Bank of America (BAC) Earnings Report: Q2 2015 Conference...

CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking

EventDescription:Q22015EarningsCallMarketCapasofEventDate:178.75BPriceasofEventDate:17.6646

©2014TheStreet,Inc.Al l R ightsReserved Page1of28

BankofAmerica(BAC)EarningsReport:Q22015ConferenceCallTranscriptThefollowingBankofAmericaconferencecalltookplaceonJuly15,2015,08:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

LeeMcEntire;BankofAmericaCorporation;SVP-IRBrianMoynihan;BankofAmericaCorporation;Chairman,CEOBruceThompson;BankofAmericaCorporation;CFO

OtherPart icipants

BetsyGraseck;MorganStanley;AnalystMattO 'Connor;DeutscheBank;AnalystJimMitchell;BuckinghamResearch;AnalystJohnMcDonald;SanfordBernstein;AnalystGlennSchorr;ISIGroup;AnalystEricWasserstrom;GuggenheimSecurities;AnalystKenUsdin;Jefferies&Company;AnalystStevenChubak;NomuraSecurities;AnalystBrennanHawken;UBS;AnalystMartyMosby;ViningSparks;AnalystNancyBush;NABResearch;AnalystMikeMayo;CLSA;AnalystChristopherWheeler;AtlanticEquity;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Gooddayeveryoneandwelcometotoday'sprogram.Atthistimeallparticipantsareinalisten-onlymode.Lateryouwillhavetheopportunitytoaskquestionsduringthequestionandanswersession.(OperatorInstructions).Pleasenotethiscallmayberecorded.Iwillbestandingbyshouldyouneedanyassistance.

ItisnowmypleasuretoturntheconferenceovertoMr.LeeMcEntire.Youmaybegin,sir.

LeeMcEntire (SVP-IR):

Goodmorning.Thankstoeverybodyonthephoneaswellasthewebcastforjoiningusthismorningforthesecond-quarterresults.Hopefullyeverybody'shadachancetoreviewtheearningsreleasedocumentsthatareavailableonthewebsite.

SobeforeIturnthecallovertoBrianandBruceletmejustremindyouwemaymakesomeforward-lookingstatements.Andforfurtherinformationonthosepleaserefertoeitherourearningsreleasedocuments,ourwebsiteorourSECfilings.

SowiththatI'mpleasedtoturnitovertoBrianMoynihan,ourCEO,forsomeopeningcommentsbefore




BruceThompson,theCFO,goesthroughthedetails.Brian?

BrianMoynihan (Chairman,CEO):

Thankyou,Lee.Andgoodmorningeveryoneandthankyouforjoiningusforoursecond-quarterresults.

Asyoucanseefromourreleasewereported$5.3billioninafter-taxearningsthisquarterwhichisupfromlastquarteraswellasmorethandoublewhatwemadelastyear.Notonlywerewepleasedwiththebottomlinebutrevenuewasupandexpensesweredowncomparativelyagainstbothperiods.

Lotsofthingscametogethertoachievetheseresultsandwecontinuetoworkonallthesealso.OntheexpensesidewetoldyouthatweachievedthenewBACcostsavingsbackinthethirdquarteroflastyear.However,wedidn'tgiveuponourfocusonexpensesandyoucanseethoseintheresults.

It'sthelowestnon-litigationexpensebasesince2008.AtthesametimewecontinuetoinvestinthefutureofthisCompany.Justtomentionafewoftheseinvestments,weaddedsalesspecialistsinourfinancialcenters,up3%versuslastyear.

Weadded3%toourfinancialadvisorssincelastyear.4%toourcommercialandbusinessbankers.We'veopenednewfinancialcentersinnewmarketsthatwepreviouslydidn'thavecoverageandwecontinuetoupgradethoseinothermarkets.

InadditionwecontinuetoinvestinyoungnewtalentinourCompany.Wehiredarecordnumberofteammatesfromcollege,over1,200,andweuppedourinternprogramtoover1,800thissummer.

Andwecontinuetoinvestaswehavesaidintechnologywithover$3billionwe'vespentthisyeartocontinuetoimproveanddriveourproductsandourcapabilitiesintheCompany.Aswearedoingthatwecontinuetofocusonourprocessimprovement.OurSimplifyandImproveeffortcontinuestotakeholdandyousawthatandsomeoftheeffectsofthatthisquarter.

Thegoaloftheprogramistoholdthecostmanagementwellastheeconomycontinuestorecoverandourrevenuescontinuetorecover.Awayfromtheexpenses,afewotherhighlightsofthequarter,wesawouroverallloangrowthandbalancesfromthefirstquarter,wesawacontinuedimprovementinournetcharge-offsincreditquality,ourdepositsandourconsumercontinuetogrowevenfasterthisquarterthanpriorquarters.

WealsobuiltcapitalandtangiblebookvaluedespitetheOCIimpactofhigherrates.Wereturnedover$1.3billiontoourshareholdersthroughsharerepurchaseandcommondividends.Andlookingattheresultsthisquarteryoucanalsoseethatwe'remakingprogressonourpathtoourlong-termtargetstoreturnonassetsandreturnontangiblecommonequity.

Brucewilltakeyouthroughthebusinessactivityinthevariouspagesintheslidesbutsomehighlights.Thisquarteragainweaveragedabout5,000newcustomersadaytoourmobilebankingplatform.ButimportantlytheteamcontinuestomakeprogressinbringingthatplatformintotheCompanyinmultipleways.

Anexampleofthatisthisquarterourdigitalchannelsaleswereup30%fromlastyearinthesecondquarter.Inadditiontothatwecontinuetofocusonourmortgagearea;ourdirect-to-consumermortgageandhomeequityoriginationsimproved40%fromayearago.

InthemassaffluentspaceourMerrillEdgeproductcontinuestohaverecordassetsandthey'reup15%toover$122billion.Andthat'sontopofourinvestmentbrokerageservicesrevenueteammatesinUSTrustandMerrillLynchthatcontinuestogrow.




Wealsocontinuetodriveour401kbusinessandthisyearwe'veaddedsomeoftheindustry'slargestcompaniestoourplatform.SothosearethetrendsinthebusinessandBrucewillcovermorelater.

Fromabroadeconomicstandpointwhatdoweseeoutthere?NotwithstandinguncertaintyineconomiesoutsidetheUnitedStatesweseetheUSeconomycontinuestosteadilyimproved.Inourmiddle-marketbusiness,ourcommercialbusinesses,ourCompany'sbalancesheetisstrongandtheycontinuetodrawloansatahigherratethantheydidlastquarter.

Ourconsumerscontinuetospendonourdebitandcreditcards,thisquarterspendingover$127billionthisquarter,up3%fromlastyearevenwithadowndraftingaspricesintheyear-over-yearcomparison.Ourindustry-leadingresearchteamunderCandace'sleadershipandBankofAmericaresearchexpectsUSGDPgrowthforthesecondhalfoftheyeartobe3%foreachofthosequartersandweseethatinourstatistics.

OurCompanyiswell-positionedtobenefitfromthatcontinuedhealthintheeconomy.AndwecontinuetomanagethisCompanytodeliverforourcustomers,clientsandforyouasshareholders.WiththatIwillturnitovertoBruce.

BruceT hompson (CFO):

Thanks,Brian,andgoodmorningeveryone.I'mgoingtostartonslide3andlet'sgothroughtheresults.

Werecorded$5.3billionofearningsinthesecondquarteror$0.45perdilutedshare.Thiscomparesto$0.27ashareinthefirstquarterof2015and$0.19inthesecondquarteroflastyear.

Afewitemstonoteasyoureviewtheresults.Inthesecondquarterwehad$669millionofpositivemarket-relatedadjustmentsinnetinterestincomeprimarilydrivenbypremiumamortizationonourdebtsecuritiesfromhigherlong-termrates.Thisprovideda$0.04benefittoEPS.

Thequarteralsoincluded$373millioninbenefitsfromconsumerrealestateloanswhichadded$0.02ashare.Oneotheritemworthnotingistherepandwarrantprovisionwhichisanet$205millionbenefitthisperiod.Thiswasmostlyassociatedwithpositivedevelopmentsinlegacymortgage-relatedmatterswhich

I'lldiscusslaterinthepresentation.

Thisadded$0.01toEPS.RevenueonanFTEbasiswas$22.3billioninthesecondquarterandincludedtheitemsthatIjustmentioned.Totalnon-interestexpenseinthequarterwas$13.8billionandreflectslowerlitigationcosts,lowerLAScostandgoodcoreexpensecontrolscomparedtoboththefirstquarterof2015andthesecondquarterof2014.

Provisionforcreditlossesthisquarterwere$780millionandincludedimprovednetcharge-offsonanadjustedbasisaswellaslessreservereleasecomparedtothefirstquarterof2015.Returnontangiblecommonequitythisquarterwas12.8%,returnonassetswas99basispointsandtheefficiencyratiowas62%.IfweadjustforthosemetricsforthefewitemsImentionedearlierreturnontangiblecommonequitywas10.9%,returnonassetswas85basispointsandtheefficiencyratiowas65%.

Onslide4,thebalancesheetwasuplessthan1%versusthefirstquarterof2015asloangrowthandhighersecuritiesbalanceswereoffsetbyadeclineintheendingbalanceswithinourGlobalMarketsbusiness.Loansonaperiod-endbasiswereupreflectinggoodcoreloanactivity.Allofourloancategoriesshowedgrowthfromthefirstquarterof2015withtheexceptionofConsumerRealEstatewhichdeclinedfrombothdiscretionaryactivityaswellasotherone-offs.

Commonshareholders'equityimproved.Thissolidearningsgrowthwaspartiallyoffsetbya$2.2billion




declineinOCIand$1.3billionincapitalreturnstocommonshareholders.

Werepurchased49millionsharesfor$775millionandpaidapproximately$500millionincommondividendsthisquarter.Tangiblebookvalueincreasedto$15.02andtangiblecommonequityimprovedto7.6%.

Ifwelookatlendingactivityonslide5ourreportedloansonanend-of-periodbasisincreasedforthefirsttimesincethethirdquarterof2013,growing$8.5billionfromthefirstquarteror4%onanannualizedbasis.ActivityinourdiscretionaryportfoliowhichisreflectedintheLASandAllOtherboxwhereweuseconsumerrealestateloanstomanageinterestrateriskintheLASunitwherewehaveahomeequityrun-offportfoliotogethershowedadeclinefromthefirstquarterof2015of$15billion.

TheloansalesImentionedearlieraccountedforroughlyhalfthatamountandincludedcertainloanswithlong-termstandbyarrangementsthatwereconvertedintosecurities.Afterweexcludethisactivity,ourcoreloansincreased$23.5billion,or4%fromthefirstquarterof2015.Commerciallendingwasstrong.

