Good morning, and welcome to State Street Corporation's Q4 and full year 2022 earnings conference call and webcast. Today's discussion is being broadcasted live on State Street's website at investors.statestreet.com. This conference call is also being recorded for replay. State Street's conference call is copyrighted and all rights are reserved. This call may not be recorded for rebroadcast or distribution in whole or in part without the express written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now, I would like to introduce Ilene Fiszel Bieler, Global Head of Investor Relations at State Street.
Good morning, and thank you all for joining us. On our call today, our CEO, Ron O'Hanley, will speak first. Eric Aboaf, our CFO, will take you through our Q4 and full year 2022 earnings slide presentation, which is available for download in the Investor Relations section of our website, investors.statestreet.com. Afterwards, we'll be happy to take questions. During the Q&A, please limit yourself to two questions and then re-queue. Before we get started, I would like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our slide presentation, also available in the IR section of our website. In addition, today's presentation will contain forward-looking statements.
Actual results may differ materially from those statements due to a variety of important factors, such as those factors referenced in our discussion today and in our SEC filings, including the risk factors in our Form 10-K. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them, even if our views change. Now, let me turn it over to Ron.
Thank you, Ilene, good morning, everyone. 2022 was an unpredictable year for many of the world's investors and the people they serve. Despite a market rebound in the Q4 , 2022 was the worst year for financial markets since the global financial crisis. Both fixed income and equity markets fell, impacted by the war in Ukraine and several macroeconomic headwinds, including broken supply chains, price and wage inflation, dramatically higher global interest rates, US dollar strength, and heightened fears of global economic recession, which remain today. The uncertainty created by these factors contributed to a meaningful year-over-year declines in global financial markets, as well as increased market volatility impacting flows. Despite these difficult macro conditions, State Street performed well. As a result, we continued to progress in 2022 towards achieving our medium-term targets.
Our durable Q4 and full year 2022 results were driven by a strategy underpinned by our relentless focus on innovation, the power of our distinct value proposition, and State Street's diversified products and services, all of which continue to resonate with clients, as demonstrated by yet another year of strong organic net new servicing wins. We continued to execute against our strategic agenda, we achieved a great deal in 2022. Slide three of our investor presentation shows our full year highlights and the progress we made towards achieving our strategic goals in 2022. In a challenging operating environment and compared to what was a very strong year for our business in 2021, we again delivered positive total operating leverage, pre-tax margin expansion, and a higher return on equity, as you can see on the left of the slide.
We drove continued business momentum, including $1.9 trillion of total new asset servicing wins, delivered total revenue growth, and demonstrated ongoing expense discipline in the face of inflationary pressures, and our continued investment in the resiliency and capabilities of our businesses, as you can see on the right and bottom of the slide. While weaker average market levels created fee revenue headwinds for our investment servicing and asset management businesses in 2022, our balance sheet businesses, combined with higher interest rates and our deposit strategy, produced materially higher net interest income as compared to 2021. In addition, our foreign exchange trading services and front office software and data businesses produced double-digit year-over-year fee growth, manifesting the desired results of our investments in these businesses and demonstrating the revenue diversification of our business model.
Turning to slide four of our presentation, I will review our Q4 highlights. Business momentum was solid in the Q4 with new AUC/A asset servicing wins amounting to $434 billion, driven by broad-based wins across client segments. We reported two new Alpha mandates in the quarter and expanded 12 existing Alpha relationships, seven of which added additional back and middle office offerings. Helped by this sales performance, our AUC/A installation backlog was $3.6 trillion at quarter end. At Global Advisors, quarter end assets under management totaled $3.5 trillion, supported by another good quarter of ETF inflows. Turning to our Q4 financial performance, Q4 2022 EPS was $1.91 or $2.07, excluding notable items, up 7% year-over-year or 4% higher year-over-year, excluding notable items.
The year-over-year EPS growth in a challenging market environment was supported by the resumption of common share repurchases in the Q4 as we focused on returning capital to our shareholders. In a year marked by economic and political disruptions, total revenue for the Q4 was the highest on record, increasing 3% year-over-year as lower total fee revenue was offset by very strong NII result, which increased 63% relative to the year-ago period, primarily driven by higher global interest rates, plus our balance sheet positioning and effective execution of our deposit management strategy. We meaningfully invested in our people and business, we remained focused on expense discipline in the Q4 , with total expenses down 3% year-over-year or flat year-over-year, excluding notable items, in part supported by the stronger US dollar.
This was achieved by our relentless and ongoing focus on operational productivity, simplification, and automation. Turning to our balance sheet and capital, our CET1 capital ratio increased to a strong 13.6% at year-end. Recognizing the importance of capital return to our shareholders and having already announced a 10% per share increase to our common stock dividend earlier in 2022, we resumed share repurchases in the Q4 , buying back a total of $1.5 billion of State Street's common stock. For 2023, it is our intention to return up to 200% of earnings in the form of common stock dividends and share repurchases, subject to market conditions and other factors. We expect our business mix, balance sheet strategy, and earnings momentum will enable us to do so while maintaining prudent capital ratios within our target range.
Accordingly, as we announced this morning, our board of directors has authorized a new common stock purchase program of up to $4.5 billion through the end of 2023. To conclude my opening remarks, I am pleased to be reporting the third year in a row of pre-tax margin expansion and higher return on equity, which demonstrates the successful progress we have made towards achieving our financial goals. Now let me hand the call over to Eric, who will take you through the quarter in more detail before I discuss our strategic priorities for 2023.
Thank you, Ron, good morning, everyone. Before I begin my review of our Q4 and full year 2022 results, let me briefly discuss some of the notable items we recognized in the quarter outlined on slide five. First, we recognized acquisition and restructuring costs, including wind-down expenses related to the Brown Brothers Investor Services acquisition transaction, which we are no longer pursuing. Second, we recognized $70 million of repositioning costs consisting of an employee severance charge of $50 million to eliminate approximately 200 middle and senior manager positions, largely related to our investment services business as we continue to streamline our organizational structure. We also recognized $20 million of occupancy charge in the quarter to help us further shrink our occupancy costs. We expect these actions to generate a total run rate savings of roughly $100 million.
We recognized the benefit of $23 million in the quarter related to the settlement proceeds from a 2018 FX benchmark litigation resolution, which is reflected in the FX trading services GAAP revenue line. Taken together, we recognized notable items of $78 million pre-tax or $0.16 a share. Turning to Slide six, I'll begin my review of both our Q4 2022 and full year 2022 results. You can see on the top left of the table, despite the dynamic and challenging operating environment, the diversity and durability of our business model allowed us to finish the Q4 with solid results.
Total revenue for the quarter increased 3% year-over-year or 5% year-over-year excluding notable items, as lower fee revenue was more than offset by robust NII growth of 63%, which I'll spend more time discussing later in today's presentation. We also continued to demonstrate prudent expense management, which enabled us to deliver positive operating leverage in the quarter. Pre-tax margin is up more than four percentage points year-on-year, while ROE is up more than a percentage point this quarter as well. On the right side of the slide, we show our full year 2022 performance. Notwithstanding the challenging operating environment we saw in 2022 for the year, I'm quite pleased that we again delivered positive operating leverage and nearly a percentage point improvement in pre-tax margin. As Ron mentioned, it has been three consecutive years of margin expansion and ROE improvement. Turning to slide seven.
