As you know, Eric really doesn't need any introduction, but Eric Aboaf is the Chief Financial Officer at State Street. Prior to his role at State Street, he was the CFO at Citizens Bank here in town, and then prior to that, he spent many years in the treasurer's office, if I recall, at Citigroup. But before we start with questions, Eric does have a disclaimer that he'd like to disclose.
This is the annual legal disclosure. So, Gerard, thanks for hosting as always. And just to remind everyone, today's discussion may contain some forward-looking statements, and as you know, those actual results may differ materially from those statements due to any number of important factors, including the risk factors in our 10-K and our other SEC filings. Our forward-looking statements speak only as of today. We may not update them even if our views change. And with that-
Great. Super.
Yes.
One of the key metrics for State Street, of course, is the winning of new business, particularly in the servicing fee sales area, and I think you benchmarked for 2023 to $300 million, and you're moving that up for 2024 to $350 million-$400 million. How are you tracking toward those goals, and how does it correlate between assets under custody, assets under administration?
Gerard, you know, over time, we've felt like it was important to expand our disclosure of the servicing business. It's a big business, but it's not as easy to count.
Right.
You don't count the number of checking accounts or the number of loans at a certain yield. It's more nuanced, and there's a number of different elements of it. There's custody, there's accounting, there's performance analytics, there's middle office. So there are different, you know, components, and I think the language is actually not terribly consistent across the industry. So, over the last 2 years, we've really added 2 types of disclosure around servicing fees in particular. One is, you all know, we've got about $40 trillion of assets under custody administration, and we said for us to have, you know, good, strong, organic growth, we'd like to win about $1.5 trillion of assets a year, and that was created kind of what we'll describe as a volume benchmark.
What we've said over time, and we say regularly, is, you know, when you win a piece of business, sometimes it has a high fee rate, sometimes a low fee rate. It could be based on the type of product, it could be the phase based on the number of products. And so we found that was helpful for investors, but not as conclusive as it could have been. So more recently, what we've done is describe the amount of fee revenue that we'd expect to be able to to win each year.
And so against $5 billion of servicing fees, we said a healthy amount of wins each year would be about $300 million for this year, and we'd like to actually take that up even higher to $350 million-$400 million next year. And that gives you a sense of kind of gross wins. There's always some, you know, we need to retain business. There are other factors, but that gives you an indication. And as part of that disclosure, you know, we disclosed that third quarter, that we had won just north of $90 million of servicing fee revenues.
Yep.
$150 billion of assets under custody, but I think the fee revenues are the easiest to understand. In terms of your question, you know, year to date, we've won about $200 million of servicing fee revenues. And, you know, we described in the third quarter and continue to feel comfortable that we've got good business momentum. It's been building through the year, and we have good line of sight and visibility into delivering around $300 million in servicing fee wins for the full year of 2023.
Maybe expanding upon that a little further, Eric, is there a targeted area in terms of size of customers, when you approach, you know, to win new business, is it only large financial institutions that you're focused on, or is it mid-sized institutions, and how does that spread out between here domestically in the U.S., North America, versus, you know, international?
It's really a range, and part of the, part of the reason is that, you know, when you're $40 trillion of assets under custody, and you custody 10% of the world's assets-
Yep
... you know, you want to be, tackling a good bit of the market just to continue that growth trajectory.
Sure.
So, I'd say there's a wide range: large, medium, some smaller asset managers, asset owners, alternative providers, sovereign wealth funds and official institutions. So there's a real breadth and, you know, the international mix is probably around 40%-45% of the business. The rest is domestic to the U.S., but it's quite global in nature. I think what you've seen us do is, over the years, we've leaned into areas more intensely than others. So I think we'll cover... We'll continue to cover the full market.
Right.
