Northern Trust Q3 2025 Earnings Call | Q3 2025 Earnings Conference Call | Q3 2025 Results

Good afternoon and welcome to the Northern Trust Corporation third quarter 2025 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jennifer Child, director of investor relations. Please go ahead.

Thank you, operator, and good morning everyone. Welcome to Northern Trust Corporation's third quarter 2025 earnings conference call. Joining me on our call this morning is Michael Gray, our chairman and CEO, Dave Fox, our chief financial officer, John Landers, our controller, and Trace Stegman from our investor relations team. Our third quarter earnings press release and financial trends report are both available on our website at northerntrust.com. Also on our website, you will find our quarterly earnings review presentation, which we will use to guide today's conference call. This October 22nd call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be made available on our website through November 22nd. Northern Trust disclaims any continuing accuracy of the information provided in this call after today. Please refer to our safe harbor statement regarding forward-looking statements in the back of the accompanying presentation which will apply to our commentary on this call. During today's question and answer session, please limit your initial query to one question and one related follow-up. This will allow us to move through the queue and enable as many people as possible the opportunity to ask questions as time permits. Thank you again for joining us today. Let me turn the call over to Mike O'Grady.

Thank you, Jennifer. Let me join in welcoming you to our third quarter 2025 earnings call. Our third quarter results underscore the momentum and disciplined execution of our one Northern Trust strategy. For the fifth consecutive quarter, we delivered positive organic growth and operating leverage, demonstrating our ability to capitalize on a constructive market environment while advancing our transformation agenda supported by favorable equity markets and well-managed expense growth. Third quarter revenue increased 6%. Our pre-tax margin expanded by nearly 200 basis points and our earnings per share grew 14%, each compared to the prior year and excluding notable items. Return on equity reached 14.8% and year-to-date we've returned 110% of earnings to shareholders contributing to a 5% decrease in shares outstanding. Our strategy is firmly rooted in our mission to be our client's most trusted financial partner powered by a culture of high performance. Our enterprise growth program is driving steady improvement in organic growth particularly within private markets where our integrated solutions are gaining traction across all business lines. The transition to a client-centric capability-driven operating model is already yielding measurable productivity gains. For example, in our enterprise COO organization, we've created approximately 40 capability teams, moving thousands of people from regional reporting structures to global capability reporting lines. This has enabled us to create a baseline for improving resiliency, process efficiency, and quality. AI is rapidly becoming a catalyst for innovation and efficiency. Our early investments, inclusive of providing all employees with access to co-pilot, are already generating measurable results across the organization. AI is embedded in more than 150 use cases, enabling teams to more efficiently service client requests, automate workflows, analyze data, and digitize documents, saving our partners tens of thousands of hours and allowing them to focus on higher value initiatives. As we continue to deploy AI across the company, we expect to accelerate these improvements, driving greater efficiency, further bending the cost curve, and unlocking additional capacity for reinvestment in growth initiatives. Let me turn to our businesses, starting with wealth management. We advanced key strategic priorities in the third quarter, adding experienced leadership and strengthening our geographic strategy. Our value proposition continues to resonate most with the highest wealth tiers driving elevated win rates and client retention. Our deep expertise, institutional-grade capabilities, and high-touch service culture position us to offer services across the entire continuum of family office structures, from the largest standalone single family offices supported by our GFO business to virtual and outsourced solutions offered by our new family office solutions group. This offering for ultra-high-net-worth families is most mature in the central region where robust demand has translated into several high-profile wins this quarter. Building on this momentum, we see significant runway for future growth as we replicate our playbook across other regions. Client appetite for alternative investments within wealth management is accelerating, fueling both innovation and adoption. We continue to expand the number of third-party fund offerings in the quarter and are on pace to more than double the number of funds we've had in market within a calendar year. This builds upon the substantial amount of alternative assets raised by 50 South Capital this year with wealth and GFO clients making meaningful commitments. Notably, 50 South Capital introduced a feeder fund structure in the third quarter, giving wealth clients direct and exclusive access to top tier alternatives managers. Overall, new business activity