think about the structure of the industry and kind of winners and losers longer term. You know, most M&A deals over time have not created shareholder value in bank land. What do you believe the most important criteria are that have kind of distinguished good and bad, and how will you make sure, you know, you're on the right side of that, continue to be on the right side of that?
Well, I wanna go back to M&A as a subject, which is what's a good deal and what's a bad deal in terms of what we look at? Number one, certainty of execution on costs. Like, you can't just say other people say that, so I can probably say that. Like, you actually need to know dollars and cents, where they're coming on, what day they're coming, what systems you're shutting down, which buildings you're shutting down, which people are gonna... You have to know that, and lock it down. You need to put a parameters around the balance sheet and the risks associated with credit. And importantly, you need one throat to choke. Somebody's got to be in charge. You know, co-heads of people making joint decisions in a merged culture is tough. And then you need the backbone.
You've seen it with our technology, just the ability to have a single surviving technology, so you're not spending the next giant period of time trying to merge old systems together. You're just literally shutting down one and merging it into another. That, by the way, is what gives you certainty on execution.
Mm-hmm
... you know, and cost savings.
And on the bigger topic, you've pointed to the advantages of some-- that the biggest banks have-
Yeah
... in terms of gathering deposits, whether it's brand, footprint. Maybe you could just talk about what, what is driving the success of those that-
Well, let's—I mean, let's just talk about the facts for a second, right? JPMorgan and B of A have been public about this and wrote letters. They have organically grown over the last four years, a cumulative total larger than U.S. Bank, PNC, and Truist put together in total asset size. So you can say what... Whatever you wanna say about scale doesn't matter, no, I have a secret plan, but scale's winning. It's right there. I think it's happening for... It's been happening for a lot of years. It accelerated during the mini crisis because larger is better if you're worried about, you know, deposits, particularly if you're a corporation. But let's face it, they're pretty good at what they do.
They're good at what they do because they have an ability to spend in the technology, products and service their clients. They're ubiquitous, they're in every market. If you move out of New York, wherever you go, JPMorgan is gonna have a branch that wasn't, you know, historically wasn't the case 25 years ago. And so scale matters. And when I'm out on a speaking tour saying scale matters, it's all about making sure that we don't set into stone today, merger guidelines, you know, which the Biden administration has asked people to write, that basically lock up zombie banks for the next 20 years and cause, frankly, a structural risk, a systemic risk, I think, to the system, if that's what you caused.
Do you think there's something the regulators are missing about the benefits of mergers or?
I think-
what they're worried about?
I actually think they understand it, quite well. I mean, a couple of agencies who maybe are putting things out for reasons other than what they necessarily... Well, I won't go there, but they're different than others.
Yeah.
But I think regulators are stuck. They see the giant banks winning... they don't necessarily want to consolidate the whole system, but if they do nothing, they're gonna see the giant banks who win on a larger basis. So who do you let to merge? You know, and you'll hear them talk about good mergers or bad mergers. I think that's pretty simple. If the merger results in an institution that's stronger than the sum of the two individuals, then that's a good merger. Stronger in the sense of safety and soundness in management, and capital, and liquidity, and technology, and cyber, and all the other different things.
Mm-hmm.
Part of that answer comes back to, you know, the four things of what do I think is important to be successful in a merger?
Yep. And so your strategy is to be opportunistic, to be available with great balance sheet technology, and to be able to be a strong acquirer-
Yeah
Rather than looking at specific geography that you want?
Yeah, well, we're, we are a strong acquirer. I don't think anybody's in the mindset to sell a bank today. I don't think it's gonna be anytime in the near future because I think everybody's thinking interest rates are gonna make their lives easier, and they'll worry about the rest later. By the way, that's probably true for the industry. What we do know is we have an objective to build a ubiquitous coast-to-coast bank that builds a retail network that is of scale to allow us to grow and fund our C&IB network, right? You don't wanna be an imbalanced institution. How we get there, we'll keep investing organically. You've seen the billion-dollar commitment in branch build and refurbishment. We'll keep doing that. We've been investing for technology forever. We've been hiring armies of new people in our newer markets.
