摩根士丹利 (MS) 2010 Q1 法說會逐字稿

Welcome to the Morgan Stanley conference call.

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At this time, I would like to turn the program over to Ms.

Porat for today's call.

Good morning.

This is James Gorman.

I am here with Ruth Porat, and I want to wish you a good morning and thank you all for joining us.

This first quarter of 2010 marked a period of stability and progress for Morgan Stanley.

We saw improvement in revenue, net income, earnings per share, and ROE.

In addition, across the firm, we saw improved performance in each of our three major business lines, all of which Ruth will address shortly.

We resolved two legacy issues that are reflected within discontinued operations.

Specifically, we settled our litigation with Discover for a gain and we chose to dispose of our investment in Revel resulting in a loss.

Finally, and most importantly, we took a number of steps strategically to strengthen our position for the coming quarters and years ahead.

Let me touch on these briefly.

In institutional securities, we completed the first stage of our global hiring plan announced last year.

We will continue to broaden our footprint through ongoing key hiring and talent retention.

We're approach our priority clients holistically through a firm relationship management program.

We're better organizing our people to deliver the entire firm more consistently to clients.

In global wealth management, the integration of the joint venture remains on track.

We expect to achieve a pre tax margin of greater than 20% by the end of 2011.

In asset management, Greg Fleming joined us in February as president and has already made some key hires to rebuild the investment culture.

Greg is conducting a thorough review of each of our business lines in developing the segment strategy.

The sale of our retail asset management business to Invesco remains on track to close mid 2010.

Our strategic relationship with MUFG continues to gain strength.

Together, we completed the largest non-investment grade commitment of the post-Lehman era to CF Industries.

In March, we entered into a definitive agreement with MUFG to commence joint venture operations in Japan effective May 1.

The joint ownership structure creates an industry-leading institutional business and a large local retail brokerage network with significant global reach.

Overall, the quarter demonstrates the disciplined execution of our strategy.

However, while we've made clear progress, we still have much work to do to achieve our long-term goals.

Now, I'll turn it over to Ruth to review our first quarter results.

Thank you.

Thank you, James.

Our first quarter revenues were $9.1 billion, up 33% from last quarter, in what was a generally stable operating environment despite sovereign credit concerns.

The impact from the widening of credit spreads on firm-issued structured notes was immaterial this quarter at roughly $50 million.

Excluding the impact from both quarters, revenues increased roughly 20% sequentially.

Our non interest expenses were $6.6 billion, up 6% from last quarter.

Our compensation ratio was 49%, down from last year's peak levels, and consistent with our commitment to manage down this ratio.

Our view of 2010 compensation levels took into consideration the anticipated UK bonus tax to be paid in the second quarter of this year.

Non-compensation expenses were $2.1 billion, down 12% from last quarter driven by seasonality and the benefits of the cost savings initiative implemented in 2009.

Income from continuing operations applicable to Morgan Stanley was $1.8 billion, and diluted EPS from continuing operations was $1.03.

Our results included a tax benefit of $382 million, or $0.21 per share associated with prior year undistributed earnings of certain non-US subsidiaries that were determined to be indefinitely reinvested abroad.

Excluding the benefit, the effective tax rate would have been 32.5%.

ROE from continuing operations was 17.1% for the quarter, or 13.1%, excluding the effect of the discrete tax benefit.

Including discontinued operations, our EPS was $0.99 and our ROE was 16.3%.

The three key items in discontinued operations were, first, a $932 million loss on the planned disposition of Revel, as shown on page 12 of our supplement.

Second, a $775 million gain related to the settlement of the Discover litigation.

And finally, the operating results of our retail asset management business, including Van Kampen.

Turning to the balance sheet data on page three of the financial supplement, total assets increased from $771 billion at year end to $820 billion at March 31.

The increase of $48 billion was primarily in more liquid asset classes, such as cash and cash equivalents, as well as US government and agency securities.

Our capital ratios continue to demonstrate the strength of our balance sheet, and although not yet final, we believe our Tier 1 capital ratio under Basel I will be 15% and Tier 1 common ratio will by 8.2%.

Let me now briefly review our business units.

For institutional securities revenues were $5.3 billion, up substantially from the fourth quarter on improved performance in sales and trading, which was partially offset by weaker investment banking trends.

Non interest expenses were $3.3 billion in the first quarter, up 18% sequentially from higher compensation on higher revenue.

The compensation ratio was 41%.

Profit before tax was $2.1 billion, and the CBT margin was 39% compared to 14% last quarter.