During the quarter, we saw period end AUC/A decrease by 16% on a year-on-year basis, but increased 3% sequentially. Year-on-year, the decrease in AUC/A was largely driven by continued lower period end market levels across both equity and fixed income markets globally, a previously disclosed client transition, and the negative impact of currency translation, partially offset by net new business installations. Quarter-on-quarter, AUC/A increased as a result of higher quarter end equity market levels and the positive impact of currency translation. At Global Advisors, we saw similar dynamics play out. Period end, AUM decreased 16% year-on-year and increased 7% sequentially. The year-on-year decline in AUM was largely driven by lower period end market levels, some institutional net outflows, and the negative impact of currency translation, which was partially offset by $22 billion of net inflows in our SPDR ETF business.
Quarter-on-quarter, the increase in AUM was primarily due to higher quarter end market levels, ETF net inflows, and the positive impact of currency translation, partially offset by cash net outflows. Turning to slide eight. On the left side of the page, you'll see Q4 total servicing fees down 13% year-on-year, largely driven by lower average market levels, lower client activity adjustments and flows, normal pricing headwinds, and the negative impact of currency translation, partially offset by net new business. Excluding the impact of the currency translation, servicing fees were down 10% year-on-year. Sequentially, total servicing fees were down 1%, primarily a result of the client activity adjustments and flows. On the bottom panel of this page, we've included some sales performance indicators which highlight the good business momentum we again saw in the quarter.
As you can see, AUC/A wins in the Q4 totaled a solid $434 billion, driven by strong broad-based traditional wins across client segments and regions, including expanding relationships with existing Alpha clients. At quarter end, AUC/A won, but yet to be installed, totaled $3.6 trillion, with Alpha representing a healthy portion which again reflects the unique value proposition of our strategy. Turning to slide nine. Q4 management fees were $457 million, down 14% year-on-year, primarily reflecting lower average market levels and the negative impact of currency translation, which represented about two percentage point headwind. Quarter-on-quarter, management fees were down 3%, largely due to equity and fixed income market headwinds.
As you can see on the bottom right of the slide, notwithstanding the difficult and uncertain macroeconomic backdrop in the year, our franchise remains well positioned, as evidenced by our continued strong business momentum. In ETFs, we saw solid full-year net inflows in the U.S., with continued momentum and market share gains in the SPDR low-cost equity and fixed income segments. In our institutional business, there's a continued momentum in defined contribution with $48 billion of inflows in the full year, including target date franchise net inflows of $21 billion, offset by industry-wide outflows in institutional index products. In our cash franchise, we still gained 60 basis points of market share in money market funds in 2022, even though H1 inflows reversed in Q4 .
On slide 10, you see the strength of our diverse revenue growth engines with both FX trading services and software and processing up double-digit teens year-on-year in a difficult year. Relative to the period a year ago, Q4 FX trading services revenue ex notables was up 15%, primarily reflecting higher FX spreads, partially offset by lower FX volumes. Our global FX franchise was able to effectively monetize the less liquid market environment, which was driven by sharp moves in the US dollar. Sequentially, FX trading services revenue ex notables was up 8%, mainly due to higher direct and indirect revenue. Securities finance performance in the Q4 was more muted, with revenues up 1% year-on-year. Sequentially, revenues were down 6%, mainly reflecting downward pressure on spreads due to lower specials activity and year-end risk-off activity by clients.
Q4 software and processing fees were up 16% year-on-year and 17% sequentially, primarily driven by higher front office software and data revenues associated with CRD, which were up 28% year-on-year and 25% sequentially. Lending fees for the quarter were down 10% year-on-year, primarily due to changes in product mix and flat quarter-on-quarter. Finally, other fee revenue of $18 million in the Q4 was flattish year-on-year and up $23 million quarter-on-quarter, largely due to the absence of negative market-related adjustments. Moving to slide 11. On the left panel, you'll see Q4 front office software and data revenue increased 28% year-on-year, primarily driven by multiple on-premise renewals and continued growth in software-enabled revenue associated with new client implementations and client conversions to our cloud-based SaaS platform environment.
Turning to some of the front office and Alpha business metrics on the right panel, the $21 million of new bookings in the quarter was once again well diversified across client segments, including asset owners, wealth, and private markets, as well as across asset classes, particularly in fixed income. Front office revenue backlog and pipeline remains healthy, giving us confidence in the future growth of this business. As for Alpha, we are pleased to report two new Alpha mandate wins this quarter in the insurance and asset owner client segments. Turning to slide 12. Q4 NII increased 63% year-on-year and 20% sequentially to $791 million. The year-on-year increase was largely due to higher short and long-term market interest rates and proactive balance sheet positioning, partially offset by lower deposits.
We have a well-constructed balance sheet, including both U.S. and foreign client deposits, a scale-sponsored repo franchise, and high-quality loan and investment portfolio that was consciously configured to benefit from rising global rates. Sequentially, the increase in NII performance was primarily driven by higher global market rates working through our balance sheet. On the right of the slide, we show our average balance sheet during the Q4 . Year-on-year, average assets declined 6% and increased 3% sequentially, primarily due to deposit levels as well as currency translation impacts. The U.S. client deposit beta, excluding some new deposit initiatives, was about 65% to 70% during the Q4 . Foreign deposit betas for the quarter were much lower, in the 20% to 50% range depending on currency. Our international footprint continues to be an advantage. Total average deposits were up sequentially.
We saw a sequential quarter reduction in non-interest bearing deposits of 5%, which was more than offset by higher NII accretive interest-bearing deposits that will help support high-quality client loan growth and selective expansion of the investment portfolio. Turning to slide 13. Q4 expenses, excluding notable items, were once again proactively managed in light of the tough fee revenue environment and flat year-on-year, or up approximately 3% adjusted for currency translation. We have been carefully executing on our continued productivity and optimization savings efforts, which generated approximately $90 million in year-on-year growth savings for the quarter, or approximately $320 million for 2022, achieving near the top end of our full-year expense optimization guidance of 3% to 4%.
These savings enabled us to drive positive operating leverage and pre-tax margin expansion, which while partially offsetting continued wage inflation headwinds and continued investments in strategic parts of the company, including Alpha, private markets, technology, and operations automation. On a line by line basis compared to Q4 2021, compensation employee benefits were down 1% as the impact of currency translation and lower incentive compensation was partially offset by higher salary increases associated with nearly 6% wage inflation and higher headcount. Headcount increased 9% primarily in our global hubs as we added operations personnel to support growth areas such as Alpha and private markets, invested in technology talent, and insourced certain functions. There was also a portion of the headcount increase associated with some hiring catch-up post-COVID. We expect headcount to increase more modestly in 2023.
Information systems and communications expenses were down 5% due to benefits from our insourcing efforts and continued vendor pricing optimization, partially offset by technology and infrastructure investments. Transaction processing was up 1%, mainly reflecting higher broker fees and market data costs, partially offset by lower subcustody costs related to lower equity market levels. Occupancy was down 17%, largely due to an episodic lease-back real estate transaction associated with the sale of our data centers, which was worth approximately $12 million. Other expenses were up 12%, primarily reflecting higher professional fees and travel costs. Moving to slide 14. On the left side of the slide, we show the evolution of our CET1 and Tier 1 leverage ratios, followed by our capital trends on the right of the slide.
