Moving right along, very pleased to have State Street with us. We have from the company, Eric Aboaf, State Street's Vice Chairman and CFO, and Mostapha Tahiri, who's been with State Street since 2020 , and was appointed as State Street's Chief Operating Officer in October of 2023 . This is his first conference at State Street. Thank you both for joining us today. Before I open it up, Eric wants to read his disclaimer.
Just to remind our audience that today's discussion may contain some forward-looking statements, and that actual results may differ materially from those statements due to a variety of important factors, including risk factors in our Form 10-K and our other SEC filings. Our forward-looking statements speak only as of today, and we may not update them even if our views change.
Thank you, Eric. Maybe to kick off the discussion, we could start with some of the recent management changes at State Street. You know, Eric, you or State Street as a whole kind of recently announced the appointment of a new head of investment services, which is obviously your largest business. Can we walk through what you've changed from a management perspective and how you're thinking about the revenue opportunity for that business going forward?
Sure, Jason, and thanks for asking. Investment services is our largest business, more than $40 trillion of assets under custody administration, second-largest custodian in the world, 10% of the world's assets. And it's a business that we've been growing, we've been investing in with Alpha and other propositions, and which, you know, is an important area of innovation for us.
Joerg Ambrosius, as you mentioned, was named Head of Investment Services just recently. He's a 30-year veteran of the industry, 20 years of which was with us at State Street. And he comes with just a distinguished background. He ran our EMEA region for investment services, and then just last year was elevated to Chief Commercial Officer.
And it's really been part of the refresh of the growth strategy that we actually rolled out last year at you know, at this conference. So we're excited to have him. And then you know, Mostapha Tahiri as you mentioned, our Chief Operating Officer named to that role last year. I think of Mostapha in threes. He's run custodial banks operations, he's run technology, and he's run regions. And he's run those in Asia, Europe and the U.S. now, and so really brings a set of expertise and knowledge and sophistication that are important to what we do. Because in truth, you know, operations and technology is our service, right?
That's a good part of what he'll bring is how to help not only operate those units, but help with our growth trajectory.
Got it. We're going to put up the first ARS question we ask everyone else. I'm not going to ask you guys to comment on this. So Mostapha, Eric just kind of hyped you up, so not to put you on the spot. But State Street's talked a lot about driving efficiencies and scale kind of being key parts of its strategic priorities. And maybe to start, just maybe share with us a little bit more on your background and just, more importantly, just maybe we'll hear some initial observations as you take on the COO role.
Sure, and thank you for having me. So, as Eric mentioned, I've been appointed the Chief Operating Officer for State Street in October last year. My role cover enterprise, technology, and operations across all our business units and our corporate functions. I joined State Street four years ago as a CEO for Asia Pacific region. I expanded my responsibilities to Middle East and North Africa.
I've been privileged to be at the forefront of our business development in these two very fast-growing regions. Before that, I spent two decades with BNP Paribas, both in Europe and in Asia. And again, I've been privileged in, as mentioned earlier, in getting exposure to different parts of the business. My background started in operations and the technology. I ran digital transformation, segment, product management, countries and regions.
So that give me a widespread of, I would say, exposure to our business and understanding from a global perspective and international perspective. It's exciting to be in this role, to be honest, at State Street, because when you are a COO, this is what we do. There are only a few businesses in which operation and technology are the core business, so the impact we can create with the team in both our top line and bottom line is important.
That represent the biggest part of our organization today. I took the role for January. Been traveling a lot across different regions and meeting our teams, our clients across the globe. To your point about early observations, the feedback I had so far, so very impressive culture of service within the company.
We are in service industry, so we pride ourselves to be focused on our clients, but speaking with our clients across the globe, that is what the feedback they share with us and what they think stand out with, with State Street. The second point, which is we are in business of transforming complexity into simplicity, so our clients are focusing on a lot of complex priorities, cost, growth, expansion, regulation. So our job is to be able to deliver this simplicity to them on their behalf, so again, good feedback from clients when I'm interacting with them about our progress in that space.