remains brisk, contributing to healthy growth and core advisory fees. However, this positive momentum has been tempered by ongoing challenges at the investment product level. Moving to asset management. In September, we announced a transition in leadership, appointing Mike Hunstead, a 25-year industry veteran and proven leader within Northern Trust, as president of NTAM. Under his leadership, NTAM will continue its focus on strengthening foundational core capabilities, including liquidity, indexing, and quant equity, while accelerating growth across alternatives, custom SMAs, and our ETF platform. The third quarter was marked by product innovation, including the launch of 11 new ETF strategies, eight of which are industry first fixed income distributing ladder ETFs developed in collaboration with wealth management investment leaders to address the needs of taxable clients seeking more tax and cost efficient cash flow management. Liquidity continues to be a standout area with NTAM reporting its 11th consecutive quarter of positive flows. We expanded our global money market fund platform in the quarter with the launch of a US dollar treasury liquidity strategy for European clients, building on the success of our onshore US Treasury instrument strategy which has already amassed more than 6 billion since its launch in June of 2024. Beyond liquidity, we saw positive flows in ETFs and custom SMAs, both key areas of focus, and fixed income, including two large high yield mandates. And finally, moving to asset servicing. Our asset servicing business delivered strong results this quarter, executing on a disciplined strategy centered on scalable growth across key focus areas, including large asset owners, capital markets, and alternatives. Success with large asset owner clients continued with year-to-date revenue from front office solutions increasing materially relative to the prior year period. This growth was driven by the strategic appeal of our integrated product offering, differentiated service model, and ability to deliver meaningful efficiencies for clients. Notable third quarter custody and fund administration wins included the $14 billion Sacramento County Employees Retirement System, a $16 billion Atlanta based private foundation, and the $19 billion New Mexico Educational Retirement Board. Not-for-profit healthcare was another highlight with strong third quarter wins bringing our coverage to 75% of the nation's top 50 not-for-profit health care systems, a clear testament to our competitive positioning and deep commitment to the space. Capital markets activity remains strong with more than 100 new clients added year-to-date primarily through cross-sell, driving significant growth in core brokerage and FX trading capitalized businesses that carry highly attractive margins. Momentum in the alternative space also remained robust with our hedge fund services and private capital practices generating double-digit year-over-year increases in both reported revenue and one but not funded business. This included continued success in the LTIF and LTA space highlighted by a marquee win in the UK extending our market-leading position in this attractive high growth area. Our commitment to exceptional client service was recognized with the best administrator overall service award at the US hedge fund management service awards. We were also honored as custodian of the year by the European pensions awards, our third win in six years, further validating our leadership and reputation in the industry. Our disciplined strategy to drive scalable profitable growth continues to yield tangible results. While recent wins may be smaller in scale compared to some of our prior asset manager mandates, they remain meaningfully accretive to pre-tax margins. We're also selectively allowing non-core and underperforming business to roll off as contracts expire. Therefore, we expect to see a continued gradual trajectory of margin improvement and overall growth. To wrap up, as we enter the fourth quarter, our foundation is strong and our momentum is unmistakable. Nearly two years into our one Northern Trust strategic journey, I'm deeply encouraged by the progress we've made and grateful to my Northern Trust partners for their hard work and dedication. This decisive collaborative spirit that defines our organization is unlocking new opportunities to accelerate execution and fully capitalize on our core strengths. Looking ahead, we remain laser focused on the disciplined execution of our strategy, which is positioning us to deliver consistently strong financial performance and create enduring value for our stakeholders regardless of the broader economic environment. And with that, I'll turn it over to Dave to review the financials.

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to assemble the queue.

We will take our first question from Ibrahim Punowala with Bank of America. Hey, good morning. Morning. I guess maybe this first Dave where you ended on the NII outlook the mid to high maybe address it two ways if you could. One on the deposit trends it felt like just the runoff was more than we expected. What are you seeing in terms of growth outlook and the mixed shift in deposits going forward? And how should we think about the asset sensitivity of the balance sheet? If the Fed were to cut three or four times in quick succession, does that put negative pressure on the NII as we think about the first half of next year? Thanks.

