State Street Corporation (STT) Q4 2022 Earnings Call Transcript

State Street Corporation (NYSE: STT) Q4 2022 earnings call dated Jan. 20, 2023

Corporate Participants:

Ilene Fiszel Bieler — Executive Vice President and Global Head of Investor Relations

Ron O’ Hanley — Chairman and Chief Executive Officer

Eric Aboaf — Vice Chairman and Chief Financial Officer

Analysts:

Glenn Schorr — Evercore — Analyst

Betsy Graseck — Morgan Stanley — Analyst

Ken Usdin — Jefferies — Analyst

Alex Blostein — Goldman Sachs — Analyst

Brian Bedell — Deutsche Bank — Analyst

Brennan Hawken — UBS — Analyst

Steven Chubak — Wolfe Research — Analyst

Gerard Cassidy — RBC Capital Markets — Analyst

Michael Mayo — Wells Fargo Securities — Analyst

Unidentified Participant — — Analyst

Vivek Juneja — JPMorgan — Analyst

Presentation:

Operator

Good morning, and welcome to State Street Corporation fourth Quarter and Full-Year 2022 Earnings Conference Call and Webcast. Today’s discussion is being broadcasted live on State Street’s website at investors.statestreet.com. This conference call will also being recorded for replay. State Street’s conference call is copyrighted and always are reserved. This call may not be recorded for rebroadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website.

Now, I would like to introduce Ilene Fiszel Bieler; Global Head of Investor Relations at State Street.

Ilene Fiszel Bieler — EVP and Global Head of IR

Good morning, and thank you all for joining us. On our call today, our CEO; Ron O’ Hanley will speak first; then Eric Aboaf, our CFO; will take you through our fourth quarter and full-year 2022 earnings slide presentation, which is available for download in the Investor Relations section of our website, investors.statestreet.com. Afterwards, we’ll be happy to take questions. During the Q&A, please limit yourself to two questions and then requeue.

Before we get started. I would like to remind you that today’s presentation will include results presented on a basis excludes or adjusts one or more items from GAAP. Reconciliations of these Non-GAAP measures to the most directly-comparable GAAP or regulatory measure are available in the appendix to our slide presentation, also available in the IR section of our website.

In addition, today’s presentation will contain forward-looking statements, actual results may differ materially from those statements due to a variety of important factors such as those factors referenced in our discussion today and in our SEC filings, including the risk factors in our Form 10-K, our forward-looking statements speak only as of today and we disclaim any obligation to update them even if our views change. Now let me turn it over to Ron.

Ron O’ Hanley — Chairman and CEO

Thank you, Ilene, and good morning everyone. 2022 is an unpredictable year for many of the world’s investors and the people they serve. Despite the market rebound in the fourth quarter 2022 was the worst year for financial markets since the global financial crisis, both fixed-income and equity markets fell, impacted by the war in Ukraine and several macroeconomic headwinds, including broken supply chains, price and wage inflation, dramatically higher global interest rates, U.S. dollar strength and heightened fears of global economic recession, which remain today. The uncertainty created by these factors contributed to a meaningful Year-over-Year decline in global financial markets as well as increased market volatility impacting flows.

Despite these difficult macro conditions State Street performed well. As a result, we continue to progress in 2022 towards achieving our medium-term targets. Our durable 4Q and full-year 2022 results were driven by our strategy, underpinned by our relentless focus on innovation. The power of our distinct value proposition and State Street’s diversified products and services, all of which continue to resonate with clients, as demonstrated by yet another year of strong organic net-new servicing wins. As we continue to execute against our strategic agenda. We achieved a great deal in 2022. Slide 3, of our investor presentation, shows our full-year highlights and the progress we made towards achieving our strategic goals in 2022.

In a challenging operating environment and compared to what was a very strong year for our business in 2021, we again delivered positive total operating leverage, pretax margin expansion and a higher return on equity as you can see on the left of the slide. We drove continued business momentum, including $1.9 trillion of total new asset servicing wins delivered total revenue growth and demonstrated ongoing expense discipline in the face of inflationary pressures and our continued investment in the resiliency and capabilities of our businesses. As you can see on the right-hand bottom of the slide.

While weaker average market levels created fee revenue headwinds for our investment, servicing and asset management businesses in 2022, our balance sheet businesses combined with higher interest rates on our deposit strategy produced materially higher net interest income as compared to 2021. In addition, our foreign-exchange trading services and Front office software and data businesses produced double-digit Year-over-Year fee growth, manifesting the desired results of our investments in these businesses and demonstrating the revenue diversification of our business model.

Turning to Slide 4, of our presentation. I will review our fourth quarter highlights. Business momentum was solid in the fourth quarter with new AUC a asset servicing wins amounting to $434 billion driven by broad-based wins across client segments. We reported two new Alpha mandates in the quarter and expanded 12 existing Alpha relationships, seven of which added additional back and middle office offerings. Helped by the sales performance, our AUC/A installation backlog was $3.6 trillion at quarter-end. At Global Advisors quarter-end assets under management totaled $3.5 trillion, supported by another good quarter of ETF inflows. Turning to our fourth quarter financial performance 4Q22 EPS was 1.91 or 2.07, excluding notable items, up 7% year-over-year, or 4% higher Year-over-Year, excluding notable items.

The year-over-year EPS growth in a challenging market environment was supported by the resumption of common share repurchases in the fourth quarter as we focused on returning capital to our shareholders. Even in a year marked by economic and political disruptions total revenue for the fourth quarter was the highest on record, increasing 3% Year-over-Year as lower total fee revenue was offset by very strong NII result, which increased 63% relative to the year-ago period, primarily driven by higher global interest rates plus our balance sheet positioning and effective execution of our deposit management strategy.

As we meaningfully invested in our people and business. We remain focused on expense discipline in the fourth quarter with total expenses down 3% Year-over-Year, or flat Year-over-Year, excluding notable items, in part supported by the stronger U.S. dollar. This was achieved by our relentless and ongoing focus on operational productivity simplification and automation. Turning to our balance sheet and capital, our CET1 capital ratio increased to a strong 30.6% at year-end. Recognizing the importance of capital returned towards shareholders and having already announced a 10% per share increase to our common stock dividend earlier in 2022, we resumed share repurchases in the fourth quarter, buying back a total of 1.5 billion of State Street’s common stock.

For 2023, it is our intention to return up to 200% of earnings in the form of common stock dividends and share repurchases. Subject to market conditions and other factors. We expect our business mix, Balance sheet strategy and earnings momentum will enable us to do so while maintaining prudent capital ratios within our target range. Accordingly, as we announced this morning, our Board of Directors has authorized a new common stock purchase program of up to $4.5 billion through the end of 2023. To conclude my opening remarks. I am pleased to be reporting the third year in a row of pretax margin expansion and higher return on equity, which demonstrates the successful progress we have made toward achieving our financial goals.

Now, let me hand the call over to Eric, who will take you through the quarter in more detail before I discuss our strategic priorities for 2023.

Eric Aboaf — Vice Chairman and CFO

Thank you, Ron, and good morning everyone. Before I begin my review of our fourth quarter and full-year 2022 results. Let me briefly discuss some of the notable items we recognized in the quarter, outlined on slide 5, First, we recognize acquisition and restructuring costs, including wind-down expenses related to the Brown Brothers Investor Services acquisition transaction, which we are no longer pursuing. Second, we recognized $70 million of repositioning costs consisting of an employee severance charge of $50 million to eliminate approximately 200 middle and senior manager positions, largely related to our investment services business as we continue to streamline our organizational structure.

