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Bank of America Corporation's (BAC) Management Presents at Morgan Stanley U.S. Financials, Payments & Commercial Real Estate Conference (Transcript)

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Bank of America Corporation (NYSE:BAC.PK) Morgan Stanley U.S. Financials, Payments & CRE Conference Call June 13, 2022 8:00 AM ET

Company Participants

Alastair Borthwick – Chief Financial Officer

Conference Call Participants

Betsy Graseck – Morgan Stanley

Betsy Graseck

Okay. Thank you everybody for joining us for our 13th Annual Morgan Stanley Financials Conference. I am thrilled to have with us today Alastair Borthwick, CFO of Bank of America. Alastair, it’s been a delight to be working with you just for a little bit of time here. You’ve been in job I think just over six months, is that right?

Now in that six months quite a lot has changed. We’ve had COVID resurgence, reopening, economic growth hopes, inflation and now recession fears. So, it feels like you’ve gone through a whole cycle just in six months. Can you just give us an update on what you’ve been seeing, what you’ve been seeing consumer spending in particular and account balances, how that’s been going? Thanks.

Alastair Borthwick

Yes. So, obviously, let me say first, thank you, for having me. Very kind. I’m glad to be here nice to see everyone live and in-person. We get the question on the consumer, obviously daily now, and our institute is trying to publish more and more statistics about what we’re seeing? I think most importantly in terms of spend, June to date is up 9% year-over-year and remember that’s coming off a record year coming off another record year.

So, at this point, the consumer is still spending pretty robustly. And then in terms of balances, Brian talked about this a couple of weeks ago. We’re still seeing the balances in each of the cohorts grow this quarter. Pre-pandemic, if you’re looking in that sort of $1,000 to $2,500 cohort people have got about 7, 7.5x more cash in their account today than they had pre-pandemic. For the group that’s in the $2,500 to $5,000 cohort, they’ve got 5x more than we had pre-pandemic. So, we’re still seeing very healthy balance sheets and healthy spending.

Betsy Graseck

And that’s on the deposit side, right? And on the credit card side?

Alastair Borthwick

Credit card balances still just a little lower on average. So that again is, sort of a testament to just help with the consumer I’d say in terms of they’re not overextended in terms of leverage. And we still – we’re seeing after Q1 when we typically see it – see a little bit of a seasonal slowdown, credit card growth this quarter has been pretty good.

Betsy Graseck

Okay. Maybe we could just dig in a little bit on that question to where at the lowest end where you’re saying they’re still up, is there any changes Q-on-Q at all or still [indiscernible]?

Alastair Borthwick

No, not yet. Still seeing growth there.

Betsy Graseck

Okay. Can you give us a little sense as to what’s going on the lending side outside of card? So, in spend, maybe the card loans, revolvers, within card, auto, which has been very strong; mortgages, which look like growth is accelerating; people are asking if it’s just a function of prepaid speeds slowing down or is there anything else going on there?

Alastair Borthwick

So, across the board right now, we’re seeing reasonable good loans growth. We’ve talked about the fact that we feel like this will be an above average year for loans growth. Normally we think about GDP plus because we feel like we should be able to take a little bit of market share each year. This year, obviously GDP is a little higher. And on top of that, we feel like there are some things as the economy normalizes and as revolver grows and payments slow, both on the consumer side and the commercial side, we should see high single digits growth in loans. We’re still on track for that. We feel pretty good about this quarter, so it’s a good loans growth environment.

Betsy Graseck

And is that in mortgage growth increasing, accelerating due to simply prepay slowing down or are you doing something in HELOC or home equity loans that we should be thinking about as well?

Alastair Borthwick

Well, we haven’t changed anything in terms of strategy. I wouldn’t say mortgage is necessarily accelerating, I’d say it’s the same kind of growth trajectory that we’ve been on. Our prepays have obviously slowed, but we’re just keeping pace and continuing to grow the book and it’s just about adding new clients over time.

