Oct 22, 2013
Executives
Valerie C. Haertel - Senior Vice President of Investor Relations Joseph L.
Hooley - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Risk & Capital Committee Michael William Bell - Chief Financial Officer and Executive Vice President
Analysts
Glenn Schorr - ISI Group Inc., Research Division Howard Chen - Crédit Suisse AG, Research Division Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division Alexander Blostein - Goldman Sachs Group Inc., Research Division Michael Mayo - CLSA Limited, Research Division Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division Betsy Graseck - Morgan Stanley, Research Division James F.
Mitchell - The Buckingham Research Group Incorporated Andrew Marquardt - Evercore Partners Inc., Research Division Cynthia Mayer - BofA Merrill Lynch, Research Division Kenneth M. Usdin - Jefferies LLC, Research Division Gerard S.
Cassidy - RBC Capital Markets, LLC, Research Division
Operator
Good morning, and welcome to State Street Corporation's Third Quarter 2013 Earnings Conference Call and Webcast. Today's discussion is being broadcast live on State Street's website at www.statestreet.com/stockholder.
This conference call is also being recorded for replay. State Street's conference call is copyrighted, and all rights 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.
[Operator Instructions] Now I would like to introduce Valerie Haertel, Senior Vice President of Investor Relations at State Street.
Valerie C. Haertel
Thank you, Christie. Good morning, everyone, and welcome to our Third Quarter 2013 Earnings Conference Call.
Our third quarter earnings materials include a slide presentation. Please note that the presentation includes non-GAAP financial information.
Reconciliations of our non-GAAP or operating basis measures to GAAP basis measures referenced on this webcast, and other related materials can be found in the Investor Relations section of our website. Mike Bell, our Chief Financial Officer, will refer to the presentation when he provides an overview of our financial results for the third quarter.
Before Jay and Mike begin their discussion of our financial performance, I would like to remind you that during this call, we will be making forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in State Street's 2012 annual report on Form 10-K and its subsequent filings with the SEC.
We encourage you to review those filings, including sections on risk factors, concerning any forward-looking statements we make today. Any such forward-looking statements speak only as of today, October 22, 2013.
The corporation does not undertake to revise such forward-looking statements to reflect events or changes after today. Now I would like to turn the call over to our Chairman, President and Chief Executive Officer, Jay Hooley.
Joseph L. Hooley
Thanks, Valerie, and good morning, everyone. This morning we reported third quarter operating basis earnings per share of $1.19.
These results reflect the strength of our core asset servicing and asset management business, as well as the impact of seasonal declines in market-driven revenue, including the effect of low interest rates. Total operating basis revenue grew about 3% as compared to a year-ago quarter, and total operating basis fee revenue increased by 9% over the same period, partly offset by the continuing challenging interest rate environment and investor caution in global markets.
I'm pleased with our performance year-to-date, highlighted by a 19% increase in operating basis earnings per share as compared to the first 9 months of 2012. We continue to focus on growing our core business in asset servicing and asset management while carefully managing expenses across the company.
On an operating basis, we achieved positive operating leverage for this 9-month comparison of more than 200 basis points and have positioned State Street well for continued success. Our Business Operations and IT Transformation program remains on track to deliver an additional $220 million of pretax expense savings this year and approximately $600 million for the entire program by 2015, while delivering a technology platform that enables product innovation and growth.
Turning to new business. Our third quarter 2013 new asset servicing wins totaled $200 billion, which compares to $201 billion and $211 billion of new wins reported last year and in the third quarter of 2012, respectively.
Additionally, I'm pleased to report that just after the quarter closed, we received a significant commitment from a new client to service assets totaling $137 billion. On a year-to-date basis, new business is $624 billion as compared to $573 billion in the same period in 2012.
Of the $200 billion in third quarter new asset servicing wins, 42% were from outside the U.S. Also included in our new business wins are 47 new alternative asset servicing mandates, a client segment where we are a market leader and continue to see above-average long-term growth potential.
I'd now like to share my insights on market performance and the effect on asset flows we saw during the quarter. Equity markets were up during the quarter, and we did see some flows out of fixed income into equity funds, but we also experienced significant flows into money market funds, reflective of a cautious investment environment.