Got it. That's helpful. And I'm not sure if I caught this when you were in your prepared remarks when talking about when you're going through sort of wealth management and you talked about some of the challenges at the investment product level. I was wondering if you could just kind of elaborate on what the issues were on that front and what sort of what are the actions you're taking to kind of get that back on track.

Sure, Ibrahim. It's Mike. I'll take that. So, as you know, through NTAM, we offer a number of different investment solutions and products to our wealth management clients. And we're also open architecture so that we're offering the products of other asset managers as well. And where we tend to focus is on those core foundational areas. So think about liquidity, index, quant, other areas like that. And the areas where we've seen pressure, some of it on the index where it can be a combination of just asset allocation but also pricing pressure, fee pressure, and that then causes flows to lower fee products. And then second is asset allocation when it comes to areas of growth versus value and on that front we offer a multi-manager platform solution and it tends to lean more towards the value side of the equation and there where we've seen, as you well know, a very narrow market it's difficult for those active managers to outperform and so we've seen some flows out of that multi manager platform and that's been a drag as well. Now as to what we're doing to address that, in addition to just focusing on those areas and making sure the products are not only performing but pricing at the right level, also as we've talked about focus on ETFs, SMAs for the wealth management clients, but also alternatives and that's an area as you heard where we've increased the number of offerings for our clients on the alternatives platform for our wealth clients.

That's a good comment. Thanks, Mike.

Sure.

We will take our next question from Ken with Autonomous Research.

Thanks. Good morning. Just wanted to ask you to talk a little bit about just some of the moving pieces of this quarter. I know it might just be temporary, but AUCA up 1%. And I know you're talking about new business wins. You saw also in the press release some outflows. So is that just kind of the normal state of getting some wins and some losses every quarter? There's an odd dynamic for this quarter that you saw just relative to the market strength that we saw. Thanks guys.

Great. That's really great helpful, Dave. Second point, you're obviously firmly committed to that sub five. We saw it again this quarter. And just as you're starting to think about looking forward, I know you've said that you're strongly committed to it inclusive of FX translation. I just any any incremental thing we should think about as we go forward just I know you're going to be thinking about positive operating leverage. We don't know what the markets will do from here, they've obviously been a big helper, but as you continue to hone that messaging around the expense base, any new thoughts about where you can kind of try to hold that level on expense growth overall? Thank you.

Got it. Thanks, Dave.

We will take our next question from Brennan Hawin with.

Good morning. Thanks for taking my questions. Mike, I'd love to drill into a comment that you made in your prepared remarks where you talked about allowing more marginal business to roll off. So it see and you you spoke to that aiding growth. Is that growth comment like an indication that it's going to be more about profit growth than topline growth? Do you expect that some of these efforts might result in more of a topline headwind, but you're going to be able to make it up for it in the sort of better unit economics on each of the new businesses that you're focused on. Can you help me maybe think through some of that?

Sure. So it is definitely a focus on profitability. So we have a great asset servicing business. But right now the margins are below the level that we think the business should be performing at. We're seeing nice improvement in that. So we were at one point kind of 22% moved up to 23% saw this quarter moving up closer to 25%. And that's a combination of a number of factors. First is the new business that comes in, we're making sure that it's coming in at very accretive margins. And that to your point can have an impact on the gross topline growth that you're going to get but in our view at this point again we want to see greater profitability and growth in profitability. Second, I would say is in the business that we do have and the activities that we do have just trying to look very carefully at those areas and see if one if we can improve on the situation either the activity or the economics with the client but to the extent that we're not achieving that then it is something where we'll have to look over time to transition that business out. So that's the second piece of it which again will aid profitability. And then the third, Dave touched on it a little bit just with his comments around expenses but really focusing on the efficiency of our operations. And so I talked in my comments as well about our client-centric capability operating model. Everything around that is trying to be organized in such a way that we can deliver our services in a way that is both resilient but also efficient. And so that's where a year ago we reorganized in a way that brought a lot of those activities together and centralized them under a COO organization so that we could be more aligned both between operations and technology to drive the scalability and efficiency that's necessary to see that continued improvement in profitability.