As you can see, we continue to navigate the operating environment with strong capital levels relative to our requirements. At quarter end, standardized CET1 ratio of 13.6% increased 40 basis points quarter-on-quarter, primarily driven by episodically lower RWA, partially offset by the resumption of share repurchases in the quarter. With respect to RWAs, it's worth noting that we saw unusually low RWAs this quarter, worth about $10 billion, largely driven by our markets businesses and some specific currency factors. We would anticipate a similar amount of normalization of RWA in the $10 billion to $15 billion range going into Q1 . Our Tier 1 leverage ratio of 6% at quarter end was down 40 basis points quarter-on-quarter, mainly due to the resumption of share repurchases in Q4 .
We were quite pleased to return $1.7 billion to shareholders in the quarter, consisting of $1.5 billion of common share repurchases and $220 million in common stock dividends. Lastly, as Ron mentioned earlier, we announced this morning that our board of directors has authorized a new common stock repurchase program of up to $4.5 billion through the end of 2023. As I said in December, we expect to execute this buyback at pace and get back to our target ranges for both the CET1 and Tier 1 leverage, market conditions, and other factors dependent. Turning to slide 15. Let me cover our full year 2023 outlook, as well as provide some thoughts on the Q1 , both of which have significant potential for variability given the macro environment we're operating in.
In terms of our current macro expectations, as we stand here today, we expect some point-to-point growth in global equity markets in 2023, which equates to global equity markets being down about two percentage points year-on-year on a full year average basis. Our rate outlook for 2023 largely aligns with the forward curve, which I would note is moving continuously. However, we currently expect to reach peak rates of 5% for Fed Funds, three and a quarter at the ECB, and four and a half at the Bank of England. As for currency translation, we expect the US dollar to be modestly stronger than the major currencies on average, but less than what we saw last year. As such, currency translation is likely to have a half point or less impact on both revenues and expenses.
In light of the macro factors I just laid out, we currently expect that full year total fee revenue will be flat to up 1% ex notable items, with servicing fees likely flattish and management fees down a bit, largely due to a modest reclassification of revenue out of fees into NII. Regarding the Q1 of 2023, we currently expect fee revenue to be down 1% to 2% ex notable items on a sequential quarter basis, given some normalization of foreign exchange market volatility that impacts our trading business, with servicing fees expected to be up 1% to 2% and management fees expected to be down 1% to 2%. We expect full year 2023 NII to be up about 20% on a year-over-year basis after a very strong 2022.
This is dependent, of course, on the outcome of rate hikes and deposit mix and levels. After a significant step-up in Q4 2022 NII, we expect Q1 2023 to be flattish. After the Q1 of 2023, we expect to see a slight 1% to 2% of sequentially quarterly attenuation of NII throughout the remainder of 2023. With a stabilization expected in 2024. Turning to expenses. As you can see in the walk, we expect expenses ex-notables will be up 3.5% to 4% on a nominal basis in 2023, driven partially by wage and inflationary pressures and continued investment in the business and our people while still driving positive operating leverage.
You can also see on the walk that for full year 2023, we expect gross saves of approximately 3%, which will help offset inflationary pressures and variable costs and ongoing investments in areas like private markets and Alpha and further automation. Regarding the Q1 of 2023, on a year-over-year basis, we expect expenses, ex notable items, to be up about 2%. Finally, taxes should be in the 19% to 20% range for 2023. This outlook would deliver a fourth consecutive year of margin expansion and advances us towards our medium-term target goal of 30%, as well as deliver positive operating leverage and strong EPS growth for our shareholders. With that, let me hand the call back to Ron.
Thanks, Eric. As we enter 2023, we see an uncertain environment. On the positive side, many supply chains have been repaired. The outlook for energy supply is better than anticipated, particularly in Europe. Developed world inflation may have peaked. We foresee continued rising interest rates in the short term, but at a slower pace. The most significant known risks are geopolitical, including the Russia-Ukraine war, China from an economic performance and policy perspective, and the United States as it approaches its debt ceiling. Turning to slide 17, even with another year of economic and geopolitical uncertainty ahead of us, we continue to be very clear in our strategic priorities for 2023, focusing on what we can control. We plan to deliver further growth, drive innovation, and continue to enhance shareholder value as we further progress State Street towards its medium-term targets.
First, we are targeting further improvements in our business growth and profitability by leveraging State Street's Alpha value proposition and enhancing its private markets capabilities as we aim to become the leading investment servicer platform and enterprise outsource solutions provider in the industry. We intend to maintain and extend our leadership positions in a number of key businesses. In Global Markets, we aim to expand wallet share as a leading provider of liquidity, financing, and research solutions to investment professionals. At Global Advisors, we aim to build on our strength in areas such as ETFs and cash while organically accelerating growth efforts in fast-growing segments where we can win. Second, as we have over the past several years, we must continue to transform the way we work by driving increased productivity and efficiency throughout our organization as we build out a simplified, scalable, configurable end-to-end operating model.
As we lead with client service excellence, productivity will become a core differentiator of our value proposition. Third, we must continue to build a higher performing organization. We are strengthening execution skills and increasing accountability, thereby fostering an even more results-oriented culture required for future growth. Our fourth priority is supported by, and the intended outcome of, the first three priorities, and is aimed at achieving our financial goals, meaning another year of positive operating leverage, margin expansion, and higher returns. To conclude, supported by our distinctive value proposition and diversified offerings, as well as our ability to manage State Street through challenging environments, I believe we will be able to execute on each of these strategic priorities in 2023 as we advance towards achieving our financial goals, all while being an essential partner to the world's investors and the people they serve.
With that operator, we can now open the call for questions.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. If you would like to withdraw your request, please press star followed by two. One moment please for your first question. Your first question comes from the line of Glenn Schorr from Evercore. Please go ahead.
Hi. Thank you very much. I like the NII outlook. I wanna ask a little question on that. You've been a big beneficiary of higher rates. I'm curious on the deposit side, down almost 10% year-on-year in the quarter, but actually up a drop sequentially. I wanted to think about or could you tell us what you're thinking about for that you have stable outlook for 2023 for deposits? We've seen a lot of fear in the banks in deposit runoff and betas and attrition. Curious what gives you that confidence for the flat deposits for the year. Thanks.
Glenn, it's Eric. You know, we've navigated through interest rate cycles before, right? We have a fair amount of internal data. We also have, I think, an engagement with our clients that really understands the multiple avenues for them of putting their cash. Clients broadly with us have, you know, $1 trillion of cash. Some of that's in deposits, some of that's in our sponsored repo program, some of that's in our State Street Global Advisors', you know, money market complex, some of it's in our sweep products in our State Street Global Link franchise. What we're seeing is that clients are, you know, shifting gently their deposits between different categories, but they also need an outlet for that cash.
They need an outlet for that cash at a reasonable price, at a reasonable ability to move it and use it as necessary. You know, with that as context, I think we continue to see, you know, some expected rotation out of non-interest-bearing into interest-bearing. That's been happening, I think at a reasonable pace and kind of in line, you know, more or less with, you know, what we've seen before. We expect that to continue, you know, for the next few quarters. At the same time, you know, clients do have, you know, cash, especially given the risk-off environment, but in general, they all sit on cash as part of their investment planning.