That is what we do. We see opportunities, you know, in every one of those segments, regions, and products. But we've clearly leaned more heavily into privates. Probably it's a ballooning market where, you know, private market assets are growing 10% a year. You know, we see an ability to grow at 15% in terms of, you know, fee revenue and private market assets, so that's an area we've leaned into. You've seen with our Alpha proposition, right, which brings the back office, the middle office, and the front office sort of management system and knits them together for clients, which is a real benefit. Some of that has been with the largest asset managers, some of it with the mid-size asset managers who really want to consolidate and perhaps bring their boutiques together, right? And actually...
And so that one is really around, I think, asset managers in particular, asset managers sometimes within an insurance wrapper. And then more recently, we've innovated to do Alpha for private markets, and announced our first deal this, this past quarter. So I think there's a way we're leaning into the kind of product feature functionality and offering that we've created, that's that is actually helping us to build some of the sales momentum we just talked about.
Do you find that when you have these wins, how important is pricing versus just your reputation, your service, the quality of the product? How does that dynamic interplay with one another?
I think the way I describe it is, pricing is kind of table stakes in our market. You know, we know what it is, it benchmarks-
Yep.
You know, there's history behind it. The real differentiator in our market is some amount of feature functionality, and in truth, it's the confidence that clients have in your willingness and ability to reinvest in the business-
Yep.
and actually always bring them new features and services over time. Because think about it, clients don't really love the idea of switching their custodian, right? That's inherent risk for them. Or their accountant, or change the way they do their, you know, mutual fund prospectuses and what's in the disclosures, right? They'd rather keep that consistent. So what we found is, one of the reasons and ways we actually compete with some of the multi-line firms is we, you know, we're narrow and deep, right? We're in custody, we're in asset management, and we're in capital markets, but we're not gonna, you know, milk one business to drive growth another. We're gonna keep reinvesting in custody, and that actually brings clients back to us and keeps them with us, right? That's one of the core elements of retention.
What we need to do is just deliver on that.
Mm.
Right? And so there's always something new that we're refreshing, and that's why part of... As we've described our expense trajectory each year, right, we talk about reinvestment plans, we talk about variable cost merit and so forth, then we talk about productivity, but that's because we always want to refresh the offer.
Mm-hmm. Yep. So we're talking about the servicing wins. Can you walk us through... You, you get the win, everybody's obviously excited. What's the onboarding process? You know, how long does it take before it actually hits the P&L, you know, the, the wins that you have achieved?
The answer is, it varies.
Okay.
Every deal is different, and partly, you know, a private markets deal will take some time, right?
Mm.
Because the fund actually has to start investing.
Yeah.
And that's, that's when you'll earn more and more, as that, that capital gets deployed. Middle office could take a little more time because it's actually complicated to onboard. Custody, things happen very quickly. And then sometimes, you know, folks are just lifting and moving business even in alts, and that creates different cadence. And so maybe just to give you some insight of where we are today, you know, we said earlier that we won just north of $90 million of servicing fees-
Right.
this year, in third quarter, right?
Right. Yeah.
Just in three months-
Right
of the third quarter. Most of that'll actually implement over the next year.
Got it.
Right? Partly just that's the nature of the mix of what we have.
Right.
We also said that as part of that 91, we had a backlog of servicing fees of about $255 million, which includes the 91-
Right
... right, sitting on our books. And we, you know, we see that about implementing about 10% for the rest of the year, you know, fourth quarter. About 60% next year, and then the balance the year after. So it, it kind of depends.
Right.
Bigger, more complicated, take longer.
Yep.
You know, simpler and more, you know, unidimensional, you can get through a little more quickly. And sometimes it depends on the clients. You know, some—there's more complicated work, the client needs to adjust their processes, systems, approaches sometimes. And so it's not only we who need to configure-
Mm.
but there needs to be joint configuration. And, you know, there are times when we want to take some of the extra time clients want to, 'cause then they actually get the full set of benefits. They get the feature functionality, but they might also get the effectiveness and efficiency benefits-
Right
- coming through.