Amongotherinitiativesthemanagementteamchallengedourcorporateandcommerciallendersforthepastseveralquarterstomorefullyutilizethecreditlimitstodriveresponsiblegrowth.Inthatlight,GlobalBankingshowedacontinuationofloangrowthfromtheendofthefirstquarterof2015growing$11.4billion,or4%duringthequarterfromamixofC&Iacrosslargecorporateandmiddlemarketaswellasgrowthincommercialrealestate.

OurWealthManagementbusinesscontinuestoexperiencestrongdemandinbothsecuritiesbasedlendingaswellasconsumerrealestate.AndourConsumerBankingareagrewbothcardandautoloans.

Ifwemovetoregulatorycapitalonslide6,underthetransitionrulesourCET1ratioimprovedto11.2%inthesecondquarter.IfwelookatourBaselIIIregulatorycapitalonafullyphased-inbasisCET1capitalimproved$1.1billiondrivenbyearnings,partiallyoffsetbytheOCIdecline,sharerepurchasesanddividends.

Underthestandardizedapproach,ourCET1ratiowassteadyat10.3%asRWAwasstablewiththefirstquarterof2015.Undertheadvancedapproaches,CET1ratioincreasedfrom10.1%to10.4%asRWAimprovedbyapproximately$34billion.LowercounterpartyRWAdrovethisdeclineandwasequallysplitbetweenthreefactors.

ThefirstlowerderivativeexposuresmainlydrivenbymovementsinbothratesaswellasFX.Second,optimizationthroughbettercollateralmanagementandreductionsincertainpositions.Andthird,anincreaseinthepopulationoftradeseligibleformodeltreatment.

Thebalanceoftheimprovementwasdrivenbylowerlevelsofmarketrisk.InregardstotheFed'srequestedmodificationstomodelsinordertoexittheparallelrunthatwehavepreviouslycommunicatedtoyou,attheendofthequarterweestimateifwemadetherequestedmodificationsthatouradvancedapproach'sCET1ratiowouldbeapproximately9.3%atJune30.

MovingtooursupplementaryleverageratiosweestimatethatattheendofthesecondquarterwecontinuetoexceedtheUSrulesthatareapplicablein2018.OurbankholdingcompanySLRratiowasapproximately6.3%andourprimarybanksubsidiaryBANAwasapproximately7%.

Ifweturntoslide7onfundingandliquidity,long-termdebtof$243billionwasup$6billionfromthefirstquarterasissuancesoutpacedmaturities.Asyoucanseefromthematurityprofilewehave$10billionofparentcompanydebtscheduledtomatureintherestof2015andwe'llcontinuetobeopportunisticinregardstoissuance.




Ourglobalexcessliquiditysourcesreachedarecordlevelduringthequarterat$484billionandnowrepresent23%oftheoverallbalancesheet.TheincreasefromthefirstquarterofGELSreflectsacontinuedshiftfromdiscretionaryloansintoHQLAsecuritiesaswellastheincreasedstepbalances.

Ourparentcompanyliquidityincreasedto$96billionandourtimetorequiredfundingimprovedto40months.AttheendofthesecondquarterweestimatethattheconsolidatedCompanywaswellabovethe100%fullyphased-in2017requirementfortheliquidityratio.

Ifweturntoslide8onnetinterestincome,onareportedFTEbasiswas$10.7billion,anincreaseof$1billionfromthefirstquarterof2015.VolatilityinlongendratesoverthepastfewquartershasclearlycausedsomevariabilityinoutreportedNII.Themarket-relatedadjustmentfromourbondpremiumamortizationthisquarterwasabenefitof$669millionasratesrose40basispointsinthequarterwhileinthefirstquarterof2015wereportedanegative$484millionadjustmentfromadeclineinratesintheperiod.

IfweadjustforthoseitemsourNIIdeclinedapproximately$100millionfromthefirstquarterof2015tojustover$10billionastheimpactoflowerdiscretionarybalancesandconsumerloanyieldsmorethanoffsettheimpactofonemoredayofinterest.Attheendofthesecondquarteraninstantaneous100basispointparallelshiftincreaseinrateswouldbeexpectedtocontributeroughly$3.9billioninNIIbenefitsoverthefollowing12monthsandthat'ssplitroughly60%toshortendratesand40%tolongendrates.GiventhemovementhigherinlongendratesourbalancesheetdidbecomelesssensitivetolongendratescomparedtoMarch31aswerealizedsomeofthatsensitivitythroughFAS91inthesecondquarter.

Asyoucanseeonslide9,non-interestexpensewas$13.8billioninthesecondquarterandincluded$175millioninlitigationexpense.Litigationexpensediddeclinesignificantlyfromthesecondquarterof2014levels.Ifweexcludelitigationexpenseswere$13.6billioninthequarter,adeclineof$900million,or6%fromthesecondquarterof2014.

Onbalancewe'requitepleasedwithouryear-over-yearexpenseimprovementevenwhilewecontinuetoinvestinthefranchise.Inthethirdquarterof2014wewrappedupthenewBACcostsavingsinitiativesandseveralquarterslaterwecontinuetoseegoodprogressonoperatingcostreductionsinLASaswellasinotherareas.Ourheadcountisdown7%comparedtothesecondquarterof2014andasareminderwedoexpecttoincursomecostsassociatedwithourCCARresubmissionthroughthebalanceoftheyear.

Ifwegoaheadandswitchtoassetqualityonslide10,reportednetcharge-offswere$1.1billionversus$1.2billioninthefirstquarter2015.Bothperiodsincludecharge-offsassociatedwiththeAugust2014DOJsettlementwhichwehadpreviouslyreservedfor.IfweexcludetheseimpactsandasmallimpactfromrecoveriesonNPLsales,ourcorenetcharge-offsdeclined$75millionfromthefirstquarterof2015to$929million.

Lossratesonthesameadjustedbasisimprovedto43basispointsinthesecondquarterof2015.USconsumercreditcarddelinquenciesimprovedaswellandonthecommercialfrontwesawanuptickinNPLsandreservablecriticizedexposurefromthefirstquarterdrivenbydowngradesinouroilandgasexposures.Despitethesedowngradeswefeelgoodaboutourexposureinthisareaastheyarewellcollateralizedandmostofthesecreditsonlyhadaonelevelmigrationonariskratingscale.

Thesecond-quarterprovisionexpensewas$780millionandwereleasedanet$288millioninreserveswhichincludestheutilizationofpreviouslyaccruedDOJreserves.Releasesinconsumercardandconsumerrealestatewerepartiallyoffsetbyreservebuildswithinthecommercialloangrowtharea.

Let'sgoaheadandmovetothebusinessesonslide11,ConsumerBanking.ConsumerBankinghad




earningsof$1.7billionwhichwas4%greaterthanthesecondquarterof2014and16%abovethefirstquarterof2015level.Thisinturngeneratedastrong24%returnonallocatedcapital.

Withinrevenuefeeswereup2%fromlastyeardrivenbyhighercardandhighermortgagebankingrevenuebutthisgrowthwasmorethanoffsetbyadeclineinnetinterestincome.ThedeclineinnetinterestincomeisaresultoftheallocatedimpactofourALMactivitiesaswellassomecompressionincardlowyields.Provisiondecreased$44millionfromthesecondquarterof2014drivenbythecontinuedimprovementthatwesawinboththecreditcardaswellastheautoportfolios.

Ournon-interestexpensewasdown4%fromthesecondquarterof2014aswereducedthenumberoffinancialcentersandassociatedcostsandpersonnel.Thecostofaveragedepositsratioisnowlessthan175basispointsandwehavea57%efficiencyratiowithinthissegment.ThisbusinessisagoodrepresentationofhowtheCompanyisdoingmorebusinesswhilewecontinuetoreduceexpenses.

Wealsocontinuetoexperienceashiftinconsumerbehaviorpatternsawayfrombranchesandtowardsmoreself-service.Forexample,thenumberofmobilebankingcustomerscontinuestogrowandincreasetomorethan17.6millioncustomersthisquarterandthesecustomerslooktomobiledevicesforapproximately13%ofalltransactionsoralldeposittransactions.

Ifwelookatsomeofthekeydriversandtrendswithintheconsumerareaonslide12weremainaleaderinmanyaspectsofConsumerBankingdoingbusinesswithroughlyhalfofallUShouseholds.Let'slookatcardactivity.Cardincomeincreased5%fromthesecondquarterof2014onstrongsalesandsolidspendlevels.

Cardissuancereachedalmost1.3millionunitsinthequarteronincreasedsaleseffortswhiletheaveragebookFICOscorewasalsostrong.Averageloanbalancesweredownslightlyfromthesecondquarterof2014aswedoseecustomerspayingdownmoreoftheirbalances.

Netcharge-offsdeclinedfromverylowlevelsandwere2.7%inthesecondquarterandriskadjustedmarginsremainhighatroughly9%.Mortgagebankingincomeinthissegmentwasup8%fromlastyearasoriginationshadnicefollow-throughfromtheelevatedpipelineattheendofthefirstquarteraswellashigherproductionmargins.

First-quartermortgage--firstmortgageoriginationsforthetotalCompanywere$16billion,up44%yearoveryearandup16%fromthefirstquarterof2015.Homeequitylineandloanoriginationsincreased23%to$3.2billionfromtheyear-agoquarterandwerestablewiththefirstquarter.

Revenueimprovementversusthesecondquarterof2014wasdrivenbyimprovedmargins.Althoughthemortgagepipelineremainssoliditisdown15%fromtheendofthefirstquarterdriveninpartbyhigherrates.

Servicechargesweredownmodestlyversusthesecondquarterof2014.Thisfeelineitemdoescontinuetobesomewhatmutedaswecontinuetoopenhigherqualityaccountsandthoseaccountsarecarryinghigherbalances.Comparedtothesecondquarterof2014ouraveragedepositsof$545billionareup$31billion,or6%evenasweloweredtheratespaidwhichnowstandsat5basispoints.

Lastly,whilewearebringingdownouroverallheadcountinthisbusinesswecontinuetoinvestinthegrowthopportunityofourpreferredclientbase.Andwe'vebeenincreasingsalesspecialistsinthefinancialcentersandthat'sresultedinincreasedactivity.

Ifweturntoslide13,GlobalWealthandInvestmentManagementproducedearningsof$690millionwhichwasup6%fromthefirstquarterof2015levelsbutdown5%fromthesecondquarterof2014.Comparedtothesecondquarterof2014,solidfeegrowthwasoffsetbylowernetinterestincome,higher




creditcostandmodestlyhigherexpenseswhichresultedinadeclineinyear-over-yearresults.

TheallocationoftheimpactofourCompany'sALMactivitiesmorethanoffsettheNIIbenefitsthatwehadfromsolidloangrowthwithinthisspace.Year-over-yearnon-interestincomewasup4%onstrongassetmanagementresults.Non-interestexpensewasmodestlyhigherinthesecondquarteronthestrengthofourassetmanagementfeesaswellasthecontinuinginvestmentinclientfacingprofessionals.