Obviously, they shared as well, candid feedback about where we need to improve, and the main feedback is about how can we better assemble our solution in a way that we deliver all of State Street's capability to them in a solution mindset as a trusted advisor. So that's the feedback. So that drive me to early observation where we are heading our business, and my focus is mainly around three key points.
Number one is how can we further transform our operating model to deliver efficiency and productivity end to end? That comes with resiliency, investment into, I would say, control framework, cyber. That comes as well with efficiency and cost reduction.
Number two, which is very important, is how we align our operating model with our client needs, and our client needs are expanding when we look at the segments we are addressing today or geographies, so how we can make it more seamless and more effective for our clients. And last, obviously, we are a people business, we are a service business, so the transformation of our human capital is very important.
So how we equip our teams with the right technology to operate better, faster, and more importantly, how we empower people. We are in global business, which mean ability for us to grow faster tomorrow, will be about empowering more decision-making, decentralizing some of the capability and execution. So hopefully that gives you a sense or early observation in the role.
Helpful. I guess, maybe looking ahead, if you could just talk to what are your main focus areas, just when you think about State Street's productivity objectives and just really the broader transformation of its operating model?
Yeah, let me start maybe by saying first, productivity has been central to State Street's strategy for the last several years. It's been a strong focus. We made a lot of progress. I think we shared here last year, key, I would say, pillar of this transformation, which are basically simplifying our operations, reengineering our processes and optimizing our resources.
And we have set ourselves a very ambitious targets around these three pillars, and we've been delivering quite well against these targets. Maybe to share a few examples. One, this year we reduced 20% our data centers. That bring us to 40% reduction of our data centers across the globe. We are on track to deliver the committed 5%, I would say, reduction in our legacy platforms.
That brings us, again, on a cumulative basis, to 40% reduction on our legacy platform. What's important there is there is still a runway there as we are rethinking about operating model, and we will develop this in a later stage. Third, maybe example here, as we are modernizing our technology, we have shared our ambition to move more aggressively toward the clouds.
This year we have moved our biggest proprietary platform, which delivers our data analytics and investment analytics truView into the cloud. We announced early last year, so end of last year, early this year, the integration of our two JVs in India that help us delivering $20 million cost efficiency per year. But more importantly, again, paved the way for more transformation on those in India, which is the biggest center of our operations.
We've been extremely focused about our third-party spend. We are on track to deliver 3%-4% reduction of our IT third-party spend this year. So you can see we've been quite progressing well on what we shared with you here last year. If you step back and look at the whole picture, we've been delivering consistently since 2019 $300-$400 million saving productivity, which to this year will be the fifth consecutive year in which we will spend significant investment in our business development through these savings.
So progressively, through this productivity, we are generating capacity to improve our costs. So now the question: What's next? What's gonna change? Where we are heading? And in that respect, I think a few thoughts to share with you.
One, Eric mentioned, Tech and Ops is our core business. That's what we do. That's what we sell. So being, having a superior advanced operating model, scalable, client-centric, is like the levers for us to win in the marketplace. So it's not a support function. We form the business with our operation and tech. It's very important element when we think about transformation, and transformation go beyond productivity.
It's go about rethinking our operating model and the way we work. So we are looking at two things. One is how can we further align our operating model with clients in a way that deliver solution for them, for their future needs, not only today, and delivering that in a very cost-effective and efficient manner. That's the tension we are solving for.
If you look at it, how we are doing that, so maybe giving you more texture. One, we are looking at integrated end-to-end operating model and make sure how we can create a standardized fit-for-purpose model for our clients, leveraging new technologies. As I mentioned, I will develop that. Looking as well at our client archetypes, recognizing we have different client types, they have different needs.