You know, we've found that they're engaged with us to leave cash on our balance sheet. They like the flexibility. They like some of the pricing. Obviously, you know, some cash comes in at non-interest-bearing, some at lower rates when it's very transactional, some at rates that are closer to market levels. So it's been an ongoing engagement with them. The, you know, the visibility we have is reasonably good. It can always change, but, you know, deposits as a result, seem to be in the zone now, you know, after a couple quarters in the H1 of the year of coming down a bit, seem to be flattening out.
I won't say that we won't see a little bit of seasonality occasionally. You know, in January into February, we see a downtick, and then March as folks prepare for tax payments is up, and then April's down. We'll see, you know, some of that kind of movement. On average, we expect deposits to be flattish, you know, from you know, going forward into next year and through the bulk of the year.
I appreciate that color. That's good. you know, you mentioned repo, so maybe I'll just have my follow-up question. In the slides, I noticed you created this Venturi platform for peer-to-peer repo. I would love, you know, a minute tutorial on what it's for, who's it for, and how you get paid for that. Thanks.
Sure. You know, this is part of the, you know, I think innovation heritage that we have, you know, here at State Street, you know, across the franchise, but inclusive of the global markets area. Our sponsored repo program, which is now, you know, $100 billion in size, you know, was started in 2005, I think, if I go back to the history books, and is now a, you know, $100 billion franchise, right? As an example. We, you know, we do this in FX, we do this in SEC lending.
Venturi is a repo offering that instead of working through our balance sheet or one of the clearing corporations, which is how we do repo today, actually directly connects lenders and borrowers of securities and cash. It's just another platform, so to speak, another venue that clients seem to wanna engage with. A big part of it early on is working with the asset owners, those who have long books, securities, and cash. What we find is, you know, sometimes when they may wanna, you know, make margin calls, or have margin calls, they wanna raise cash without selling securities, right? Natural question of, well, where do I repo?
Do I repo through a bank structure, or do I repo with someone who's on the other side of that trade, right, who actually wants to lend against securities? We find that there are counterparties on the other side of that trade who would be interested in doing that. What Venturi does is it actually connects borrowers and lenders with direct access to one another. They have both the underlying collateral as the stabilizing force, and then they have the counterparty rating. You know, with different counterparties, you get slightly different pricing, and sometimes that flow-through is actually positive and quite appealing both to the lenders and borrowers. That's a little bit of it in a nutshell.
You know, we're like to grow it to, you know, some amount, you know, during the course of the year. Early returns are positive. I'll put it in the bucket of innovation and how to connect folks in the capital markets, but connect folks who are our core clients and provide additional services for them.
That's a great tutorial. Thanks.
Thank you. Your next question comes from the line of Betsy Graseck from Morgan Stanley. Please go ahead.
Hi, good morning.
Hi, Betsy.
Okay, one follow-up question on NII, and then a question on expenses. Just the follow-up question on NII, Eric, I just wanted to make sure I understood the cadence, the pace that you are suggesting NII should follow. I know you used the word attenuate, but we had a debate over here as to which way attenuate was going to traject. Sorry to ask the ticky-tacky, but appreciate it.
That's all right, Betsy. We want to be transparent and sometimes language always matters, as you say. Our perspective is we've got a very nice step-off point from Q4 NII. We said we'd be roughly flattish into the Q1 . Then we expect it to trend downwards, so attenuate downwards, let's say 1% to 2% for the next few quarters. Just as you see, you know, you see a tailwind of interest rates creating a positive. You see that continued rotation out of net interest bearing deposits being a headwind, and the net of that is down NII, we think 1% to 2%, you know, for a couple quarters.
Towards the end of the year and into 2024, we see rough stabilization, partly because we've kind of burned out on the non-interest-bearing rotation, and then we get to a more stabilized area. All in, you know, we expect full year NII to be up about 20% year-over-year. Yeah, we'll take it from there.
Got it. Yeah, no, that's helpful. Then on the expense side, I know you mentioned that the benefit of the actions you've taken, am I right, $100 million run rate? I just wanted to understand when that comes into the, you know, 2023. Is that immediate in Q1, or is that something that comes in over time? Just that'd be helpful. Thanks.
Roughly about half of that comes in in 2023. you know, the payback on most of these actions is about five quarters. roughly half comes in on a fiscal 2023 basis. you know, we'll hit the run rate, you know, I think within, you know, quarters, whatever, six-ish or something after these actions. Most of these actions are in the next few, well, let's call it the next, you know, quarter. the run rate builds to $100 million. good payback. you know, the kind of actions we want to keep taking in this kind of environment.
Yeah. Your point, that was my final follow-up, which was, do you feel this is the extent or if for whatever reason, you know, top line disappoints based on, you know, macro not working out or what have you, is there more that you would consider doing going forward?
Betsy, it's Ron. Maybe I'll take that. I mean, we've obviously got a pattern of investments that we're intending to execute. We've also got an ongoing program in place that we've really had running now since 2019. We certainly, if the environment were to change materially, we would think about those investments. We'd also think about being more aggressive. I mean, it. We have more or less, in the background, continued to take a lot of gross expense out of the system every year. We see an ongoing ability to do that, but we also want to keep investing in the business. There is a balance there. To the extent to which, things started to go south in an unanticipated way, I mean, we do have levers.
Thank you.
Thank you. Your next question comes from the line of Ken Usdin from Jefferies. Please go ahead.
Thanks. Good morning. Hey, I was wondering if we, you know, if you had any kind of just, well, post-game thoughts post the BBH decision. Within that, just, you know, you acknowledged and put forth this four and a half billion capital plan. Just, you know, how will we think about just your commitment to that now as opposed to whatever thoughts you might have about acquisitions going forward? Thank you.
Ken, I mean, as we've always said, we've got a very clear strategy. M&A is not a strategy. M&A is a way to help execute a strategy, to move it faster, to enable it to get further than what's anticipated, it's not a strategy by itself. We are very comfortable with our organic strategy. BBH was a scale-enhancing acquisition that we would have liked to have done, it doesn't materially change. In fact, it doesn't change at all our strategy. At this point where we sit, we have a strategy that we like. We have a strategy that we're executing. Yes, there's some big milestones that we're confident we're going to be delivering on in 2023.
Therefore, we are committed to that share buyback.
Okay, great. Then, on servicing fees, can you help us understand in your flat to plus one, what's the impact of the BlackRock ETF deconversion? Where, you know, where are we in that, in that process? You know, how much, if any, has already been recognized of that expected revenue attrition, at this point? Thank you.
Yeah. I think maybe just to answer that in the various components. I think you saw the BlackRock transition begin at the end of last year. It was $10 million in the quarter, sort of called a $40 million run rate. That continues to transition out in 2023 and in 2024. There's obviously just a natural schedule that you would expect that we've worked closely with them on. It'll-impact our servicing fees during 2023, during 2024, and into 2025, just when you think about the year-on-year comparison basis. I think if you wanna model it out, broadly, we've said in our last regulatory filing, we said it was worth about two percentage of fees.