And if, you know, the right acquisition comes along in a way that accelerates that pace, terrific. But if it doesn't, we'll be fine. Look, I like where we are. I talk about scale, and I say, "Oh, my God, look at these giant banks, how much they're growing." I still like our hand better than 4,500 other banks, so-
Mm-hmm
... so it's a relative game. I think we'll just do just fine.
That billion-dollar investment, I think, included refurbishment, completing a bunch of refurbishments and also new branches in-
Yes
Some of your expansion markets. How are you doing new branches differently than in the past, in terms of strategy in new markets?
Not that we're doing it... I mean, we're building more. But we're thinking about, you know, we've gone into a lot of new markets, some that were very thin with BBVA, some on our own, where we just don't have branch share to be able to gain mind share and market share. So most of the branch builds, look, they're throughout Texas, they're in Denver, they're in hot markets with transient communities that are growing quickly. At the same time, by 2028, we will have finished refurbishing 100% of our old branches. And then, of course, we'll continue the process of thinning and optimizing where we've had legacy branches over time. So, you know, none of that changes, by the way, any of our expense guidance or anything else.
This is part of how we run the bank, but we're gonna have to invest into these markets. By the way, just to give you an idea, you know, when you get into a Texas market, we're growing DDA accounts in Texas at almost 5%, you know, BBVA-influenced markets, not just Texas, but at 5% a year. And our legacy markets, you know, they're less than 1% a year. We're doing the same thing, but that's the difference, you know, you're going to the markets where people are moving, as opposed to hanging out in the markets that are slower growth.
Mm-hmm. Where else are you kind of winning and gaining share in the expansion markets across some of the other businesses besides the branches?
Everywhere. Um-
It's hard for us to tease out, like, so, you know, teasing out where it is on the commercial side.
Yeah. So, I mean, if we go all the way back to we talked about the easy wins at the start was we could cross-sell, you know, PNC's TM product into BBVA's customers because they had very low penetration of TM, and that has been quite successful. We're not quite at the rate, you know, we are in our legacy markets, but it continues to climb. We've also just been winning new clients. I think our new client volume, BBVA markets, was up 33% in 2023 over 2022. Just new primary clients to the bank, and it continued at pace in the first quarter. You know, so if you look across sales, which eventually grow into repeated revenue, right? The growth in our newer markets is far outpacing our legacy markets.
Mm-hmm. Let's switch gears a little bit and talk about credit. You know, we, we hear some debate, whether CECL reserves can ever be used or not, and we haven't been around long enough. CECL hasn't been around long enough for us to kind of exactly know.
Yeah.
But how do you see that dynamic working out? You kind of build reserves for problems you see coming. Any idea how that kind of plays out, the mechanics of how it should operate over different stages of the cycle?
Oh, we know exactly how it should operate. You know, look, you have a default rating and a recovery rating on a credit, which gives rise to, through a different economic environment, you run a stressed outcome for the migration of that credit. So as your economic outlook changes, your ultimate loss content and your portfolio changes, for good or bad, as you update scenarios. That's for a static book of business. So once you have a reserve set, if you're exactly right from the start, your reserve's ultimately gonna run down to zero, and you're gonna charge off those loans equal to that amount, and you'll have no loans and no reserve. Everything else is new business that you're reserving for at the time, or it's the economics changing. So that's how it should work.
You should absolutely be able to draw down on it. You know, is there gonna be pressure at the margin not to? Is there going to be thumbs on this? You know, probably.
Mm-hmm.
... but we know it's supposed to happen.
Yeah. And maybe just more broadly, talk about what you're seeing in terms of credit, C&I. We'll talk about office on CRE and, and just consumer.