Our model, whatever standardized it is, should cater for this reality, being different segments have different needs, and different geographies may have different needs. How can we optimize this model in which our clients will embrace our model? What are the benefits we would expect? Three. One, we'll enable our client to do more. We'll allow them to drive more efficiency and grow faster, because they don't have to invest anymore.
They can leverage the width and depth of our solution, which are fully integrated. That's basically translating to business code. The second, our cost to serve reduction. And again, that has two elements in it. One, today, in this business, the legacy is important. So we've been building bespoke operating models and historical setup for our past, which trigger today, bringing down our efficiency.
So by having an advanced model, our clients embrace that model, we will eliminate all these bespoke processes and models. More importantly, just to give you again, numbers, Tech and Ops represent $4.5 billion of our expenses, which is 50% of our cost base.... So having an obsessive focus on this part, on transforming our operating model, will go directly in delivering more efficiency for our clients and for our shareholders. The last benefit is innovation.
We are in a fast-moving world, so having a modern operating model allow us to assemble quickly solution. Our ability to bring to market faster innovation will only go by having a clear, standardized operating model, which is fit for purpose to plug innovation, and allow us as well to work with new innovation in the marketplace, in which we can bring it to client and seamlessly integrate it seamlessly.
So that's basically how we look at the future. I hope that give you some color. We are still focusing on India, as I mentioned earlier. So we have the fact that we integrated the JV, to give you an idea why this is important, is basically allowing us to unlock transformation in there. So today we've been dependent on different third parties, now we own all of it.
The speed of transformation we prove ourself in our own operations is very quickly implemented toward this new business. But our ability now to co-locate operations and technology allow us to drive further transformation from those centers. So initially, it's been an execution center, a low-cost center. It's becoming more and more an innovation center for our growth, which is important when you look at the talent there.
We are merging more and more Tech Ops in the way we optimize, the way we run open technology together in engineering future models across this segment I just mentioned, and removing frictions in the way we operate and providing a seamless experience for our clients. And last but not least, data becoming an important element, obviously, for our clients and for us.
So we are extremely, I would say, focused on how we govern data across the organization of our clients, and as an enabler as well to run more AI across the organization. We have 10 initiatives ongoing today within our operations team, and we tend to likely grow exponentially the investment in that space. So hopefully that gives you a color. I'm sure Eric, myself, and others will come and give you more, more information as we are sizing those opportunities.
I guess, Eric, maybe one way to think about it is last year at this conference, you signed up for positive fee operating leverage, and then on the July earnings call, you kind of update to positive overall operating leverage. Given everything Mostapha just said, when you start to think about 2025 , could some of these initiatives help lead to kind of continued positive operating leverage for the company as a whole?
Jason, that's our intention. I mean, I think you've seen us both philosophically and practically be highly focused on fee operating leverage and total operating leverage, because that's the heart of our business, right? How do we grow at a healthy pace with our clients, across segments, regions, as Mostapha described, and then how do we systematically drive productivity, and you've been with us since really 2019, 2020, when we started our journey on productivity.
You know, what Mostapha has been describing here is, you know, what we've been doing over the last year, this year, and in the coming years, and it's just going to be another iteration in that manner. You know, it's hard to predict 2025 right now.
We're in the midst, as many other institutions are, budgeting and planning, but the goal for us, right, the commitment and the intention is continuing to build on the good business momentum from this year, which has been strong. As you said, we took up our guidance in the middle of the year, you know, after a good start in the first six months, and then, you know, continuing this, I guess, integrated approach, where the more productivity and savings that we can drive, the more we can invest in the business and the more we can accelerate the growth, and, you know, we can do that now across Alpha, across software, across private markets.
And it's really the interrelationship between, you know, operations and technology and that reinvestment, which is what we're focused on. But, you know, you have it right. Fee operating leverage, total operating leverage, those are our beacon, so to speak. And, you know, we see that momentum and that continuing.
Got it. Maybe quickly run through the individual businesses, starting with investment servicing. I guess in terms of new business, you know, you talked about strong pipelines, you had that fee servicing fee revenue sales goal, $350 million-$400 million this year, which is up from last year. Just maybe more context in terms of what your business winning, who your business winning it from, where it's coming.