Great. Thanks for that, Mike. And then you there was a lot of movement in the markets. You already spoke a bit to GFO and some of the changes that happened within some portfolios, but we did see fee rates at least the way we're able to calculate them. And I know that that's sort of flawed given how you guys bill because we don't have intraquarter visibility but did you guys see fee rate pressure in some of the other businesses this quarter as well or was it just around the math in how you bill and how much the markets moved if you could help maybe disentangle that a bit. Thank you.

Yeah. So think about GFO in particular as resembling a little bit more the asset servicing side of the business than the wealth management side of the business. They've got an extremely strong pipeline and they're going to produce a record year of new business off another a previous record year. And so what you do see in GFO is large shifts in portfolio composition and a higher sensitivity to cash. And so Q2 was pretty volatile. And then there's a lot of movement going in there. The other thing I'd say about GFO is they're less exposed at least at Northern to fixed income and equity movements. They are very cash focused. And so unlike the regions, they're not as influenced as much by the overall equity markets. A better way to look at the business like a GFO business would be to look at their year-to-date fees. So year-to-date fees are up 5% and revenues are up 9%. And then GFO had...

Yeah, I'm sorry. I probably worded my question poorly. I was looking at the businesses aside from GFO. Like I get that GFO had some of those moves. I mean, like in the servicing business and the investment management business, we saw a little fee rate pressure there, too. So, I was just curious about whether that was just the math in markets or whether there was actually some you guys experienced some rate.

Sure. What I would say, Brennan, is on the asset management side there's consistently persistent pressure on fees overall, nothing that I would note in the quarter. I did mention in a previous question just about making sure that our pricing is competitive for all of our clients but particularly within wealth management. So from time to time, yes, we will bring down the fees on an investment management product to make it more competitive. On the servicing side, I would say, once again, there's always it's a competitive marketplace, but there's nothing that transpired in the quarter that necessarily resulted in a reduction in fee levels. And in fact, if anything, to your first question, we're trying to be very disciplined around pricing and economics to make sure that the business we're bringing on is at those accretive margins.

Makes a lot of sense. Thanks for taking my questions.

Absolutely.

We will take our next question from Mike Mayo with Wells Fargo Securities.

Hi, I just want to make sure I understand the big picture correctly. So I think you're running asset management and wealth, especially GFO for growth and you're running asset servicing relatively more for profitability and to get there you're letting some low margin business run off. Did I get that correctly?

Yes.

Okay. So I guess the question is under what circumstances would you say the custody business maybe you should downsize even more or disinvest? I know this is an old question and I think you usually said you might not have scale in absolute terms but you have scale where you want to compete. I think that's kind of where you've been, but does that still hold and under what circumstances would that change?

Yeah. So it absolutely still holds and if anything, Mike, I would say the both the market and what we're doing takes it even more that direction, i.e., that we have the necessary scale to be able to deliver these services efficiently. And what I mean by the market part first of all is just everything that's happening around both digital assets and AI make these activities more scalable. And when we talk about our operating model it's just trying to make sure that we're then organized in such a way to take advantage of those things. So first of all when you think about digital assets, tokenization, and even stable coins, the whole idea there is around greater efficiency in the marketplace. And so as that happens again that leads to more straight through activities, more liquidity in those markets and those products, etc. And we're certainly making sure that we have the capabilities to do that. With AI it's about automating processes and taking things that right now maybe not be so straight through. So if you take an example like private capital and the processing of private capital for our clients. So thinking where they're LPs and they're invested in literally hundreds of funds and a lot of that activity still paper based. I mean, I would say we could estimate that right now only maybe a quarter of that activity that we do for our clients on that front is straight through. What we're focused on is how do we turn that into 50%, 75% automated and that's where we're utilizing AI to be able to do that. So all of those things take us to a model that I think gives us the necessary scale meaning that as you grow the unit economics improve. And to your point, these are all measurable things both from an internal perspective but also from a financial performance perspective that if it's not proving to be the case there you certainly have to look at it differently.