Betsy Graseck

And what about commercial?

Alastair Borthwick

Commercial has been very strong, continues to be that way. We’ve got a couple of things going there. The first one obviously is the economy continues to heal. So, people are borrowing more as they see pretty good growth themselves. And then the second thing we’ve talked about this before is, we got to a point in pandemic where revolver utilization was far below the average and every quarter just keeps creeping back up towards the average. That can still run some more. It’s been a pretty good tailwind for us in terms of loans growth and that trend continues. So, we’ll talk about that more earnings.

Betsy Graseck

Okay. So, just finishing up on trends quarter-to-date, what about credit?

Alastair Borthwick

So that’s another big question we get all the time right now, and credit remains really strong. Last quarter, we had 16 basis points of net charge-offs, up from 15, which was our historic low. And the consumer is just in great shape. So, where we first look is, is there any in 90 days past due or 30 days to 60 days or even 5 days? There’s got to be no material change there at all on the consumer side. And on the commercial side, this quarter, our upgrades are probably 2:1 relative to downgrades.

So again, we still get this [hearing] [ph] coming through the entire economy and things like travel and restaurants and hotels, you’re still seeing credit quality improve pretty significantly.

Betsy Graseck

So, I just want to have a bit of a moment here on that. You’re saying that your commercial loans are 2:1 upgrade?

Alastair Borthwick

Currently this quarter, yes.

Betsy Graseck

Interesting. Okay. I say interesting because there’s been such a concern around recession imminently approaching and you’re not seeing that in your books?

Alastair Borthwick

No. So, there’s a [dichotomy] [ph] of this question of what will happen in the future and there’s what are we seeing right now? And what we’re seeing right now, credits in great shape. And look, I’d expect it to bump around because we’re at such low levels and one would think over time that we trend back towards history, but we don’t see that right now.

Betsy Graseck

Other question for the quarter is around the NII outlook, now this is one place that you have given some specific numerical guidance in your past comments during earnings. I think you were saying that NII, you were looking for up 650 Q-on-Q, is that right?

Alastair Borthwick

Yes. We said 650, maybe more. And we haven’t changed our thought process there. The reason we don’t tend to give a lot of guidance going out a year because we don’t control what the Fed does and we don’t – we can’t tell how many upgrades – how many times they’ll hike rates, we can’t tell when, and we don’t know how big they will all be? So, everyone in this room is as good as we are predicting that.

We tend to use the forward curve in what’s embedded there. I’d say, this quarter, we’re still on track for 650, maybe a little bit more. And then that we said also, during the last earnings was, we felt like Q3, if Q1, let’s say, we were up 200, but if [indiscernible] we’d be up 400. So, we accelerated in Q2 to 650 plus. Q3 should accelerate again. So, we’d expect to step up there, but we’ll talk about that at the earnings when we’re a little closer and when we feel like we’ve given that some proper thought.

Betsy Graseck

Okay. So, what you’re saying is Q-on-Q net interest income up 650 plus in 2Q and in 3Q at this stage you’re expecting an even higher step-up Q-on-Q?

Alastair Borthwick

Yes.

Betsy Graseck

Okay.

Alastair Borthwick

You can start to see that like, when we talk about up 100 being worth 5.4 billion, like that’s how you get there. You need a couple of successive increases.

Betsy Graseck

Now Brian mentioned trading was running at about up 10% to 15% year-on-year last week, I believe, is that still the case?

Alastair Borthwick

Yes, no changes in the last week. The trading team has done a great job among the volatility. That continues to be a business. We’re investing in very constructive there. We’ve got great clients. So, we think 10 to 15 is probably about the right speed right now.

Betsy Graseck

And banking fees, still looking for 1 billion to 1.25 billion for the quarter?