We also recognized $20 million of occupancy charge in the quarter to help us further shrink occupancy cost. We expect these actions to generate a total run-rate savings of roughly $100 million. Lastly, we recognize the benefit of $23 million in the quarter related to the settlement, proceeds from 2018 FX benchmark Mark litigation resolution, which is reflected in the FX trading services GAAP revenue line. Taken together, we recognize notable items of $78 million pre-tax or $0.16 a share. Now turning to Slide 6, I’ll begin my review of both our fourth quarter 22 and full-year 22 results. As you can see on the top-left of the table, despite the dynamic and challenging operating environment, the diversity and durability of our business model allowed us to finish the fourth quarter with solid results.

Total revenue for the quarter increased 3% Year-over-Year, or 5% Year-over-Year excluding notable items as lower-fee revenue was more than offset by robust NII growth of 63%, which I’ll spend more time discussing later in today’s presentation. We also continued to demonstrate prudent expense management, which enabled us to deliver positive operating leverage in the quarter and pretax margin is up more than 4 percentage points year-on year. Our ROE is up more than a percentage point this quarter as well. On the right-side of the slide, we show our full-year 2022 performance. Notwithstanding the challenging operating environment we saw in 2022 for the year, I’m quite pleased that we again delivered positive operating leverage and nearly a percentage point improvement in pretax margin. As Ron mentioned, it has been three consecutive years of margin expansion and ROE improvement.

Turning to Slide 7, during the quarter, we saw period-end AUCA decrease by 16% on a year-on-year basis but increased by 3% sequentially. Year-on-year, the decrease in AUCA was largely driven by continued lower period-end market levels across both equity and fixed-income markets globally, a previously disclosed client transition, and the negative impact of currency translation, partially offset by net-new business installations. Quarter-on-quarter AUCA increased as a result of higher quarter-end equity market levels and the positive impact of currency translation.

At Global Advisors, we saw similar dynamics play out. Period-end AUM decreased 16% year-on-year and increased 7% sequentially. The year-on-year decline in AUM was largely driven by lower period-end market levels, some institutional net outflows, and the negative impact of currency translation, which was partially offset by $22 billion of net inflows in our Spider ETF business. Quarter-on-quarter, the increase in AUM was primarily due to higher quarter-end market levels, ETF net inflows, and the positive impact of currency translation, partially offset by cash net outflows.

Turning to Slide 8, on the left side of the page, you’ll see fourth-quarter total servicing fees, down 13% year-on-year, largely driven by lower average market levels, lower client activity, adjustments and flows, normal pricing headwinds and the negative impact of currency translation, partially offset by a net-new business. Excluding the impact of the currency translation servicing fees were down 10% year-on-year. Sequentially, total servicing fees were down 1% primarily as a result of the client activity adjustments and flows.

On the bottom panel of this page, we’ve included some sales performance indicators, which highlight the good business momentum, we again saw in the quarter. As you can see AUCA wins in the fourth quarter totaled a solid $434 billion, driven by strong broad-based traditional wins across client segments and regions, including expanding relationships with existing Alpha clients. At quarter-end, AUC/A one but yet to be installed totaled $3.6 trillion with Alpha representing a healthy portion, which again reflects a unique value proposition of our strategy. Turning to Slide 9, fourth quarter management fees were $457 million, down 14% year-on-year, primarily reflecting lower average market levels and the negative impact of currency translation, which represented about 2 percentage point headwind quarter-on-quarter, management fees were down 3%, largely due to equity and fixed-income market headwinds.

As you can see on the bottom-right of the slide, notwithstanding the difficult and uncertain macroeconomic backdrop in the year. Our franchise remains well-positioned, as evidenced by our continued strong business momentum. In ETFs, we saw solid full-year net inflows in the U.S. with continued momentum and market-share gains in the spider low-cost equity and fixed-income segments. In our institutional business, there’s continued momentum in defined contribution with 448 billion of inflows in the full year, including target date franchise net inflows of $21 billion.

Offset by industry-wide outflows in institutional index products. In our cash franchise, we still gained 60 basis points of market share in money market funds and in 2022, even though first-half inflows reversed in fourth quarter. On slide 10, you see the strength of our diverse revenue growth engines with both FX trading services and software and processing up double-digit teens year-on-year in a difficult year. Relative to the period a year-ago fourth quarter FX trading services revenue ex notables, was up 15% primarily reflecting higher FX spreads partially offset by lower FX volumes.

Our Global FX franchise was able to effectively monetize the less liquid market environment, which was driven by sharp moves in the U.S. dollar. Sequentially, FX trading services revenue ex notables, was up 8%, mainly due to higher direct and indirect revenue. Securities finance performance in the fourth quarter was more muted, with revenues up 1% year-on-year. Sequentially, revenues were down 6% mainly reflecting downward pressure on spreads due to lower specials activity and year-end, risk of activity by clients. fourth quarter software and processing fees were up 16% year-on-year and 17% sequentially, primarily driven by higher front-office software and data revenue associated with CRD which were up 28% year-on-year and 25% sequentially. Lending fees for the quarter were down 10% year-on-year, primarily due to changes in product mix and flat quarter-on-quarter. Finally, other fee revenue of $18 million in the fourth quarter was flattish year-on-year and up $23 million quarter-on-quarter, largely due to the absence of negative market-related adjustments.

Moving to Slide 11, On the left panel you will see fourth quarter front-office software and data revenue increased 28% year-on-year, primarily driven by multiple on-premise renewals and continued growth in software-enabled revenue associated with new client implementations and client conversions to our cloud-based SaaS platform environment.

Turning to some of the front-office and Alpha business metrics on the right panel, the 21 million of new bookings in the quarter were once again well-diversified across client segments, including asset owners, wealth, and private markets, as well as across asset classes, particularly in fixed-income. Front-office revenue backlog and pipeline remains healthy, giving us confidence in the future growth of this business. As for Alpha, we are pleased to report two new Alpha mandate wins this quarter in the insurance and asset-owner client segments.

Now turning to Slide 12, fourth quarter NII increased 63% year-on-year and 20% sequentially to $791 million. The year-on-year increase was largely due to higher short and long-term market interest rates and proactive balance sheet positioning, partially offset by lower deposits. We have a well-constructed balance sheet including both US and foreign client deposits, a scale-sponsored repo franchise, and a high-quality loan and investment portfolio that was consciously configured to benefit from rising global rates. Sequentially, the increase in NII performance was primarily driven by higher global market rates working through our balance sheet.

On the right of the slide, we show our average balance sheet during the fourth quarter year-on-year, average assets declined 6% and increased 3% sequentially, primarily due to deposit levels as well as currency translation impacts. The US client deposit beta, excluding some new deposit initiatives, was about 65% to 70% during the fourth quarter. For deposit betas for the quarter were much lower in the 20% to 50% range depending on currency. Our international footprint continues to be an advantage. Total average deposits were up sequentially, we saw a sequential-quarter reduction in non-interest-bearing deposits of 5% which was more than offset by higher NII accretive interest-bearing deposits that will help support high-quality client loan growth and selective expansion of the investment portfolio.

Turning to Slide 13, fourth quarter expenses, excluding notable items were once again proactively managed in light of the tough fee revenue environment and flat year-on-year or up approximately 3% adjusted for currency translation. We’ve been carefully executing on our continuing productivity and optimization savings efforts, which generated approximately $90 million in year-on-year gross savings for the quarter or approximately $320 million for 2022, achieving near the top-end of our full-year expense optimization guidance of 3% to 4%. These savings enabled us to drive positive operating leverage and pretax margin expansion which well, partially offsetting continued wage inflation headwinds and continued investments in strategic parts of the company including Alpha private markets, technology and operations, and automation.

On a line-by-line basis compared to 4Q21. Compensation and employee benefits were down 1% as the impact of currency translation. Lower incentive compensation was partially offset by higher salary increases associated with nearly 6% wage inflation and higher headcount. Headcount increased 9% primarily in our global hub as we added operations personnel to support growth areas such as Alpha and private markets, invested in technology, talent, and in-source certain functions. There is also a portion of the headcount increase associated with some hiring catch-up post-COVID.