Right. So they have to pull out the fax machines then, right? Moving on, and coming back to these wins, which obviously are very important, what percentage do you think, or, yeah, not think, you know, come from existing customers, you know, adding more features to what they currently subscribe, you know, from you, versus just a totally new customer to State Street, you know, you've not done business with them before?
It's still... Just 'cause we're, you know, we custody 10%-
Oh, yeah
- of world's assets.
Oh, yeah.
We've got, you know, some amount of business with almost everyone.
Oh, sure.
Right? You know, it's the large majority, the vast majority-
Yeah
... come from existing clients.
Yeah.
There are some new wins. You know, Ron described in the third quarter that we won a back office mandate. That had been a client we met over Zoom-
Oh!
- during-
Mm
... COVID.
Yep.
Right? First, we started with front office and middle office. Now we have the back office, a global asset manager, and so there are some new clients there.
Yep.
But all them, all of them count in our minds.
Yeah. Sure.
All do count.
Coming back to Alpha, you mentioned you had have some wins there this quarter. Can you talk about how this is gaining traction with clients, and what are some of the next stages of development that you guys might be working on for Alpha?
... Yeah, Alpha's been a journey for us. I think, folks early on were really intrigued with the offering, right? Not only the back office, the mid-office, but the front office, and actually knitting together.
Mm-hmm.
Right? Everything from the, what the portfolio manager has as a desktop and a workbench, all the way back to the custodial operations, seeing where their cash, what they can lend out. You know, all sorts of configurations were valuable for them. What we found over time, though, was that it actually took some real transformation at the client, and it actually took some standardization on our part-
Mm.
-because it was so new and different. So you saw we announced some big wins in Alpha in, early on in 2020. 2021 was a banner year.
Mm-hmm.
Some of those implementations took 2-3 years-
Mm.
You know, and are, are coming through now.
Right.
Right? In size. So what we found is there's significant amount of appeal and interest. Sometimes it's a global asset manager, sometimes it's one of the boutiques, right? So different configurations were... What we found is we've become better and more effective at actually standardizing not only the offering but also the implementation.
Mm-hmm.
So that's starting to build additional momentum. And we've also found that each part of the functionality that we offer, you know, can be freshened and expanded.
Mm-hmm.
You know, Charles River, which is part of the Alpha proposition-
Right.
had our heritage in equities.
Right.
There's an excellent offering, you know, in Aladdin, had the heritage in fixed income. We've actually gotten to a point this year where we've had one large release, we have another one coming through right, right now, that we think is gonna put those on parity.
Yeah.
Aladdin's terrific at both as well now.
Mm-hmm.
but it's grown up into that. And so we've continued to add feature functionality.
Mm.
I think now we feel like we have an offering that can address the large equity-oriented managers, the large fixed income-oriented managers, with real capabilities they'd like. And so as a result, you know, you saw in some of our disclosures we made back in September, you know, we've said we've been winning, you know, 4-5 Alpha deals a year. That's pretty good, given that a lot of them are quite... You know, they're either medium or large.
Right.
We've said that over the course of the next year, we'd like to take that to 6-8 a year.
Mm.
Right? So we're starting to feel that the traction... I'll say the demand's there. The way to satisfy it is broadening because we're building out the feature functionality, and our ability to implement, I think, is accelerating as well. And so a lot of things coming together there.
Yeah.
Now, we've got to deliver on that.
Sure.
Right? That, that's what we do, we do every quarter. But there's some... That, that's another area of momentum for us.
Yeah. You've announced recently or you've been talking about initiatives about growing, you know, strategies to put in to grow your servicing business organically. Can you expand upon those and how they will help offset some of the previously announced, you know, the client transition business that you've talked about in the past?
Yeah. You know, sales and growth acceleration always comes in multiple ways.
Yeah.