Alastair Borthwick

Yes. The investment banking environment for fees has been very challenging this quarter, particularly in equity capital markets. That’s been true for everyone. I think we’ve probably captured a little bit of market share, but it’s off a really low base obviously. So, somewhere in that [1 billion to 1.25 billion] [ph], and then the other thing that we just have to be thoughtful about is, we’re likely to have some leverage finance write-downs.

We think that could be 100 million, 150 million or so just with positions that we have with the risk that we take for our clients. That won’t flow through the investment banking and sales and trading numbers that will flow through all other, but we’re keeping an eye on that. Through other income, [pardon me] [ph].

Betsy Graseck

So, it’s a contra revenue?

Alastair Borthwick

Yes.

Betsy Graseck

Okay. All other income contra revenue, just making sure. Got it. Okay. So, I’m going to flip now to talking a little bit about the balance sheet and I have to say, I was very impressed in the last quarter when you announced your results that you had such a small AOCI hit, that was great. You’ve been really nimble over the past couple of years adding with the swap book and everything. So, I just wanted to understand the thought process behind making that change? And you’re a large institution, but you’re extraordinarily nimble, it seems.

Alastair Borthwick

Well, what you’re referring to, I think is, we’ve got 200 billion of treasuries in our AFS portfolio that we swapped to floating. So, it really insulates us obviously when rates go up. We get the benefit on this swap side. That predates me. That was a decision made by Brian and Paul. And it’s really just a philosophy that once we fund all the loans growth we want to do, we’re going to have some excess. And some of that we can put in securities and most of that we’ll put in our hold to maturity book, but there’ll still be some left over, a lot of that cash we put at the central banks that gives us ultimate flexibility. And we have 200 billion of treasuries that are swapped, which again we’re not necessarily looking for duration risk there.

We’re not necessarily looking for credit risk there. We just want to have a lot of flexibility for future loans growth or possibly one day we might take that off and have some [locking] [ph] in higher interest rates or if ever we were to see deposit runoff, then obviously we’ve got 200 billion sits there in addition to the cash. So, it affords us a lot of flexibility and that’s why it’s there, but it’s not really there, it’s an earning asset.

Betsy Graseck

Okay. Just wanted to also ask a little bit about the HTM book that you’ve got, 500 billion in HTM. It’s over half the securities in your portfolio. And I believe that your consumer banking and wealth deposits are almost double your HTM book, is that right? Could you just talk through your duration assumptions around both of those pieces?

Alastair Borthwick

Yes. So, the mortgage portfolio obviously is reasonably long duration. Obviously, it pays down every year. And then we get prepayments. And the prepayments depend on a lot of different things, including interest rates, but just people moving homes, etcetera. So, with interest rates having backed up, the duration of that portfolio is extended. At some point, it stops extending because you no longer have a prepayment for rate opportunity in the book.

So, what will end up happening is, in any given quarter, we’ll end up having $15 billion to $20 billion come out of that portfolio as it amortizes and as it prepays. That allows us to take that and either put it in loans or reinvested in securities at higher rates. So, that’s going on with the mortgage book.

On the deposit side, the duration of our deposits both on the consumer side and the commercial side tends to be pretty long dated too. For nine years I ran the commercial part of the bank and there, our average client relationship might be 20 years. So, we’re going to have their deposits for 20 years.

So, we kind of need long dated assets against our long dated liabilities. And in the consumer side, the same thing, most of what we’re trying to gather is core operating accounts from college kids who might be with us all the way through till their retirement years. So, we’ve got some pretty long dated deposits as well and we feel like that’s a good match.

Betsy Graseck

Okay. Yes, your loan to deposit ratio is also very low at this stage, right, running in the 40s, is that right?

Alastair Borthwick

Maybe 50.

Betsy Graseck

50, okay. And the question there is before the pandemic, it was in the 70s. So, I’m just trying to understand like how should I model this going forward? How high are you willing to let your loan to deposit ratio go? And I ask because last quarter you did have end of period loans up, I think around 14 billion, which was double the pace of the end of period deposits. So, some people might look at that and say, oh my gosh, deposits aren’t growing as fast, but on the other hand, you have huge amount of room in the balance sheet to fund loan growth with all the liquidity we just discussed.

