Market vs. Payoff in Investments
Howard Chen – Credit Suisse: Congrats on the strong start to the year. Regarding the meaningful improvement across the sales and trading franchises I was just hoping you could share some thoughts on how you separate, what’s market related versus what’s related to payoff from all the investments you have made over the past few years?
Ruth Porat – CFO and EVP: Well I think we have to start with the investments that we have made over the last couple of years. What we saw this quarter was real strength across products and across geographies and no one particular driver of results across the five businesses, all growing kind of within a narrow zone, rates, FX, corporate credit, commodities and investment grade securitization, and what we’ve been talking to you about over the last number of quarters, quite long number of quarters is that we felt there was real upside as we moved back into flow, an area where we had obviously been strong for many years, but had underinvested for a period of time, and our view was that we were punching below our weight and had the opportunity for market share upside and invested in particular in rates and FX, and those were two of the important drivers. I think the other big driver here was, we talk internally about adjacencies when we talk about our equities business, the benefit of adjacencies which, as we’ve talked about before, looks at working with clients across the platform, and that approach is very much reflected in the way we are running our fixed income business as well. It starts with the leadership team, it starts and then goes to our senior relationship management program, our SRM program, and that’s yet another investment. Then the third is really the technology investments that we’ve continued to make that in particular is when I’ve highlighted overtime and it’s true again this quarter for our foreign exchange business, benefiting from our electronic trading platform. So, those all go to investments. I think the fact that we started the quarter with lower balance sheet and lower inventories, really underscores that this less about marks and more about flow and engagement with clients. So I would say, it’s helpful to have a constructive environment, no question, but it goes to what we’ve been discussing with you repeatedly quarter after quarter, the investments in the business and the focus.
Investing Insights: What’s the Future of Microsoft’s Stock?
James P. Gorman – President and CEO: I think also, Howard, I would just take into account the leadership team. Colm Kelleher that we put in that job a couple of years ago and Kenny deRegt and Ted Pick in Fixed Income and Equities respectively. This is now a very seasoned team working extremely well together across the firm and I do believe the leadership makes a difference.
Howard Chen – Credit Suisse: And switching gears, Ruth, on the new held for investment disclosure. You had a near doubling of the HFI portfolio in the last quarter. Now, is that a function of new clients or active refinancing and as that portfolio grows how do you think about the impact to your stressed capital ratios, earnings volatility and hedging costs?
Ruth Porat – CFO and EVP: Well, that’s really the driver of the (mood), we’re clearly a mark-to-market shoppers, we always talk about, but we are a bank, the 15th largest depository ballpark today and pro forma for the incremental MSSB deposits will be ballpark the 12th largest depository. As we talked about last quarter under the C card scenarios, the impact of loans under HFI were less punitive than fair value and we’re looking to continue to build out our Bank consistent with other bank’s practices and regulatory guidance, we’ve been focused on what’s in the best interest of stakeholders and our view was that if HFI is viewed as our results and being a more capital efficient way to run the lending book that’s the appropriate way to migrate our lending book. So, what you’ve seen here is that movement to HFI this quarter and you’ll continue to see that.
Howard Chen – Credit Suisse: Then with respect to the Moody’s review, could you just comment on what a downgrade means to you and what you’re all doing to prepare for and maybe prevent potential downgrade?
Ruth Porat – CFO and EVP: Sure. We’ve done a lot to narrow the impact of any potential ratings change and our view is that the impact of potential outcomes are manageable. Obviously ratings reviews started a few years ago first with S&P and then with Fitch and now with Moody’s. So, we have had time to prepare. So, trying to give some perspective on how we look at it or how we think about the impact, structured derivatives is obviously the most affected by ratings change, but it’s also an area of focus for regulatory reform. As we’ve reduced the scope of our structured derivatives business, that’s very consistent with our change in business mix toward cash and flow products. That’s been kind of an over time, and I just commented on with respect to what we’re doing broadly in fixed income. But what that means is at this point, only 8% of our ISDA contracts have triggers within the Moody’s potential range, which helps reduce the size, kind of step one. The other key point is that a large amount can be centrally cleared and we were early and aggressive to move to central clearing and become client central clearing broker. Two of the largest fixed income asset managers were also early in moving to clearing and we won mandates to become their clearing brokers. The trend towards clearing is clearly rating diagnostics. So that further reduces the pull that’s subject to impact. Then beyond that we have a higher rated derivatives entity and we (slow even) moving derivatives into our Bank. So that kind of sizes and brings down the scope of that and hopefully underscores the couple of work streams, which underscores why I just started by saying we think the potential outcomes are manageable. The other point I think is really key is that none of our funding has ratings triggers. So that side of it is very easy to address as well. I think across the platform, we’ve done a lot to narrow the potential impact.