Right? And so maybe I'll describe it in several. One is, over the years, we've refined our go-to-market sales coverage:
Mm.
regions, segments, the assignments, create sales capacity for inside sales versus, you know, the front-facing. And we've done some more work there that we think is starting to show some real benefit. We've had very strong years in Europe and Asia, and, you know, North America's been a little slower. And part of that is because we've actually now found, I think, a better sales structure-
Sure.
-to create more throughput capacity in Europe, that we're actually rolling out to North America. So part of it is, I'll describe, as sales configuration. We've been more intensely focused on retention, right? Part of it is the discussion we had earlier about taking advantage of being more of a focused player on custody. Retention, you know, several years back was 96%. We've taken that up to 97%, and want to keep it there.
Sure.
That's... You know, percentage point of retention is as good as a percentage point of new wins, right?
Yeah.
So it counts. And then a little bit of the discussion we've described, where are we leaning in private markets? The offering is unrivaled relative to others, and it's a growing market. And it's interesting, it's not only the specialized alternative firms, but it's the multi-line who are all barbelling to some extent.
Mm-hmm.
private markets is, there's a lot there, right? It's not just private equity anymore, it's real estate, private credit-
Mm.
-infrastructure.
Mm.
Right? There are all sorts of different constructs, but each have a different functionality base.
Right.
And then there's Alpha-
Yeah
... which we just covered. So part of it is how we go to market, part of it is the offering, and, you know, part of it is the other levers-
Sure
that we're heavily focused on.
Yeah. Pivoting over to the balance sheet for a moment. Your company, as well as your peers, probably were most impacted by quantitative easing and quantitative tightening by deposits doing what they've done over the last three to four years. Can you share with us what are you seeing now? Is there a stabilization on the deposit levels? How about deposit repricing? What are you seeing so far this quarter? What are your thoughts about 2024 in deposits?
... You know, deposits has been a journey. Now, it'll always be a journey and cyclical, right? In the banking business, as you describe, and I think with, you know, the COVID events of 2020, even the, you know, some of what happened in that regional banking space earlier this year, there's always-
Yeah.
and then the Fed participation. You know, we've said that, you know, deposits have come up pretty dramatically. They've been floating, you know, back down. Non-interest-bearing deposits have rotated out. We continue to expect some rotation to continue. We said also that overall deposits are roughly, you know, flattish third quarter to fourth quarter. And over time, we think we're starting to see, you know, the pricing catch up, you know, will slow down over the next couple quarters. And deposits we see stabilizing, right? And that's given us some confidence that we think fourth quarter, more likely than not, to be the lower point in NII and then some tick up into the quarters. But it's hard to, hard to be sure. You know, we navigate daily.
Yeah.
And, you know, it's hard to call a turn perfectly. You know, maybe we wanna offer an extra one of those beach bags you have out there to the CFO that calls the turn with precision and applaud them.
It'll have a nice bottle of whiskey in there, too, for them.
I think they deserve that, too. Yes, and a Yeti cup from last year.
You got a good memory.
Yeah. Yeah.
It's good. Speaking of NII, you, you've recently said that, you know, we could see NII up at that $550 million-$600 million quarterly range, due to the repositioning that you guys did, of course. Now, with the bond rates, obviously, they moved up a bunch. In the last 48 hours, they've come down a bunch. So, what are you thinking, from that perspective?
You know, our thinking is roughly in line with where we were during our third quarter earnings call. You know, we think we'll be in the... somewhere in the middle of that range in 3Q, tick up to the upper end of that range as we get into 2024. It's just, we're at that inflection point of headwinds and tailwinds, right? The headwinds of the deposits and the non-interest-bearing deposits floating down. We're starting to see that slow.
Yeah.
The question is, where is exactly the turn? The pricing, you know, we, we earned quite a bit for a while, and then we had to, and we had some, you know, the betas floated up, and then we had to do some catch-up pricing in the back book. That's, that's what happens over time. You know, that we said we'd see some in second quarter, third quarter, fourth quarter. Moves around by quarter a bit. So, you know, no, no new information there, really. And then I think what happens is, as those headwinds, attenuate, the ongoing tailwind of the investment portfolio, being reinvested at, you know, 5%+ and rolling off-
Yeah
... at 2%-3%, is the tailwind that'll actually create a lift.