With respect to investment banking, revenues were $887 million, down 40% sequentially.

Morgan Stanley ranks second in completed M&A, fourth in a tight cluster for announced global M&A, and third in global IPOs and global equity.

Advisory revenues decreased 38% from last quarter, in line with lower levels of market activity.

We advised on a number of transactions that closed in the quarter, including Kraft $21.4 billion acquisition of Cadbury, and Pepsi's $10.8 billion acquisition of Pepsi Bottling.

We were also the advisor for three of the top five M&A transactions announced in the quarter, including two significant deals for the Federal Reserve.

The $35.5 billion sale of AIG's AIA group to Prudential and the $15.5 billion sale of AIG's Alico business to MetLife.

Equity underwriting revenues were $264 million, down from a very strong fourth quarter.

Two of our IPOs this quarter, Athabasca Oil Sands and OSX Brazil, demonstrate the importance of emerging markets in the equity issuance calendar.

Fixed income underwriting revenues decreased 8% sequentially, as strength in investment grade was more than offset by lower loan syndication revenue.

Overall, our investment banking pipeline is strong across regions and products and up from the fourth quarter.

Turning to equity sales and trading, revenues of $1.4 billion were up significantly from last quarter.

Cash equity revenues were relatively flat from the fourth quarter on commissions from higher market levels and improved market share, despite lower industry volume.

Derivatives revenues were up significantly from the fourth quarter on better trading results across all regions, and prime brokerage revenues increased sequentially, as average client balances continue to grow, up 8% sequentially.

Fixed income sales and trading revenues were $2.7 billion, a substantial improvement from last quarter.

We continue to focus on improving distribution and footprint within interest rates, FX, and emerging markets.

Within our interest rate credit and currencies business, IRCC, we reported strong revenues, up nearly 80% sequentially, with particular strength in Europe.

Interest rates improved significantly from last quarter, despite tighter spreads.

Corporate credits once again delivered strong results with an increase in client activity across all regions.

Commodities revenues improved from last quarter, but were muted given the range bound market and lack of typical seasonal volatility.

Turning to VAR on page three of the supplement, total average trading and non-trading value at risk decreased to $169 million from $187 million in the fourth quarter.

Average trading VAR was $143 million in the first quarter compared to $152 million in the fourth quarter on a recasted basis driven by reduced risk and interest rate and credit products.

The recasted fourth quarter reflects the reclassification of counterparty portfolio VAR from non-trading VAR to trading VAR.

With respect to our global wealth management business summarized on page eight of the supplement, our revenues of $3.1 billion were relatively flat from last quarter, as retail investors remained on the sidelines and the interest rates environment continued to be low.

Non interest expenses were $2.8 billion and included approximately $100 million of integration costs.

Excluding integration costs, expenses declined sequentially from the fourth quarter.

The compensation ratio was 64%, driven by the formulaic grid payout and down slightly from the 2009 full year ratio.

We aim to drive the compensation ratio trends down over time as we generate higher off grid revenues, gain economies of scale, and as the retail environment improves.

Profit before tax was $278 million and the TBT margin was 9%.

On page nine of the supplement, you can see the quarterly productivity measures for the business.

Total client assets increased 3% sequentially to $1.6 trillion on market appreciation and asset flow.

Net new assets of $5.8 billion represented our first positive quarter since the JV closed.

We still expect $20 billion of net new assets for the full year 2010.

However, next quarter could be affected by tax seasonality.

The number of FAs remained relatively unchanged at 18,140, which is within our long-term range of 17,500 to 18,500.

And FA turnover within our top two quintiles remained at historic lows.

Total firm-wide deposits at quarter end were $64 billion.

Deposits in our bank deposit program increased to $114 billion, of which $56 billion is held by Morgan Stanley banks.

Now, turning to asset management on page ten of our supplement.

Net revenues were $653 million, up 28% from the fourth quarter, driven primarily by $122 million of principal investment gains from two MSREF funds that we consolidate.

Given the ownership structure of these funds, the majority of those gains are passed to the other owners in the noncontrolling interest line.

PBT was $173 million for a margin of 26%.

Excluding the gains attributable to the noncontrolling interest, the segment was profitable with PBT of $57 million for a margin of 11%.

Our core asset management business generated net revenues of $414 million, up 16% sequentially on annual performance fees and higher asset management fees.

The merchant banking component had net revenues of $239 million, up more than 50% from the fourth quarter, driven by principal investment gains, including the MSREF funds just mentioned.