We expect the headcount to increase more modestly in 2023. Information systems and communications. Expenses were down 5% due to benefits from our insourcing efforts and continued vendor pricing optimization, partially offset by technology and infrastructure investments. Transaction processing was up 1%, mainly reflecting higher broker fees and market data costs, partially offset by lower sub-custody costs related to lower equity market levels. Occupancy was down 17% largely due to an episodic leased-back real-estate transaction associated with the sale of our data centers, which was worth approximately $12 million. And other expenses were up 12% primarily reflecting higher professional fees and travel costs.

Moving to Slide 14, on the left side of the slide, we show the evolution of our CET1 and Tier-one leverage ratios, followed by our capital trends on the right of the slide. As you can see, we continue to navigate the operating environment was strong capital levels relative to our requirements. At quarter-end, the standardized CET1 ratio of 13.6% increased 40 basis points quarter-on-quarter, primarily driven by episodically lower RWA, partially offset by the resumption of share repurchases in the quarter.

With respect to RWAs, It’s worth noting that we saw unusually low RWA this quarter worth about $10 billion, largely driven by our markets businesses and some specific currency factors. We would anticipate a similar amount of normalization of RWA. In the $10 billion, $15 billion range going into first quarter. Our Tier-one leverage ratio of 6% at quarter-end was down 40 basis points quarter-on-quarter, mainly due to the resumption of share repurchases in fourth quarter. We were quite pleased to return $1.7 billion to shareholders in the quarter consisting of a billion 5 of common share repurchases and $220 million in common stock dividends.

Lastly, as Ron mentioned earlier, we announced this morning that our Board of Directors has authorized a new common stock repurchase program of up to $4.5 billion through the end of 2023. And as I said in December, we expect to execute this buyback at pace and get back to our target ranges for both CET1 and Tier-one leverage market conditions and other factors dependent. Turning to slide 15, Let me cover our full-year 2023 outlook as well as provide some thoughts on the first quarter, both of which have significant potential for variability given the macro-environment, we are operating in.

In terms of our current macro expectations, as we stand here today, we expect some point-to-point growth in global equity markets in 2023 which equates to global equity markets being down about 2% each point year-on-year on a full-year average basis. Our rate outlook for 2023 largely aligned with the forward curve, which I would note is moving continuously. However, we currently expect to reach peak rates of 5% per Fed funds, 3.5 at the ECB and 4.5 of the Bank of England. As for currency translation, We expect the U.S. dollar to be modestly stronger than the major currencies on average, but less than what we saw last year. As such, currency translation like to have a half-point or less impact on both revenues and expenses.

In light of the macro factors I just laid out, we currently expect that full-year total fee revenue will be flat-to-up 1% ex notable items but servicing fees likely flattish and management fees down a bit, largely due to a modest reclassification of revenue out of fees and NII. Regarding the first quarter of 2023, we currently expect fee revenues to be down 1% to 2% ex notable items on a sequential-quarter basis, given some normalization of foreign-exchange market volatility that impacts our training business with servicing fees, expected to be up 1% to 2% and management fees, expected to be down 1% to 2%.

We expect full-year 2023 NII to be up about 20% on a year-over-year basis. After a very strong 2022, this is dependent of course on the outcome of rate hikes and deposit mix and levels. After a significant step-up in the fourth quarter 22 NII. We expect first quarter 23 to be flattish. And after the first quarter of 2023, we expect to see a slight 1% to 2% sequentially, quarterly attenuation of NII throughout the remainder of 2023. Then with the stabilization, is expected in 2024. Turning to expenses, as you can see in the walk, we expect expenses ex notables will be up 3.5% to 4% on a nominal basis in 2023.

Driven partially by wage and inflationary pressures and continued investment in the business and our people. While still driving positive operating leverage. You can also see on the walk that for full-year 2023, we expect gross sales of approximately 3%, which will help offset inflationary pressures and variable costs and ongoing investment scenarios like private markets and Alpha and further automation. Regarding the first-quarter of 2023 on a year-over-year basis, we expect expenses ex notable items to be up about 2%. Finally, taxes should be in the 19% to 20% range for 2023.

This outlook would deliver a fourth consecutive year of margin expansion and advance us toward our medium-term target goal of 30%. As well as deliver positive operating leverage and strong EPS growth for our shareholders. And with that, let me hand the call back to Ron.

Ron O’ Hanley — Chairman and CEO

Thanks, Eric. As we enter 2023, we see an uncertain environment. On the positive side, many supply chains have been repaired the outlook for energy supply is better-than-anticipated, particularly in Europe and developed world inflation may have peaked. We foresee continued rising interest rates in the short term but at a slower pace. The most significant known risks are geopolitical including Russia, and Ukraine wars. China from an economic performance and policy perspective and the United States as it approaches its debt ceiling. Turning to Slide 17, even with another year of economic and geopolitical uncertainty ahead of us.

We continue to be very clear in our strategic priorities for 2023, focusing on what we can control. We plan to deliver further growth, drive innovation and continue to enhance shareholder value as we further progressed State Street toward its medium-term targets. First, we are targeting further improvements to our business growth and profitability by leveraging State Street’s Alpha value proposition and enhancing its private markets capabilities. As we aim to become the leading investment services or platform, an enterprise outsources solutions provider in the industry.

We intend to maintain and extend our leadership positions in a number of key businesses. In global markets, we aim to expand our wallet share, as a leading provider of liquidity, financing, and Research Solutions to investment professionals. At Global Advisors, we aim to build on our strengths in areas such as ETFs and cash, while organic with accelerating growth efforts in fast-growing segments where we can win. Second, as we have over the past several years, we must continue to transform the way we work by driving increased productivity and efficiency throughout our organization as we build out a simplified scalable configurable end-to-end operating model.

As we lead with client service excellence productivity will become a core differentiator of our value proposition. third, we must continue to build a higher-performing organization, we are strengthening execution skills and increasing accountability, thereby fostering an even more results-oriented culture required for future growth. Our fourth priority is supported by the intended outcome of the first three priorities and is aimed at achieving our financial goals. Meaning, another year of positive operating leverage, margin expansion and higher returns. To conclude, supported by our distinctive value proposition and diversified offerings as well as our ability to manage State Street through challenging environments.

I believe we will be able to execute on each of these strategic priorities in 2023 as we advanced toward achieving our financial goals, all while being an essential partner to the world’s investors and the people they serve. And with that operator, we can now open the call for questions.

Questions and Answers:

Operator

Thank you Sir. Ladies and gentlemen we will now begin the question-and-answer session. Should you have a question [Operator Instruction] One moment please for your first question. Your first question comes from the line of Glenn Schorr from Evercore. Please go-ahead.

Glenn Schorr — Evercore — Analyst

Hi, thank you very much. I like the NII outlook. I want to ask a question on that. I you’ve been a big beneficiary of higher rates. With I’m curious on the deposit side, down almost 10% year-on-year in the quarter, but actually up a drop sequentially. I wanted to think about or could you tell us what you’re thinking about first [Indecipherable] you have stable outlook for 23 for deposits. We’ve seen a lot of fear in the banks in deposit runoff and betas and attrition and so curious, what gives you that confidence for the flat deposits. For the year. Thanks.

Eric Aboaf — Vice Chairman and CFO

Glenn, it’s Eric. We’ve navigated through industry cycles before, right and so we have a fair amount of Internal data and we also have I think and engagement with our clients that really understands the multiple avenues for them of putting their cash clients broadly with us a trillion dollars of cash from that deposits, some that’s in our sponsored repo program. Some of that’s in our global Advisors money market complex on within our sleep products in our Phase-III global link Franchise and so what we’re seeing is that clients are shifting, generally their deposits between different categories, but they also need an outlet for that cash, they need an outlet for that cash at a reasonable price at a reasonable ability to move it and use it as necessary, so. With that as context, I think we continue to see some expected rotation out of noninterest-bearing into interest-bearing that’s been happening.