As of December 31 point that we just crossed, it's now about 1.7% of fees. I'll let you sort of build it from there. It's included in our forecast. It'll continue to be included in our forecast. We think about net new business, right? We've got to sell. We always have a bit of attrition, and we'll continue to be net ahead. As you've seen us in the last couple years, we've been net positive with net organic growth broadly. With BlackRock specifically, they continue to be a very important client of ours.
We have continued and kept a good amount of business that we do with them. We're strong providers for them in alternatives, which is growing quickly. We've also been awarded new business over the last year. You know, that'll just, I think it'll just be part of the outlook that I give you as we go forward.
Okay, great. Thanks, Eric.
Thank you. Your next question comes from the line of Alex Blostein from Goldman Sachs. Please go ahead.
Hey, good morning. Thanks for the question. You know, I guess if you take your run rate servicing fees as of the end of the year, it still implies a pretty wide gap versus where you guys expect to end for 2023. Maybe just provide a little bit more granularity where the ramp is gonna come from. You know, I know equity market is one thing, and you guys are assuming, I think, 10-ish% growth in global equity. That certainly helps. Off of the kind of $4.8-ish billion run rate that you're exiting to get to, I don't know, $5.1, that's a 6% growth. That feels wider than we've seen in the past.
I'm just curious whether it's new business or something else that you see on the horizon that'll help you bridge that gap?
Yeah, Alex, if you know, I think I tend to spend a little more time on the full year to full year kind of servicing fees. Sounds like you're modeling the, you know, the last four quarters and then the next four quarters, which obviously model as well, and we have in our budget. It's really a combination of factors, right? There's If you start with Q4 of 2022 and then work forward, you know, we expect some appreciation in equity markets. We'll see if that plays out, and we'll obviously stay in touch with you all. We think that'll be a tailwind. We think client flows and activity in particular should not be a headwind like it was in 2022.
Maybe neutral, maybe a positive, just as, you know, clients have adapted to this new environment. You know, we see, you know, the new year, this new year as a time when they're gonna be trading, investing, building positions. We'll see if that plays out. That'll be part of it. We have, you know, net new business. We, we do have a good pipeline, both in the traditional servicing and Alpha area. I think as part of that, you know, we continue to mine our existing client base because the share wallet growth can be positive there. Finally, there's always the some amount of normal pricing headwinds, but that's factored in.
You kind of have to go through those four areas. Remember, we're assuming some growth in equity markets on a point-to-point basis. You know, we'll see if that plays out.
I gotcha. All right. That's helpful. Maybe just to follow up around the balancing strategy, heard the NII guide and the deposit commentary all makes sense. When it comes to the tailwinds from sort of repricing the fixed portfolio, the fixed securities portfolio, can you help us frame what the roll-on, roll-off dynamic looks like today? Also, whether or not there are some more, you know, opportunistic actions you guys might take like we've seen with both BK and Northern over the last month or so, with respect to just maybe reaccelerate some of the lower yielding securities, you know, roll up into something that might be a little more attractive here.
Let me describe it as follows. The, you know, the investment portfolio has an average duration of a bit over 2.5 years, so-called average maturity of five years. You, you know, you go through the math, and that means about 20% of it, you know, rolls on, rolls off in a typical year. It'll move around a bit. I think what we found, and that's invested across the curve. It's invested in various currencies, so there's a mix. You tend to get, as you have roll-off, roll-on, somewhere between 1.5% to sometimes 2.5% tailwind for that particular quarter of the amounts that are rolling off and rolling on.
That's what's actually been one of the factors that's been buoying the yields and the yield improvement on the portfolio and both how it was designed and what we're pleased to see. That'll be a gentle tailwind, you know, assuming, you know, You know, five-year rates stay more or less where they are, and European rates continue to float up. We'll just have to that'll be one of the tailwinds that we see. In terms of more dramatic action, you know, we obviously, you know, always think about what we might do.
What we've noticed is that if you have, you know, high risk-weighted asset positions or risk-weighted asset intensive positions in your portfolio, you know, then what happens, you know, you could take the loss, you reinvest, and it helps accelerate a buyback, right? That's, that's why I think a number of players are doing that. Doing the, just the for vanilla instruments, you know, treasuries, agencies, government guaranteed securities, you know, there's I think the benefits are a little closer to a push. You know, we could take some losses through the P&L. They're already in the equity account through AOCI. You put on, you know, NII in the future.
I think that's just a moving around of the financials, and we just don't find that that's a particularly compelling trade to do. You know, we'll always evaluate wells. We see if we have specific positions that might need some adjustment. You know, we don't see that as particularly compelling. It's not really compelling economically. You know, the financial benefits you guys can kind of model out either way. We, I think we're pleased with the ability to continue to manage the portfolio in line with our current processes, and they've been remunerative, right? The NII is up significantly this past year and up another 20% next year.
We've got a tailwind, and it, I think it bodes well for where we are and where we're going.
Yeah, I gotcha. Great. Thanks so much.
Sure.
Thank you. Your next question comes from the line of Brian Bedell from Deutsche Bank. Please go ahead.
Great. Thanks. Good morning, folks. Actually on the net interest revenue outlook for 23, Eric, can you talk a little bit about what you view as sensitivity to, say, if we had rate cuts in the back half of the year? I don't think that's assumed in your outlook, but just if you can talk about that dynamic and whether you think that would just be offset by reducing the deposit beta. Then also on the foreign deposit beta that you talked about, which is much better than U.S., do you expect that to continue, or do you see incremental foreign deposit betas moving higher from here?
Yeah. Let me do it in reverse order. You know, the U.S. versus foreign currency betas, in our experience, you know, this cycle, prior cycles, do tend to run at different levels, partly because the U.S. has this structure of non-interest bearing versus interest-bearing deposits, right? The client deposit betas are on a subset of the total. Partly because the international markets just, you know, operate a bit differently, how we're paid and how that, how those expectations have been set over, I'll call it decades for the industry, operate differently.
I think as we look into the next few quarters, you know, we think the US client deposit betas, ex any, you know, new money that we bring in on an initiative basis, you know, is gonna be in that 65% to 70%. And the international betas, we think, will continue in the 20% to 50% range when you look at, you know, euros, pound sterling, Canadian dollars, Aussie dollars, and some of the other currencies. We think they're kind of in the they're gonna be in this zone, and that gives us some ability to continue to take advantage of the interest rate increases.
If I then work through the other part of your question, you know, what happens with rate cuts, that's in our expectations, right? That's in the forward curves, especially for the U.S., that there could be a December cut. You know, there's some probability there could be a cut before that. I think it doesn't dramatically affect because they are, you know, late in the year. The rate cuts don't dramatically affect the NII forecast, We'll kinda, you know, take it as it goes. I do think as you're intimating, there's a bit of this offset, which is if the Fed's cutting rates, then there's probably gonna be, you know, even more cash that clients keep on hand than deposits in the system.
There'll probably be some, you know, some offsetting impact. Obviously with the, you know, U.S. betas higher, conveniently rate cuts actually at some point help with the with NII as well. I think there's a fair amount of, there's a range of scenarios, let's call it in the H2 of next year. My, my guess is, Brian, we're gonna be having this conversation often with you. We'll certainly keep you posted as we see some of those scenarios develop or, you know, there's more variability.