Alastair Borthwick

Yes. So, I wouldn’t think about it quarter-to-quarter because like for example Q2 is a period where we have typical seasonal deposit outflows with just taxes and things like that, and like the commercial business really only builds deposits in Q3 and Q4. So, longer, if you take a look at the big picture, when we showed the loan’s graph daily, in the pandemic it was a brief spike followed by an enormous dip in lending as clients decided to get a little more conservative and draw back on leverage.

During that period, we gathered an awful lot of deposits with the fiscal stimulus. And with the excess, we put that in securities. So, the deposit side was going up and the loans were coming down. So that’s why we went from 70-ish to under 50. Today, we’re back to more normal. And in more normal what will happen is, we’ll generate deposit growth and our first choice will always be loans. And then if we have [any in] [ph] October, we’ll put it in securities.

At the same time, the securities portfolio kicks off $15 billion $20 billion every quarter. That can go into loans if it’s there. So, we may not grow the securities portfolio. It may shrink over time. We don’t make a judgment on that, we’re just priority one will be fund the customer growth. And then if there’s liquidity leftover we’ll decide that we add some to the ultra-maturity mortgages or do we add some more to swap treasuries just depending how much flexibility we want.

Betsy Graseck

Right. And so this loan to deposit ratio that a lot of folks are thinking about that’s an output for you, right?

Alastair Borthwick

And it will take us a long time like we can fund an awful lot of growth. A lot.

Betsy Graseck

We heard from Holly a couple of weeks ago that consumer deposit betas should track roughly in-line with last cycle, and she pointed to the strong consumer franchise in particular. Could you just give us a sense of why that’s the case that the deposit betas should track roughly in line? Is that still the expectation?

Alastair Borthwick

Yes, it’s still the expectation. I mean, I’ll provide a caveat at the end, but we add a lot of value to customers, and the switching cost from where they are with an integrated app that allows them to do an awful lot of their financial life quickly, easily, securely offers a lot of value. And so, it’s probably more even than 4 years and 5 years ago, we went through the last cycle.

So, we anticipate that deposit betas should be the same. We’re hoping for slightly better. And then I guess the question will become, this time it’s a little different and that we’ve got quantitative tightening. So, that’s one thing. And then the second thing is, we don’t yet know how high rates will go. We know how high it went in the last cycle. So, there’s an element of, for that, those first few rate moves you’d expect the deposit beta to be very similar to the same kind of rate structure. If as and when the rate structure goes much higher, when over time deposit betas may change, but that’s how we’re generally thinking about it.

Betsy Graseck

And is there any difference between what you’re expecting from the consumer franchise, the wealth franchise, the commercial franchise?

Alastair Borthwick

Yes, yes. I mean, I think our consumer franchise should be the least sensitive. The very upper end of wealth is very sensitive and commercial is depending on whether it’s the interest bearing and the non-interest bearing tends not to be particularly sensitive, more sensitive than consumer. Interest-bearing is a little more sensitive. So, all these deposit betas when we’re talking about them, we’re talking about the aggregate they all behave differently. We price them differently. We observe them differently and we manage them actively.

So, we compete for the deposits where we need them and we want them, but again, the core for us, the strategy is to keep building core checking accounts, primary operating deposit accounts. On the commercial side, it’s that operating account we’re looking for. So, we tend not to be looking for the sorts of balances that are looking for the highest rate in any given day.

Betsy Graseck

I do want to drill down on that in one particular area, which is in treasury services because that’s an area where for the corporate clients, you’re toggling through this ECR rate to basically incent either them to pay you via [hard dollar] [ph] fees or by leaving deposits with you. And as rates are rising, if you did – if you’re just expressing that rate rise through the ECR, then maybe you’re incenting less deposits, and as rates rise, your corporate clients don’t have to hold as much deposits with you. Can you help us understand how you’re managing that dynamic around treasury services as rates rise?