This environment has also led to lower trading volumes from our clients. Leading up to the debt ceiling deadline, we experienced a surge in excess deposits and a marked slowdown in trading activities.
Since the temporary debt ceiling resolution of last week, excess deposits have receded and trading activity has improved. Turning to asset management.
In the third quarter, we had net outflows of $15 billion, principally from institutional passive equity funds, as well as securities finance cash pools, partially offset by inflows into money market funds and ETFs. With respect to ETFs, the industry experienced significant volatility during the third quarter.
However, we ended the quarter with $5 billion in ETF net inflows, principally into U.S. equity products.
Fixed-income investors moved into our shorter-duration products, likely anticipating tapering by the Federal Reserve. During the quarter, we saw $5 billion of inflows into money market funds, which coupled with low market rates, led to an increase in money market fee waivers.
And finally, our new business pipelines in both asset servicing and asset management continue strong and well diversified. Now I'd like to turn the call over to Mike, who'll review our financial performance.
Michael William Bell
Thank you, Jay, and good morning, everyone. Before I begin my review of our results, I'd like to reiterate how pleased I am to be a member of the State Street team.
I'm also looking forward to meeting with many of you in the upcoming months. This morning, I'll start my review on Slide 4, where we've noted several financial highlights for the quarter and for the 9-month period ended September 30, which I'll also refer to as year-to-date.
Unless noted separately, I'll reference only the non-GAAP operating basis results in my comments today. Year-to-date results were strong despite a difficult operating environment, including low short-term interest rates.
Our results were driven by strong revenue growth in our core asset servicing and asset management businesses and continued focus on controlling expenses, which has driven an expansion in our operating margins. Fee revenue growth and expense control remain key priorities going forward.
Our year-to-date operating basis earnings per share has increased 19% to $3.38 compared to the same period in 2012. Year-to-date, our pretax operating margin was 30.2%, which is approximately 160 basis points higher than the same period in 2012.
Our year-to-date return on equity was 10.4%. Our year-to-date total fee revenue of $5.8 billion increased 8% compared to the same 2012 period, primarily due to equity market appreciation, net new business, the revenue contributed by the GSAS acquisition and increased volumes related to foreign exchange trading.
We are pleased with our year-to-date growth. Third quarter 2013 earnings per share of $1.19 decreased 4% sequentially and increased 20% from the third quarter of 2012.
Total fee revenue for the third quarter increased 9% versus the third quarter of last year. Third quarter 2013 fee revenue was sequentially lower, primarily due to the seasonal decline in securities finance and a summer slowdown in trading services.
We continue to benefit from good execution in managing expenses, which remains a top priority. We achieved 229 basis points of positive operating leverage on a year-to-date basis compared to the same 9-months period a year ago.
Success in our Business Operations and IT Transformation program has contributed to this result, and we remain on track to deliver the expected $220 million of additional pretax expense savings for the full year. On Slide 5, you can see that our third quarter 2013 net interest revenue decreased on a sequential basis, as assets that matured or paid down were replaced with lower-yielding investments in the current low-interest rate environment.
Our third quarter net interest margin declined to 1.27%. Our capital position remains strong, and return of capital through common share stock repurchases and dividends remains a top priority.
During the third quarter of 2013, we repurchased approximately 8.2 million shares of our common stock for a total cost of approximately $560 million, resulting in average fully diluted common shares outstanding of approximately 452 million for this quarter. We have approximately $1 billion remaining under our March 2013 common stock repurchase program, authorizing the purchase of up to $2.1 billion of common stock through March 31 of 2014.
We also declared a quarterly common stock dividend of $0.26 a share. In addition, we declared a noncumulative, quarterly perpetual preferred stock dividend of $0.33 a share, which amounted to approximately $7 million.
Now I'll discuss additional details regarding our operating basis quarterly revenue, as outlined on Slide 12. Unless otherwise noted, my comments here will focus on the comparison of the third quarter of 2013 to the third quarter of 2012.
I believe this is more relevant since a sequential quarter comparison includes the effects of the seasonal pattern in securities finance and the summer slowdown for trading services. Servicing fees increased 10%, primarily due to stronger global equity markets, the GSAS acquisition and net new business.