That's super helpful. Maybe on asset servicing, maybe an update on how you're seeing the pricing headwinds fold out for this year. Also, obviously, you typically do get a pricing headwind just from a mix shift toward ETFs, maybe if you could talk about whether you think that might be set offset by some of the growth in alternatives. I know I think there's an expense offset too, I should say I believe the margin is the same on ETFs versus, say, mutual funds, so you get an expense offset. Maybe if you just wanna confirm that.
Yeah, Brian, I think the pricing experience that we're seeing in the industry has been stable and consistent over the last few years, and we expect it to be consistent into next year and beyond. You know, we just have the standard. Because our contracts are tied to equity markets, you know, when they roll over every, you know, four, five, six years, typically, you know, folks are thinking where they expect equity markets to be. They know we're gonna get paid. They're gonna pay us more in the coming years, and they want to share some of that. You know, there's a partial pricing offset.
It's in the, you know, 2% headwind, you know, per year on servicing fees and relatively consistent.
Yeah, Brian, it's Ron.
Please.
The mutual fund to ETF shift, I mean, there's been some high profile conversions of mutual funds to ETFs, but that's, there's not a lot of that going on. More typically what you're seeing is ETFs being added to lines. Yes, the economics are different. The revenues fees are lower, but also particularly when you're at scale like us, the expenses are much lower. It's not meaningful in this overall revenue kind of guide that we're giving you.
Yep, perfect. Great. Thank you so much.
Thank you. Your next question comes from the line of Brennan Hawken from UBS. Please go ahead.
Good morning. Thanks for taking my questions. I'd like to start on capital. The buyback sends a strong message. Ron, very encouraging to hear about your comments on M&A. I wanted to clarify that the buyback is up to $4.5 billion. Does the upper end of the range there assume that you're gonna see some AOCI accretion? Is the quarterly range of $120 million to $200 million still the right way to think about it if rates are stable?
Brennan, it's Eric. The answer is yes and yes, right? If you think about it, we've forecasted, you know, just as you have, you know, earnings and coming through the P&L. AOCI in that range, $120 million to $200 million a quarter. It bounces around a little bit in May with movements in rates, but the pull to par has been, it's been good to us and will be a nice tailwind. There's some normalization of RWAs, which I mentioned into the Q1 . There is some RWA growth in our plans because, you know, we wanna continue to lend more to clients and support more with their foreign exchange or hedging activities, so we'll continue to do that. There's the buyback.
You know, our plan is just to, you know, at pace, you know, get back into our range and, you know, that authorization, you know, comfortably gets us there.
Okay. Excellent. A couple folks have touched on it before, but maybe if we think about the fee revenue, you know, can you please update us on the impact of market moves to fee revenues, and whether or not there's also a corresponding impact on the expense side too? I'd assume there's at least some degree of impact there. Thanks.
Yeah. Let me do it this way. I think, as we've been relatively consistent here, and I think the guidance will hold. A 10% average change in, let's call it an increase in equity markets, right, will typically lead to about a 3% increase in servicing fees, you know, if you have both of those on average. That's the kind of gearing we have. It's higher on management fees, 10% higher equity, and markets tend to be closer to a, you know, a 5% increase in management fees. On the expense side, if I...
It's, it moves around a bit, but, I think it's a 10% average increase in equity markets. Probably close to, let's say around, with a range, around a percentage point increase in expenses. Could be a little bit less. It kind of depends. You know, our sub-custodian costs are have a gearing towards equity markets and fixed income markets. Market data in some cases does as well. You know, it could be half a point, could be a point. That's part of the, you know, what we have in the expense walk and outlook that we've given. In some ways, you know, I think we're actually pleased to see that particular expense increase because that particular expense increase comes with real revenue growth.
That's, you know, that then delivers, EBIT and earnings growth, when you bring it all together.
Excellent. Thank you for that color.
Thank you. Your next question comes from the line of Steven Chubak from Wolfe Research. Please go ahead.
Hey, good morning. Eric, I actually have a two-parter, if you'll indulge me just on some of the NII guidance. First, I was hoping you could provide just some guardrails on your assumptions for NIB outflow, given you're relatively close to the trough that we saw last cycle. The for the second part, just since you alluded to NII stabilizing beyond 2023, even as NIB remixing pressures abate and reinvestment tailwinds start to work through the balance sheet, was curious why NII isn't actually growing beyond 2023. Is that a function of rate cuts, international mix? Any perspective would be really helpful.
Oh, all right. Well, the crystal balling into 2024, I got to tell you, we got a lot of variability playing out right now, whether it's economic, whether it's central banks. I know there's a lot of talk about what's happening in NII, where do we go to, and then, you know, does it, you know, what happens after we get to a peak. I would just trying in 2024 to kind of level set that we see stability. There's a scenario where you see growth. You know, there's scenarios where we may not. It's hard. It's that you're getting far out on our forecasting and predictions, to be honest.
Let's come back to that maybe in the middle of the year. That'll be a good conversation. In terms of non-interest-bearing, you saw non-interest-bearing on average, was about $44 billion this quarter. This quarter being, Q4 . You know, it was down, you know, 5% sequentially. It's bounced around quarterly, you know, but we see. I don't know. You could have, you know, off the $44 billion, you could have a, you know, $4 billion rotation out next quarter. You could see that again into the next quarter. It starts to, or it could be $3 billion and then $2 billion, and so on and so forth. We're, I think, at this level where, you know, we've seen some amount of rotation.
We think it's going to continue roughly at the pace that it's been going. you know, so it could be anywhere between, you know, $2 billion, $3 billion, and $4 billion a quarter. You could have some changes to that. What we do think is that we'll continue to see some of it in the H1 of the year, and then it just starts to slow down into the H2 . What we've done is use that kind of base case into our modeling, and it's all factored into the 20% increase in NII that we expect for next year.
That's great. In my defense, Eric, since you did talk about stabilization, I felt like I had to take advantage of that window of opportunity, look forward to talking about it a little bit more in the middle of the year. Just one more for me on capital management. I was hoping you could just speak to or give us some insight into the cadence. You know, should we expect that buyback to be executed ratably or be a little bit more front-loaded here? Just given the commitment, or at least to be like a strong effort to optimize your capital levels, how are you scenario planning for the Basel IV proposal or update that we should be getting from the Fed early in 2023?
Yeah. All fair, and it's the kind of discussions we have internally. You know, we want to front-load the buyback. You know, you saw us, you know, start particularly strong this past quarter. You know, we want, we want some amount of front-loading. On the other hand, it's actually quite stabilizing to the stock to have, you know, buybacks, you know, on a consistent basis. I think we don't wanna, you know, front-load at an extreme, and we don't want to be ratably flat through the year at the extreme either because it gives, I think, it's a good kind of market practice to have some, I'll call it front-loading, but reasonable consistency in the buyback as well.
I think then, you know, the goal is to get into our target range, you know, at pace. Then, you know, we'd love to operate, you know, in the middle of our range, you know, over time. That's, that's kind of how a range is set up. I think what we always have to do is look out on the horizon is, are the economic conditions, you know, worsening, right? Then you maybe, you know, want to run closer to the upper end of a range to insulate and prepare. Are they particularly benign, and they're particularly good uses of capital, and you might want to be at the lower end. Similarly, I think we'll learn more about, you know, Basel III and some of the changes in capital rules.