Theyear-over-yearincreaseinprovisionreflectslargerreservereleaseinthepriorperiods.Pretaxmarginwas24%andthereturnonallocatedcapitalremainedstrongat23%.

Ifwelookatactivityanddriversonslide14assetmanagementfeescontinuetogrowandareup9%fromthesecondquarterof2014.Thiswaspartiallyoffsetbysluggishnessoftransactionalrevenueinthebrokeragebusiness.Wedidincreaseourfinancialadvisorsby6%overthelast12monthsandwefeelgoodaboutthenumberofadvisorsthatarejoiningusfromcompetitors.

Clientbalancesareabove$2.5trillion,upalmost$12billionfromthefirstquarterof2015drivenbysolidclientbalancein-flowsaswellasimprovedmarketvaluations.Long-termAUMflowswere$9billionforthequarterandthat'sthe24thconsecutivequarterwherewe'veseenpositiveflows.AsImentionedearlierwecontinuetoexperiencestrongdemandinbothoursecuritiesbasedandresidentialmortgagelendingareasandwereachedanewrecordforloanswithinthisspaceduringthequarter.

Ifweturntoslide15,GlobalBankingearningswere$1.3billionwhichis14%unallocatedcapital.Earningsdiddecline13%fromthesecondquarterof2014aslowernon-interestexpensewasmorethanoffsetbylowernetinterestincome,lowerinvestmentbankingrevenuesandhigherprovisionexpensethatwasassociatedwithastrongloangrowththatwesawduringthequarter.

Theyear-over-yeardeclineinnetinterestincomereflectstheallocationofourALMactivityandliquiditycostaswellassomecompressioninloanspreads.Non-interestexpensediddecline3%fromthesecondquarterof2014aslowerlitigationandothertechnologyinitiativecostwerepartiallyoffsetbyinvestmentinclientfacingpersonnel.

Ifwelookatthetrendsonslide16wechartthecomponentsofrevenue.InvestmentBankingfeesfortheCompanywere$1.5billion,down6%fromthenearrecordlevelsthatweexperiencedduringthesecondquarterof2014.

Advisoryfeeswereup5%duringthequarter.Debtunderwritingwasrelativelystableasincreasedactivityintheinvestment-gradeandotherproductsoffsetthedeclinesthatwesawwithinourleveragefinancearea.

Equityunderwritingwasdown19%fromwhatwasarecordlevelforourCompanyinthesecondquarterof2014.OutsideofInvestmentBankingfeesotherbankingrevenuedeclinedfromlowerleasinggainspartiallyoffsetbymodestlyhighertreasuryfeesandcardincome.Ifwelookatthebalancesheetloansonaveragewere$301billion,up4%fromboththeyear-over-yearandlinkedquarterperiods.

Thegrowthwasbroad-basedacrossbothcorporateandcommercialborrowers.Althoughaveragedepositswererelativelystableversusthesecondquarterof2014wedidseeafavorableshiftinmixwithournon-interest-bearingdepositsupover$20billionandourinterest-bearingdepositsdown$17billionversusthesecondquarterof2014.Thisgrowthinnon-interest-bearingbalanceswasdrivenbyacontinuingfocusonthegrowthwithinoperatingbalances.

Thedeclineininterest-bearingbalanceswasdrivenbytargetedreductionsintheselowliquidityvaluedeposits.

SwitchingtoGlobalMarketsonslide17,inthesecondquarterearningswere$1billiononrevenuesof




$4.3billion.Wegenerated11%returnoncapitalinthisbusinessduringthequarter.Earningswereupmodestlyfromthefirstquarterof2015levelswhichincludedhigherlitigationbutdownfromthesecondquarterof2014isrevenuedeclined.

TotalrevenueexcludingnetDVAdeclinedfromthesecondquarterdrivenbylowerequityinvestmentgains,lowerFICCandsalesandtradingresultsandlowerinvestmentbankingfees.Ifweexcludea$188milliondifferencebetweenperiodsonthesaleofanequityinvestment,revenuewasdown4%fromthesecondquarter.Non-interestexpensewasreduced5%fromthatsameperiodinlinewiththerevenuereductions.

Ifwefocusonthesalesandtradingperformancecomponentsonslide18,salesandtradingrevenueof$3.3billionex-netDVAisdown2%fromthesecondquarterof2014levels.Comparedtothesameperiodayearago,FICCsalesandtradingwasdown9%andnotunlikewhatwesawinthefirstquarterof2015strengthwithinthemacro-relatedproductslikeFX,ratesandcommoditieswasoffsetbylowerlevelsofactivitywithinthecreditproductsspace.Andtoremindyou,ourmixdoesremainmoreheavilyweightedtocreditproductsbasedonthesizeofournewissuebusiness.

Equitiestradingwasup13%yearoveryeardrivenlargelybyincreasedclientactivitywithintheAsia-Pacificregionaswellasastrongperformancewithinthederivativearea.

Slide19showsourLegacyAssetsandServicingbusinesswherewewereprofitableduringthequartergiventhenetbenefitinourrepandwarrantprovision.Revenueexcludingthisbenefitdiddeclinefromthefirstquarterof2015onlessfavorableMSRhedgeperformanceaswellaslowerservicingrevenue.Litigationexpensedeclinedsignificantlyfromthesecondquarterof2014.

Non-interestexpenseex-litigationwasroughly$900millionthisquarter,improving$122millionfromthefirstquarterof2015and$526milliongoingbacktothesecondquarterof2014.Weremainontracktohitourfourth-quartergoalofapproximately$800millioninLAScostex-litigation.

Wewerealsopleasedthatduringthequarterournumberof60-plusdaydelinquentloansdecreasedto132,000units.That'sdown14%fromthefirstquarterandalmost50%fromthepriorperiodoflastyear.

BeforeImoveawayfromthemortgagespaceletmementionanimportantdevelopmentinourlegacymortgageexposures.ThisquartertherewasacloselywatchedcaseinNewYork'shighestcourtwhichconfirmedthattheNewYorksix-yearstatuteoflimitationonfilingrepandwarrantclaimsbeginstorunatthetimetherepsandwarrantiesaremadeandnotatsomelaterpointintime.

Basedonourreviewoftherelevantdocumentswebelievethevastmajorityofthebank'sremainingPLSrepresentationandwarrantyobligationsaregovernedbyNewYorklaw.Asaresultofthecaserulingyoucanseeonslide20,asignificant$7.6billionreductioninourgrossoutstandingprivatelabelclaimsasaresultofcertainclaimsnowbeingtimebarred.

ThisrulingalsohadpositiveimplicationsonourrepandwarrantprovisionasImentionedaswellastherangeofpossiblelossabovethosereserves.Yourecall,theRPLhadbeenarangeofupto$4billionforseveralyearsandsothetopendofthatrangehasnowbeenreducedtoupto$2billion.

Onslide21weshowallother.The$637millionofearningsthisquarterresultedinaswinginprofitabilityasaresultoftheimprovementintheNIImarket-relatedadjustmentfromquartertoquarteraswellastheprior-periodinclusionoftheannualretirementeligibleincentivecost.TheloansalesImentionedearlierarealsoincludedinrevenue.

Oureffectivetaxrateforthequarterwas29%andIwouldexpectthetaxratetoberoughly30%fortherestof2015absentunusualitemsliketherecentUKtaxreformproposals.AmongtheUKproposalswerea




reductioninthecorporatetaxrate,asurchargetaxonbankearningsandareductioninthebanklevyrate.Ourpreliminaryreadisthatwecouldhaveaone-timechargeofseveralhundredmilliondollarslaterinthisyeartorepriceourUKdeferredtaxassetsuponenactment.

Atthistimeonanongoingbasisweexpectarecurringtaximpacttobemodest.Beforewrappinguponthisslideletmeremindyouthatourpreferreddividendsinthethirdquartershouldbe$440millionand$330millioninthefourthquarterofthisyear.

SotowrapupasBrianstartedthepresentationwithmanythingsthatourteamshavebeenfocusedonforsometimecametogethernicelythisquarterandthatenabledustoreportmorethan$5billioninearningsandmoveclosertoourlong-termtargets.Revenuereflectedrelativestability,weloweredcost,wegrewloansnicely,ourcreditqualityremainsverygoodandwe'refocusedonoperatingleveragewithinthebusiness.ThefoundationoftheCompany'sbalancesheethasneverbeenstrongerwithrecordcapitalandrecordliquiditylevelsandweremainwell-positionedtobenefitfromarisingrateenvironment.

Withthatlet'sgoaheadandopenitupforQ&A.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)BetsyGraseck,MorganStanley.

BetsyGraseck(Analyst-MorganStanley):

Hi,goodmorning.ThequestionI'mgettingfrompeoplethismorningisaroundtheexpenses.YoushowedsomeveryniceimprovementincoreexpensescomingdownmeaningfullyQonQandyearonyear,andthequestionishavewereachedtheendstatehereoristhereanyfurtheropportunitytobringdownexpensesfromhere?


Ithink,Betsy,inthebroadestcontextwecontinuetoworkexpenses.Ifwetalktoallofyouabouteachquarter,18straightquarterreductionincoreoperatingexpensesoutsidelitigation,15straightquartersof3,000peopleormorereductioneachquarter.Sowejustcontinuetoapplytechnologytocontinuetooverthelongtermreduceexpenses.

SothegoalwehaveinSIMistokeeptheexpensesflatasrevenueincreases.Andiftheworldeconomicsituationchangesdifferentwhatpeopleareexpectingwe'dhavetolookatitdifferently.Butasyoucanseethisquarterthatwillresultinaconstantdownwardpressuregivenwhereweareintheeconomy.


Okay.Andthenontherepsandwarrantysideyouhadwhatlookslikealittlebitofatrue-upbasedonthislitigationdecision.Isthattherightwayofreadingitoristherepotentialeveninmoretocomeinthefutureasyougothroughthesecases?


No,clearlywhatthecaseissignificantisthis,Betsy.Welookedatandaswedoeveryquarterlookattherepandwarrantprovisionandyou'rerightitwasanetbenefitof$200millionthisquarter.

IthinktheimportantthingIthinkmorethanthe$200millionisifyoulookbackonourslide20intheearningsmaterialstheeffectofthedecisionledtotwothingsthatdoreducetailriskonago-forward




basis.Thefirstisyoucanseethenumberofnewclaimsthatcameinwasjustover$200millionwhichisadramaticimprovementfromwhatwe'veseenhistorically.Andsecondasaresultofthetimebarringofcertainclaimsthattheoutstandingclaimsthatwehave,andkeepinmindtheseoutstandingclaimsarebasedonoriginalUPB,camedownfairlysignificantlytojustbelow$19billion.