I think at a reasonable pace and kind of in line. More or less with what we’ve seen before. And we expect that to continue for the next few quarters. At the same time, clients do have cash, especially given the risk-off environment. But in general, they all sit on cash as part of their investment planning and we found that they’re engaged with us to leave cash in our balance sheet. They like the flexibility they like some of the pricing and obviously, some cash comes in at noninterest-bearing summit at lower rates, when it’s very transactional some at rates that are closer to-market levels.

And so it’s been ongoing engagement with them and the visibility we have is reasonably good. It can always change, but deposits as a result, seem to be in the zone now after a couple of quarters in the first half of the year of coming down a bit, and seem to be flattening out. I won’t say that we won’t see a little bit of seasonality, occasionally in all-in January into February we see a downtick and then, March is folks preparing for tax payments and is up, and then April is down. So we’ll see some of that kind of movement, but on average, we expect deposits to be flattish from Going-forward into next year and through the bulk of the year.

Glenn Schorr — Evercore — Analyst

I appreciate that color. That’s good. You mentioned repo, so maybe just as my follow-up question, in the slides, I noticed you created this inventory platform for peer-to-peer repo. I would love a minute tutorial and what it’s for, who is it for and how you get paid, how that you will get paid-for that. Thanks.

Ron O’ Hanley — Chairman and CEO

Sure. This is part of the I think innovation heritage that we have here at State Street across the franchise, but inclusive global markets area we our sponsored repo program which is now $100 million inside was started in 2020 and 2005. I think if I go back to the history books and is now 100,000 out franchise as an example and we do this in FX. We do this in sec lending Century is as our repo offering that instead of working through our balance sheet or one of the clearing corporations, which is how we do repo today actually directly connects lenders and borrowers of securities and cash.

And so it’s just another platform, so to speak, other venues that that clients seem to want to engage with a big part of it early-on is working with the asset owners, those who have long books, Securities and cash and what we find is sometimes when they may want to make margin calls for or have margin calls they want to raise cash without selling securities, right. And so the natural question of, well, what do I repo to repo through a bank structure or do I repo with someone who’s on the other side of that trade, right, who actually wants to lend against securities.

And so we find that there are counterparties on the other side of that trade who would be interested to do that and what inventory, does it actually Connext borrowers and lenders with direct access to one another. So they have both the underlying collateral as the stabilizing force. And then they have the counterparty rating and with different counterparties, you get slightly different pricing and sometimes that flow-through is actually positive and quite appealing both to the lenders and borrowers. So that’s a little bit of it in a nutshell, we’re like to grow it to some amount during the course of the year. Early returns are positive, but it’s I’ll put in the bucket of innovation and how to connect folks in the capital markets but connect folks who our core clients and provide additional services for.

Glenn Schorr — Evercore — Analyst

So there the greatest tutorial. Thanks.

Operator

Thank you. Your next question comes from the line of Betsy Graseck from Morgan Stanley. Please go ahead.

Betsy Graseck — Morgan Stanley — Analyst

Hi, good morning.

Eric Aboaf — Vice Chairman and CFO

Good morning Besty.

Betsy Graseck — Morgan Stanley — Analyst

Okay, one follow-up question on NII and then a question on expenses. Just the follow-up question on NII, Eric. I just wanted to make sure I understood the cadence, the pace that you are suggesting NII should follow. I know you use the word attenuate, but we had a debate over here is to which way attenuate was going to trajectory. So, sorry to ask ticky tacky but appreciate it.

Eric Aboaf — Vice Chairman and CFO

That’s all right. But we want to be transparent and sometimes language always matters, but as you say. Our perspective is, we’ve got a very nice step-off point from fourth-quarter NII, we said we’d be roughly flattish into the first quarter and then we expect it to trend downwards so attenuate downwards, let’s say, 1% to 2% for the next few quarters, just as you see a tailwind of interest rates creating a positive. But you see that continued rotation out of net interest-bearing deposits being a headwind and the net of that is down NII, we think 1% to 2% for a couple of quarters and then towards the end-of-the-year and into 2024, we see Rob stabilization, partly because we’ve kind of burned out on the non-interest bearing rotation.

And then we get to a more stabilized area. But all in, we expect full-year NII to be up about 20% Year-over-Year, and We’ll take it from there.

Betsy Graseck — Morgan Stanley — Analyst

Got it, yeah, no that’s helpful. And then on the expense side. I know you mentioned that the benefit of the actions you’ve taken, am I right, $100 million run rate. I just wanted to understand when that comes into 2023 is that immediate in 1Q or is that something that comes in over-time, just be helpful, thanks.

Unidentified Speaker —

Yeah, roughly about half of that comes in ’23. The payback on most of these actions is about five quarters, so. Roughly half comes in on a fiscal 2023 basis and then will hit the run rate. I think within. Quarters whatever six-ish or something. After these actions. Most of these actions are in the next few. Well, let us call the next quarter as the run-rate then built $100 million so good payback and the kind of actions we want to keep taking in this kind of environment.

Betsy Graseck — Morgan Stanley — Analyst

Yes, so your point. That was my final follow-up, which was. Do you feel this is the extent or if for whatever reason the topline disappoints based on Macro not working out or what have you, is there more that you would consider doing going forward?

Ron O’ Hanley — Chairman and CEO

If that’s, it’s Ron. Maybe I’ll pick that. I mean, we, we’ve obviously got a pattern of investments that we’re intending to execute. We’ve also got an ongoing program in place that we’ve really had running now since 2019, so we certainly if the environment were to change materially. We would think about those investments. We also think about being more aggressive. I mean that. We have more or less in the background, continued to take a lot of gross expense out-of-the system, and every year we see an ongoing ability to do that. But we also want to keep investing in the business.

So there is a balance there. But to the extent to which things started to go south and in an unanticipated way. We do have levers.

Betsy Graseck — Morgan Stanley — Analyst

Thank you.

Operator

Thank you. Your next question comes from the line of Ken Usdin from Jefferies. Please go ahead.

Ken Usdin — Jefferies — Analyst

Thanks, good morning. I was wondering if you had any kind of just well postgame thoughts post the BBH decision. And within that, just on your knowledge and put forth this $4.5 billion capital plan. Just how we think about just your commitment to that now as opposed to whatever thoughts you might have about acquisitions going forward? Thank you.

Ron O’ Hanley — Chairman and CEO

Ken. I mean, as we’ve always said, we’ve got a very clear strategy and M&A is not a strategy. M&A is a way to help execute strategy, to move it faster, to enable it to get further than what’s anticipated, but it’s not a strategy by itself we are very comfortable with our organic strategy BBH was a scale, enhancing acquisition that we would have liked to have done, but it doesn’t materially change, in fact, it doesn’t change at all our strategy. So at this point where we sit, we have a strategy that we like, we have a strategy that we’re executing against big milestones that we’re confident we’re going to be delivering on in 2023 and therefore, we are committed to that share buyback.

Ken Usdin — Jefferies — Analyst

Okay, great, and then on servicing fees. Can you help us understand in your flat to plus one, what’s the impact of the BlackRock ETF deconversion where are we in that process and how much if any, has already been recognized of that expected revenue attrition at this point. Thank you.