And last followup, the one-liner why someone of your guys can compete with the Goliaths of the industry. I mean it's always skill versus scale that the argument why can you win in tech and AI when you don't spend as much money?

Yeah, it's first of all it's differentiation, right? So our strategy is focused on delivering a unique value proposition to our clients and in doing so that requires greater focus for us. So as I think you pointed out in one of your earlier comments, we're not looking to compete in every segment across the globe, we're picking areas like asset owners in the United States, like pension funds in the UK, like global family office, like hedge fund services where we believe that that value proposition, that differentiation resonates because it's still about the overall package. What do they get when it comes to not only the technology but the service that goes with that and who that financial partner is but then can we deliver it in an efficient way such that the value they're getting overall is more attractive relative to other alternatives. So there's no doubt in my mind that in the marketplace clients want differentiated offerings and we believe that that's what we offer and we just focus on those areas where we think that we can be successful with it.

All right. Thank you.

Sure.

We'll take our next question from Betsy Grac with Morgan Stanley.

Hi. Good morning. Morning. So just one more question on this thread regarding AI. I know at the beginning you highlighted that AI is already generating measurable results with 150 plus use cases. Could you give us a sense as to where you see AI helping the most? In other words, do you expect to see it more in the servicing side or well side or it's equal across the organization? I'm just wondering if the efficiency improvements coming from AI are materially different between the different businesses that you run.

Sure. So, Betsy, what I would say is what's so exciting about this is it is impacting all the areas of the company. And just to give you some idea because you know how it's being utilized is different and maybe the results yes they may vary in different groups but the applicability is basically across the board. So we talked about operations there. I talked a little bit about what we're doing in the private capital space. So that gives you some idea but think about so many processes that are involved in operations. It clearly lends itself there and arguably a very high level that you'll get. Another easy one is within technology, utilizing GitHub and other types of AI we're seeing about a 20% improvement in the programming, the engineering part of technology and I think again still in the earlier days of that. But as you move to the businesses, take asset management, that's an area where a lot of the activity can be automated. So think about what we're even doing here with investor calls. We're already utilizing AI in our fixed income area within asset management to essentially summarize and analyze all the transcripts for all of the investor calls where they have investments and this is in the hundreds of calls that normally an analyst has to listen to, summarize them and most importantly take away the key points. Well, so much of that now has been automated. So it saves dramatic time but also provides better insights. Within wealth management, this is making at this point our advisers much better and much more efficient because in advance of thinking about where the opportunities might be and prospecting, AI is enabling that process to happen in such a way that it's highlighting where the best prospects are but then from there it's how to prepare for that and so it can go in and pull the information both from our internal databases but also what's publicly available about a particular prospect and do so much more quickly than someone could do on their own. And when they have a question, once again, we're working on the ability for our advisors essentially to be able to tap into proprietary databases that we have like the Northern Trust Institute to be able to immediately answer those questions. So it makes them better at serving the client. When you think about risk, whether it's AML, KYC, fraud detection, these are all things right now where we have hundreds of people who do this activity and we'll still have plenty of people doing it but they'll be using better tools to be able to do it better and faster. So it cuts across the entire company and I think at this point we're still in the early days.

Okay. And then just to follow up on the technology impacts on the business, could you give us an update on how you're thinking about the outlook for how you would utilize a stable coin? Do you issue your own? Do you get involved with the industry consortium as we move towards 24/7 trading? Having a stable coin cash leg is going to be critical. So want to understand how you're thinking about that dynamic as we roll forward here. Thank you.