As summarized on page 11 of the supplement, total AUM was $262 billion, down 2% sequentially.

This was driven by outflows of $6.8 billion, coming mostly from our money market funds driven by the low interest rate environment and seasonality of liquidity needs consistent with industry trends.

While equity flows were negative this quarter, fixed income flows were positive for the third consecutive quarter on continued strong performance.

Over 70% of our long-only strategies outperformed their respective benchmarks on a three, five and ten-year basis.

Turning to our firm-wide real estate investments on page 12 of the supplement, our balance sheet reflects investments in real estate of $1.2 billion at the end of the quarter, down from $2.2 billion at the end of December, reflecting the loss taken on the planned disposal of Revel.

In addition, we have $1.3 billion of contractual commitments and other arrangements bringing our total exposure to $2.5 billion, down from $3.7 billion at the end of December.

Finally, regarding our outlook, there are two key factors affecting our business.

The global economy.

It continues to heal and stabilize with positive data suggesting some durability to the recovery.

Growth prospects remain strong for emerging markets in particular, and appear to be improving in developed markets.

Economic recovery in emerging markets can be seen in terms of both profitability and activity.

Further helping the recovery, we expect short-term rates to remain low for some time, as unemployment remains high and inflation expectations are benign.

Overall, we view the signs of improvement positively, although sustained confidence is key for investors and corporates to reengage.

We are certainly seeing this confidence in the build in our investment banking pipeline.

Second, the regulatory agenda.

We believe resolving regulatory reform is critical for our industry and the global capital markets.

We welcome regulatory reform and hope to see bipartisan legislation pass as soon as possible.

While we have more work to do, we are well positioned for the challenges and opportunities ahead.

Thank you, and now we will take your questions.

(Operator Instructions).

And the first question will come from Glenn Schorr of UBS.

Hi, Ruth.

Good morning.

So clearly a big pickup on absolute results and showing real progress, like you said.

On a relative basis, my quick assessment is equities is very good and in line with most of the big guys, but it feels like there's a little slippage in banking and still work to do in FICS.

A, do you agree with the comment on banking, especially on the equity underwriting side, or is that just an issue of timing and your comment on pipelines.

And then FICS, maybe just a little bit more on where you see further upside here in terms of you're only part way through the buildout.

With respect to investment banking, I think you summarized it well that it's really a function of timing and the calendar can end up being lumpy.

I think we're seeing real strength in the investment banking pipeline, as I indicated, and came off a strong fourth quarter.

So we're feeling very good about the investment banking business across the board.

With respect to FICS, revenues across all the fixed income products improved from the fourth quarter.

Our view is that the contribution of the additional hiring will be measured over the coming quarters, and it's a multi quarter build, as we've talked about in the past.

There will be more to talk about that in the quarters to come.

In the real estate page, with Revel coming out, I think you announced $2.5 billion real estate between the exposure and the lending commitment.

Anything you can help us with in how lumpy, what's left in there, how's it marked, is it cost accounting versus mark to market, just anything in there would be helpful.

We don't talk about specific investments until there's something material to talk about.

But with the planned disposition of Revel, all of the remaining substantive items on that schedule are subject to mark to market, and the marks are about $0.25 on the dollar.

That's good news.

And then one of the potential rule changes that have been thrown out there as part of Volcker rule, would be no hedge fund ownership.

You have a bunch of pieces and a few wholly owned.

If you aggregated them all together, is there any stats that you can give us in terms of total capital allocated, total cost base of the group, and how you're thinking about potential rule changes?

No, I think it's still too early.

The rules are unclear.

Hopefully we'll get clarity sooner rather than later, as I said.

But at this point, I think it's premature.

Okay.

Last one, I don't know if you read the papers, but there's a little talk about the CDO market lately.

And just historically, Morgan Stanley was not a big underwriter, but I'll give you the air to clear out.

Does it mean anything that you warrant, the big investigation going on?

Do you have any Wells notice outstanding that we don't know about?

Fair question.

As a longstanding matter of policy, we don't comment on regulatory matters, unless we've included their material.

So I wanted to give you that upfront disclosure.

But assuming that question might have come up and given the uniqueness of the events on Friday, I just want to confirm we have not received a Wells notice in connection with our CDO business.

All right.

Thank you very much.

The next question will come from Guy Moszkowski of Banc of America.

I noticed that your leverage increased again to about 16 times, and your total assets rolled forward up about 6% from last quarter.

I was wondering if you could update us on where you're targeting the leverage ratio, and any change in your thinking there.

There has been no change in the thinking.