Yeah.
And so there's a little bit of when do those lines cross matters, and then, you know, it does bode well for even the out years, because in the out years, we're still gonna be tracking through that investment portfolio. Ideally, we have some stability in the underlying, you know, deposits, pricing, and so forth, which we all expect, 'cause we're going through a phase. You know, but that'll give us some medium-term, you know, medium-term lift that'll be encouraging and constructive.
Yep. Before I open it up to questions to the audience, just one further question about the investment portfolio. Obviously, you took the restructuring last quarter, and you just talked about the, you know, taking, you know, the cash now going into much higher yielding securities. Any more thoughts about that kind of thinking and, you know, why you did it? And then also, could we see further repositioning of the portfolio as we go forward?
You know, we'll always take a look. I think we're quite pleased at the opportunity that we really took on in, you know, the end of August, beginning of September, right? Rates had just come up.
Yep.
We liked the curve had started to flatten. We thought there were some opportunities, including in at the overnight-
Mm-hmm
... portion of the curve, plus in the belly. And to us, it was a nice time to do a cleanup.
Right.
It wasn't large. I mean, it was, you know, $4 billion or so of bonds, but it's also accretive, you know, to future NII, and it's already out of capital.
Right.
You know, I don't think we do that every quarter, you know, frequently, but we'll always keep an eye on it.
Yeah.
But there's got to be a good reason, right?
Sure.
There's got to be something changes in the environment. We see some... You know, we actually took out some capital-intensive securities. So, you know, we're just keeping an eye on, you know, what else could be, you know, what else might change that might encourage us, but there's nothing on the horizon now.
Yeah.
We're pretty comfortable. We think the portfolio is yielding quite nicely. You know, I think I've said that about $5 billion of bonds rolls off a quarter. We can reinvest those.
Yeah.
You know, there's opportunities in dollars. There's opportunities with a little bit of convexity in MBS. You know, spreads are a little wider than they have been, at least, you know, through the averages in different sectors. You wanna pick up some prepayment protected bonds typically, and then because we have a global footprint.
Right.
Right? It's really appealing.
Yes.
You know, it doesn't mean we have to be in bonds, but there's some, you know, there's some other, you know, very high grade sovereigns there. We can work across currencies. We can also, you know, swap between currencies and actually, invest and take advantage of some of the the opportunities. So for us, it's, we've got a fair amount that actually we can redeploy each quarter, and that's where we're really focused.
Yeah. Speaking of the burnout of the $5 billion or so, you, you mentioned on the repositioning, you know, exiting some lower coupon, lower yielding securities into these. What are you seeing now on the money that's coming out of the portfolio due to maturities? What kind of yields are those coming out at? And then what are you then reinvesting, what kind of yields are you finding today?
Yeah, typically, it's in the range. You know, our average duration's in the 2.5-year range, you know, plus or minus some. So you kind of think about the bonds that any of us would have bought-
Right
... you know, back then. And we're not always buying the same maturities, but-
Mm-hmm
... you know, there's always some amount of stability that we have always tried to create-
Sure
... in the portfolio. But the roll-off yields are in the 2%-3%, typically.
Yep.
You know, and the new yields are in the, you know, high fours, fives-
Yep
... at least in the U.S. dollar book.
Right.
European book, you know, UK, Canadian dollar, Australia, all somewhat different, right? The kind of the coupons, both the roll-off and roll-on are lower, but the spread's still cycle.
Yep.
You still find the 200-300 basis points, typically.
Sure.
Not every bond-
Right
... but it's, it's typically.
Yeah. With then, let me see if there are any questions from the—Julian, over here. I'm sorry. We'll go here first.