Sure. So I think that what's happening in the digital asset space there are four key drivers from my perspective: innovation, regulation, client demand, and then interoperability. And on the innovation front, to your point, whether it's stable coins or tokenizations, there are so many things that are coming out and the technology is getting much better, much more scalable. Things like blockchain becoming more scalable going from private blockchains to public blockchain. So the innovation front I think is probably leading. What's been lagging is more on the regulation front and obviously now with the GENIUS Act, this is going to change and that is going to I think significantly facilitate further demand on the client front. And then you get to the idea of interoperability which the point on that is our clients don't want to have to operate in two worlds they want to be able to utilize whether it's stable coins or a tokenized asset with their other assets. And so we're just making sure that our platform can do both. Now specifically to stablecoin, I would say stable coin will find the areas that have the greatest friction. And a lot of that, as you know, right now is probably cross-border or outside the US. And I'll say we'll have the ability to utilize stable coin but we're not planning to issue a stable coin on that front. Where we're more focused is on tokenization because we believe that will impact multiple asset classes and a good place to start would be around money market funds. So thinking about a tokenized money market fund, that's an area where I'd say we would look to be an issuer of a tokenized money market fund. So that gives you some idea of the direction that we see.

Thank you so much. And yeah, tokenized money market fund is a type of stable coin cash leg too. So exactly appreciate that. Thank you.

Sure.

We will take our next question from Glenn Shore with Evercore.

Hi there. Hello. Small but interesting one regarding the deposit rate paid on savings money market and other deposits. So after going down for four quarters straight because rates have been coming down it was actually up six basis points and we had a cut in the quarter I think. So that's just it's interesting. I'm more thinking about the go forward, but what caused the savings and money market rate to go up in a quarter when there's a rate cut? And I know you gave us your thoughts on next year. So I appreciate that. I'm just curious what's going on on these deposits.

No worries. We can move on to the bigger question. You've been talking about some of the initiatives that you've picked up pace on on private market side across wealth, asset management, and asset servicing. You dangled a little bit with your comment on the 50 South feeder fund. I would love to know a little bit more about what that is, what's on it, and what's in it, if it's a fund of fund structure, things like that. And then maybe you could also just complete the thought on what's going on on the asset servicing side as well. Thanks.

Sure, Glenn. So the feeder fund basically, as you know, 50 South historically was focused on fund of funds and that business has performed very well and has been a perfect fit for our wealth clients and continues to be and they've continued to expand their offering both for our wealth clients but then for other wealth platforms and institutionally as well. Specifically, what happened in the third quarter is they have the relationships and have done the diligence on hundreds of managers. And as a part of that we're now using those relationships to be able to have specific single fund offerings for our wealth clients. And this enables us to pick the best of the best funds where access is often an issue but through our relationship and by having the diligence done we're able to offer it to our wealth clients and so this was one of the high-performing venture funds that was offered to wealth clients in the quarter. And then to the broader picture there, I'll say just first of all on the wealth front and 50 South, once again an area of a lot of innovation and again I think coming our direction when you think about evergreen funds and other things that have greater liquidity that only enables our clients to get more comfortable investing in alternatives. And then on the asset servicing side, not only is it the work that we're doing with hedge funds but also private capital administration for either private equity funds, private capital funds, but then specifically around the vehicles, the LTAF and the LTIF vehicles. And I would say that is a similar trend phenomena if you will in the European markets where there's the introduction of more vehicles that have greater liquidity so that it allows for greater distribution and expansion of alternatives. So we think it's still kind of earlier days for those vehicles as well, but whether it's the UK vehicle or the Luxembourg vehicle, we're well positioned to be able to provide those capabilities for the asset managers.

Okay, thanks very much.

Sure.

We will take our next question from Steven Alexopoulos with TD Cowan.

Hey, good morning everyone. Morning. Oh, I wanted to start. So, I know on the pre-tax margin and I know it bounces around quite a bit, but when you look at the revenue trajectory, expense trajectory, right, the guidance you're giving for Q4 and full year, you're bending the cost curve down. Do you guys think you can remain fairly comfortably above that 30% medium-term target moving forward and even if the Fed's cutting rates?

Got it. That's helpful. And then going back to all the commentary on AI and productivity gains in terms of the financial impact so far, is this material? Like is this helping you this year keep expenses below 5%? Or is 99% of that benefit still to come?

Got it. That's great color. Thanks for taking my questions.

We will take our next question from David Smith with Tourist Securities.