SowhileitwasnicetohavethemodestbenefitthatwedidinthequarterIthinkimportantlyonago-forwardbasisitdoesreducethetailriskthat'soutthere.Wesawsomeofthebenefitsfromthatintheactivitylevelsthisquarter.


Okay,thanks.Andthenjustonelastquestion.

Youindicatedtheupsidethatyouhaveintheeventofaraterise$3.9billioniftheparallelshiftis100basispoints.Thequestionishowyou'rethinkingaboutdroppingthattothebottomline?Istherereinvestmentsthatwouldtakeupsomeofthatorareyouatsufficientrunrateininvestmentspendthatyouwouldbeabletodropmoretothebottomline?


There'snoquestion,Betsy,aswelookatandI'lljustremindpeoplethatwewereat$3.9billionfora100basispointmove.Ifyoulookatthatroughly60%ofitisontheshortendnow.40%ofitisonthelongend,andthere'snoquestionthatwewouldexpecttodropasignificantportionofthattothebottomlineifandwhenweseethat100basispointmove.


Okay.Andthenjustbacktotheexpenseside,theexpenserunratethatyou'vegotrightnowissomethingyouthinkyoucanholdatleastifnotimprovefromhere,isthatfair?


Yes,Betsy,reallytoyourlastquestionwe'vebeeninvestinginheadcounttoopenupacustomerfacingcapacity.SoI'drathergiveyousomeofthestatisticsearlier,sowe'recomfortablefromatechnologyspendrate,fromaninvestmentandclientfacingcapacity,marketingandeverythingwe'reatagoodrunrate.Sothere'dbedownwardpressureasheadcountcontinuestocomedownthroughtheapplicationoftechnologyacrosstheplatformwithcustomersinternally.

Sowe'recomfortablethatwecancontinuetodriveit.Andmakenobonesaboutitthisiswhatweworkoneverydayandwe'rereluctanttoputoutadollartargetbecausefranklythattellstheteamwe'vemadeagoalandstopasopposedtojustgetbetteratiteveryday.SoweareconstantlyworkingtoimprovethedynamicsofrevenueversusexpenseinthisCompany.


Thanksalot.

Operator :

MattO 'Connor,DeutscheBank.

MattO'Connor (Analyst-DeutscheBank):

Ifwelookatthecorenetinterestincomeex-themarket-relatedmarksitwasdownalittlebitversuslastquarterbutyou'restartingtoseetheloansinflectasyoumentionedearlier.Dowestartseeingstability




inthecorenetinterestincomelookingatnextquarterortwoordowereallyneedhighershort-termratesforthat?


Thanksforthequestion.It'sagoodquestion.IthinkifyoulookatwetypicallyhavealittlebitofseasonalpressureinthesecondquarteronNIIsoaswesitheretodaybasedonthecurvewewouldexpecttoseethecorenetinterestincomewhichobviouslyexcludesFAS91moveupfromQ2toQ3andwe'dexpectfurthergrowthfromQ3toQ4.


Okay.Andthat'swithoutanybenefitfromrates?


It'sjustbasedontherealizationofwhattheexistingcurveiswhichquitefranklywedon'tlookatandourmodelsdon'tshowFedfundsgoingupuntilJanuary2016.Sothere'snotalotofgreatbenefitinthatatall.


Okay.AndthenonthediscretionarybookyoumentioneditcamedownalittlebitwhenyoulookoutonacombinedsecuritiesmortgagesbasisandIguessjustwesawlong-termratesgoupandsomebankshavebeenincreasingthediscretionarybookwithhigherreinvestmentratesorhigherinvestmentrateshere.What'sthethoughtonbringingthatbookdownasrateshavegoneup?


Ihavetwocomments.Ithinkthefirstisthatwhenwetalkedaboutthediscretionarybalancescomingdownthat'sbasicallythewholeloanportfolioaswellascertainpiecesofthehomeequityportfolio.Sowereferencedthatthosecamedownabout$15billionquarteroverquarter,halfduetosalesandhalftopaydowns.

Weprobablyhaveonemorequarterwhereyou'llseesomeoftheconversionofthoseloanstosecurities.ButifyouactuallylookattheamountofsecuritiesfromabalancedperspectivetheywentupalittlebitQ1toQ2basedontheconversionofthoseloanstosecurities.Andaswecontinuetoseethedepositfootprintgrowwewillcontinuetoinvestandwe'reobviouslymindfulofthebalancebetweenincreasingnetinterestincomelikeIspokeaboutaswellasbeingsensitivetoOCIrisk.


Okay,thankyouverymuch.

Operator :

JimMitchell,BuckinghamResearch.

JimMitchell(Analyst-BuckinghamResearch):

Hey,goodmorning.Justaquickfollow-upontheNIMoutlook.

IthinkBrucelastquarteryoumentionedthatiftheyieldcurvestayedwhereitwasyou'dhaveabout$600millionofdraginNIIoverthenextfewquarters.Areyousayingthatthat'sprettymuchchangedwiththesteepeningofthecurvesinceAprilwhenyouspokelastandnotonlyNIIisgrowingbutNIMshouldstabilizeorisitjustsortofoffsettingeachother?




Areyougettingaboostfromthat?Howdowethinkabouttheyieldcurveversusyourpriorcomment?


Aswelookandsnapforwardtherearealotofthingsthatinfluencethatnumber.Oneisobviouslytheabilityandhowmuchwe'veputtheincreaseindepositstoworkthroughgrowingloansandclearlywe'veseenduringthesecondquarterwesawthatloangrowthmoveupwhichisobviouslyagoodthingwhichlessenssomeofthatsensitivity.

Andaswelookattheamountandwhatwe'redoingfromaninvestmentportfoliothere'slesstododuringthesecondhalfoftheyear.Soallinallaswelookatthosedifferentfactorsit'swhywe'recomfortablesayingthatwe'dexpectthecoretoincreasebothQ2toQ3aswellasfromQ3toQ4.


Okay,fairenough.Andjustonthecapitalside,whendoyouthinkthemodificationsbecomeofficialandyouexittheparallelrun?HowlongdowethinkwehavetowaitforthatandisthereanythingthatcouldchangeintermsofyourexpectationaroundIguessthe90basispointhittoyourCET1?


IthinkIcansaythatwecan'tsaytoomuchaboutregulatorymatters.Ithinkgiventheupdateddisclosurewe'vegivenyoucanassumethatwe'regettingclosertohavingthatresolved.Youneverknowuntilyou'reultimatelydonebutwefeelverycomfortablewiththeguidanceof9.3%factoringintheadjustmentsbasedonwherewewereattheendofthesecondquarterandwe'lllooktogetthatwrappedupsoonerthanlater.


Okay,that'shelpful.Andjustonelastquickoneonthe$3.9billionofsensitivitytohigherrates,howmuchisFAS91relatedversuscore?


Sure.AsImentionedroughly40%ofit'slongendwhichis$1.5billionoftheamountandroughlyhalfofthatisFAS91andhalfofitisnon-FAS91related.


Okay,thanksalot.

Operator :

JohnMcDonald,Bernstein.

JohnMcDonald (Analyst-SanfordBernstein):

Hi,thanks.Brucejustonemorequestionontheratesensitivity,the$3.9billionmovefor100basispointparallelmoveIassumethatillustrationistoa100basispointmovethat'sashockoraninstantaneousmoveinrates?Canyougiveusanyfeelforhowthatnumberwouldchangeifthemoveinratesismoregradual?AstheFedissayingifIgograduallyhowdoesthatchangeifit'snotinstantaneous?


WellImeanultimatelyovertimeifyougettothe100basispointnumberyouhavethat,Ithinkyourpointisthatiftheymove25basispointsisit25%orisitmorethan25%?AndIthinkthethingthatyouhaveto




keepinmindandwe'vetalkedaboutitalotwithwhatwewouldexpectfromadepositrepricingperspectivethatclearlyyou'dexpectthefirst25to50basispointsmoveupthatwewouldnothavetodomuchfromadepositperspective.Sonet-netonarelativebasisthatshouldbeapositiveasyoulookatthenumbers.


Okay.Andaclarification,whereitisthegainonconsumerrealestateloans?IsthatintheMortgageBankingline?


No,it'sinotherincomeandit'sreflectedintheAllOthersegment.


Okay.TheMortgageBankingincomewasverystrongonthefeeincomeline,obviouslyyouhadtherepandwarrantinthere.WasthereanythingelseintherethathelpedontheMortgageBankingline?


IwouldsaythatgenerallythatthehedgeresultsontheMSRwerefairlydecentinthequarterandthenlikewe'vesaidtherejustwasn'tmuchlitigationduringthequarteraswell.Soallofthosethingsledtotheresultsbeingwheretheyare.Butyou'rerightwe'vetypicallyhad100to200ofrepandwarrantyprovisionandwehad200benefits,soyougetasenseofthemagnitudeoftheswingonacomparableperiodbasis.


Gotit.Okay,andthenlastquestionformeonthecredit,doyouseethenetcharge-offsbouncingaroundthecurrentlevelthe$929millionandhowdoyouseeitplayingoutintermsofprovisionreservereleaserelativetowhatyoujustdidthisquarter?


IthinkthisquarterIthinkyou'reseeingacontinuationofwhatwe'vebeentalkingaboutandIwanttobecarefulthatIthinkweneedtoexcludeDOJbothonthetopasyoudidinyour$929millionnumberaswellasinthereserverelease.SoifyoubackoutwhatwehadforDOJthereservereleasewasabout150,thecharge-offsof$929millionweredownroughly$75million.

AndwhilethiscanbouncearoundalittlebitIthinkwhatyou'relikelytoseeoverthenextcoupleofquartersisprobablyaconvergencewherethecharge-offsandtheprovisionnumberbecomemorecloselyaligned.AndIwouldjustsaythatparticularlyontheconsumersidewecontinuetolikewhatweseeoncreditandonthecommercialsideyoucanseethatcharge-offsarevirtuallynilwithinthelargecorporatespaceandthere'snothingthatweseeouttherethat'sgoingtochangethatmaterially.


Okay.AndontopofthatwilltheDOJstillbeafactorforthenextcoupleofquarters?


AsitrelatestothatIwanttothink,John,thatitwillbeinthe$100milliontypeareaasitrelatestobothcharge-offandreservereleaseandthenbythetimewegettothefourthquarteritshouldvirtuallygoaway.Itcanbouncearoundalittlebitbutitshouldlargelybegonebytheendofthethirdquarter.





ButitparesoffJohnsothewayyousubtractthisquartercontinue.Soit'sanumberit'soffsetbyapreviouslyestablishedreserve.


Gotit.Okay,thankyou.

Operator :

GlennSchorr,EvercoreISI.