Eric Aboaf — Vice Chairman and CFO

Yeah, maybe just. And so that in the various components. I think you saw the BlackRock transition begin at the end of last year was $10 million in the quarter sort of caught up $40 million run rate. That continues to transition out in ’23 and in ’24, there’s obviously it’s just natural schedule that you would expect that we’ve worked closely with them on. And so it will impact our servicing fees. During ’23, during ’24, and into ’25, just when you think about the year-on-year comparison basis. I think if you want to model it out. Broadly, we’ve said in our last. Regulatory filing we said it was worth about 2 percentage of fees as of December 31.

Point that we just crossed. It’s now about 1.7% of fees and I’ll let you sort of build it from there. But it’s included in our forecast that it will continue to be included in our forecast. We think about net-new business, right. We’ve got to sell them. We always have a bit of attrition and will. We want to continue to be net ahead and as you’ve seen us in the last couple of years, we’ve been net positive with net organic growth. Broadly and then with BlackRock Specifically, they continue to be very important clients of ours, we have continued and kept a good amount of business that we do with them. We’re strong providers for them in alternatives, which is growing quickly. And we’ve also been awarded new business.

Over the last year and so I think it will just be part of the outlook that I give you as we go forward.

Ken Usdin — Jefferies — Analyst

Okay, great, thanks Eric.

Operator

Thank you. Your next question comes from the line of Alex Blostein from Goldman Sachs. Please go ahead.

Alex Blostein — Goldman Sachs — Analyst

Hey, good morning, thanks for the question. Maybe just to follow up on Ken’s last point around servicing fees. I guess, if you take your run-rate servicing fees, as of the end-of-the-year it still implies a pretty wide gap versus where you guys expect to end for 2023, so maybe just provide a little bit more, granularity, where the ramp is going to come from I know equity market is one thing and you guys should make I think tonnage percent growth. In global equity, So that certainly helps, but often the kind of $4.8ish billion run-rate that you exited that to get to one that’s a 6% growth, that wider than we’ve seen in the past.

So I’m just curious whether it’s a new business or something else that you see on the horizon that will help you bridge that gap.

Eric Aboaf — Vice Chairman and CFO

Yeah, Alex, if you, I think I tend to a little more time on the full-year to full-year kind of servicing fees, it sounds like you’re modeling the last four quarters and then the next four quarters, which our captive fleet model as well. And we have been in our budget, it’s really a combination of factors, right. So there is — if you start with fourth quarter of 22 and then work forward. We expect some appreciation in equity markets. We’ll see if that plays out and we’ll obviously stay in touch with you all. We think that’ll be a tailwind. We think client flows and activity in particular should not be a headwind like it was in 2022 maybe neutral, maybe a positive just as clients have adapted to this new environment and so we see the New Year this year as the time when they’re going to be trading, investing, Building positions.

So we’ll see if that plays out. That’ll be part of it. Then we have a net-new business and so we do have a good pipeline both in the traditional servicing and Alpha area and I think as part of that. We continue to mine our existing client base, because of the share of wallet growth. Can be positive there. And then finally, there’s always the same amount of normal pricing headwinds but that’s factored in, but you kind of have to go through those four areas that remember, we’re assuming some growth in equity markets on a point-to-point basis, but we’ll see if that plays out.

Alex Blostein — Goldman Sachs — Analyst

All right, that’s helpful. Maybe just a follow-up around the balance sheet strategy. Heard the NII guide the deposit commentary, I’ll make sense when it comes to the tailwinds from sort of repricing the fixed portfolio with the securities portfolio. Can you help us frame what the roll-on, roll-off dynamic looks like today and also whether or not there are some more opportunistic actions you guys might take like routine with both BK and Northern over the last month or so with respect to just maybe accelerate some of the lower-yielding securities. Rollout It is something that might be a little more attractive here.

Eric Aboaf — Vice Chairman and CFO

Yeah. Let me describe it as follows the investment portfolio has an average duration of a bit over 2.5 years, so call it average maturity of five years and so you go through the math. I mean, about 20% of it rolls on and rolls off in a typical year, it will move around a bit. I think what we found and that’s invested across the curve. It’s best in various currencies. So there’s a mix, so you tend to get as you have roll-off roll-on. Somewhere between one-one and a half to sometimes 2.5% tailwind for that particular quarter of the amounts that are rolling off and rolling on.

And so that’s what’s actually been. One of the factors in billing is the yield, and the yield improvement on the portfolio and both how it was designed, it what we’re pleased to see. So that’ll be a gentle tailwind assuming the five-year rate stayed more or less where they are. And European rates continue to float up and so we’ll just have to that, that’ll be one of the tailwinds that we see in terms of more dramatic action we obviously, Always think about what we might do. What we’ve noticed is that if you have high-risk weighted asset positions in your risk-weighted asset-intensive positions in your portfolio.

Then what happens here, you can take the loss you reinvest and it helps to accelerate a buyback. Right. That’s why. I think a number of players are doing that during the just the for vanilla instruments treasuries agencies government-guaranteed, securities. Yeah. I think the benefits are closer to a push. We could take some. Losses through the P&L already in the equity account through AOCI you put on NII in the future. I think that’s just moving around of the financials and we just don’t find that that’s a particularly compelling trade to do well, always evaluate, we see if we have specific positions that might need some adjustment, but we don’t see that as particularly compelling, it sounds really compelling economically and the financial benefits you guys can kind of model out either way.

And so we. I think we’re pleased with the ability to continue to manage the portfolio in line with our processes and they’ve been renewing It NII is up significantly this past year and another 20% next year and we’ve got a tailwind and I think it bodes well for where we are and where we’re going.

Alex Blostein — Goldman Sachs — Analyst

Yeah. I got you. Great, thanks so much.

Eric Aboaf — Vice Chairman and CFO

Sure.

Operator

Thank you. Your next question comes from the line of Brian Bedell from Deutsche Bank. Please go ahead.

Brian Bedell — Deutsche Bank — Analyst

Great, thanks, good morning folks. And that’s only the on-net interest revenue outlook for ’23, Eric, can you talk a little bit about? What do you view as sensitivity to say if we had rate cuts in the back half of the year? I don’t think that’s assumed in your outlook. But just if you can talk about that dynamic, and Whether you think that would just be offset by reducing the deposit beta? And then also on the foreign deposit beta that you talked about, which is much better than the U.S. Do you expect that to continue, or do you see incremental from deposit betas moving higher from here?

Eric Aboaf — Vice Chairman and CFO

Yeah, I’ll let me do it in reverse order. The U.S. forces foreign currency betas in our experience this cycle prior cycles. Do tend to run at different levels, partly because the U.S. has this structure of noninterest-bearing versus interest-bearing deposits, right. So the client Deposit betas are in a subset of the total and partly because the international markets just operate a bit differently how we’re paid and how that. How those expectations have been set over I’ll call it decades for the industry. Operate differently, so. I think as we look into the next few quarters. We think the U.S. client deposit betas ex any new money that we bring in initiative basis, it’s going to be in that 65% to 70% and the international betas, we think will continue in the 20% to 50% range. When you look at euros, Pound-sterling, and Canadian dollars.

The dollars and some of the other currencies. So, we think they’re kind of in, they’re going to be in this zone. And that gives us some ability to continue to take advantage of the interest-rate increases. If I then. Work through the other part of your question, what happens with rate cuts, that’s in our — that’s in our expectations. Right, that’s in the forward curves, especially for the U.S., but there could be a December cut, there is some probability there could be a cut before that. I think it doesn’t dramatically affect, because they are late in the year, the rate cuts don’t dramatically affect the NII forecast that we’ll kind of take it as it goes.

I do think you’re as you’re intimating, there’s a bit of this offset, which is if the Fed’s cutting rates, and there’s probably going to be. Even more, cash that clients keep on hand in deposits in the system. So will probably be some offsetting impact, and obviously with the U.S. betas higher. Conveniently rate cuts actually, at some point, help with the system, we can see with NII as well so. I think there’s a fair amount of There’s a range of scenarios, let’s call it, in the second half of next year. And so, my guess is, Brian. We’re going to be having this conversation often with you and we’ll certainly keep you posted as we see some of those scenarios develop or there is more variability.