Yeah. Look, consumer is maybe normalizing, but we're not, you know, you have to stare at it to see it. It's not, you know, materially different for us. C&I is fine. You know, the multi-tenant office product, which is, you know, admittedly a train wreck for the country, we see, we reserve for it. It's a known thing. It's parameterized. It's, you know, if we're wildly wrong, it doesn't really matter. It, it's fine. And the rest of it feels pretty good.
Mm-hmm.
You know, I just -- I'd remind you, if you go back, you know, over the last 10 years, our charge-off rate's been, like, 23 basis points, about where we're running now. I mean, even if you include the financial crisis, which included National City's balance sheet, maybe it was double that.
Mm-hmm.
So, I'm not, I'm not losing sleep over credit outlook by any stretch here.
Just to remind folks how well reserved you are on kind of the multi-tenant office and, you know, kind of what-
Yeah, I mean, when you drill into... Right. You drill into real- let's just start from the top. You talk about real estate broadly. Real estate assets broadly are probably losing value because of higher rates. But again, they're cash flowing, so multi-tenant, or sorry, multifamily, people are worried about, it's ninety-se- for us, it's 97% occupied, that's thrown out cash, is probably worth less because rates, rents aren't going as high as they once were, so on and so forth. Multi-tenant office is the only real estate product where just nobody's in the building. It's just, it's, it's distinctly different than everything else going on in real estate right now. We have $4.8 billion, Rob? Looking at Rob. Of, of this, of outstandings in this product, we have 14.7% reserves against that product set.
We've been actively working through maturities, sometimes selling, sometimes charging off, sometimes taking pay downs and extending. The bulk of that book matures this year and next. So it's a manageable problem, you know, in the context of how large we are and what we have in the reserve, I think is... I'm allowed to say it's adequate. But I don't, you know, we've thought about it pretty hard and gone building by building to figure out what that number should be.
Mm-hmm. So on capital, you have over 10% CET1 on today's rules. You've got kind of low to mid eights on the Basel III version, the hardest version. How are you thinking about kind of building capital versus retaining capital or holding steady, on choose your definition?
Yeah
-there?
I think the simplest answer is we're waiting for the smoke to clear.
Mm-hmm.
We have enough under any measure you want to look at. Importantly, we have enough capital and liquidity to play offense here, which we've been doing straight through, as other people tried to optimize what they were doing. We got to figure out where regulations land, where rating agencies land, where political elections land. And then, you know, so there's not a burning need to wildly change what we'll do. I just remind you, we, you know, maintain our dividend rate at 40%-50%. We, you know, in the normal world, have the ability to generate more capital than we can intelligently deploy, so we take excess and buy back shares, which we're doing today. We're probably just not doing it as aggressively as we might if there was a little more certainty in the world.
Mm-hmm. Is, is it not clear what metrics the rating agencies are assigning their things to, in terms of whether it's a fully loaded with AOCI or not? And is that... I think you mentioned that's kind of like-
I just, I think there's just a lot of confusion in the world.
Mm-hmm.
Which is, you know, and don't make big decisions until you know what the rules are.
Mm-hmm.
Pretty good.
Okay.
Pretty good way to live life.
So you've got the dividend you talked about. You're doing a very modest amount of share repurchases.
Yeah.
So kind of hold steady.
Yeah.
Yep. And then just on top of that, you do have a, you've disclosed an unrealized Visa gain of $1.6 billion. I think half of that's probably monetizable.
Yeah.
So, will you monetize that? And then, as you think about kind of the options, whether you buy back stock or pre-fund some expenses or do a restructuring of portfolio, you know, how you kind of balance different options?
Yes. But we will realize a gain somewhere around, you know, $750 million bucks, which is half of our total. Look, it's a lot of money, but it's not necessarily a material amount of money to PNC. And you'll see us, we've gone through options, economically, of some money to the foundation, which has a massive tax advantage to it, and is economically attractive. And then think about expenses and/or revenue enhancements that would cause that gain to not drop through to income, right? So we'll do some restructuring and things, I would guess, at the margin, that ultimately will help our run rate going forward-
Mm-hmm
... as opposed to our near-term capital rate. We're still working our way through that, and when we know it, we'll tell you.