Alastair Borthwick

Yes. So, first thing, we’ll handle that the same way we have in every rate [indiscernible]. So this isn’t new. We’ve been offering ECR for many years and it’s part of the deposit beta. There’s essentially two different exercises going on at one time. And the first one is, we have a mentality that we’re trying to grow gross fees every year. And that’s what you would expect.

We’re trying to do more with our corporate customers and add more to corporate customers overtime. And when we earn the same price on higher volumes, we earn higher gross fees. So, that’s part one. Part two is, we’re trying to manage rate and we’re thinking about what we need to offer to get the deposit growth we’re looking for. Those two, exactly the same.

Where the intersect here is that we have some corporate customers who rather than pay us $200,000 of fees in the course of the year, they might prefer to just keep some balances with us. Where we pay a no rate, zero rate. So, that’s just an expression on their part of choice. It’s sometimes easier for them to not pay a fee than to earn interest and pay a fee. So, the economics to our shareholder are the same, the economics to the customer are the same. And then we’re just managing the pricing on that exactly the same way we would for any other deposit.

Betsy Graseck

Right. But as rates rise, should we expect the corporate deposits to decline?

Alastair Borthwick

In some cases, the corporates will rotate some of those non-interest bearing into interest bearing, but that’s – again, that’s something that happens in every cycle and that’s something we incorporate in our expectations around betas and around growth.

Betsy Graseck

Got it. Just on [kicking down] [ph] the line on fees, things that are kind of popping up in the questions. The next one is on wealth with markets being down Q-to-date, not only in stocks, but also bonds as well, the question is, how should we expect your fees likely trend this quarter?

Alastair Borthwick

Well, I think you’ll see the S&P 500 assembly that we do. So, that’s pretty transparent. You’d be able to back into that. The two parts of our wealth business, I think are really interesting right now. First one, we continue – we’re going to keep doing what we can to control what we control. Mostly, that’s around adding net new households in both Merrill and the Private Bank, they’ve done a terrific job with that. They keep driving that. That organic growth machine is something we want to keep investing in to make sure they can do that.

The second thing is, our wealth business overtime has grown a pretty substantial deposit base and a pretty substantial loans book. And they’ve continued to grow that pretty consistently now for the last several quarters. So, they should get a pretty significant NII uplift to offset some of the fees. So, I’d say overall, we’re obviously a receiver of where the S&P is. Nothing we can do there, but there’s a lot of things we can do to just make sure that we’re growing that business.

Betsy Graseck

Okay. And then lastly on fees, you changed the insufficient funds and overdraft fee recently, including bringing that per incident rate down to $10, which I think is a market low, which is good for you that you’re leading the market on that one. I think you’ve guided to a $750 million impact this year and I just wanted to understand how you’re expecting that’s going to materialize throughout the course of the year, and if there’s any offsets that we should be thinking about?

Alastair Borthwick

So, I think we [took out] [ph] 80 or so in Q1 and we think we’ll get the full run rate by the end of Q3. So that gives people an idea and it’s sort of a step down. And then offsetting that, I’d say, there are two things that are hard for us to give a precise number on, but the first one is that because we don’t charge those insufficient funds and overdraft fees, we get a lot less card volume in the call centers saying I got charged this and can you help me out here because I had a particular situation and that takes up a lot of time and a lot of expense.

So, we’d expect the expense side to come down a little bit. And we’re going to observe that overtime, so we’ll begin to get a point of view on that. And then the second thing is, client satisfaction goes higher and our attrition goes lower. And that’s always good for us because that helps to drive net new customers, and it makes it more of a core relationship proposition, which is what we’re trying to do.

So, first people look at the sort of the headline, but underneath it, I think there are a couple of things that should offset.