Brian Bedell — Deutsche Bank — Analyst

That’s super helpful. And then just maybe on asset servicing, just maybe an update on how you’re seeing the pricing headwinds out for this year. And then also, obviously, you typically do, you get a pricing headwind just from a mix-shift. Toward ETF, but maybe if you could talk about whether you think that might be set, offset by some of the growth in alternatives, and then I know. I think there is an expense offset to or I should say, I believe, the margin is the same on ETF versus say mutual funds. So again, expense maybe if you just wanted to confirm that.

Ron O’ Hanley — Chairman and CEO

Yeah, Brian. I think the pricing. Experience that we’re seeing in the industry, it has been stable and consistent over the last few years and we expect it to be consistent. Into next year and beyond. We just have the standard, because our contracts are tied to equity markets. When they roll over every you know, four years, five years, six years typically. Folks are thinking what they expect equity markets to be they know we’re gonna get paid. They’re going to pay us more. In the coming years, and they want to share some of that and so there is a partial pricing also. But it’s in that 2% headwind per year-on servicing fees and relatively consistent.

Yeah, Brian, it’s Ron. The mutual fund ETF shift. I mean there has been some high-profile convergence of mutual funds to ETFs, but that’s. There’s not a lot of that going on more typically what you’re seeing is ETFs being added two lines. And yes, the economics are different, the revenues fees are lower, but also, particularly when you’re at-scale like us, the expenses are much lower. So it’s not meaningful in this overall revenue guide that we’re giving you.

Brian Bedell — Deutsche Bank — Analyst

Yeah, perfect. Great, thank you so much.

Operator

Thank you. Your next question comes from the line of Brennan Hawken from UBS. Please go ahead.

Brennan Hawken — UBS — Analyst

Good morning, thanks for taking my questions. So I’d like to start on capital buyback, sends a strong message. Ron, very encouraging to hear about your comments on M&A. But I wanted to clarify that the buyback is up to $4.5 billion. So does the upper-end of the range there, assume that you’re going to see some AOCI accretion and is the quarterly range of $120 million, $200 million to the right way to think about it, if rates are stable?

Eric Aboaf — Vice Chairman and CFO

It’s, it’s Eric. The answer is yes and yes. All right. If you think about it, we’ve forecasted just see you guys just because you have earnings and coming through the P&L, AOCI, in that range $120 million and $200 million a quarter it bounces around a little, but it may with movements in rates, but the pull-to-par has been. It’s been good to us and will be a nice tailwind there some normalization of RWA’s which I mentioned in the first quarter, then there is some RWA growth in our plans, because we want to continue to lend more to clients and support more with their foreign-exchange hedging activities.

So we’ll continue to do that. And then there is the buyback. And our plan is just at get back. Into our range and that authorization comfortably gets us there.

Brennan Hawken — UBS — Analyst

Okay, excellent. And then couple of folks have touched on it before, but maybe if we think about the fee revenue. Can you please update us on the impact of market moves to a fee revenues and whether or not there’s also a corresponding impact on the expense side too, I’d assume, is at least some degree of impact there. Thanks.

Ron O’ Hanley — Chairman and CEO

Yeah, let me do it this way. I think. As we’ve been relatively consistent here and I think the guidance for hold a 10%. The average change in let’s call it an increase in equity markets, right. Typically lead to about a 3%. Increase in servicing fees. If you have both of those on average. So that’s the kind of gearing we have it’s higher on management fees, 10% higher equity and Markets tend to be closer to 5% increase in management fees.

Eric Aboaf — Vice Chairman and CFO

On the expense side. If I It’s it moves around a bit, but I think it’s a 10% average increase in equity markets, probably close to but let’s say around looking at the range around a percentage point increase in expenses. Could be a little bit less, it kind of depends. But our sub-custodian costs have a gearing towards equity markets and fixed-income markets, market data and some cases does as well. So it could be half a point, could be a point and that’s part of the, what we have in the expense walk and outlook that we’ve given and in some ways. I think we’re actually pleased to see that particular expense increase because at the core expense increase comes with real revenue growth and that’s. That then delivers EBITDA and earnings growth. When you bring it all together.

Brennan Hawken — UBS — Analyst

Excellent, thank you.

Operator

Thank you. Your next question comes from the line of Steven Chubak from Wolfe Research. Please go ahead.

Steven Chubak — Wolfe Research — Analyst

Hi, good morning. So, Eric. I have a two parter indulge me, just on some of the NII guidance. First. I was hoping you could provide just some guard rails on your assumptions for NIB outflow given you’re relatively close to the trough that we saw last cycle and the for the second part. I think you alluded to NII stabilizing beyond 23, even as NIB remixing pressures Bay and reinvestment tailwind, start to work-through the balance sheet was curious why NII is actually growing beyond 2023 is that a function of rate cuts international mix, any perspective would be really helpful.

Ron O’ Hanley — Chairman and CEO

All right. Well, that’s the crystal balling into 2024. I got to tell you, we got a lot of variability playing out right now, whether it’s economic, whether it’s central banks and I think guide I know there’s a lot of talk about what’s happening in NII. Where are we, where do we go to, and then does it. What happens after we get to a peak, so. I was just fine. In 2024, to kind of level-set that we see stability, there is a scenario where you see growth there are scenarios where we may not, but I it’s hard it’s you’re getting far out on our forecasting and predictions to be honest. So let’s come back to that maybe in the middle of the year that will be a good conversation. In terms of noninterest-bearing your noninterest-bearing, on average was about 44 billion this quarter.

This quarter, beating the fourth quarter it was down 5% Sequentially, it’s bounced around quarterly, but we see I don’t know, you could have. After $44 billion you could have a $4 billion rotation out next quarter, you could see that again into the next quarter then it starts to or it could be $3 billion. And then two. And so on and so forth. So we are I think we’re at this level where we’ve seen some amount of rotation, we think it’s going to continue, roughly at the pace that it’s been going. So it could be anywhere between $2 billion to $3 billion and 4 billion in a quarter, but you could have some changes to that.

Well, we do think is that we’ll continue to see some of it in the first half of the year and then it just starts to slow down into the second half and what we’ve done is use of that kind of base-case into our modeling and it’s all factored into the 20% increase in NII that we expect for next year.

Steven Chubak — Wolfe Research — Analyst

That’s great. Am I defense, Eric, since you did talk about stabilization, I felt like I had to take advantage of that window of opportunity to look forward to talking about it a little bit more in the middle in the middle of the year. Just one more from me on capital management. I was hoping you could to speak to or give us some insight into the cadence. Should we expect that buyback to be executed — or be a little bit more front-loaded here and just given the commitment? Or at least caveat like a strong effort to optimize our capital levels. How are you scenario planning for the Basel IV proposal or update that we should be getting from the Fed Early in ’23.

Eric Aboaf — Vice Chairman and CFO

Yeah. All of fair and it’s the kind of discussions we have internally we want upfront load the buyback, you saw us. Start particularly strong this past quarter, and we want some front-loading. On the other hand, it’s actually quite stabilizing to the stock to have buybacks on a consistent basis, so. I think we’re we don’t want to front-loaded an extreme and we don’t want to be — flat through the year. At the extreme either because it gives us. I think it’s a good kind of market practice to have some I’ll call it front-loading but reasonable consistency In the buyback in the buyback as well.