Sure.
Yeah.
So as we think about kind of through the cycle returns for PNC, you know, are you at a normalized ROTCE today? It sounds like you're probably under-earning a bit on NII relative to what-
Yeah
the fixed asset reprice will be. You know, how do you think about the components there?
I guess, too, you probably know these numbers better than I do, but through time, we've been kind of 15%-18%.
Mm-hmm.
We're probably a bit, you know, just looking forward, given the normalization of the rate curve, we probably have an opportunity, you know, we're on the low end of that today. We probably have an opportunity to do better.
Yeah, on the-
Um
... the net interest income is kind of a 3% NIM?... handle the retail market?
Yeah, it's probably a little high against our history. I mean, we've been 2.60% to 2%-3%, so maybe we're moving to the top end of that-
Mm-hmm
you know, from where we are today. I, you know, I think about, well, by the way, we don't put a target out there other than more is better. But what I would tell you is that, you know, as we've seen through cycles, return on a given credit's return on equity is rarely true. You know, as you know, I call it the cost of goods sold, but basically, somebody's balance sheet ultimately comes back to show how much equity they were actually deploying, as opposed to what risk-weighted assets are. And in that respect, I think our return is quite high. I think we're very efficient users of capital, and I think we have very little surprises through the cycle, as evidenced by our 23 basis points of charge-offs.
The way you measure your internal targets and the incentives for your team and the way management team's compensated, is that all kind of relative performance along the stack?
It's relative. I mean, look, we have a return on capital threshold inside of that, as we should. But I think that's a dangerous primary driver because I can make that number as whatever you want for a couple of years, which is why we don't use that as a primary driver.
Mm-hmm.
It's, you know, it's share growth, it's revenue growth, it's efficiencies, it's we have risk parameters in there. All the things you'd think you'd like to see as a well-managed firm.
Mm-hmm. And how about when you think about your growth in the bank and in expansion markets, how do you guys look at market shares and kind of your ambitions across market shares and where they should be over time, and what you kind of strive for as a team?
So if we think about retail share, we get back to this notion that there's a tipping point at about 7% of local share, where you become self-sustaining and then can fight for the major. I don't know how better to explain that, but 7% seems to be a place that works for us, which is why we keep you know, we're investing in the markets where we're not there. In C&IB, that market is so fragmented in the U.S. that you know, we're probably in the businesses we choose to compete, we're probably second or worse, third today. And you could double and triple, you know, it's an open playing field.
Mm-hmm
... as it consolidates. So that's exactly that consolidation has accelerated, as first, the ability to offer products through technology and innovation, and secondly, this race to big, for safety and soundness. Right? No treasurer wants to get caught out again, wondering if their bank is gonna default over the weekend.
In terms of business mix, the areas where you're undersized, these are kind of tweaks around the margin, I guess maybe in consumer credit or some of the-
Yeah
relationship products in consumer.
Yes, well, we clearly have an opportunity to do better in consumer credit. We haven't done well. Some of that's been by choice in the sense that we've focused our technology investments elsewhere. But we have an ability to originate better. You know, we're under-penetrated relative to our existing client base, which is our focus. We've rolled out new products, so we have a new 2% cashback product, which, by the way, is the first one we've had out in years. That particular product is kind of a transacting product to drive payment fees. But online approvals, better front-end systems, we're eventually gonna replace the back end. We ought to be able to grow card from where we sit today.
We've also done a lot of work on using AI to preapprove price and underwrite, unsecured lines, which we've kind of experimented with and haven't done in size, but I think it's a place where consumer credit is probably going.
Mm-hmm. Is the rollout of AI to banks, is that, is that new? It's hard to put an ending on it. It kind of came up in a couple of presentations today, and it kind of-
Yeah
... everyone wants to know, like, you know, how's it gonna change banks? How's it gonna be helpful on the expense or revenue side, and what-
What was the most outrageous comment that came out as an answer?