Sure. Let me start, and then I think Mostapha, from his background, I'll add some examples. But the history here is that we've historically won $200-$250 million of sales in the investment services business. But what we have designed over time, whether it's through the Alpha value proposition, or reinvestment in custody, or investment in expansion in private markets, is to. Our ability to actually sharpen those product offerings and affect in a positive way our ability to go to market, in particular with the C-suite, because that's who's been buying the services that we offer.
You know, this past year, we delivered $300 million of sales in the investment services business. We've committed this year to be at $350-$400 million. We feel comfortable with that target for the full year. And you know, it's always a little bit lumpy, backloaded, typically in our business. But you know, the trailing four quarters were up at $330 million of sales so far. And so it's starting to show the momentum that and acceleration that we'd like.
No, I would just add, I think, as a part of this growth, when we think about, again, how we service our clients, how what we do as a service, a capability we deliver, and how we do it are important because our clients are outsourcing their business to us. So they have a look through on how we do stuff. So that comes to risk, comes to resiliency, comes to inefficiency.
So the way we operate is a differentiator, too, and allow us to win business faster. The second thing we've been as well focusing on onboarding. It's the first experience our client has with us when they enter a relationship with us, the first experience of service was onboarding. On that, improving this client experience, obviously, that's accelerating and shrinking as well, our time to basically onboard clients, which allow us to improve our installation of revenue.
Got it. We're at the halfway marker, so I'm gonna maybe pause kind of the business drivers and maybe if we could switch to more of the financials aspect and kind of come back to this kind of other business questions at the end. But Eric, I guess since we last spoke in July, kind of puts and takes in the markets and the environment, perhaps you just provide us an update in terms of kind of what you're seeing and thinking for the, you know, Q3, rest of the year, however you want to frame it.
Sure. Let me do that. And, you know, as you know, at a macro level, we've seen quite a bit of variability in the first two months of the quarter. And, you know, despite the sell-off we saw in early August, daily average equity markets have been generally constructive for the quarter to date. You know, similarly, while FX volatility increased in early August, it was relatively short-lived.
You know, interest rate expectations, though, and long-end yields have moved notably lower in a consistent way, given some of the economic data that we've seen, including last Friday's. And as a result, we've seen a weakening U.S. dollar, which for us, is generally a tailwind to revenues and a bit of a headwind to expenses.
On balance, Jason, we feel and we continue to feel good about how the full year is shaping up, though I would highlight the potential for variability given the macro and political environment we're operating in this fall.
As we previously described, we expect to deliver both fee and total operating leverage this year, excluding notable items, and our full year outlook, ex notable items, continues to be mostly in line with our expectations that we provided in mid-July, and we'll need to see how things play out, obviously, over the next few months, so thinking about the year, I'd make the following observations if you just want to keep track of performance in various areas.
First, assuming current equity market levels, we continue to expect total fee revenue growth in the 4%-5% for the full year, you know, comfortably towards the middle of that range, with fee revenue growth up both sequentially and year-on-year in Q3 and Q4, and again, assuming, you know, stable equity markets, good ongoing volatility in the FX business, some amount of specials in agency lending, you know, we've got good confidence in the top line. On NII, we continue to expect full year NII to be up slightly, which implies that the second half of the year will trend somewhat below the first half, in line with our previous expectations.
And while we see, while we still have a few weeks to go in the quarter, total average deposit levels, which are important for the underlying franchise, are currently holding up well, despite some continued and expected rotation in non-interest-bearing balances. Turning to expenses, we expect to step up from 2 Q to 3 Q, with expenses up slightly quarter- on- quarter, in part driven by higher volumes as well as a weaker dollar.
And for the full year, volume-related costs, the impact of the depreciating dollar will also impact expenses. So a little north of three percent makes sense based on what we're seeing today. And of course, we remain confident that we'll be able to deliver a healthy amount of positive fee and positive total operating leverage, excluding notable items.