We went up modestly from the fourth quarter 15.5 to 16 times, but we're very comfortable in that, that zip code, and that's what we're managing to.

And I also noticed that although you did have a pretty significant increase in revenues in the institutional securities area and the assets did go up overall, as I pointed out, your capital allocated to the institutional services business actually declined somewhat in the quarter.

It's reported average, but it was down from $16.9 billion to I think $16.3 billion.

Of course you generated $800 million in profitability, more or less, in that business unit.

So I was a little surprised to see the allocation come down.

Among the competitors we're actually seeing some of those allocations go up.

So I was wondering if you could talk about your thinking behind that.

That came down some because of the stress loss component of calculating allocated capital to the various businesses.

Would we expect, though, or should we expect that given that you have completed at least the first phase of a pretty significant hiring program that you might be allocating more of that unallocated parent capital back into the institutional securities business, or is that not really?

You've clearly focused on the right line, not surprisingly.

The parent capital, as we've talked about in the past, our assumption is that over time that will be allocated to our businesses and that's a function of ongoing regulatory requirements and change as we look at allocating that capital across the businesses.

But that is the intent that parent capital, or that is the assumption that parent capital will be allocated and the assumption is disproportionately that will be going to support the institutional securities business.

Just as an aside, should we read anything into the fact that you stopped calling it unallocated or whatever and you call it parent capital now?

It's at the parent level and I don't think there's -- it's at the parent level, so we thought it most accurately reflects our capital.

But it's fair to assume it will be allocated.

Okay.

Fair enough.

And then on VAR, looking at what you reported in the institutional securities unit disclosure, it looked to me like it went up versus last quarter, but I thought I heard you say something about some transfer that made it go down.

And I'm not sure I really followed that.

Could I ask you to repeat that.

That was a little confusing, I agree.

So as part of our conversion to a financial holding company, this is going from Basel I SEC to Basel I Fed, a number of our models were reviewed.

And as part of that, we moved CVA into trading VAR.

And that's the noise in the trading VAR number that you saw.

And so on an apples to apples basis, the VAR number declined from $152 million to $143 million.

Got it.

But if I look at the disclosure in institutional where it went up about $10 million and there was actually about a $20 million increase in the rates in credit VAR, is that just basically a set of business decisions that were driving that value at risk up, and which we actually saw reflected then in that improvement in revenue, or am I misreading that?

I think the confusion is that the VAR numbers haven't been recasted yet for the CVA move that I just described, so it will be harder to read through those and we'll be breaking all of that out fully in the 10-Q.

Great, thanks.

And then just one more quick question on global wealth management.

Those integration costs that you alluded to, which were about $100 million I think in the quarter, were those all retained by Morgan Stanley this quarter, or was some of it shared with CitiGroup this time?

It was shared.

Okay, great.

Thanks very much.

The next question will come from Mike Mayo of CLSA.

Good morning.

Can you just give a little more color on the backlog?

It seems like you have a better backlog compared to last quarter than some others.

As I think I noted it's broadening across sectors and across products.

We're feeling good about the implication for how our clients are looking at moving forward.

Okay.

And how much of your revenues are derivatives related?

Or just more generally, what would the impact be of the new legislation on your derivatives revenue?

Two different things.

We don't break out the derivatives revenue specifically, but overall, with respect to legislation, our view is that we do expect and look forward to seeing derivatives legislation.

I think our view very much is that reporting clearing for derivatives would enhance the overall market and with respect to exchange trading on standardized products, we'll see.

But I think the big question is with greater transparency reporting clearing, what does that do for the overall size of the market?

So it's hard to estimate at this point, but I think the main point is we are looking forward to seeing that legislation done.

And then lastly, you're done with stage one of your hiring.

How much did that contribute this quarter?

When do you expect it to contribute?

And how about for us on the outside, how will we be able to tell how that program's going?

I think we've been careful to say that it builds over time, so we're pleased to have brought the talent into the firm and integrating well and it will be a systematic build over time.

I think we are still focused on catalytic hires, as we're calling them, talent wants to come onto the platform where it makes sense to add.

But it's going to be a steady build.

We've talked about disciplined execution, and with disciplined execution means that it is a steady build.

All right.

Thank you.

The next question will come from Mike Carrier of Deutsche Bank.

Thanks, Ruth.

One other question on the trading side.

I think in the first quarter, everyone benefits from some seasonality, and you guys also had the benefit on the hire.

So maybe wording it in a different way, when you look at the level of revenues that you're generating, particularly on the fixed side, or the IRCC side, when you look at where you're at, where do you think the full potential is based on the investments that you made?