You know, maybe that comes with, you know, other changes in capital rules. We don't know. And I think later this year, we'll evaluate, and that's another reason to either run towards, you know, in different areas of the range as well. So it all factors in, but I think we're quite comfortable with the direction where we want to go and then, you know, like you, we'll think about what's on the horizon, you know, and, you know, plan for that.
That's great. Thanks so much for taking my questions.
Thank you. Your next question comes from the line of Gerard Cassidy from RBC. Please go ahead.
Good afternoon, guys. Eric, as a follow-up on the stock repurchase, commentary, did you guys, and especially now that essentially you re-referenced it would be more front end loaded. Did you guys consider an accelerated share repurchase program?
Gerard, we did. I think what the accelerated share repurchase program typically does is operate in such a way that the stock buybacks accelerate within the course of the quarter, right? Within the three-month period. There are typically some benefits of that. You tend to add $0.01 or around that CPS. It's actually interesting in a high interest rate environment, you also lose the NIIs as the capital.
We've actually found that the ASRs tend to be a push roughly, and so we're, you know, we often do a more typical buyback, you know, within, you know, the available trading days in the quarter, in a way that's fairly market practice, as a way to return, you know, the cash and the capital to all of you.
Very good. I know you pointed to the RWA benefit you had this quarter for the CET1 ratio, and I think you said in your slides your targeted range is 10% to 11%, which of course you're above at this time. Do you have any guidance on when you think you may reach your targeted 10% to 11% CET1 range?
You know, it'll depend on. Well, let me say it this way. We wanna return the capital at pace, and I've given some bookends as to, you know, what that means, and that's a, you know, I think a forecast you guys can build off of. We wanna get to our target range, right? We don't wanna wait till, I don't know, next Christmas, right? That's not the. That would not be at pace in my nomenclature. At the same time, there's just a range of what, you know, what we'll move, right? If RWAs, you know, lighten again, you know, it'll take a little longer.
If they go back and we fully utilize our limits in our various businesses and areas, then it might be a little more quickly. It's hard to pin it down, but as I said, we'd like to execute the buyback at pace. We'd like to get back to our range into our range at pace and, you know, the, we're driving that direction.
Great. Appreciate it. Thank you.
Thank you. Your next question comes from the line of Mike Mayo from Wells Fargo Securities. Please go ahead.
Hi. Well, thanks for all the answers on the cyclical factors. I wanted to ask about the structural endgame, a strategic endgame post Brown Brothers. The reason I ask, I count five restructurings in the last 20 years. They seem to come around like the ... Of the Olympics. The Q4 is yet one more quarter with notable items. I count notable items in 18 of the last 20 quarters. I do get some of it. Like you have incredible headwinds, mutual funds, markets, technical debt. You've been reinventing yourself front to back, straight through processing, serving clients, more agile tech. I also recognize what you said at the start that the ROE and the margins improved for a couple of years in a row.
When I look at fees to expenses, that has gone the other way. It seems like maybe one root issue is fixed costs. Really the question is, concrete question, what percent of your expenses are fixed? How does that compare to the past? I'm assume they've come down. Where would you like to take that? Then more broadly, what is the endgame strategy after Brown Brothers? Thanks.
Yeah, let me start on that, Mike, because there's a lot in there. You know, I'm not gonna comment on past restructurings. I'll comment on this one, right? We had, we'd made some changes to the way we organize ourselves. We talked about that back in the middle of the year. There's some benefits we can take out of that in terms of simplifying the management structure, having a smaller number of senior managers. We're gonna take advantage of that. It's consistent with simplifying our business. It creates accountability, and we stand by the need to have done that restructuring. In terms of, you know, where do we take this business going forward, it has a lot of benefits to it.
It's, it's very tied to investment markets over time. Investment markets grow. They don't shrink. The actual, if you will, unit pricing, while the unit pricing may go down, overall pricing actually, overall revenue is actually more times than not have a tailwind. We like that business. It's also one that is changing fundamentally from being a kind of a back office, show me the lowest price kind of thing to much more of an enterprise outsourcing business. We are very new in that, we're very early in that transition, and we think by far we are the best positioned to take advantage of that in terms of the technical capabilities that we have, the people capabilities that we have, the position we have in the marketplace.
We've made initial inroads and wins in that, but there's development that we've talked about that will be delivered in 23 and beyond, but a lot of it in 23, that will only help strengthen our position. We see the end game here, in terms of the core investment servicing business as being one which is much more akin, to an outsourcing services business. Much less susceptible to kind of these instantaneous, I'm gonna put it to RFP, and it's just a stickier business. You know, we are very respectful and wary of our competitors because, you know, having an edge and a lead can be easily caught up on. Right now, we believe we have that edge and lead, and we're gonna capitalize on it. In the investment management business, again, similar kinds of changes there.
We're seeing, you know, an increased desire for the kinds of things that we do, systematic and otherwise. Asset allocation, which we are very, very good at, is now an area that everybody's talking about after literally decades of reliance on the 60/40 model. Guess what? It didn't work, or it doesn't work in all times. It will lead to a lot of thinking and demand for that. We like our businesses. We like where we are strategically. In terms of, you know, what's going to happen, you know, will there be other Brown Brothers out there? What I do think that you will see over time is an increasing number of competitors where this may not be their core business saying enough is enough.
The capital requirements or, in terms of the investment capital requirements are much too high, mostly about the technology. If it really does continue into an outsourcing kind of environment like we believe it will, it's going to put more demands, to invest in the business. If this is, you know, business 42 of your 80 business structure, you might decide you don't wanna be in this business. That's how we see it going forward.
That was expansive. Thank you. The fixed cost part of the question, you don't report it that way, but just in rough terms, I get, so in the asset servicing, less RFPs, lowest price, this enterprise outsourcing, okay. Investment management, more holistic instead of the old model. Still, as you transition, you have a certain degree of fixed costs that are tough to manage. I mean, it's not quite like a brokerage firm where you know, you reduce bonuses. Is there any way just to ballpark how much of your expenses are fixed costs? I think they've come down from the past. You're probably trying to floor them more.
Mike, it's Eric. All good questions. I think this is actually an industry which used to be variable cost intensive, right? It was very manual, and when you add a new piece of business, you actually had to hire fund accountants who are working on ledger paper first and then on the Excel sheets next. So it's quite manually intensive and variable in nature. It's actually, as we've automated, think about the data centers, you've talked about the movement to the cloud, the developers that we have. This business has really evolved to a fixed and semi-fixed cost-oriented business in truth. You know, that means that for certain types of business, you know, we bring on custody business, you know, core custody, right?
It's kind of the most automated and the most, the oldest part of what sits in our franchise. You know, that comes in, you plug it in, and the computers just process a few more times, not overnight, but literally, you know, in nanoseconds, right. This has become a more fixed cost business. What we need to do is think about how do we wanna manage those fixed costs? How are they deployed? You know, the development dollars in technology, how do we shape that each year? Because if we do that right, we'll add feature functionality, and that'll bring in new business over time. That'll help retention, and, you know, that'll help growth. This is more of a fixed cost business and semi-fixed costs.