So I think good overall performance and good momentum, including you know into next year, as we talked about earlier. And then just to round out on a few you know a few, I'll call them cleanup items. Our pref costs will be about $48 million in the Q3 and $54 million in Q4, reflecting the impact of the recent issuance and call. And as we stand here today, our pref dividends will then moderate down to about $46 million a quarter. Just a quick note on 3Q provisions. We could see it around the same level as we saw in the Q1, as we continue to see some quarterly lumpiness, but nothing in particular moving in any systematic way.
And then finally, we continue to expect an acceleration in buybacks in the back half of the year, and we are targeting buybacks of up to $450 million during this Q3. Of course, you know, as a meaningful, you know, caution, we still have a few weeks left in the quarter and another quarter to go for the to finish the year. We'll see how things continue to evolve. But overall, our outlook is generally consistent with what we spoke about back in July, and we feel good about driving that positive fee operating leverage and positive total operating leverage for the year, excluding notable items.
A lot in there.
Yeah.
Good thing I asked early on.
Yeah.
I think a lot in there and good underlying momentum because, you know, we started the year with a view that we wanna drive top-line growth. We wanna drive productivity so that we can keep reinvesting both for this year and next year. And, you know, we've been finding that our, both our investments and our execution have been evolving in the right direction this year as we've moved through.
If we could pull up the next ARS question. But Eric, you mentioned kind of deposits holding up well. Can you maybe talk to, you know, I would say that's probably better than expected, at least, you know, results we've seen so far. Kind of delve more into, in terms of, you know, what you're seeing, in terms of kind of that mix, and just how you're thinking about, you know, deposit pricing. Feds widely expected to cut next week. Just kind of your thoughts around that.
Yeah, I think we've been pleased with our deposit levels over the last three, four quarters. And you know, part of it is driven by the external environment, the Fed's stance on interest rates, how clients react, our pricing. But a good part of it is also how we engage with clients. You know, we've talked in the past about how we want to engage with clients around their cash, and some of that cash goes on deposits, some of it goes on into our money market funds, some of it we sweep to their own funds in some cases where they're expert, some of it goes into repo.
And so there's a kind of range, and I think what we've become increasingly sophisticated in doing is actually engaging with our clients all the way up to the C-suite to help them understand that we're there for them to support them in their cash holdings. Because, you know, every client needs to hold their cash. They need some of it for their custodial accounts, and they need some of it as a plan to invest. And so it's been healthy, I think over the last couple quarters. I think going forward, you know, as the Fed adjusts price, you know, Fed Funds rates, certainly deposit pricing, you know, will broadly move in track to that.
And I think the guidance I'd give or the perspective I'd share is, you know, just like there was a beta that moved slowly and then more steeply upwards with rising rates, we largely expect a relatively symmetric adjustment to deposit pricing as rates come down. But we just need to play that out. You know, we want to be there for our clients. We want to be there and provide a healthy service at a good price, and I think part of what's evolved here during this interest rate cycle in particular is that our kind of integrated earnings and profitability and balance of trade with clients really spans the whole relationship.
Everything from servicing fees, our FX trading, our agency lending, our software service, and our deposits, are all an integrated part of what we do and how we think about profitability. And in turn, clients, especially as we've gotten more engaged with the C-suite over the last three, four years, I think are recognizing that, which makes for a really healthy partnership, and one that that gives us good, I think, good outcomes, regardless of the level of interest rates.
If we could put up the next ARS question. Eric, you reiterated guidance of NII modestly higher for the full year, although you were talking down 5% in April and down 10% in January. So things have, I guess, outperformed your most expectations. But yet I kind of parse your guidance, it's 2H below 1H. So just maybe talk to, you know, I mean, what's the outperformance, maybe why that's not continuing, and just how you kind of think about the second half of this year as a jumping off point for next year?