GlennSchorr (Analyst-ISIGroup):

Hi,thanks.Twoquickonesontheaveragebalancesheet.

Whenyoulookatthedebtsecuritiesline,theyieldwentupsomeversionofalotfrom2%to3.2%.I'massumingsomeofthatisLASloansconverting,butcouldyougivealittlecoloronwhatdrivesthat?Becausetheoverallsizeofthebookdidn'tchangethatmuch.


Yes,it'sinteresting,ifyoulookyearoveryearandyouadjustforFAS91whichshowsupintheNIIwhenyou'relookingbackatthetablethattheyieldswerealmostidenticalfromthesecondquarterof2014tothesecondquarterof2015onceyoumakethat91adjustment.


Okay.Similarbutdifferentquestion,insidetheC&Ibook,theusedcommercialbookitwasjusta4basispointdropquarteronquarterbutthere'sgrowththere.SoI'mjustcuriousthetrade-offbetweenpriceandyieldgiveuponthenewloansyou'reputtingonversustheresponsiblegrowthyoutalkedabout.

Itdoesn'tseemthatbad.I'mjustcuriousonwhatkindofyieldyou'reputtingnewloanson?


Sure.Ithinkwhenyoulookatcommercialloanspreadstherearetwothingsthatthosenumbersreflect.Ithinkthefirstthingwhichjustfromamacroperspectivethathasbeenalittlebitofcompressionalthoughwe'reseeingitslowasitrelatestojustthecompetitivelandscapeandwhereloansaregettingdone.

Asitrelatestoyourquestionaboutthenewloans,theresponsiblegrowth,ifyoulookedatinparticularlyintheareasthatpickedupduringthesecondquarterthatonourriskratingscaletheywouldtranslatetocreditsthattendtobeinthestrongBBBorasingle8areasothattheyarelargelyinvestment-gradetypecreditswherewe'reextendingitandifyoulookataveragespreadsinthatareatheytendtobeintheLIBORplus150typeareaonaveragewhichisalittlebitlowerthantheaverageacrossthecommercialplatform.Butasyoucanseethecreditisclearlyattheupperend.


SoGlennit'sprobablysayifyouthinkaboutitwe'renotoncreditstructureweheldourdiscipline,onpricethere'sbeenpressurebutthenyouhavetolookatthatonawholerelationshipbasiswiththeotherfeesandrevenuesyougetfromcashmanagementandstuff.Andwetrytohaveaclientfocuseddisciplinetodoit.Butyourobservationisright,thereisalittlepressureonthosespreadsduetothat.





Okay,Idefinitelyappreciatethat.Lastoneiswhenyoutalkaboutthepushingforgrowthandyoumentionedthedifferentspecialistsinthebranches,theBusinessBanking,thefinancialinvestmentconsultants,I'mcuriouswhatareyoudoingtoincentandtoencouragethem?Inotherwordsarethereactualincentivesordotheygetpaidontheirproduction?


Inthesalescontextthereisthereareincentivesforproductionbutithastobedonetherightwaywiththerightcustomersintherightstructuresoitisnot--itdoesn'tdrivetheirbehavior.It'sdifferentthanlet'ssaytheWealthManagementbusinessintermsofthebalancebetweenincentives.

Butyestheyarepaidtoopen,themortgageloanofficersarepaidtoproducemortgagesandtoopenupcheckingaccountsandotherthings.Butit'sreally,it'sactuallydeployingthepeopleandbuildingthecapacitytosell,that'swherewearereducingtheneedforservicesthroughalltheautomationthat'sgoingonandshiftingthatgroupofpeople.

Sothatitisreallyjusthavingmoreofthemthanthinkofitasincentivedrivenbehavior.Andthenreallythenhavingtheinformationatthepointofthesalethroughourtechnologyofoffersthathavebeenmadetopeopleforcreditcards,etc.,soyoucanmaketheofferagainthat'salreadybeenmadetothemonlineorsomething.Soit'sacombinationofsalespractices,morepeopleandthenjustthedisciplineoftheteam,Tom,GlennandDena(inaudible)thenitwouldbeincentivedriven.


Allright.Thanksverymuch.

Operator :

EricWasserstrom,GuggenheimSecurities.

EricWasserstrom(Analyst-GuggenheimSecurities):

Thanksverymuch.Justtofollowupalittlebitonthatlastpoint,whenIwastryingtoshiftthroughthecoreloangrowthnumbersthismorningitlookedlikethecoreloangrowthcomingoutoftheinstitutionalbankandtheWealthManagementlookedstrongbutI'mstillunclearwhatthecorelevelofgrowthwasinsidetheconsumerorganizationandsoI'mjusttryingtoreconcilethatwithwheretheincrementalhiringisoccurringonthesalesfront.Socanyoujustclarifywhatthecorelevelofconsumergrowthwas?


Wellasyoulookattheconsumeronpage5youcanseethebalancesandyoucanseethedifferentpieces.Wehadchangeofpracticeofhowwebookedresidentialmortgagesforourconsumercustomersthathasanimpactonthat.Butoverallyourememberthey'restillfightingacouple--we'restillfightingacoupleofthingsonconsumer.

Oneisthecardbalancesarefinallystabilizeandyousawfromfirstquartertosecondquarteraslightuptickthere.That'sbecausewe'vebeenhittingincreasinglyrecordsalesofcreditcardssoIthinkwedidabout$1.3millionthisquarter,Bruce,thatisagainarecordforusandsincewechangedthebusinessmodelsix,sevenyearsago.Andifyoulookat--butifyoulookatthingslikethehome-equitybalancesandthingslikethatthoseareunderpressurejustbecausewe'restillseeingsignificantrepaymentseventhoughwe'reproducingalotinthatarea.

Soifyoulookatthatyoucanseeit'sacrosstheboardjustalittlebitupsidetilt,inparttheinterplay




betweensomeoftherunoffintheothercategoryandthebuildupinresidential.ButtheydoalotmorethansellloansinthatplaceandsotheinvestmentsaleslevelsthatdrivesthatMerrillEdge,infactattheFSAsandthebranchesthatwedeploydo$4millionofnotionalonaverageamonthofnewinvestmentproducts.Inbuilding$4millionto$5milliontheysellobviouslycheckingaccounts,netcheckingaccountsthisquarter.

We'reinanetcheckingaccountgrowthpositioneventakingintoaccounttherunofffromdivestituresandotherthingsandthenyouhavetheloanside.Sotheyareresponsiblefordrivingallthatandsoitshowsupintheloansalittlebitbutalsothat'swhythefeedcategoryisstableinotherareas.


Andsodoyouhaveasenseoristheresomesensemaybeyoucangiveustohowthatinvestmentinfrontofficestaffiscontributingtogrowthoutsideofthesegment?


Well,forexampleinthesmall-businessarenainthefirsthalfoftheyearwedidabout$5billionoforiginationsandwhattheworldwoulddefineassmallbusinesswehaveitacrosstwodivisionsandtheyhelpedgrowthat.Merchantservicesgrowth,youknowtheysellthatgoesintotheBusinessBanking--GlobalBankingsegmentandtheysentabout20,000customersayearintoWealthManagementthatliterallywalkinabrancharewealthyandtheygetmovedoverandthathelpsourWealthManagementbusiness.

Soyoucan'tthinkof--you'reright.Thatsalesforcedoeswhatitdoesinthesegmentbutithasthebenefitacrosstheboardandthenserviceisalotforallcustomers.

BusinessBanking,CommercialBankingcustomerscomeintothebranchesobviouslyforthecash--relatedtothecashmanagementrevenue.Soitisacrosstheboardandcontributesandsothegoodnewsistheyaremakingmoremoneythantheymadelastyearontheirownbuttheyarestillprovidingthatservicesandcapabilitiesacrosstheplatform.


Andsowhenthisismyfinalquestiononthisifwedivorcejusttherunofffromsomeofthelegacyassetsthatarestilloccurring,wouldyouexpectthecoreconsumerassetgrowthtoaccelerateasaconsequenceofthisinvestmentordoyouthinkthatit'scurrentlyrunrating?


AstherunoffsubsidesintheconsumercategoriesthisisConsumerBankinghereandthenyou'vegottheLASpiece,theLAShomeequitieswillcontinuetogodownbecausefranklythoseareproductsweputintherebecausewedecidednottodothem.Butontheconsumeryoushouldseeasitstabilizesyou'llseealittlebitbetterloangrowth.

Butrememberthatfocusontheresponsivepartofresponsiblegrowthwe'renotgoingtoopenupthecreditcardbusinessinawaythatwillproducecharge-offlaterdowntheroadthatwewon'tbehappywith.SowearedrivingthatgrowthintothecorestrongcreditqualitythatwewanttohaveinthisCompany.AndsoI'dbecarefulaboutassumingitwilljustleaptousbecausetodothatyou'dhavetogointocreditposturesthatwewon'tdo.


AndIwouldjustadd,Brian,ifyoulookathome-equityit'sagoodexamplewhereifyoulookwithinthe




consumerbankingspaceduringthesecondquarterofthisyearthehomeequityoriginationsoflineamountswereabout$3.2billion.Theyweretoloantovaluelessthan60%,FICOsdeepintothe700sandsothereweremorethan$3billionofthosebooked.

It'snumberonemarketshare,roughly$1.5billionofthatwasfunded,butyoudohavesomeofthelegacystuffthat'srunningoff.SoIthinkwhenyouwonderaboutactivitylevelsandwhat'shappeningIthinkyouneedtorealizethatwiththatnumberoneshareinwhatwe'redoingitisgrowing.It'sjustthatthereisarunoffthatmutesthateffect.


Great,thanksverymuchfortheanswerstoallmyquestions.

Operator :

KenUsdin,Jefferies.

KenUsdin (Analyst-Jefferies&Company):

Thanks,goodmorning.FirstquestionjustontheRWAs,lookslikewhenyoulookatthereconciliationofthemovetofullyphased-inthereisalittlebitofahelpontheadvancedmodelsthisquarterandjustinageneralsenseobviouslywestillhavethatfinalizationtocomebutwhatadditionaltweaksareyouworkingoninsidethemodelsandwhatadditionalmitigationcouldwestillseefromhereontheRWAside?


Ithinktherearecoupleofthings.We'reobviouslyworkinghardtomoveasmanyoftheexposuresfromCEMtreatmenttoIMMtreatmentwhichgenerallyhasfavorablebenefitthere.

ThesecondthingItalkedaboutbettercollateralmanagementaswellaslookingtoworktodomorecompressionandtonetthingsoutandwecontinuedtoseesomebenefitthere.Ithinkthirdiswecontinuetomoveoutandwe'relargelythroughthisbutaswecontinuetomoveoutsomeofthenon-performingconsumerrealestateaswellasthebenefitsofimprovedconsumercreditquality,we'reseeingbenefitsthere.AndtherestillareafewRMBSandothertypepositionsthatwe'dexpecttogetbenefitforoverthenextcoupleofquarters.