Hi. Two questions, actually. One is, you've got a catbird seat on fund flows, you know, as a custodian. So between asset classes, you know, bonds to stocks and so forth, as well as active to passive, can you comment on what the impact is on your business in terms of the profitability of the passive strategies, materially different in terms of, you know, margins to you or, or similar between stocks and bonds or any other asset classes that you see?
Yeah. The... I think there are two trends that are important as we think of the, kind of what we see as custodian, right? The $40 trillion that we custody. One is around active to passive. There's one around cash holdings, sort of money market, cash. And then actually there's the third one, which is privates versus, I'll call it non-privates. And each of those has a different flavor to them. So let me take them. The active to passive, which tends to be a little more secular, right? Not always. There's some cyclicality, but tends to be a little more secular, tends to come with similar margin percentages, but lower margin dollars, right? Why is that?
Because the fee rate is lower on passive, but we're so large in passive, the expense base is also lower for us. So, you know, as that happens, we need to win new business, either in that category or in another category, and, you know, find ways to actually... That'll be neutral margin, but we want it to be neutral or positive to even, right? And so we're working that and continuing to expand. On cash, I think, tends to be cyclical, and we, through our global markets research arm, do a lot of work around cash holdings, moving back between equities, bonds, cash, and so forth. And, you know, we, we provide insights and indicators there, risk and risk indicators, turbulence indicators, and so forth.
Cash tends to just have a lower fee structure than than non-cash. But that one comes and goes. So part of what we're looking at is, you know, that might be a slowdown, but it'll likely come back. Privates is very high on the fee rate, and it's got very solid margins. It also comes with more costs, right? Because it's a very manual-intensive process. Think about the waterfalls, think about the funds of funds and some of their intricacies with underlyings. Think about the sidecars. You know, those are all wonderfully organized structures, but when you put them into a system, there's a lot of manual intensity of there.
And so that, to us, is there's a real fee rate opportunity, but there's a real margin and EBIT opportunity for growth. So there's a lot, lot going on. And then I think the last one that I'd mention, which is related to flows but a little different, is that as we see higher or lower levels of volatility in client trading, that tends to come through our fee line as well on the servicing side. And you saw that this year, we found that servicing fees were lower by, I think we talked year to date, by, you know, 2% plus because of lower levels of client activity, because there's less just, less trading going on. You know, folks are more on the sidelines as far as that is relating to what they hold in cash.
Part of it is just related to their uncertainty and not being willing to reinvest. And we think that tends to be more cyclical. So the question is, when does the market become more active? You know, is hard to predict, but that'll have an effect as well.
Thanks. I just had one follow-up.
Yep.
Did you say that the margins were lower in passive, but the dollars were lower as well? I would've thought that the passive money was so huge that the dollars would be bigger, even though the margins might be lower.
Let me try to be precise about it. So the margins, the margin percentage is about the same in passive versus active. For the same amount of, you know, 100 units of passive versus active, the margin percentages will be the same, but the margin dollars will be lower because the fee rate and the expenses are both lower. Then you have the point that you made, which there's more growth in passive, and so you're trying to make up for the lower EBIT dollars with growth and EBIT dollar growth. So you gotta factor all those in, and I wasn't sure if you had been asking before about kind of apples to apples or with the kind of market growth, which is quite different.
You outsource a lot of costs to India and so forth. Can you comment maybe on client turnover and so forth, in the context of that?
You know, we run a global footprint. You know, we have operations in India and Poland, which are quite effective for us. But we have multiple operations, you know, here in the Boston area, in Kansas City. We have operations, Ireland, Luxembourg, so we have a real breadth of platform. Partly is 'cause that's a way for us to deliver resiliency for clients, and part of it is to deliver a follow the sun model, evaluation, and handoff. So it's actually quite broad, and we find that clients actually find that appealing. Now you've got to do it well, right? Wherever you hire or grow, you need to do that well. But the capabilities we can find, whether it's, you know, here in Quincy, we've got very talented staff.