So let me take that in two parts. First, the outperformance was driven from a couple different avenues. First, going into this year, right, we had faced a set of declining deposit balance quarters, and you know, the trend line was important to consider. I think some of what changed was the Fed stance on the reverse repo operation that they operated.
They started with several trillion dollars of a reverse repo, which generally actually serves our clients, the asset managers, and actually started to thin that down by $0.5 trillion to almost $1 trillion per quarter, which effectively was an offset to their quantitative tightening as they adjusted their balance sheet.
And so that was a healthy tailwind, and I would describe that in the environmental kind of side of the ledger. On the client connectivity side of the ledger, we've been quite effective, and I think we've been pleased on just the engagement with clients that I just described, and that's been meaningful, and that helps clients see us as a destination point for their cash.
And so to be honest, I think we've overperformed relative to our expectations, partly against the trend line, partly against the Fed's changing stance on some of their programs, and partly because of execution. Going forward, you know, the shape or the direction of NII is really driven by two or three factors that will linger.
One is, we continue to have the last bit of what I'll describe as deposit rotation from interest-bearing to non-interest bearing, and a little bit of final changes in deposit pricing, and those are continuing to play through the book. We've got good visibility into those, which is why we've been able to forecast NII on a quarterly basis with better accuracy.
On the other side of the ledger, we've got two tailwinds. First, the investment portfolio rolls over, so there's a natural re-couponing at higher rates. Now, those higher rates are starting to trend down, but they're still higher than the portfolio that was built two, three, four years ago, and so that continues as a tailwind.
And then the part that we do control is the amount of lending and our investment portfolio positioning, because what we've continued to find, just like we're there for clients from a deposit side and their cash, we're there for clients to lend to them, right? We lend to private markets clients for capital call financing. We do BDC lending, we do CLOs.
We actually support our clients, which then reinforces, right, their interest in doing even more administrative services business. And so those kind of opposing factors, the re-couponing the portfolio and lending, are, I think, over the next couple quarters, gonna begin to offset, more than offset the deposit rotation that we've been seeing slow down, but and that we're almost through at this point.
The room seems to think you'll have continued NII growth into 2025.
I like the optimism and we'll, you know, I think my stance at this point, a bit as you talked about, expectations for 2025, is it's a little early to be sure, right? And in truth, NII will flow right to the bottom line for our shareholders, will be an important part of how we continue to buy back shares and return capital.
I think we'd first like to get through and finish Q3, get through Q4, and then we'll have a good view. But, you know, clearly, the range of outcomes on NII are gonna be a lot better than down 10, down five that we expected this year. And so we'll see where it shakes out.
Then maybe a couple of fee income questions, but the only thing to get is, you know, servicing fees decline year-over-year in the Q2, despite assets under custody up 12%. At what point do you think you can see AUC growth kind of translate into organic servicing fee growth?
Jason, through the second half of this year and starting with this quarter, the Q3, and then into the Q4, that we expect that to turn. You know, part of the challenge we had in the Q2 is we had one of the largest headwind from our previously described client, ex- or client adjustment and exit came through in the first half of the year, including the Q2.
And then we also still had some lingering impacts of clients holding more cash in their accounts, as opposed to equities, emerging market equities, those that have the widest pricing levels. And so those two headwinds, in particular, along with a bit slower installation, which is really on us, contributed to the year-on-year decline in servicing fees.
I think into the Q3, we see good momentum, which is what's shaped our full year outlook. Honestly, the partnership that Mostapha has with Joerg Ambrosius taking on the investment services business is really sharpening our focus on that onboarding. And as we accelerate that, we can see fee revenue growth, servicing revenue growth, up both year-on-year and quarter-on-quarter for a couple into the next couple quarters, which feels like a good momentum to us.
I think it's maybe on the asset management fee front, obviously, beneficiaries of the higher market average levels. But we've seen, you know, net outflows and fee reductions in ETFs. Just maybe some context in terms of what you expect for that line.