Good morning. Morning. Is there any more color you can offer on the relative strength in FX trading and securities commissions and what you've been doing to drive this? You mentioned some initiatives to drive growth here. I wonder if you could just kind of help us frame how much of this strength you feel like is a result of share gains and other things that are more the result of things that were in your control as opposed to just simply benefiting from broader market volumes being healthy. Thank you.

Sure. So capital markets, our capital markets business has performed extremely well and it's a combination of both execution of their strategy and then also the favorable market conditions. But on the strategy part specifically, what the team has been doing there over the last several years is building out a more durable capital markets business. And what I mean by that is yes, historically the business has performed well when the markets and volatility are strong, but then has gone down when it's not there. And what they've tried to do is turn it into more of a service in the activities that they pursue. So what that means, for example, on the trading side, on the brokerage side, is being the outsourced provider of trading for the asset manager. So instead of some of our asset manager clients having their own trading desk, they've outsourced that to us. And as a result, when I talk about adding a hundred clients, a number of those clients are where they've outsourced the trading to us. And that produces a more kind of recurring predictable stream of brokerage commissions as a result of that. On the FX front, where we've always basically enabled our clients to hedge positions that they want in one currency or another, but it's in the past done just on a transactional basis. What we've done over the last few years is to turn that more into a service again by providing currency management as a service where it becomes automated and it's just done over time as opposed to a transactional business. So that has also built up over time. And then also from a liquidity perspective, we've expanded our liquidity capabilities. Certainly we talk all the time about deposits and money market funds and being able to be on that side of it. The other side is at times they need overnight liquidity the other direction. So not only securities lending but also repo has been an area where we've added capabilities to be able to serve those clients but then create a business that's both diversified from the other activities we have but also attractive financial profile.

Got it. Thank you.

Sure.

We will take our next question from Gerard Cassidy with RBC.

Good morning, Dave. Good morning, Mike. Morning. Kind of different questions for you guys. I always like to get the perspective from folks like you because you don't have a big exposure to this area. There's been a lot of talk this quarter about loans to non-depository financial institutions. And of course, you're in the top 20 banks. You're at the lowest, you've got the least amount of exposure. Can you give us some color on what you know and I'm not asking you to talk about other banks but these categories that are within this NDFI whether it's private equity or mortgage credit intermediaries etc. What how do you guys look at that NDFI category?

Correct. No, I would agree, Gerard.

And then as a follow-up question, the IMF has come out as well as the Bank of England with reports in the last couple of weeks citing and I hate to use the word bubble but really inflated asset prices and they point out that we've got to be careful of some maybe serious corrections. Obviously, when you look at your wealth management business, it's not all equities. You've got fixed income and cash in there. Can you share with us how you guys approach managing wealth management should a big correction come or just your view on how you approach it with your clients?

Sure. So to your point, you can never time the markets or predict the markets. There's going to be volatility. Valuation is one person may say it's a bubble, another person say there's still tremendous upside to that. And as a result, that's why with our wealth clients we take a different approach, which is what we call goals-driven wealth management. And it's not only an approach, but it's also a technology. It's a platform that is utilized with those clients where upfront we go through the process of really determining what their needs are going to be, not just in the next year but literally over their lifetimes and often into next generations. And as a result of that we can then back into what is the right asset allocation as a part of that. And one of the most important components of it, Gerard, is knowing that there will be draw downs in the equity markets over time, how do you make sure that you have the right reserve capacity in essentially risk-off assets such that you do not get into a liquidity situation, not get into a situation where you don't have the funds necessary for achieving what your objectives are. And frankly, at that point, it's a lot easier also to have the conversation with the client and make sure that they are able to digest what's happening in a volatile market and stay focused on what their long-term goals are and not overreact, which again, the empirical research would tell you that overreacting to market volatility is not the best long-term strategy.

Great. Thank you for the insights, Mike.

Sure.

And there are no further questions in the queue at this time. I will now turn the conference back over to Jennifer Child for closing remarks.

Thanks, operator, and thanks everyone for joining us today. We look forward to speaking with you again soon. This concludes today's call. Thank you for your participation.

You may now disconnect.