We can find very talented staff and grow very talented staff, you know, in, in some of these other markets like Poland and India. You know, I've got finance teams, you know, around the world, and I gotta tell you, you know, there's great talent. There's great talent, and that, that is what clients are looking for. I think they're, they're much. You know, maybe 10, 15 years ago, they were, they were, you know, where's the staff? But now they just want talented staff. Talented staff, automated processes, and, you know, that, that comes together nicely for them.
Can I ask about fee pressure? So let's say, I'm guessing over the last five years, it might have been 2%-3% a year. If you think about the next five years, what are the theoretical reasons why it might be higher or lower than what it's been in the past? And then the extra question is: if there's a downturn in markets, does that increase the fee pressure? As in, you know, your asset management clients are under more pressure, and therefore, they're demanding more discounts. Thank you.
Yeah, there's... You know, fee pressure in this industry has been around for decades, right? The last, you know... And I think we've had a wave, you know, in 2019, 2018, 2019, that we navigated through. And part of it is, you know, how do you prepare and organize for that and deliver against that? I think the fundamental reason why there is a set of fee renegotiations happen is because equity and bond markets tend to rise over time. Our fee schedules are partially indexed to that. And so clients are kind of saying to us, "Hey, equity and fee, and bond markets went up. We're paying you more.
Can we have some of that back as a share?" That, that's literally—they're saying, "Hey, you're doing similar work." And we're saying, "Well, we're also adding some feature functionality, and we have some flat rate." And so the industry actually has this cadence of, well, can I get a share of the upside that's come through? And that's, that comes through as a fee discussion. So as a result, for decades, you know, there's been some amount. It's been about 2% a year over the last, you know, three, four years. You know, we had a bit of a wave in 2019 that we navigated through, where I think we were a bit unprepared.
And I think that was actually a real inflection point for asset managers in particular, who really saw the move to passive very quickly, and we kind of in a tipping point. I think now we're in a market where, you know, asset managers are navigating. They're barbelling, right? By and large, to some extent, or to a large extent, you know, there are asset owners and insurers who work through as asset managers, in effect. And I don't see something dramatically different than what we've seen, you know, over the last, you know, four or five years, around 2% right now.
You do have a little bit of this question of what happens, you know, when equity markets go up, you know, clients will ask, but then we'll sit with them and say: Okay, so if you want a larger than fee concession now, when markets are gonna go down, are you willing to reverse that and be symmetric? And I don't mean to be flippant-
Yeah.
... but, like, those are C-suite conversations, and that's or the head of operations and the head of our investment services business. And folks, in truth, want a strong partner. They want a strong partner. They want to feel like they're well supported, fair pricing, be there for the long term, reinvest, and we think that's what actually navigates through the ups and down of the markets. But they'll... I mean, folks will always, on the margin, ask for a little more, or will say, "Hey, we're doing more. Can we get paid a little more?
Mm-hmm.
Yeah.
Eric, you talked about-
Yep, it should be on.
Eric, Eric, you talked about the sales reconfiguration. It's non-U.S. right now, and then you also said something about it starting to show benefit. I didn't know if you can give us the nature of the benefits, maybe some scope and scale of the benefits, and then when you turn your eye towards the U.S. or North American marketplaces, what this might mean for the U.S. operation?
Yeah, I think what we've seen is continued strength in the sales successes in Europe and Asia. You know, booked $90 million, you know, a little bit more than $90 million in servicing fee wins, you know, in the third quarter. I said year-to-date, about $200 million, so that means, you know, there's another $110 million for the first half of the year, so less on a quarterly. And you're seeing a kind of an upward pattern. And we demonstrated or we describe some confidence we have into the fourth quarter of trying to get from the, you know, $200 cumulative to the $300 million goal. So we're seeing momentum in sales. It's you know, every sale is different, so it's hard to be perfectly predictive of its driver.