Yeah. You know, our asset management business is really three businesses in one. First, it's an institutional business, really institutional index, global, largest clients in the world, customized index, everything from asset owners to asset managers to insurers. It's number two, an ETF business, right? More than $1 trillion of ETF, both oriented towards institutions and now to retail with our low-cost funds.
And then finally, a cash money market business that really connects with the custodial operations. The last couple of quarters, you're right, have seen some lumpiness, and in particular, in the institutional area, we've seen, you know, a handful of clients either rebalancing or adjusting their positions.
Given our large index equity position, are developing positions in other areas, a little more outflows than we would have expected, but we've also seen strong growth. I'd point to the European institutional business has been strong. Target date funds and 401(k) plans in the US were close to or the fastest growth company in that area as a supplier of those offerings. And then our fixed income index business and institutions is becoming increasingly strong. I think there's a level of innovation that we've begun to build into that offering that's gonna be productive over time.
So you know, clearly, institutional asset management businesses will have some lumpiness, but I think we've seen some good strength in some related areas and have some optimism around the momentum into the second half of the year.
Got it. Maybe put up the next ARS question. Just to circle back on expenses, you mentioned up a little north of 3% for the full year, with your prior guide. Is that all kind of currency related?
It's primarily currency related, and then what we have seen is, you know, I talked about FX volatility, but we've also seen higher FX volumes Q1, Q2, and Q3, which is actually really a positive for us because it means our engagement with clients is deeper.
It's been around the world, a broad cross-section of clients, and you know, we'll serve clients like that all day long. If the volatility is a little lighter but the volumes are there, we want to be there for them because we know over time that'll be monetized, but that also comes with some brokerage costs and so forth with which goes through the expense line.
I guess more longer term, you know, you used to talk to this pre-tax margin target of 30%. You're approaching, I think, 29% last quarter. You know, is 30% still the right target? Is there some upside to that given what Mostapha talked about? Just, you know, how you're thinking about that, you know, given all you know today.
We do still think it's the right target. I mean, it's you saw us from you know, 2019, 2020, 2021, 2022, build up at a point of margin per year in this area. We took a step down with NII, in particular, falling and a little bit of reset in equity markets. I think if you think through our full year guidance for this year, we'll be up in margin, you know, probably by around the point relative to last year.
So we're back on that positive trajectory, and we see with growth momentum and the you know, productivity, and I'll describe the new opportunities that Mostapha is bringing to us between ops and tech, the integration, the simplification for our clients.
That's gonna be a viable way to deliver on these targets. At the same time, you know, we want healthy margins, but we want also margins that facilitate an ability for us not only to drive productivity, but also to reinvest in the business. And so the net of that is, in our minds, around 30% and a target that we're gonna continue to work towards, and we think we can deliver on over time.
In our final minute, I guess, rounding out the discussion on capital, you bought back $200 million of stock in the whole first half of the year. It sounds like $450 million, you know, in the Q3. I do math quickly, another $450 million in the Q4, probably gets you the upper end of 80%-90% kind of payout ratio target. You know, is that how we should think about it? And then, you know, how you're kind of thinking about 2025 when you put together the budget.
Yeah, we certainly, Jason, as you said, we committed to accelerating our buybacks in the Q3, right? It was $100 million in the Q1, $200 million in the Q2. I think going into the Q3, we were probably closer to planning on about $300 million. Part of the uptick to $450 million really is that as interest rates have fallen, you get an AOCI benefit that adds to capital, and so that gives you more room to do buyback, so Q3, we think is particularly strong.
Q4, let's just see what, you know, where interest rates go, but you can see our commitment is to return substantial amounts of capital to shareholders, 80%-90% on a full year basis.
And then what we've said in the past, you know, along the lines of 30% margin, 80% or more capital return, it's kind of how we want to run the business to really provide the best outcomes for our shareholders.
Great! Please join me in thanking Eric and Mostapha for their time today.