You know, where is it? It's, it's more 80/20 fixed and semi-fixed than than 20/80. I think it actually has evolved. What's important for us to do is to make sure that we have the products and the offerings and the client coverage to support that and to add new business, add the right type of new business. Where there are variable cost components, you know, we've talked about some of the more manual and complex areas, right? Servicing for privates, for example, is still quite, you know, manual. It's complicated. There are not standard systems. Typically in the industry, there's very little in third-party software that one could avail oneself of. Those are the variable areas where we need to continue to find ways to automate and streamline.
That's part of what we're doing with the, you know, with the ongoing investment, program that we have underway.
All right. Thank you.
Thank you. Your next question comes from the line of Robert Wildhack from Autonomous Research. Please go ahead.
Hi, guys. AUC/A wins in the Q4 were pretty good. Eric, you called out a strong pipeline there. What level of new business wins are you expecting in 23? Do you see those coming from any specific client category, cohort, service area, anything like that?
you know, as we have said, the pipeline remains strong. I think we're pleased with wins this year. Wins were about $1.9 trillion for the full year. What I have said is, and I think we feel good about this target or line in the sand, is we've said to drive the kind of organic growth that we'd like, we wanna win about $1.5 trillion per year of new business. We did that this past year. We did it in spades, closer to double that, you know, in 2021. That's our expectation. We expect and we think that's par, you know, for 2023 as well.
Obviously, we wanna sell more than that, right? We wanna bring in more new clients or further deepen relationships with existing clients. I think what we feel good about here is both the new business this year. The, you know, the trillion, nine that has come in at good fee rates. The fee rates of the new wins are actually in line with our overall fee rate this year. That means that as it onboards, it'll be, you know, neutral or even accretive to the fee rate. That's important. That's an important part of the program. In terms of segments, it's been broad-based. I mean, this past quarter, for example, was broad-based across regions.
Literally, I think it was a third, a third, a third. We saw particularly strong growth this past year in Asia. We'd like to repeat that again. I think we have an intensity on Europe and North America as well. There's not... I'd say it's not one particular segment or one particular region. It's fairly broad, but it's a good pipeline overall.
Got it. Then you also mentioned some higher renewals in the Alpha business. Wondering if you could talk about the retention rate there? How's the retention among front-to-back clients compare to your more traditional, you know, back or middle office-only clients?
Yeah, Rob, I mean, in terms of fully installed Alpha clients, the retention rate's 100%. You wouldn't expect it to be much less than that simply because, you know, it's still relatively new. I think that there's a real commitment that's made on both sides of the house when you enter into these things. First of all, to actually for the client to rewire around front-to-back is a lot of effort on their part. You know, while there's a lot of commonality across these clients, there's a lot on our part that we need to do to install it. The contracts are longer, the reality is that the switching costs have also gone up dramatically in these front-to-back things.
We would expect more, but we also recognize that, you know, we've got to earn that. I mean, we've got to. Right now, when that happens, there's a huge dependency on the part of the client in us delivering every day. We take that responsibility quite seriously.
Got it. Thanks, Ron.
Thank you. Your next question comes from the line of Vivek Juneja from J.P. Morgan. Please go ahead.
Thank you. Just a couple of little details for you, Eric. You mentioned RWA came down by about $10 billion, and you expect to see another decline, $10 billion to $15 billion. Any color on what you did there, and is it sustainable post Q1?
Let me just clarify. RWA was lower than expected in the Q4 by about $10 billion. In Q1 , we expect it to reverse, in other words, to move back up by $10 billion, $12 billion, $15 billion. It's just driven by some of the underlying volatility in our business. For example, overdrafts were lighter than expected this quarter. They moved around by a few billion dollars, and that moves RWA by a few billion dollars each quarter.
In the FX book, you know, we run a very, sort of a typical forward book, you know, two-week, four-week, six-week forward. As you have U.S. dollar appreciation or depreciation, you can get, you know, you can get, you know, $5 billion moves in RWA relatively easily. That's just the volatility that we saw. We tend to be quite careful to stay within our RWA, you know, internal limits. That's why we tend not to have upswings in RWA, but we tend to have these beneficial quarters now and then. We'll just note them to you so you can model out our capital ratio trends.
Great. Second, another little detail for you.
Your software processing and data, could you parse that into data versus CRD since that's not combined? Since you've got this big growth rate there, what's going on underneath? How much is data? How much is...
Sure. It's a, it's a combination. I mean, the bulk of that is really around Charles River and the franchise that we, you know, we purchased back in 2018, which has really given us the kind of growth that we had expected. You can go back and compare the size of the franchise, I think at the last disclosure, I think we probably showed it a year ago, and compare it to that software and data line and get a kind of an adjustment. It's, it's the large, you know, it's the large majority, I'll say, of that line.
Data to us is a, though a very appealing offering that supplements what's in sometimes sold with the Charles River offering, sometimes with Alpha and the middle office. Sometimes sold as supplemental to just custody and accounting because it's such a high value and informative.
kind of window, sometimes for risk management purposes, sometimes for client transparency purposes for our asset manager or asset owner client. It's, it's actually one of the faster-growing areas of that, of that, of that area. That's why we've put it together because it's actually a software type sale, but an important one.
Yeah. Vivek Juneja, it's Ron O'Hanley. Let me just add to that because we've done a lot of innovation in this area, new product development. We do expect that to continue to grow, as Eric Aboaf said, because everybody's interested in simplifying their operations, simplifying and getting control of their tech debt and innovating on the technology side. In addition, there's a data management, data control in some parts of the world with some investors. It's also location of data. You know, where does the data actually both move and rest? This is an increasingly, this is a growth area. It goes beyond asset managers. Large asset owners in particular are very interested in this.
We see it as a way to extend what we're doing broadly in the, in the Alpha arena.
Just to clarify on CRD, Eric, to your comment earlier, when you previously talked about it was growing in sort of the low double-digit range, this was a year or two ago when it was broken out. Is that still the pace at which it's just continuing to grow, or is that, as it matures, slowing down a little bit, or is it accelerating? Any, any granularity, you know, on any color on that?
No, it continues to our pace. I'd say it moves around depending on some of the on-premise renewals that still flow through the P&L. You know, high single digits, low double digits. What we've done is continue to. The team continues to drive kind of the core CRD offerings. You know, the, you know, it started with an equity product. It's moved to equity and fixed income, which are now industry, I think, industry, you know, at peer levels, in some cases, industry-leading. What we've done is supplemented that. You know, for example, we purchased a small company called Mercatus, which was kind of a front-end portion of a Charles River-type offering.
We've added a kind of private markets area to what I'll call the broader Charles River complex. This is an area that I think will continue to grow, you know, probably at 2x the rate of State Street, help, you know, lead us forward, but also is, you know, the tip in the spear of how we engage with clients, new clients, existing clients in broader ways. That's why, you know, the core software, I think, is an important product. What I think I've been pleased with, especially this year, which has been all over the place economically and politically, right?
Even with equity markets up and down, you know, software and software growth, core Charles River data, you know, private software for private, you know, continues to grow in this, you know, double digit range, low double digit range, through thick and thin. And that helps balance out, I think, the growth dynamic of the company.
Great. Thank you.
Thank you. That would be for our last question. I'll be turning the call over back to Mr. Ron O'Hanley for our closing remarks.
Thank you, operator, and thanks to all for joining.