But part of this is that the European and Asia market coverage and sales groups continue to perform well. We've seen some additional kind of momentum rebuilding in the U.S. We've seen strength in private sales, which has been really good. I mean, that's, as we talked about earlier, the fee rate and the margins are quite healthy, partly because it's very manually intensive, so it's hard. It's hard, hard work. Alpha sales continue to come through, so there's good indicators. But, you know, to be honest, part of the reason we put some of those benchmarks and metrics out there is we wanna challenge ourselves to deliver on those every quarter and every year, and you guys to be able to, you know, kind of see. But, you know, the indications are positive.
Last question, Ken.
Thanks. Can I sneak in, too?
Yes.
They're related. The first one, Eric, is just on capital. Have you gotten any refined view about just what the prospective RW inflation might be under the proposed Basel III endgames? And then, what are your hopes, if any, for potential changes as the date has been pushed back on the comment period?
Yeah, Basel III, and you've seen the, you know, the commentary from others. There's some who are seeing what, as high as, you know, 35% increases, others maybe in the 5%-10%, and everyone's book's a bit different. You know, the kind of rough math, because it's rough, right, based on what we've seen, you know, for us, could be around 15%. But I think this is gonna evolve more so than some of the previous iterations. Probably, you know, ops risk, you know, how much do you want to load up a bank for operational risk when that's actually a reflection of the stability in a bank? You know, so somehow it makes sense, but, you know, with the right levels.
There's also some real questions around for the custodial banks, the lending to listed companies, and the listed companies include mutual funds that are listed, but in a different SEC construct. So there's actually some pieces there. I think you've heard from others, you know, some of the energy transition, you know, the green energy-
Mm-hmm.
Investment credits actually get hit hard, which actually is kind of contradictory to what I think, you know, actually government policy is, to actually encourage that. So most of that's actually pretty well contained from a risk standpoint. So I don't know. We're optimistic there'll be some improvements. And, you know, we think our supervisors are thoughtful. They want to try to do the right thing, and I think it's constructive they've extended the comment period. They can hear from us, they can hear from academics, they can do more research and assessment. And so we'll, we think it'll come in, you know, better than at least the, you know, what it could be. But most of it is manageable. I mean, it's...
I think the question is, what's the right amount of capital in the system, right? Because put too much capital in the system, and, and all you're doing is just slowing down economic growth, and you're actually not insulating banks. You're, you're insulating them, you're over-insulating them, and what's the, you know, what's the point there? And so I think that's also part of the conversation that's going to play out.
And, George, you want to-
Yeah, go ahead.
The second was just about, you guys are in such a good position still, even with that type of RWA inflation on capital. You did a lot this year. Just, you know, how do you think, how do we think about just... I don't think people expect that to be a run rate. So just wanted to say, ask, like, how do we think about, like, the right zone of, of thinking about how you want to live in ratios and, and capital return, you know, given, given what we're talking about? Thank you.
Yeah, well, what we've said, obviously, we had a large authorization this year because we had more capital than we needed. We wanted to get it back as quickly and at pace to shareholders, and we've done that and continue to do so into this quarter. I think we're now getting back into more of a, I'll call it, business as usual mode. You know, we've got a target range of 10%-11%, you know, and you kind of tend to say, where do you want to end up in that range? You know, the higher end, when things are a little more uncertain out there, maybe the lower end, when things are benign.
You know, and what we've said in the third quarter, we'd like to get to the middle of that range and then take it from there. And then once we do that, I think we're back to, you know, some of our medium-term targets, right? Trying to return, you know, 80%+ of earnings back to investors in the form of dividends and buybacks. You know, we need a little bit to grow the balance sheet for our markets activities and our lending activities, because those actually then encourage clients to bring more servicing and administrative servicing fees and business to us, so that's left. But there's a good, the capital light model is intact here. And, you know, we'll effectively go back to our medium-term targets with regular way capital distributions.
With that, please join me in a round of applause. Thank you, Eric, for coming.