I think then the goal is to get into our target range at pace and then we’d love to operate in the middle of our range over time. That’s that kind of how set-up, but. I think what we always have to do is look out on the horizon is the economic conditions worsening. Right. And so, then you may be. On a run closer to the upper end of a range to insulate and prepare they are particularly benign and they particularly good uses of capital, and you might want to be at the lower end, similarly. I think we’ll learn more about Basel III and some of the changes in capital rules may be that come with other changes in capital rules, we don’t know and I think later this year, we’ll evaluate and that’s another reason to either run towards different areas of the range as well. So it all factors in but I think we’re quite comfortable with the direction where we want to go and then like you will think about What’s oN the horizon and plan for that.

Steven Chubak — Wolfe Research — Analyst

That’s great, thanks so much for taking my questions.

Operator

Thank you. Your next question comes from the line of Gerard Cassidy from RBC. Please go ahead.

Gerard Cassidy — RBC Capital Markets — Analyst

Good afternoon, guys. Eric, as a follow-up on the stock repurchase commentary, did you guys and especially now that essentially you reference, that would be more front front-end loaded. Did you guys consider an accelerated share repurchase program.

Eric Aboaf — Vice Chairman and CFO

Gerard, we did and. I think with the accelerated share repurchase program typically does operate in such a way that the stock buybacks accelerated within the course of the quarter. Right. Within the Three-Month period, there are typically some benefits of that, you tend to add a penny or around that EPS. It’s actually interesting enough in a high-interest rate environment, you also lose the NII the capital. So we’ve actually found that the ASRS, tends to be a push, roughly and so we’re We often do a more typical buyback within the available trading days in the quarter in a way that’s fairly market practice.As a way to return the cash and the capital to all of you.

Gerard Cassidy — RBC Capital Markets — Analyst

Very good. And then. I know you’ve pointed to the RWA benefit you had this quarter for the CET1 ratio and I think you said in your slides your targeted range is 10% to 11%, which of course are above. At this time. Do you have any guidance on when you think you may reach your targeted 10% to 11% CET1 range?

Ron O’ Hanley — Chairman and CEO

You know, it will depend on. Both, let me say it this way, we want to return the capital that pays and I’ve given some Kansas. What that means and that’s, I think a forecast, you guys can build-off of and we want to get to our target range. Right. We don’t want to wait till next Christmas, right. That’s not. That’s I would not. Be at pace. In my nomenclature at the same time, there’s just a range of What We’ll move right if RWAs license. Again, it all take a little longer if they go back and we fully utilize our limits in our various businesses and areas.

Then it might be a little more quickly. So it’s hard to pin it down both as I’ve said, we’d like to get to we like to execute the buyback at pace. We’d like to get back to a range into our range at pace and We’re going to we’re driving that direction.

Gerard Cassidy — RBC Capital Markets — Analyst

Great. I appreciate it. Thank you.

Operator

Thank you. Your next question comes from the line of Mike Mayo from Wells Fargo Securities, please go ahead.

Michael Mayo — Wells Fargo Securities — Analyst

Hi. Well thanks for all the answers on the cyclical factors. I wanted to ask about the structural. The end game, a strategic end game post Brown Brothers and the reason I ask, I count five restructuring the last 20 years, they seem to come around, like the top of the Olympics. The fourth quarter is yet one more quarter with notable items. I can’t notable items in the last 20 quarters, and I do get some of it Like you have incredible headwinds mutual funds markets technical debt you’ve been reinventing yourself front-to-back. Straight-through processing, serving clients, more agile KEC. And I also recognize what you said at the start that the ROE and margins improved for a couple of years in a row, but when. I look at, be expenses that has gone the other way and it seems like maybe one route issue is fixed costs. So really the question is a concrete question. What percent of your expenses are fixed. How does that compare to the past assume they’ve come down? And where would you like to take that and then more broadly, what is the end game strategy after Brown Brothers? Thanks.

Ron O’ Hanley — Chairman and CEO

Yeah, let me start on that Mike concern. So there’s a lot in there Comment on. I’m not going to comment on past restructurings. I’ll comment on this one, right. We had — we made some changes to the way we organize ourselves, we talked about that back in the middle of the year and there is some benefits we can take out of that. In terms of Simplifying the management structure, having a smaller number of senior managers. We’re going to take advantage of that. It’s consistent with simplifying our business, it creates accountability and we stand by that would need to have done that restructuring in terms of where do we take this business going forward.

It’s. It has a lot of benefits to it, it’s very tied to investment markets over time. Investment markets grow. They don’t shrink. So the actual if you will, unit pricing, while the unit pricing may go down overall pricing. Actually, overall revenue is actually more times than not have the tailwind we like that business. It’s also one that is changing fundamentally from being a kind of a back-office show-me the lowest price kind of thing to much more of an enterprise outsourcing business. We are very new in that. We’re very early in that transition. And we think, by far. We are the best-positioned to take advantage of that in terms of the technical capabilities that we have the people, the capabilities that we have and the position we have in the marketplace.

We’ve made initial inroads in wins in that, but there’s a development that we’ve talked about that will be delivered in 23 and beyond. But a lot of in ’23 that will only help strengthen our position. So we see the end game here in terms of the core Investment Servicing business as being one, which is much more akin to an outsourcing services business much less susceptible to kind of these instantaneous I’m going to put it to RFP and it’s just a stickier business. And we are very respectful and wary of our competitors, because having an edge and can be easily caught up on, but right now we believe we have that edge and lead and we’re going to capitalize on it.

In the investment management business, again similar kinds of changes there. We’re seeing It increased desire for the kinds of things that we do, systematic and otherwise. Asset allocation, which we are very-very good at. Is now an area that everybody is talking about after literally decades of reliance on the 60, 40 model and guess what, it didn’t work, it doesn’t work at all-time. It will lead to a lot of thinking Demand for that. So we like our businesses, we like where we are strategically in terms of. What’s going to happen? Will there be other Brown Brothers out there, what I do think that you will see over time is an increasing number of competitors where this may not be their core business.

Thanks, enough is enough, the capital requirements are in terms of the invested capital requirements much too high. Mostly about the technology, if it really does continue into an outsourcing kind of environment like, we believe it will, it’s going to put more demand to invest in the business and if this is business, 42 of your 80 business structure, you might decide, they don’t want to be in this business. So that’s how we see it going forward.

Michael Mayo — Wells Fargo Securities — Analyst

That was expansive. Thank you. The fixed-cost part of the question. I’m. You don’t report it that way, but just in rough terms. I guess, so and the asset servicing less RFPs lowest priced this enterprise outsourcing. Okay, investment management is more holistic instead of the old model, but still as you transition, you have a certain degree of fixed costs that are tough to manage. I mean it’s not quite like a brokerage firm where you. We reduced bonuses so is there any way just to ballpark, how much of your expenses are fixed costs and I think they’ve come down from the past, you probably trying to Florida, more.

Eric Aboaf — Vice Chairman and CFO

Mike, it’s Eric. All good questions. I think that this such an industry which used to be variable-cost intensive Friday was very manual and when you add a new piece of business, you actually had to higher fund accountants. We’re working on paper first. And then on excel sheets next and so it’s quite manually intensive and variable in nature. It’s actually as we’ve automated, think about the datacenters, you’ve talked about the movement to the cloud, the developers that we have this business has re evolved to a fixed and semi-fixed cost-oriented business. In truth, and that means that for certain types of business. We bring on custody business core custody. Right. The kind of the most automated and the most. The oldest part of what sits in our franchise that comes in you plug it in and the computer just processes a few more times not overnight, but literally in nanoseconds, right.

And so this has become a more fixed-cost business. And so what we need to do is think about how do we want to manage those fixed costs. How have they deployed the development dollars in technology, how do we shape that each year because we can if we do that, right. We’ll add feature functionality and that will bring in new business over time that will help. Retention and That’ll help growth and so this is more of a fixed-cost business and semi-fixed costs, whereas it’s more fixed and semi-fixed, then twenty-eighty and. I think it’s actually has evolved and so. What’s important for us to do is to make sure that we have the products and the offerings and the client coverage to support that and to add new business at the right type of new business and then where there are variable cost components.