Betsy Graseck

So, you’re bringing up some great points on operating leverage that you’re looking to drive as well, right? Maybe we could dig into that a little bit. One of the things in the 2015 to 2018 period where you were delivering some nice operating leverage was coming from branch count shrinking. And now branch count, it’s more stable, right? I mean, there’s a little bit of a decline, if we round up to 1% or something, but it’s really not as much as you had in the past. So, I get the question a lot, what’s going to drive your operating leverage if your branch count is more stable?

Alastair Borthwick

Well, we’ve talked about this before. We are an organic growth company and we’re investing a lot in our growth. We’re hiring more bankers. We’re renovating all of our financial centers. We are adding financial centers in some places. We increased our technology spend. We increased our marketing spend. So, there’s a lot of things that are going on to help drive growth.

Second thing, we’re very focused on generating operating leverage through the cycle and we have to pay for that growth. And we have some interesting offsets. First one is digital transformation. Brian talked about the fact that Zelle last quarter for the first time over to checks. Those checks are expensive for us to process. So, the more that they continue to come down, we’re gaining on the expense side.

Digital transformation is really good for us in operating leverage both on the revenue side and on the expense side. So, digital is a big part. Second thing if I’d just talked about before is that every quarter we’re running a series of operational excellence initiatives where we’re looking at our processes. So, in the CFO organization, we’ve got a series of processes and we have a number of people who own those processes and their job is to think about how do we make that better for the customer, cheaper for the shareholder. and there’s savings from things that we invested two years ago that are coming online now.

So, we’re constantly working the process side for savings there. And then the third thing is there’s still some COVID expenses that we’re getting out. So, we have some things that offset the investments we’re making and that’s where if we get some NII uplift, which we fully expect, we’ve got a good story on the revenue side together with the organic growth, plus the expense discipline should deliver the operating leverage we’re looking for.

Betsy Graseck

You brought up technology obviously a critical driver of the operating leverage. The consumer tech is fantastic and we can see that in the mobile app rating, which is, I think a 4.8 star, it’s one of the highest in the country. Can you help us understand what you’re doing on the tech side with wealth and with capital markets, is there more to do on those two pieces?

Alastair Borthwick

Oh, yes. There’s lots we can do there. We talk about being high-tech and high-touch for the consumer experience. And when you listen to Andy, now we’re talking about modern neural, that’s what he’s talking about. It’s this financial advisor relationship and the technology experience that people would expect. So, some people want a self-directed account, as well as having their own advisory relationship. And that’s an important thing. And neural edge, helps to deliver that both for the consumer clients and for the wealth management clients.

On the commercial side, things like Erica. Some of you will have used Erica before. It’s our AI. You’re on the phone. You ask what’s my balance. Erica will tell you. You can do some basic transactions on your phone using Erica. We took that, which is now tried and true with millions of customers every month and put it on the commercial side as a tool for our bankers to queries for information about commercial clients. And Erica can stood out things a lot faster than a human being [is looking] [ph] for them.

So, we take things that are used in consumer and deploy them in commercial to great success. Same thing with check, like today we’ll allow any commercial customer to not drive to a branch, but instead to deposit checks on phone. So, simple things like that. Taking paper out, automating the place, providing the client a better experience, and ultimately save us money.

Betsy Graseck

Okay, great. I want to see if there’s anybody in the room that has a question for Alastair before I keep going on. Okay. Alright. Everyone’s satisfied with the questioning so far. [Steve Warden] [ph] has a question. Do we have a mic? It’s coming.

Question-and-Answer Session

Q – Unidentified Analyst

I got here a little late. So, forgive me if you’ve gone over this, but I just wanted to ask about the deposits again. You sort of alluded to the fact that you think the deposit beta on the initial rate rises will be in line or less than the last time, but I mean it looks pretty clear at this point we’re going to get a lot more rate rises than the last time and then also maybe some material quantitative tightening. When you run your models, I’m just curious if you entered into a period where deposits actually outflowed, sort of, what would that then necessitate you do marginally to fund the balance sheet, deal with the asset side? And have you sort of game planned us? Because it seems like this could be coming and I just want to get a little bit more information on how you’re thinking about it?