SoIthinkthisquarterwasclearlyaquarterbetweentheactivitiesthatweundertookaswellaswhathappenedfromaratesandFXperspectivewherewesawprettygoodquarter-over-quarterimprovement.Andobviouslythatwasnotonlyinthemarketsbusinessbutalsointheconsumerbusinesses.


I'dsay,Bruce,theotherthingwehaveahealthydoseofoperatingcapitalduetotheoperatingriskembeddedfromCountrywideandotherthingsthatwehavetofigureoutovertimehowwecanworkthroughthesystembecauseweneverdidtheactivitiesintheCompanybutontheotherhandwehadtodealwiththecostofthem.Andsobothoperatingandgeneral,soasyouthinkaboutthatlongertermwehadtogetamorerationalviewofthatoperatingriskrelativetotheCompanyweruntodaywhichisdifferentbutthatwilltaketimeandworkingthroughthemodelstheretoo.


Okay.AndthenmysecondquestionrelatestotheWealthManagementbusinessandBruceyoualludedtotherebeingalittlebitofaslowdownontherevenue.Soifalookatthesegmentorthelineitemontheincomestatementtherehasbeenadeceleration,advisorproductivitylooksalittlebitlowerand




you'veaddedalotofpeople.You'veaddedalotofassets.

SoI'mjustwonderingwhatdoweneedtoseetogetare-accelerationoftherevenuesideinbrokerageandWealthManagement?Andisitjustatimelagrelativetothoseadditions?


Acoupleofpointsonthat.Ithinkfirstthere'sclearlyabuildingupofadvisorsparticularlyifwe'rebringingtheminandtrainingthem,thatthere'sarampupinproductivitythatoccurs.Idon'tthinkthere'sanyquestion.

ThesecondthingthatIdothinkisimportantisthatwhenyoulookatthenetinterestincomelinethatasImentioneditlookedalittlebitmuted,ifyousawgrossloannetinterestincomeyouwouldseethisincreasing.SosomeofthepushoutoftheALMactivitieshasmutedtheNIIlinealittlebit.

AndthenthethirdthingwhichyoureferencethatIdothinkisalittlebitmoreofatrendandIthinkisnotonlyissomewhatconsistentwithsomeoftheregulatorystandardswhichwe'reseeingmoreandmoreoftheassetsthatwemanagebeingmanagedonalong-termbasiswherewe'remanagingthem.Andsothat'sleadingtogrowthintheassetmanagementfeesandthecorollarytothatisthatyoudohavelowerbrokerageincomebutnet-netyoucanseethatwearegrowinginthesegmentandwefeelgoodabouttheactivitythatwe'reseeingthere.


AndI'dsaythatthefewquarterswesawthemargin,thepretaxmargincomedownandyou'reseeingitstarttoturnbackandgoup.Andthere'spositivepressureoutinthefutureonthatattheendofthisyearbecauseofsomeofthedealstuffrunsoffwilladdacoupleofpointstomarginthatit'sinthenumbersthisyearbutwon'tbeinthenumbersnextyear.

Andthenyourpointisthematurityoftheinvestmentcyclesoifyougobackwe'readdingfinancialadvisors,theirbooksarecomingin,they'rebuildingthebooksandasthatmaturityhappensyou'llseeitmatchalittlebetter.Buttheencouragingsignswe'reseeingthemargincomebackup.

Andrememberthisbusinessalsobenefitsalotbytheratechanges,too,ultimately.Itisabigbank,it'sgot$250billiondeposits,roundnumbers,alotofloans,andithasalotofthesamesensitivityourConsumerBankdoesthatpeopledon'tthinkofitinthiscontext.

Soaswethinkaboutthecompstructureisinplacebutthere'sanaddeddealpiecethatrunsoffyou'reseeingthematuritycycleofthepeoplecomingup.Andtheteamisjustworkinghardontherevenueexpensemanagementandwestartedtoseesomebettersignsthey'vegotsomeworktodostillthough.


Understood.Okay,thanks,guys.

Operator :

StevenChubak,Nomura.

StevenChubak(Analyst-NomuraSecurities):

Hi,goodmorning.SoIhaveacoupleofquestionsonthetopicofcapital.

Thefirstisafollow-uptoKen'searlierquestionregardingRWAmitigationpotential.AndBruceIdoappreciatethecoloryoucitedrelatingtoallthemitigationopportunitiesonthehorizon.I'mjusttryingto




getabettersensegivenyoureffortstogrowthecoreloanportfoliohowweshouldbethinkingaboutthetrajectoryinadvancedRWAs,maybeexcludingtheupwardadjustmenttiedtotheregulatoryguidancejusttogiveusasenseastowhatthattrajectoryshouldlooklikeoverthenextcoupleofquarters?


Youmakemethecaveatthatthisassumesthatwedon'thaveasignificantchangeonewayinmarketconditionsbecauseobviouslythere'sapartofBaselIIIthat'ssomewhatprocyclical.ButIthinknet-netifwedoagoodjobofmanagingthisthewaythatwewouldexpecttothatabsentanyexogenouschangesweshouldbeableintheinstitutionalbusinesswhichisbothGlobalBankingaswellassalesandtradingthatweshouldbeabletogrowloanswhileatthesametimehavereductionsintheoverallrisk-weightedassetsthatareattributedtothatarea.NowwhereyouwillprobablyseeitbemoredollarfordollarisobviouslyunderstandardizedthoseloanstendtobeeverydollarofloanisadollarofRWAsoyouhavetobealittlebitcarefulbetweenwhichmethodyou'relookingat.


Okay.ButpresumablythefocusatleastonyourpartisgoingtobeonmitigatingtheadvancedRWAsgiventhatthatappearstobeyourlonger-termbindingconstraint.


It'sbothbecauseyou'reright,asitrelatestoaratioproformaforthisitisthelowernumber.Butkeepinmindyouhavetokeepthefocusonstandardizedaswellbecauseatleastbasedonlastyear'sCCARaswellasguidancethat'souttherestandardizedisveryimportantfromaCCARperspective.


No,understood.Okayandthenactuallyit'sagreattransitiontomynextquestiononthetopicofG-SIBsurchargeswhereI'msureyou'reawarethere'sbeensomediscussionaroundthepossibilityofincorporatingthesurchargeswithinCCAR.AndIwasjusthopingtogetabettersenseastowhatcontingencyplansyoumighthaveinplaceifthesurchargeweretobeincludedandarethereopportunitiesthatyouseetosufficientlymitigatetheG-SIBindicatorssothatyoucouldmoveintoalowerbucket?


Acoupleofthingsonthatfront.ThefirstisasitrelatestoG-SIB,theirapplication,wheretheymayormaynotbeused,atthispointwhileweparticipateinindustryforumsIthinkthatthesupervisoryareahasbeenverytransparentandsharingmuchofthesamethingsthattheysharewithusyouarealsoawareof.SoIthinkthattheinformationisfairlydisseminatedamongsteveryone.

Asitrelatestocontingencyplanningit'sreallyanongoingcontinuationofwhatwedidfrom2013to2014whichifyourecallisrelatedtoourquantitativeCCARresultsinatimeframewherewedidn'thavesignificantlevelsofnetincomethatourCCARcushiongrewsignificantly.Sowhatarewedoingtofocusonthat?Ontheinvestmentportfoliowe'remindfulofmanagingOCIriskgiventhatitflowsthroughtheoverallCCARprocess.

Wecontinuetobeveryfocusedonmovingoutthoseloansandthoseassetsthathavehigherlosscontentandatthesametimemakingsurethattheoriginationsthatweputonwereofthehighestquality.Sowecontinuetofocusonthat.

Ifyoulookattheoverallriskthat'sbeingtakenwithinthemarketsbusiness,we'remanagingthatsothatthere'snotasurpriseasitrelatestothat.Andclearlywecontinuetoworkhardtomoveoutthose




exposuresthathavehighlosscontentthere.

SoIthinkIwouldsayit'sreallymuchmoreofacontinuationoftheworkthatwe'vebeenatforseveralyearsnow.Andwe'remindfulofmakingsurethatwecontinuetopushthatstuffoutatthesametimethatwe'reoriginatingthosethingsthatwe'llperformwellaspartofthatoverallexercise.


Allright.ThanksBruce.Thatdetailisextremelyhelpful.

Andthenonemorequickfinaloneforme.IwashopingyoucangiveusanupdateonwhereyourTLACratiosittoday?


IthinkthattheTLACratioasitrelatestowhereweareandthisassumesthatweexcludestuffthat'slessthanayear,IthinktheTLACratioisroughly21%atthispoint,we'llhavetoseethedeductsthatcomeinandoutofthatbasedonG-SIBandotherthings.ButIthinkwe'rejustbelow21%attheendofthequarter.


Okay,great.Thankyoufortakingmyquestions.

Operator :

BrennanHawken,UBS.

BrennanHawken (Analyst-UBS):

Goodmorning.Thanksfortakingthequestion.

AquickoneonWealthManagement.IsitpossibleforyoutoquantifyforushowmuchofyourtotalWealthManagementclientassetsareinretirementaccountsandofthat,whatpercentageareadvisory?


We'llletLeegetbacktoyouonthat.Idon'thavethatoffthetopofmyheadintermsof--Ijustdon'thavethatfactrightinfrontofme.


Okay.JustthewholeideathereistryingtogetattheDOLproposalandmaybewhatcouldbepotentialdownsideevenbasedonhowitallgetsfinalizedunderstandingthatit'spreliminaryatthispoint.


Yep,Leecanfillyouinonthat.


Okay.Andthenlookingatthebranchdeclinesthatyouguysreferencedearliershouldwecountonthe5%yearoveryearasareasonabledeclineratesustainablefromheregiventhetrendsthatyou'reseeinginyourmobileplatform?Andcouldthispotentiallyaddadditionaljuicetoyourexpensedeclinesbeyondthebusinessasusualtypepushingthatyou'vespentalotoftimetalkingabouthereonthecalltoday?





Solet'sstepbackandmakesurethatweunderstandonethingistheideahereiswe'removingbecausethecustomersaremovingandhowtheyconductbusiness.Andsoyou'vegottorunyourchangesconsistentwithwhatthey'redoing.That'sabaselinethatyouhavetosticktobecauseifyouforgetthatyoucanovershootorundershootfranklyandsothatbeingsaidthat'sonepoint.

Thesecondpointisinthe6,100branchesthatwehadatthepeakdowntothislevelthereweremultiplethingsweweredoing,customerbehaviorchanges,changeintheconfigurationofthemarketsweattack,etc.,sotherearelotsofelements.Sonowwe'renowonabusinessasusualongoingpracticewhichwillreallybedrivenmorebythecustomerbehaviorasopposedtosomeviewpointswehaveaboutmarketsandarrangingthefranchise.