Howard Chen – Credit Suisse: Maybe just a quick follow-up on the ongoing business, that 8% figure you noted, is that just number of ISDA contracts or is that – what does that mean as a percentage of maybe revenues or earnings contribution today?
Ruth Porat – CFO and EVP: That is 8% is the contracts and that’s why I kind of started there and then went down to what are the various incremental steps that we have taken. I think the other thing I would point you to is that we are still A rated by S&P and Fitch and a lot of clients are doing their own credit assessment, so hard to gauge how that translates into any other impact on the business.
Guy Moszkowski – Bank of America Merrill Lynch: I wanted to see if I could just follow-up on what you talked about just now with respect to the Moody’s. I know that it was that moving contract into better rated entities was pretty far down your list of actions that you have taken. But I am just interested in the idea of using the banks unit and any other entity that you might have developed and sort of how sizable you think that could be in terms of helping you mitigate the impact?
Ruth Porat – CFO and EVP: Well with respect to the bank broadly our strategy or objective is to build a robust national bank that’s consistent with our Wealth Management business and building a balanced portfolio of assets in the bank systematically, and I have talked at length I think on two different topics that are relevant to that; one is, building our lending business both institutional and retail; and two, moving derivatives into the bank. When we talked about the lending business in particular on the retail side I have talked about this being a slow systematic study build, building out the suite of products that we are offering to our retail clients, taking our time to build that out, so that we have got the right credit and quality control over the build. That’s one key portion of the asset side, and the other is, as I’ve talked about before, slowly systematically working to move derivatives into the bank. We started with FX and rates will follow, and our view is the result of both of those steps will be a balanced asset portfolio against $60 billion of deposits with another $60 billion of deposits to come as we buy in the remaining Morgan Stanley Smith Barney stakes over time, and our view is and has been that we have a higher rated derivative entity to the extent its needed and have stayed on this course of a longer term approach to moving more derivatives into the bank.
Guy Moszkowski – Bank of America Merrill Lynch: The bank deposit build on the retail side is directly related to the percentage ownership of the joint venture. Isn’t that right?
Ruth Porat – CFO and EVP: As we exercise various tranches of the remaining buy-in for MSSB, with that comes the pro rata portion of deposits. Correct.
Guy Moszkowski – Bank of America Merrill Lynch: I was hoping maybe you could talk about the restatement of your capital allocations on Page 5 of your supplement. That’s always an incredibly helpful disclosure by the way as I think we’ve discussed before, but you did restate it and I am not sure I completely understand what the footnote is telling us.
Ruth Porat – CFO and EVP: I think one of the key things, I am not quite sure what you are referring to, but one of things as we’ve allocated here in capital back to MSSB, the reason we increased the allocation to MSSB was consistent with guidance that came out during the CCAR process, which is that associated with NCI under Basel I, one now needs to sit to allocate capital for that NCI. We have been doing that under Basel III and we talked about it last quarter that we had moved from parent capital into MSSB the NCI portion of capital.
Guy Moszkowski – Bank of America Merrill Lynch: Then just from the institutional side on the restated basis that you now showed us. I notice that the capital allocation fell by almost $2 billion in the quarter. Is that related to the reduction in VaR and the reduction in the legacy MBIA position or is it something else?
Ruth Porat – CFO and EVP: Why don’t you follow up with IR on that?
Investing Insights: What’s the Future of Microsoft’s Stock?