And then just during the quarter, you gave the spread adjustments, but anything in terms of write-ups in the quarter that was significant?

With respect to the (inaudible) business, it's really a multi-pronged execution path.

We have the hiring.

Colm Kelleher and Paul Taubman announced recently a restructuring of the business to really more closely match the activities with our clients, so we're now organized into global macro and global credit.

And very much focused on an overall firm relationship management program, as James mentioned.

And so it's really the combination of those efforts which we believe will continue to drive the business.

I'm not going to forecast out what it gets to over time, but again, it is the systematic build that we're focused on.

And then you had a second question.

I apologize.

What was that?

Any significant write-ups of assets in the FIC number this quarter?

Nothing significant with write-ups.

We're seeing more liquidity overall.

And that's a good thing.

Okay, and then on page 3, you break out the mix between the US and the non-US.

It just seemed like the non-US up over 100%, US up only when 10%.

Was that based on just where the spread adjustments were last quarter?

Yes, exactly.

The fourth quarter distorted the view due to DVA, which was primarily reflected in the Europe line.

And so when you look at the regional revenues in the first quarter, I think you're seeing a more normalized geographic distribution of our revenues.

Okay, and then finally, just in wealth management, obviously seeing the inflows, a good shift versus the outflows that you guys have been experiencing over the past couple quarters.

For the entire industry, the quarter was pretty sluggish when you look at average asset levels, mix shift, and then just grading levels.

When you look at the adjusted margin at around 11%, 12%, and the target being above 20% next year, is that mostly driven by top line growth, or is there more to do on the expense side?

It's really both.

I think this quarter, you noted our PBT margin went from 7.4% last quarter to 9% this quarter, although revenues were relatively flat.

And that was due to the more muted retail environment.

Not just the investor activity more muted, but also the flow-through from the investment banking activity with investment banking down.

That does affect the wealth management business because there's obviously a relationship between the two as we distribute products through wealth management.

So more muted activity there, which flows down into PBT.

I think as we're looking at the business and looking out to the 2011 targets that James mentioned, it will be a combination of revenues, which, of course, is market dependent, as well as the integration effort and cost saving programs that we continue to execute upon.

Okay, thank you.

The next question will come from Roger Freeman of Barclays Capital.

Hi, good morning.

Just coming back to the fixed income platform broadly, I heard you mention a few things that were strong sequentially.

Europe rates, then you mentioned, I think, corporate spread tightening and season activity levels in corporate.

Is that a fair characterization?

And how would you rank those?

What really drove the comparison?

I think we benefited from a strong market and strong execution.

So with respect to execution, it's the building block for the addition of people.

Footprint is obviously an important part of the story, that's a multi quarter story, as well as the team executing.

And with respect to the businesses, we did have strength across the platform.

You had mentioned rates, and I wanted to make sure it was clear.

It was corporate credit as well that was important.

I think you made some other comments.

Rates and corporate credit strong.

And as I said, it's a multi quarter build.

Okay.

I think one of the things, unless I didn't hear you right, I think you also had mentioned corporate spread tightening.

So I just was trying to get at the positioning effect as well, because I assume you're saying that you generated revenues off of spreads just tightening over the quarter.

It was obviously a lower volatility market across asset classes, and spinoff, and so I think what we were seeing is activity strong, notwithstanding this backdrop.

Got it, okay.

And then on equities, the sequential increase, how much of that was driven by prime brokerage versus derivatives?

We don't actually break it out, although I think we stopped, clearly, as I noted, strengthened both to add the client balances and prime brokerage continue to increase and we're continuing to build the equity derivatives business.

I think I'm being quite repetitive on the theme, which is it's a multi quarter execution strategy.

And we're seeing progress in both.

Got it, okay.

And then on the hiring that you did, so you hired some 350 people or so I think was the update, at least the last call.

I'm not sure if you had another number now, but when would you say the majority of those folks actually came on board?

How many of them started this year during the first quarter?

I don't have the breakout.

As you said, we've hired them over the period and some garnering leads, some not, staggered coming on and really the ramp-up in particular, as you know, with a client chasing business and trading business, it takes a period of time to really ramp up to full throttle.

A number of people, I think you've heard a lot of the names with Jack Dimaio coming in last year running IRCC, and Alice Ehrlich running prime brokerage, Luc Francois, our global co-head of equities.

And we can go down the list, but it's really staggered through the quarter, adding on.

Last question on stock repurchases, you didn't repurchase any.