Management fees increased 10%, primarily due to stronger global equity markets and net new business. Third quarter management fees were negatively impacted by $12 million in money market fee waivers, and this compares to $5 million in the third quarter of 2012, primarily due to the very low interest rate environment.
Total trading services revenue increased 10%, primarily due to an increase in foreign exchange volumes and volatility. Securities finance revenue decreased approximately 19%, primarily due to lower spreads.
Securities on loan averaged $316 billion for the third quarter of 2013, a decline from $321 billion in the third quarter of last year. Processing fees and other revenue increased approximately 23%, primarily due to an increase in fee revenue associated with our investment in bank-owned life insurance.
Net interest revenue and net interest margin continued to be pressured from a persistently low interest rate environment. On a sequential quarter basis, NIR was lower due to both lower yields on the portfolio and the lower level of average earning assets.
This was partially offset by lower premium amortization on the U.S. mortgage portfolio and by lower rates on our liabilities.
Now as we've discussed previously, we do not expect the recent rise in the 10-year U.S. Treasury bond yield to have a noticeable impact on NIR this year because we're primarily investing in shorter-duration maturities, and short-term rates remain very low.
We would need to see a larger increase at the shorter end of the curve to achieve a significant NIR benefit. Our third quarter 2013 operating basis net interest margin or NIM was 127 basis points, down from 131 basis points in the second quarter of 2013 and down from 144 basis points in the third quarter of 2012.
We continue to expect operating basis NIM for full year 2013 to be slightly below 130 basis points. This assumes that interest rates globally and client deposits remain at or around current levels for the remainder of the year, which would drive the growth in our earnings assets to approximately 5% on the full year 2013 average versus the full year 2012 average.
That means that operating basis net interest revenue is expected to be approximately $170 million to $180 million lower in 2013 relative to 2012, taking into account the assumptions that I just noted. Now let's turn to expenses on Slide 13.
Our expenses were well controlled in the third quarter. Our compensation and employee benefits expenses decreased approximately 1.5% from both the second quarter of 2013 and the third quarter of 2012.
This quarter's results benefited by approximately $12 billion from some adjustments to employee benefits, which we do not expect to repeat next quarter. Additionally, we had an increase in expenses related to support for new business installations.
Our Business Operations and IT Transformation program continues to be on track. For full year 2013, we expect to achieve approximately $220 million in additional pretax expense savings, resulting in approximately $418 million of pretax expense savings since the inception of the program.
Our nonrecurring expenses related to our Business Operations and IT Transformation program were approximately $25 million for the third quarter of 2013. Now other expenses decreased sequentially to $251 million, primarily due to a third quarter 2013 gain of $19 million from the sale of a legacy Lehman Brothers-related asset; lower litigation costs, including the Lehman recovery; and lower professional services fees and sales promotion costs.
Also impacting the third quarter 2013 other expense line was an increase of $7 million for the new Federal Reserve supervisory assessment, which represents approximately 2 years of fees. Now as a reminder, the other expense line is comprised of many items, including professional services fees, securities processing costs, regulatory expenses and legal costs, and can vary quarter to quarter.
Now let me provide you some details on the investment portfolio. As you can see on Slide 14, our overall approach to managing the investment portfolio has not changed.
We've maintained its basic size, high credit quality and composition during the quarter. The mark-to-market improved at quarter end compared to the second quarter end, mainly due to slightly tighter spreads.
Our interest rate risk position was similar to the second quarter, with a sensitivity in economic value of equity or EVE in the up-200-basis-point shock scenario at minus 14.5% of total regulatory capital. The duration of the portfolio was 1.9 years, consistent with the prior quarter.
Additionally, assuming a hypothetical 100-basis-point increase in interest rates across the curve, the unrealized impact on capital is approximately minus $1.3 billion after tax. Now we're monitoring and managing our interest rate risk position using a variety of risks measures, including EVE and the potential impact of a rise in rates on the mark-to-market and on NIR.
These metrics are well within our risk appetite. Maintaining a strong capital position is very important to us.