Uh-
So is it gonna change the world, and I don't need any employees? Like, well, what were the answers?
There's nothing outrageous. Jamie said we were doing already for years, and-
Yeah. I, I think, I think AI, particularly for banking, is a continuation of the automation exercise. It's part of it; it's not all of it. It's this basic process where the ability to service a customer, the products we give our com... our employees to service customers, and then customers' ability to self-service and solve their own problems, is driving massive costs out of the back office of banking. Some of that's AI, some of it's just straight-through processing, some of it's, you know, much better service browser technology and so on and so forth.
So I think with technology, you've talked a lot about technology being a differentiator.
Yeah.
I think we can see that on the consumer side. Where, what are some of the examples on the wholesale side, where tech is increasingly important to... I think you've mentioned in treasury management, onboarding-
Yeah
the customers. Are there just some other examples that folks can kind of try to-
Yeah
build that a little bit?
So just to put it in scale, right? Our treasury management business, $4 billion-a-year revenue business, massive margins, growing at 14% a year. Just think about that for a second. That's all driven by tech investments and high barriers to entry. It's gone from a place where, you know, in its most basic form, it was lockbox and receivables and payables, to a place now where our whole system is built on exposed APIs and microservices that are integrated into the enterprise management systems of our clients. So put differently, I'm a treasurer at a mid-sized company, I can go to my PNC PINACLE site, and I can actually turn on a new service from PNC without PNC coming to install it and go through the months of transition. That product, the ability to do that, is rolling downhill.
So that, you know, you first develop that for the largest of clients, and now we're smaller and smaller and smaller. So small commercial, who used to have a long onboarding time and people coming to visit, and frankly, a headache, is now all integrated into the enterprise management, the accounting systems, and it's automated. That's a big driver. I mean, payments on the corporate side, you know, the opportunity set there, that isn't necessarily talked about that often, but it's larger than what's on the retail side.
Just broader technology, you know, what, what's kind of the update on your migration to cloud-based platform?
So we, we'll get into sort of short definitions here. We've been on our own internal cloud for years. We have built what we call burst through capacity to both Amazon and Microsoft, which means we can, we can run compute calculations in the public cloud. We do very little of our own applications running in the public cloud, and that will be a forever case. You know, the most recent work set is not to just make them run in a cloud environment to... but to make them cloud native. What that means is it's an application that was actually written in its original form to operate in a virtual environment. Microservices, APIs, a whole bunch of bits of code that can be plugged together as opposed to the monolithic million lines of code that used to be online banking.
We're very far along into that second order effect of cloud native applications, and you're going to see that in rollout of new mobile and online and our entire retail technology over the course of the next, we'll call it a year.
Mm-hmm. And I think you also mentioned, you're kind of finishing up a servicing platform that'll be better integrated across the businesses.
Yeah.
Can you talk about that?
That was a forever project, but we're literally on the one-inch line. We're missing, like, one product, and I can't remember what it is, but forever it was in a branch, you'd have an application that launched all the applications to look at checking account balances and whatever else, you can open an account, open a credit card, so forth, in the branch. Which was different than what our care center... This is true for every bank, but what a care center person did and what the back office person did. We now have a single system, built on the back of Salesforce, by the way, that is the service... I'm gonna call it service browser, but I don't mean to use the company's name. Which is the service layer for branches, care center, back office, and customers.
Meaning that you can solve much more of the immediate problem in the moment in the branch through an empowered employee, as opposed to sending an email to the back office to say, "Hey, can you fix this? I can't figure it out." Because now the branch has all the same technology as the back office. That's a massive win, and you see that. That's one of the reasons, if you look at our retail side, when you see cost dropping out of retail at an increasing pace, is simply the automation and the processing in the back end.
So a couple of questions have just kind of come in here, online. What could get M&A started? You know, outside of the, obviously, the regulatory rules need to be clarified and hopefully nothing changes-
Yeah
... but from a market standpoint.