Goldman seems to be the first one doing it and they got basically approval from the Fed to do it.

Your Tier 1 ratios are the same, but there's obviously a difference when it comes to Tier 1 common.

What have your discussions been with the Fed around at least offsetting dilutions?

Our view is that the regulatory environment still remains unclear.

We're expecting capital and liquidity requirements to go up and we're planning for that.

But until there's clarity with respect to capital levels, and until we've delivered a number of quarters of profitability, we think it would be premature to think about either share repurchase or dividends.

So something on the horizon.

All right.

So you have not solicited approvals to do that?

No.

Okay.

All right, thanks.

(Operator Instructions).

The next question will be from Howard Chen of Credit Suisse.

Hi, good morning.

One on compensation, Ruth, within institutional securities.

How do you think about the accrual rate and overall dollar of comp accrual given the hiring and the current competitive landscape?

I know you mentioned in your comments the UK banker tax.

Maybe you can help us split that out or how you are thinking about it.

A couple of things on compensation.

We accrued at the rate of 41%, and in thinking about the accrual over the year, we took into consideration the UK bonus tax to be paid in the second quarter.

And so, net-net, our comp ratio was down from 46% to 41% in ISP consistent with our comments that we would be looking to bring down our comp ratio.

I think you know this, but just to be clear, given our comp ratio for the firm as a whole, it consists of two parts that are quite different from most of our peers.

It's important just to highlight that on the Morgan Stanley Smith Barney side, that compensation is higher, at the 64% line.

I mentioned it's stickier, there's a formulaic grid payout, so those two, given they are quite different to be considered in thinking about the overall comp ratio.

Okay, thanks.

Then just to follow-up on Revel and just how to think about that from here, I know post Crescent and post the conveyance that you saw in accounting write-up, is there a similar kind of time line for resolution for Revel?

We plan to dispose of Revel within a year, within the next 12 months.

Not sure what else you would like me to comment on.

We're in the early stages of that sale process, having just made determination that it's appropriate to sell.

So we've had preliminary discussions, but we will be looking to dispose over the year.

Just to crystallize the question is it to a level that any positive sale would trigger a write-up?

Yes, yes.

Okay.

That was it.

Great.

Thank you.

Okay.

The next question will come from Matt Burnell of Wells Fargo.

Good morning, Ruth.

Just a broad question on overall liquidity.

A number of your peers provide some general sense of liquidity and liquidity management.

Could you speak to that as to where you sit today relative to maybe where you were three months ago?

The liquidity levels are at about the same level.

I think it's around $155 billion, and we continue to manage it the same way, with the contingency funding plan, downside stress planning.

We feel comfortable.

And that detail obviously will be in the Q, as well.

Sure.

And then one question from the supplement.

I'm still looking for a little bit of information as to the negative net inflows from equities in the asset management business.

Is that indicative of anything other than just lower appetite for that product?

That's the way we interpret it and offset by the stronger flows in fixed income.

Okay, and then one last question in terms of your appetite for high yield loan commitments.

The actual outstanding amount has come down over the last few quarters.

How should we think about that moving forward?

And do you have a broad level above which you would get uncomfortable in terms of those commitments turning into actual outstandings?

I think consistent with the strength in our overall investment banking business, we look at the non-investment grade lending as a core part of that business.

And so you'll continue to see us working with our clients as we did this quarter, as James indicated.

Okay, thank you.

The final question will come from Jim Mitchell with Buckingham Research.

Jim, your line is open.

Hi, Ruth.

Just maybe circling back to the market share gain issue and the potential, your balance sheet is about the same size or bigger than most of your peers, yet your fixed income trading revenue is roughly about half.

Is that how we should think about the opportunity set?

Obviously it implies a much lower ROA.

Or is there a mix issue that we should think about that maybe you can't quite get there?

I'm just trying to think through how do you go from where you are now to getting similar returns on assets and ROE of your peers, because your balance sheet seems to already be there.

Right, and one of the reasons we started with the leadership team setting the strategy and very important, the hiring, is footprint is an important element of this.

There is a velocity element that's key.

And so our view is we've laid the foundation for growth and Colm and Paul are intently focused on that.

At the same time we'll be focused on expenses.

It starts with revenue, but we're focused up and down the P&L.

I'll let you forecast out what you think that might mean.

Right, but you think it's really the velocity aspect on the balance sheet rather than the size issue.

Yes.

Okay, thanks.

Ladies and gentlemen, this does conclude today's conference call.

You may now disconnect.