Particularly in this evolving regulatory environment, we continue to identify opportunities to optimize the capital efficiency of our balance sheet. Utilizing similar credit experience that we have from investing in corporate bonds and collateralized loan obligations, we've begun to invest in senior secured bank loans, targeting BB and single B-rated issuers, all subject to our credit underwriting standards.
These loans provide attractive risk-adjusted returns and additional diversification to our balance sheet and are not mark-to-market. Our current exposure is under $1 billion, and while we expect to grow it over time, we've planned for it to remain a relatively small portion of our overall balance sheet.
We will continue to look for other ways to optimize the balance sheet that are well aligned with our core competencies and within our risk appetite. Now let's turn to the next slide to review our capital position.
As you can see from Slide 15, we remained focused on maintaining our strong capital position. This capital strength allows us to deliver on a key priority of returning value to shareholders through dividends and share repurchase.
Importantly, the regulatory capital rules in the U.S. continue to evolve.
As we discussed last quarter, the Federal Reserve released the Basel III final rules in July. Under the final rule, the lower of State Street's Tier 1 common ratio calculated under the Basel III advanced approach and under the Basel III standardized approach, will be State Street's effective Tier 1 common ratio in the assessment of its capital adequacy for regulatory purposes.
As of September 30, 2013, our estimated pro forma Basel III Tier 1 common ratio was 10.2% under the standardized approach and 11.3% under the advanced approach. In addition, both the Basel committee and the U.S.
regulators published proposals for the new Basel III supplementary leverage ratio. The U.S.
proposal includes a minimum supplementary leverage ratio of 5% at the holding company and 6% at the bank level. We estimate that our pro forma supplementary leverage ratios are approximately 5.4% at the holding company and approximately 5% at the bank as of September 30, 2013.
Now these proposals are still subject to change. If enacted as proposed, these ratios would take effect January 1, 2018.
Assuming the rules go into effect as proposed, we believe that we have a number of levers which would enable us to comply with these requirements in advance of the 2018 effective date. Both changes in the rules and the market could impact our anticipated supplementary leverage ratio, for example, if we're permitted to exclude central bank deposits from the calculation, or if our deposit levels were to return to historical norms.
Based upon our current balance sheet, we estimate our pro forma September 30 supplementary leverage ratio would increase by a little more than 0.5%. In the meantime, we recently received clarification for the Federal Reserve regarding the incorporation of Basel III into the upcoming 2014 CCAR process.
Our capital planning process already incorporates Basel III compliance standards, so this guidance is consistent with our expectations. Importantly, in addition to the final rule on Basel III and the proposed supplementary leverage ratio, a number of regulatory initiatives that may impact our capital position and structure and the funding of our balance sheet are still open.
For example, we expect the proposed rules may be released in the coming months regarding minimum long-term debt requirements for the holding company and the capital buffer for global, systemically-important banks. Of course, we continue to carefully monitor these and the other potential regulations in development and their aggregate impact upon our business.
We remain focused on executing our capital plan that we submitted in conjunction with the 2013 CCAR, which includes our authorization to purchase up to $2.1 billion of our common stock through March 31 of 2014, of which approximately $1 billion remains available. Now to recap our results.
Our strong year-to-date fee revenue growth of 8% and our positive operating leverage are indicative of good progress on our top priorities. We expect our net interest revenue to continue to be under pressure until short-term interest rates begin to rise.
We remain focused on executing our capital plan through March 31 of 2014. Now before I conclude, I would like to briefly address the question, which may be of interest to many investors and analysts, regarding our expected capital return in 2014 in light of the evolving regulatory environment.
At this point, it would be premature to try to estimate our return of capital beyond our current plan through March 31, 2014. While we remain focused on optimizing our capital position and returning capital to our shareholders, we do not know how capital regulations will evolve nor do we yet know all of the parameters for the next CCAR process.
However, we continue to believe that our share repurchase program, combined with dividends, is the best way to return value to shareholders. And this remains a top priority for us.
And now I'll turn the call back to Jay.
Joseph L. Hooley
Thanks, Mike. Let me close our call by briefly reiterating our continued focus on creating value for our clients and shareholders by growing revenue and diligently controlling expenses.