Look, I think eventually, this, you know, people waiting for rates to normalize and some of the AOCI burn down obviously helps. I think it helps in terms of the optics valuation. Actually, you know, that's just a number, but I think it'll help in terms of the optics, optics of deals. But I also think it'll then cause management to say: Okay, what's my next trick? Okay, I matured my bonds, now what am I going to do? And, and I think things will start. We'll see.
Yeah, and maybe it's less of an obstacle in terms of the buyer buying someone else's-
Yeah, but at the end of the day, people have to come to the conclusion that there's more value to partner with a strong partner than there is to try to fight the fight alone.
Mm-hmm.
Like, they independent of the environment and the economics and everything else, somebody needs to reach that conclusion.
Then just on credit, I mean, you mentioned that you're kind of the low 20s charge-off ratio. You feel like the industry's... I mean, credit's really good. You feel like we're still kind of under-earning? Is 20-30 kind of a normalized charge-off for you? Is that what you meant?
I mean, normalized, it's been 23 basis points.
Yeah.
Which is about where we are.
Mm-hmm.
So, you know, absent the real estate stuff we highlighted, I don't know what to dig through and be worried about.
Right... Okay. And then in terms of new, potential new liquidity regulations, you know, what are your thoughts on what's essential for regulators to get right on that?
There's been a lot of discussions around this. We are required, appropriately, to hold more liquidity than ever. I mean, we had this in LCR and other regulatory ratios, is how much cash you had it on hand against things would leave. That is accelerated through internal stress test pressures and just regulators saying more is better, more and more and more. The things that provide, you know, and, and they're, they, they, you know, are trying to figure out, should we accelerate rundowns because, hey, non, uninsured deposits run faster. I think the conversation has moved to non-operational accounts run faster as opposed to insured or uninsured, which is a good place for that to go. There hasn't been any give, and there needs to be, on sources of funding.
So discount window counting is part of stress tests, repo facility, you know, solution for held-to-maturity bonds being funded. And what I believe the regulators are doing, and I applaud them for it, is they're looking at all these problems collectively. So yes, we want you to have more liquidity, but at the same time, we're gonna count certain things. If you actually are operational in the discount window, that'll count as part of your liquidity need. So I think they're going about this the right way, and I think it's a big issue, because today all that's happening is we're just piling up cash in the form of excess reserves, and it's, at the margin, interfering with monetary policy.
Mm-hmm. Okay, well, that's, that's kind of the end of the questions. And, maybe as a kind of a wrap-up, Bill, just, you know, give us your perspective on you feel like you're well-positioned, you know, both near term and longer term, to kinda take advantage of dislocation in banking and some of the new markets. So, you know, just kinda give us a wrap up.
Yeah, I... Thank you for that, John. It's, I will admit that it has been a, a frustrating year and change as we bide our time, you know, inside of a, a rate environment that is renormalizing, and we're not chasing bad behavior. But during that period of time, we've been investing in growing our franchise. It doesn't seem visible because everything's dwarfed by, you know, NII and near-term NII guide. Other banks have been divesting assets and divesting clients, and I'm only gonna do this. We've been investing heavily in people, in growing client sharing, winning business. We've grown, you know, I mentioned TM has been growing at 14% compounded.
You probably don't realize this, our capital markets business has grown at a 10% compounded rate to $1.3 billion over the last eight or nine years as well. Our brokerage business has grown to $800 million a year, grown at 10% compounded. So we have a lot of underlying momentum in this environment where I think banks are on their back foot, we're on our front foot. The industry is consolidating. We have the tech platform and the capabilities to help consolidate it. And I just think that's all in front of us. And we've been in this blasé period where everything's overwhelmed by what interest rates are doing next quarter.
Mm-hmm.
That's just a tiny section of time, which in the end, I think plays to our favor, given how short our rate book is, but we'll see. I'm really bullish on what we have the ability to do over the next 10-20 years as an institution, given the structural changes in banking.
Great. We'll leave it there.
Yeah.
Thanks so much.
Thank you.