SoI'dexpectthattheywillcontinuetoworkthemselvesdownandIwouldn'tpredictasteadyratebecauseit'saverycomplexequationbutthenlet'sfliptowhat'sreallygoingon.AsBrucetalkedaboutearlierwehave17.6millionmobileusers.Wehave31millionbankcomputerbankingusers,thatnumberisactuallygrowingagain.

Forawhileitwaskindofflat,it'sactuallygrowing,soit'sinterestingthatthat'shappening.16%ofalloursalesarealldigitalnow.About6%ofthesalesofdigitalwhichiscomputersandmobilearemobileandthat'sgrowingat300%soit'scatchingup.

Andthenyougetthingswhichareinterestingbecauseitgoestotheefficiencyofyourbranch.Thereareabout10,000appointmentsscheduledinamobiledeviceaweekatthebranchwhichthenallowsustohaveamoreefficientbranchstructure.Eventhoughwemayhavelesswemayhavebiggerbranchesbecauseyouhavemoresalesgoingoninthem.

Sothinkaboutthat,that'supfrom2,000lastyear,secondquarterof10,000timesaweeknowandgrowingatthatrateimpliedthere.Peopleareschedulingappointmentstocomeseeuswhichisalotbetterexperienceforusandthentohelpustoservethem.

Soitallowsustohaveourstaffinglevelsdone.Brucereferencedthechecksdepositedare13%ofallthecheckssotheactivityofallthisiscriticaltothatquestion.SoIwon'tgiveyoua5%reductionor4%reduction.

Ithinkyoucanmathematicallyderivewhatwe'vedone.ButI'dbecarefulaboutassumingitwillbethatratablebutitwillbemorebasedinbehaviorchange.Butthekeyisourcustomerscoreshavegoneupoverallandeveninthemobilechannelswe'vegoneupyearoveryear1,000basispointsinourmobilechannel,toptwoboxsatisfaction.

Soitwillbeacomplexthing.It'sanintegratedpoolofcapabilities.Phones,onlineATAandbranchesandyou'dexpectittobepressuregoingdownbutrememberwewereearlyintothisandifyouthinkabout1,400branchesthat'sbiggerthanalotofcompaniesouttherealreadyoutofthesystem.Sowe'vebeenatthisforalongtimebutwewilldoittherightwaybecauseifyoupushtoohardyouwillupsettheclient.


That'shelpfulcolor,Brian.Thanks.Andthenlastoneformeyoumadeareferenceearliertoacoupleofpointsmarginfromtheemployeeforgivableloanamortizationdroppingoffnextyear.

Isnextyearabumpinthetrendoristhatindicativeofpotentialfurtherdeclinesinforgivableloansastheycontinuetorolloff?Anddoesitassumesomelevelofcounterpressureoffsettingpressurefromcontinuedrecruiting?AndmaybealittleupdateontherecruitingenvironmentforFAswouldbehelpful.





WhatI'mreferencingisdiscreteawayfromtheentirerecruitingprocess.Thisisa--wassetupatthetimeofthetransactionforagroupofpeopleatthattimeanditjustcameinovertheyearsandit'snotthislastyearitgoesaway.

Theforgivableloanpracticeandalltheotherstuffinrecruitingisawholedifferentthing.ButforJohninkeybanksandtheteamsthey'resuccessfullyrecruitingontheexperienceleveltheattritionsforthetoptwoquintilefinancialadvisorsisatanall-timelow,IthinkagainIthinkit'srunningat2%orsomethinglikethat.Sowe'reretainingthoseandthenwe'rerecruitingatboththeexperiencedlevelbutimportantlywhatisobvioustousistodrivetheamountofclientneedhere,driveagainsttheclientneedwhichishugeandunderservedinourbelief.

Wehadtocreatemoreadvisorsthanthereareoutthereandsowe'vereallyworkedhardonwhattheycallthePMDprogramwhichisbasicallybringingpeopleinthebusinesswhomayhaveexperienceinotherfirmsbybringingthemintoourfirmandalsootherindustriesintoourfirm.Andthatisnowreapingbenefitstousgivenwe'vebeenworkingonitfortwoorthreeyearstoretoolitanddriveit.

Soyoushouldexpectouradvisorcounttogoupandourproductivitymaycomedownperadvisor.Butfranklythere'salotofbusinesswhererememberourvaluepredictis1millionandsoonsobringingitdownalittlebittogetalotmoregrowth,alotmoregrowthinadvisorswouldnotbe--wouldbeagreattradeforourCompany.

Soourrecruitingisstrong.We'renetdoingadecentjobatthehigherendthatyouhearalotabout,thatisnotabigpartoftheadvisorcount,severalhundredayear,likeinacouple200,300.

Butwhat'sgoingtodriveouradvisorandcapabilitiestoserveourclientsisthebroaderbuildoutoftheteamswhichistheBFAsandthePMDsthatworkatthebranchesinsomecasesandworkwithpeople.Andthatshouldredoundtoourbenefitovertimealthoughitwillhavealittledragonprofitabilityrightnowbecauseit'sinvestment.


Great,thanksforthat.

Operator :

MartyMosby,ViningSparks.

MartyMosby(Analyst-ViningSparks):

Thankyou.Iwantedtoaskabouttheassetliabilitymanagement.

Whenyoulookatthemarketadjustmentsthatyouhadof$669millionthisquarter,asratesgoupthereislessandlessimpactfromthat.Howmuchisremaininginthenext50basispointsinjusttheprepaymentspeedslowingdown?


Idon'thave50basispoints,Marty,butthenumberwequotedwasona100basispointmovetheFAS91benefitwouldbe$775million.


Okay.Perfect.Andthenwhenyou'retalkingaboutbeingabletoseethemargingoupinthebackhalfoftheyearbecauseofthecurrentsteepnessoftheyieldcurvedoesthatincludesomeutilizationinthesenseofincreasingyoursecuritiesportfoliowhileyouinvestsomeoftheliquidassetsyouhaveonthe




balancesheet?


There'sclearlysomeofthatbecausewewouldexpectaswegoforwardwiththecompositionofthebalancesheetthattherewillbeincrementalcashthat'sgenerated.Obviouslysomeofthatgoesintoloangrowthandsomeofitgoesintotheinvestmentportfolio.Soembeddedinthatthosecommentsisanassumptionthattherewillbealittlebitmoretobeinvested.


Anygeneralrange?$10billion,$20billion,$30billion,anykindofruleofthumbthere?


Iwouldthinkofitasonthelowendofthatduringthethirdquarterandacomparableamountinthefourth.Andthere'soneotherthingthatIdidwanttocorrectthatIsaidearlierthatifyoulookatthesecuritiesbalancesyieldthestabilitythatwesawonceyouadjustforFAS91wasQ1toQ2.


Gotyou.AndlastlythisisanuancebutwhenyoulookatthetradingactivitytypicallyinthepastwhenIhadatradingactivityinthebankthatIwasmanagingwhenyouhadasteepeningoftheyieldcurveyougetsomepickupbecauseyou'regettingthecurrentlong-termyieldfundedbyshort-termrates.Therateonthetradingactivityaccountdidnotgoupthisquarterbutaveragingintothenextquarterwouldyouexpectsomebenefitthere?


Ithinkifyoulookat--IthinktheimportantthingisthatsothatratetendstomanifestitselfinthemarketbasedNII.TherearealotofthingsthatdrivethatwhenratesmovearoundasmuchastheyhavebutIdon'tthinkthere'sanyquestionthatovertimeasyou'reinanincreasingrateenvironmentthatthereisapartoftheyieldcomponentthatflowsthroughNIIthatyouwouldexpecttogetalittlebitbetter.


I'mjustmorefocusedonthesteepnessversustheflatteningoftheyieldcurve.Asteeperyieldcurvetypicallybringsalittlebetterspreadonthetradingaccount?


Itwouldbutthequestionisitworksitswaythroughbutifyoulookacrosslongperiodsoftimeit'srelativelyconstant.


Okay.Thanks.

Operator :

NancyBush,NABResearch.

NancyBush (Analyst-NABResearch):

Hi,goodmorning.Guys,justanotherliquidityissue.Couldyoujusttelluswhat'sondeposit,whatexcessdepositsyou'vegotwiththeFednowandwhatyourplansareforthosegoingforward?





Atanyonepointintimeitcanmovearoundbutyoushouldassumeit'scomfortablyabove$100billionthat'sontheFedinanyonenightduringthequarter.AndIthinkthatwhenyoulookatwherewearewithLCRwhereweareatboththeparentaswellasthebank,thatIthinkand$484billionofoverallliquiditywhichisarecordthatwefeelwe'reinareasonableplaceandIdon'tseesignificantchangesgoingforward,Nancy.


Okay,youmeaninoverallliquidityoratliquidityondepositwiththeFed?


Probablyboth.


Okay,that'salotofliquidity.Mysecondquestion,Brianisforyou.

You'vegonethroughalotofchangeoverthepastfewyearsandthistransitiontomobile,etc.,etc.,butoneofthethingsIstillgetfromtalkingtopeoplearepersistentgripesaboutservicequalityparticularlyinthemortgagecompany.Canyoujusttelluswhatyourinternalpollingorwhatevershowsintermsofimprovementsincreditqualityandhowyoufeelaboutthatentiresubject?


Inthemortgagebusiness,forexamplethebankoriginatorswe'renumberoneinJDPowersurveyandIthinkwe'renumbertwoorthreeoverallofallmortgagecompanies.SoIthinkintermsoforiginatingmortgageloansaguynameSteveBolandrunsthatforushasgottenthatplatformsettledinandyou'llgetmomentaryspikeswheretherefiswillbumpupandthingsslowdown.

Fromagettheloandone,fromkeepingourcreditqualitywherewewantedthatendsupwithushavingsomenoisearoundpeoplewhodon'tgetmortgages.Sowedid$15billionorwhateverwedidthisquarter,30%ofthoseloansweremoderateincomesowe'restillservingthatsegment.ButagainwearenotpushingforcredittermsandmortgageandIthinkyou'dunderstandwhy,Nancy.


Buthowaboutjustmoretheissueofservicequalityatthebranches,etc.?


Well,ifyoulookatourcustomerscorescontinuetorisealmostonamonthlybasisandinthebroadestcontextourbrandandpartofthatisduetowhathappensatthebranch.Partofitisalsoduetothere'slessstuffgoingonabouttheCompanyandthat'sgonefromthelowpointinthefourth-quarter2009andhasrosefairlysteadily.Soit'sbeeninfactbacktowithin95%ofwhereitwasatitishighestpointin2005and2006.