Alastair Borthwick

Yes. So, a couple of things. First, we took a look over the course the past several years. Every time rates have gone up significantly, whether it’s a 12-month spike, or whether it is the peak rate environment. And in the 12-months prior in each of those occasions, we grew deposits, right around 5%. So, we can continue to grow deposits in a rising rates environment.

Second, we’re not passive in our deposit pricing, we’re active. And that affords us the ability in each of the segments that Betsy talked about, whether it’s consumer, whether it’s wealth management, whether it is commercial interest bearing and non-interest bearing, we have the ability to price for the growth that we’re looking for. So, we’re an active participant in pricing overtime.

Third, if we were to see deposit betas that we didn’t like at some point. And if we saw some runoff, that’s one of the reasons we keep the balance sheet as flexible as we do. So, we’ve got and we’ll update you again earnings for just how much we keep at the central banks, but it’s 100 billion, 150 billion or more. 200 billion of treasury [swap to floating] [ph] and other 50 billion of available for sale mortgages. $15 billion to $20 billion of inflows every quarter from our portfolio.

So, we have a lot of flexibility overtime. And again, most of our deposits are not the, sorts of deposits where we took something outsized from somebody. And they’re just looking for the best rate. Most of our deposits are somebody has $2,500 in the checking account and that’s an important number for them and their family, and they’re using it as their core operating deposits.

Betsy Graseck

Sure. Two minutes.

Unidentified Analyst

I just have one follow-up. I mean, I understand that, especially on the consumer side and that’s what makes the franchise good, but at the same time, Brian has highlighted that across cohorts, the consumers have excess deposits. So, do you factor that in post-COVID, you gave some numbers on the call about people that have this much deposit typically are at this level and it’s higher and etcetera. Do you sort of factor that in your planning that those numbers go back down to like pre-COVID level?

Alastair Borthwick

Well, we run scenarios on everything. As you know, we have a series of downside scenarios and just about everything we can think of. Right now, we can observe the customer behavior we see and then we like you, speculate on everything that could happen in the future, but it appears customers right now like that deposit balance and they like that behavior, and it would seem in an inflationary environment their bills are going up as well.

So, they’ve got to be careful in terms of just managing their own household finances. So, There may come a time when we’re talking about that. I mean, we’re concerned about that, but that’s not on the horizon right now.

Betsy Graseck

So, one last question on capital. You’ve mentioned before that your common equity Tier 1 ratio of 10.4, you’d like to see that get to 10.75, it seems like that would be with the earnings generation you have, not so hard of a stretch goal, but I guess the question I get is on buybacks and what that means for buybacks if you could help us understand.

Alastair Borthwick

Yes. So, no change to our philosophy here either. I think people here know we’ve invested in our global markets business. We’ve had pretty good organic growth across the company. So, that’s going to push us into a new GSIB category. So, we’ll go from 2.5% to 3% there. So that will take a regulatory minimum from 9.5 to 10. And we’d like to operate right around 75 basis points higher, so that’s [10.75] [ph] and that will give us the task then of raising 35 basis points of capital in the course of the next year and a half.

So. last quarter, we generated 45 basis points. Our first priority is always going to be growth, which was about 20. Then the dividend, which was 11 last quarter. And everything left over, then we can choose to buy back shares and or build capital. So, if you think about what we have to do now in the context of 40 basis points or 45 basis points in the quarter, we’ve got to go 35 basis points, 50 points, that’s 6 basis points or 7 basis points, 8 basis points per quarter, and the rest we’ll use for share buyback.

Betsy Graseck

Okay, great. Thank you. Thank you very much for joining us Alastair.

Alastair Borthwick

Thanks for having me. Thank you, everyone.