We’ve talked about some of the more manual and complex areas right servicing for private for example is still quite manual, it’s complicated, they are not standard systems typically in the industry there No, there’s very little in third-party software that one could avail oneself self of those are the various areas where we need to continue to find ways to automate and streamline and that’s part of what we’re doing with the ongoing investment program that we have underway.

Michael Mayo — Wells Fargo Securities — Analyst

All right. Thank you.

Operator

Thank you. Your next question comes from the line of Rob [Indecipherable] from Autonomous Research. Please go ahead.

Unidentified Participant — — Analyst

Hi guys AUCA wins in the fourth quarter were pretty good. And Eric, you called out a strong pipeline there. What level of new business wins, are you expecting in 23 and you see those coming from any specific client category cohort service area or anything like that.

Eric Aboaf — Vice Chairman and CFO

As we have said, the pipeline remains strong. I think we’re pleased with wins this year wins were about a trillion nine for the full year, what I have said is, and I think we feel good, good about this target line in the sand. As we’ve said to drive the kind of organic growth that we’d like. We want to win about a trillion five per year of new business. We did that this past year, we did it in spades closer to double that in 2021 and So and that’s our expectation. We expect and we think that’s par for 2023 as well. Obviously, we want to sell more than that. I do want to bring new — more new clients or further deepen relationships with existing clients.

I think what we feel good about here is both the new business this year. The [Indecipherable] has come in at good fee rates. The fee rates of the new wins are actually in-line with our overall fee rate this year. And so that means that as it onboarded it, It will be neutral or even accretive to the fee rate. So that’s important and that’s an important part of the program in terms of segments, it’s been broad-based. I mean, this past quarter. For example, was broad-based across regions, literally. I think it was a third, third, third and we saw particularly strong growth this past year in Asia. We’d like to repeat that again. I think we got we have intensity on Europe and North America as well.

So there’s not, I’d say, it’s not one particular segment or one particular region. It’s fairly broad, but. It’s a good pipeline overall.

Unidentified Participant — — Analyst

Got it and then you also mentioned some higher renewals in the Alpha business, wondering if you could talk about the retention rate there as the retention among front-to-back clients compare to your more traditional you’re back middle office-only clients.

Ron O’ Hanley — Chairman and CEO

Yeah, Rob. I mean in terms of fully installed Alpha clients, the retention rate is 100%. And you wouldn’t expect it to be much less than that, simply because It’s still relatively new I think that there is a real commitment that’s made on both sides of the house, when you enter into these things, first of all, to actually Rewire the firm around for the clients to rewire around front-to-back is a lot of effort on their part. And while there’s a lot of commonality across these clients. There’s a lot on our part that we need to do to install it. So that contracts are longer, but the reality is that the switching cost. Have also gone up dramatically.

In these front-to-back things. So we would expect more, but we also recognize that we’ve got to earn that I mean, we’ve got to right now, there’s a when that happens, there’s a huge dependency. On the part of the client and us delivering every day. And so we take that responsibility quite seriously.

Unidentified Participant — — Analyst

Got it, thanks [Indecipherable].

Operator

Thank you. Your next question comes from the line of Vivek Juneja from JPMorgan. Please go ahead.

Vivek Juneja — JPMorgan — Analyst

Thank you. Just a couple of little details for you. Eric, you mentioned. RWA came down by about $10 billion and you have to see another declined $10 billion to $15 billion, any color on what you did there and there that sustainable post 1Q.

Eric Aboaf — Vice Chairman and CFO

Yeah, let me just clarify. RWA was lower-than-expected in the fourth quarter by about $10 billion. And in first quarter, we expect it to reverse. In other words, to up by $10 billion, $12 billion, $50 billion. And it’s just driven by some of the underlying volatility in our business. For example, overdrafts were lighter than expected this quarter, they move around by a few billion dollars and that moves RWA by a few billion dollars each quarter in the FX book. We run a very. Sort of a typical forward book, you know. Two-week, four-week, and six-week forward and as you have U.S. dollar appreciation or depreciation, you can ge $5 billion moves in RWA relatively easily.

So that’s just the volatility that we saw, we tend to be quite careful to assist stay within our RWA internal limits. That’s why we tend not to have upswings in RWA, but we tend to have these beneficial quarters now and then and we’ll just note them to you so you can model out our capital ratio trends.

Vivek Juneja — JPMorgan — Analyst

Great. Second, another little detail for you, your software processing and data. Could you parse that into data versus CRD since such not combined since you’ve got this big growth rate there, what’s going on underneath? How much is there?

Unidentified Speaker —

Sure, it’s the nomination. I mean, the bulk of that is really around Charles River. And the franchise that we purchased back in 2018, which is really given us the kind of growth that we had expected. So you can go back and compare the size of the franchise. I think at the last disclosure. I think we probably showed it a year-ago and Compared to that software and data line and Get a kind of adjustment, but it’s the large majority, I’ll say, of that line data to us is very appealing. Our offering that supplements what’s in sometimes sold with the Charles River offering some funds with Alpha in the middle office sometimes sold as supplemental to just custody and accounting because it’s such a high-value and informative kind of window sometimes for risk management purposes, sometimes for client and transparency purposes for our asset manager and asset-owner clients

And so it’s actually one of the faster-growing areas of that of that area and that’s why we put it together because it’s actually a software type sale. But an important one.

Ron O’ Hanley — Chairman and CEO

Yeah, Vivek, it’s Ron. Let me just add to that, because we’ve done a lot of Innovation in this area, new product development and we do expect that to continue to close. Eric said, because everybody is interested in simplifying their or their operations, simplifying and getting control of their tech that Innovating on the technology side. But in addition there is a data management, data control and some parts of the world with some investors. It’s also the location of data. Where does Data actually both move-in rest. So this is getting increasingly. This is a growth area. It goes beyond asset managers, large asset owners and is very secure.

So we have set and see it as a way to extend, what we’re doing, probably in the Alpha arena.

Vivek Juneja — JPMorgan — Analyst

And just to clarify on CRD. Eric, to your commentary when you had previously talked about, it was growing in the low-double-digit range. This was a year or two ago when you would when it was broken out. Is that still the pace at which this company and to grow or is that. As it matures slowing down a little bit or is it accelerating. Any granularity, Any color on that.

Eric Aboaf — Vice Chairman and CFO

Yeah, now it continues to outpace, I’d say, it moves around depending on some of the on-premise renewals that still flow-through the P&L high-single-digits, low-double-digits. And what we’ve done is continue to the team continues to drive kind of a core CRD offerings the. It started with an equity product, moved to equity and fixed-income, which are now industry. I think industry. At peer levels in some cases industry-leading. And then what we’ve done is supplemented that for example, we purchased a small company called ADAS, which was kind of a front-end portion of the Charles River type offering.

And so we’ve added kind of private markets area to what I’ll call the broader Charles River complex. So this is an area that I think will continue to grow. Probably twice the rate of State Street help forward but also is the tip of the sphere of how we engage with clients, new clients and existing clients in broader ways and that’s why the core software. I think is an important product and what I think I’ve been pleased with, especially this year, which has been all over the place, economically and politically. Right. Even with that putting markets up-and-down software and software growth.

Charles River data private software for private. Continues to grow in this. Double-digit range low-double-digit range through thick and thin and that helps balance out. I think the growth dynamics the company.

Vivek Juneja — JPMorgan — Analyst

Great, thank you. Thank you.

Operator

That would be for a last question, I’ll be turning the call over back to Mr. Ron O’ Hanley for closing remarks.

Ron O’ Hanley — Chairman and CEO

Thank you, operator and thanks to all for joining us.

Operator

[Operator Closing Remarks]