Sowiththatwe'resatisfied.AndifyouactuallygotothecustomerswhoactuallygetservedwhenwemeasureallthechannelswhichwemeasurewithtensofthousandsofcustomersaweekandamonthyoufindthatthosescorescontinuetogoupandthetoptwoboxscoreIthinkwe'reinthe70sto80softhevariouschannelsandincludingmortgage.

Sobecauseyoujusthavealotofcustomersyou'llfindoutthatonceinawhilewe'rebumpingupinour




jobstofixsomethingwedobutifyouthinkaboutitwe'veaddedmortgageproduction,checkingaccountsnetnew,creditcardsandthat'stheramificationofgoodserviceanddrivingitandtheteamjustcontinuestoworkonit.We'renotperfectandwewillalwaysgetbetterbutIthinkifyoulookatitoverthelastthreeorfouryearsitcontinuestogetbetter.


Allright.Thankyou.


AndbythewayifyoulookatourdepositgrowthitcontinuestoaccelerateinoverthetopoftheCDscontinuetorunoffyearoveryearof$10billion.Sowe'reup$31billionindepositsandconsumeryearoveryearIthinkithasandCDswereprobablydownIdon'tknow$10billionorso.

Sothinkaboutthatifpeopledidn'tlikeusalottheywouldn'tbegivingustheircorecheckingaccountandthatishappeningmoreandmoreeveryquarter.Andthatwillserveuswellasrateschangebecauseweareahugelyprimaryfocuscheckingaccountcompanyinthebroadmass-marketbusinesswhichisdifferentthanthepast.


Allright.Goodtohear.Thankyou.

Operator :

MikeMayo,CLSA.

MikeMayo (Analyst-CLSA):

Hi,IjustwantedtofollowuponBetsy'squestionatthestarttalkingaboutexpensesbeingatarunrateormaybegoinglower.Theexpensesaredown$400millionyearoveryearbutifyoulookatyourfourbusinesslinestherevenuesaredowntwicethatimplyingalotoftherestiscomingthroughtheotherline.SoIguessI'mjustwonderinghowmuchmorethereistocutorshouldcutiftheexpensesaredownagain$400millionbuttherevenuesinthefourbusinesslinesaredown$800million?Howdoyoubalancethattrade-off?


Yes,Ithinkthefirstthingthatyouhavetokeepinmind,Mike,whenyouquotethenumberswithinthebusinessisonayear-over-yearbasisyouhavetwosignificantthingshappening.You'vehadFAS91inasignificantmovementinratesasitrelatestopushoutofthosechargesaswellaswepushtheLCRouttothebusinessesfromareportedsegmentperspectivethathasasignificantimpact.

AndsoIthinkaswe'vegonethroughthepresentationthatthenumbersthatIwouldfocusonareverymuchwhat'sgoingonwithinthesegmentslookingatthefeeincomelinebecausethereisactivityfromanetinterestincomeperspectiveofgreateractivitywithinthebusinesses.SoI'dbealittlebitcarefulwiththatcharacterizationandIthinkinthatcontextI'dgobacktoBrian'sinitialcommentswhichwecontinuetopushhard,we'readdingclientfacingpersonnelacrosstheCompany,atthesametimewe'rereducingaggregateheadcountandthat'sleadingtodeclinesintheexpensenumbersandwe'revery,veryfocusedoncontinuingtokeepthatbalanceaswegoforward.


Okay.JusttounderstandbecauseI'mjustlookingatyourslides,slide17andtheotherslidesinyour




presentationtoday,IlookedatthefourslidesrelatedtoGWIM,GlobalBanking,GlobalMarketsandConsumerBanking,Itooksecondquarterof2015versussecondquarterof2014andlookedatthedeltainrevenuesandthat'showIgotthe$800milliondecline.Soyouwouldsaywhichadjustmentsshouldwemakefromthat?


Don'ttakeGWIMbecauseIgotthatnumberoffthetopofmyheadMike.IthinkyearoveryearthedifferenceinGWIMNIIallocationduetosortofunfundamentalthingsisBrucehowmuchof--


Yes,let'sjustgothrough.Relativetothesecondquarterof2014you'vegotconsumerfromanoverallNIIimpactwasmorethan$200million.GWIMwasasBriansaidroughly$130million,overallInvestmentBank,ourGlobalBankingwasacouplehundredmillionandthenyouhavedeminimisamountswithinmarketsandLAS.


Thatisnothingmorethanuschangingtheallocationmethod,it'sbecauseofLCRandotherthingsbecomingimportant.Sowepusheddownthebusinessestogetthebehaviorofthebusinessesalignedwiththeparent.

Sothisiswhyyouhavetobealittlecarefulaboutmicroassessingthesemovementsbecausethingschangeinthemethodologyyearoveryearandwedon'tgobackandrestatethis.Wedidn'tdoitlastyear.


Okay.Iwillfollowuponthat.Soareyoucomfortable,areyousatisfiedwiththerevenueprogressionthatyou'vehadnomatterhowyoutakealookatit?


Mike,wearesatisfiedthatwearestartingtoseethehardworkofallourteammatescomethroughbutwe'renotsatisfiedinthesensethatweexpectbetterperformanceonboththerevenueexpensedynamicinthefuture.That's--we'llkeepworkingatit.

Butifyoulookatitoverthelastseveralquarterswhatyou'veseeninstabilityinrevenuesbutcontinuetoworkonexpensesbothinthedollarsbutalsointheheadcount.15straightquarters,3,000morepersonnelreductionsperquarterisaprettystrongrecordtoshowthatwe'redisciplinedinworkers.


Andthenaseparatequestion,Ithinkit'sthefirsttimeyou'velistedROAandROEonthefirstpageofyourpressrelease.Andshouldwereadanythingintothatthatwe'remorefocusedonachievingthesetargetswithaspecifictimeframeorwhatchanged?


Itmaybethepagination.It'sbeenlistedinourdocumentsconsistently,Mike,so.Wearefocusedonthosegoalsandwe'vetoldyouthateachtimeyou'veaskedthequestion.


Andthenlastlyjust,IknowI'veaskedthisquestionbefore,isthereaspecifictimeframethatyoucan




committo,toachieveyourROAandROEgoals?


Mike,asItoldyouattheAnnualMeetingwhenyouweretherewithafewotherpeopleandaskingthequestionsonthisquestion,wehadthebuildingblocksinplacetogetustowhereweareandwecanseethebuildingblocksfallinginplacetogetustoourgoals.Andthereareexternalfactors,therateincreaseandstuffthatyouseeinthemarketcurvethat'schangedjustinthelast15daysinthisquarterandhasmovedarounddramatically.Butwithourcontrolofelementswecontinuetodriveandweseetheprogressiontowardsitoverthenextseveralquarterslikewetoldyou.


AndIthink,Mike,justtobeclearwe'vetalkedabout100basispointsand12%to14%returnontangiblecommonequity.Obviouslyat99basispointswe'rebumpingrightupagainstthat.

AndIthinkwhat'simportantisasyoulooktothepathtowhatwe'vetalkedaboutwe'rebasicallythereinthesecondquarter,youcouldsayyouhadthe$700millioninFAS91,the$400millionofloansalegainsandacouplehundredmilliondollarsfromrepandwarrantprovisions.ButwhatIthinkisinterestingandasyoulookatthepaththereisifyoulookatandassumethe100basispointparallelshiftintheyieldcurvewhatthatwouldmeaninthequarteraswellasifweultimatelygettowhereourLASexpensegoalsareyou'rebasicallybacktoallotherthingsbeingequalwherewewerethisquarter.Sowhatwasarticulatedissomethingwhereyoucouldn'tseeapathorawaytogetthere,Ithinkitwasastepforwardthisquarterasfarasseeinghowwecangetthere.


Allright.Thankyou.

Operator :

ChristopherWheeler,AtlanticEquity.

ChristopherWheeler (Analyst-AtlanticEquity):

Yes,goodmorninggentlemenandI'msorrytoraisethesubjectofcostagain.ButIjustwanttosquareawaywhatyousaidIthinktoBetsy'squestionattheverybeginningtowhatyousaidattheconferencebackinMaywhenyouactuallysaidthatiftradingrevenuesdidn'tpickupyou'dhavetoadjustcostsfurther.Ijustwonderedwhereyouwereonthatbecauseobviouslytradingrevenuesweredownabout2%yearonyearIthinkinthequarterandI'mhavingtoassumethatthestarttothequarterhasbeenprettybumpywithGreeceandChina.

Socouldyoujusttalkalittlebitabouthowyouseethat?ButperhapsalsotalkalittlebitabouthowyoumightaddressthatsituationinglobalmarketsandglobalbankinginrespectoftheUSbusinessandtheinternationalbusinesses?BecauseitisreallyclearthattheUSbusinessseemstobeofferingmoreopportunitiesnotjustbecausetheyaremorebuoyantbutalsobecauseyou'reseeingEuropeanbanksplayalesserrole.

AndobviouslyseeingthreeofthebigbanksgetnewCEOsinthelastfewweeksIhardlyimaginetheyaregoingtobeallocatingmorecapitaltoInvestmentBanking.Thankyou.


Letmetakeastabatacoupleofpartsofthatquestion.ThefirstisandIthinkyoureferencedthatwhatwouldyoudoifglobalmarketexpenseswereloweronago-forwardbasis?Ithinkthisquarterwas




reflectiveofthewayyou'dexpectustomanageitwhichisthepuresalesandtradingnumberwasdown2%andtotalexpenseswithinthesegmentweredown5%.

SoIthinksomeofwhatBriancommunicatedinmateyousawevidenceofthathappeningduringthequarter.ThesecondthingthatIwouldsayisthatit'sobviouslyearlierinthequarterbutIwouldn'tdrawanyconclusionsastooverallperformancebasedonthevolatilitythatwe'veseenduringthefirstcoupleofweekstothenegative.

AndthenthirdIthinkyourquestionwasandisjustthatwithwhat'sgoingonwithinsomeoftheEuropeanbanksaswellaschangesinmanagementandquestionsaroundcapital,howdoesthattranslateandwhatareyouseeingintheUSbusiness?IthinkwhatIwouldsayisthatweobviouslyhavesignificantshareintheUSbusiness.We'relookingtodoabetterjobofthatandIthinkthatasyoulookatsomeoftheloangrowththatwe'veseenthatitisreflectiveofthefactthatwe'redeepeningintheUSbutjustasimportantlythatloangrowthisnotonlyintheUS,it'sthroughoutEurope.

There'sbeenalittlebitinLatinAmericaandthere'sbeengrowthinAsia-Pac.Sowearelookingtousesomeofthesemarketopportunitiesasabasistodeepenandlooktogrowtheoverallglobalbankingsegment.

ChristopherWheeler (Analyst-AtlanticEquity):

Thanksverymuch.Thankyou.


Wellthankyoueveryone.That'sthelastquestion.Welookforwardtotalkingtoyounextquarter.

Operator :

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