Returning capital to our shareholders through share repurchase and dividends remains a top priority. Now Mike and I are available to take your questions.
Operator
[Operator Instructions] Your first question comes from the line of Glenn Schorr with ISI.
Glenn Schorr - ISI Group Inc., Research Division
One clarification question. You had mentioned that you are -- I think last quarter, you were kind of conservative in terms of the reinvestment.
The duration stayed at 1.9 years, and you had maturities run off and replaced with lower-margin assets. I think that's all consistent with what you've been saying, but I think the net interest income came a little lighter.
So I guess, I'm curious. I heard you loud and clear on some of the things you're doing on the asset side.
But with no change to the rate environment, should we expect a little more of the same, meaning conservative reinvestment and a little more rundown?
Michael William Bell
Sure. Glenn, it's Mike.
Look, a couple comments. First, I would remind you that the second half of 2013, our outlook is still in line with the estimates that Ed had provided at Q2.
Now in terms of the moving parts, a couple of comments. First, around Q3, the NIR was impacted by a couple of different things relative to the NIR in Q2.
First of all, the earning assets for the quarter were down $5 billion relative to the same average in Q2, so that impacted the NIR. In addition, as you correctly noted, the average yields did decline for the average yield for the full quarter because of the turnover in the book.
And again, we had anticipated that, given the low-interest rate environment, as a general rule, replacing the higher-yielding stuff that's running off with lower-yielding new purchases. And then just for completeness, I'd also remind you that Q2 had a onetime benefit of $7 million in NIR from a paydown of one particular loan.
So relative to the Q2 comparison, there were a few different moving parts there. On your question on the outlook, it does depend upon a number of factors.
But our current estimate at this point would be that we would see a small uptick in Q4, and that would be driven by a couple of things: First, we do anticipate a small uptick in average earning assets in Q4; and we expect an additional benefit in Q4 relative to the slowdown in prepayments on the U.S. mortgage portfolio.
So those are the couple of things for 2014 that -- I'm sorry, for fourth quarter of 2013 that I would expect helping us.
Glenn Schorr - ISI Group Inc., Research Division
Okay. Appreciate that.
And I guess the second question is on the expense side, I think there's a lot of good trends. Obviously, you pointed to the operating leverage and controlling what you can control.
It's just interesting how comp -- and I hear you on the onetime benefit, but comp, directionally, very well contained. And the info systems and communications lines, still up 11% year-on-year, even included in the program.
So I guess it's A-B question of a, are the comp trends, as a general comment, can we connect -- we expect that to continue? And b, is this type of growth rate on the info systems line what we could expect as you continue to invest in the platform?
Michael William Bell
Well, Glenn, first of all, I appreciate your comments on expenses. As we've talked about, controlling operating expenses is a significant priority for us, as is generating a positive overall operating leverage.
So that has not changed. On your specific question of info systems and communications, those have been relatively consistent here this quarter versus last quarter.
And I would anticipate a relatively consistent, maybe up a little bit in Q4. Again, that's all part of the long-term IT and ops.
So where we've gotten additional savings on the operations side, sometimes that has entailed incremental IT expenses. But I -- again, I wouldn't read anything into the year-over-year info systems because it is all part of the combined IT and ops program.
Operator
Your next question comes from the line of Howard Chen with Crédit Suisse.
Howard Chen - Crédit Suisse AG, Research Division
Mike, just a follow-up on the expenses. You're continuing to drive a lot of positive operating leverage through the bank.
Putting aside market factors, are there any specific reasons you'll give some of that 230 basis points back to finish the year? And just looking a bit further out than that, can you and Jay just broadly talk about your confidence to drive more operating leverage, just given the fact that you've done a lot already, markets are up a lot and the rate environment's not improving?
Michael William Bell
Sure, Howard, good morning. First, on the remainder of the year operating expenses, there are several moving parts here.
First, on the comp and benefits, I don't expect, for example, that $12 million favorable expense adjustment that we had to employee benefits to repeat in Q4. So I just would suggest you be cognizant of that plus $12 million pressure.
I wouldn't try at this point to put a number on Q4 for comp and employee benefits because there still are a lot of decisions that we need to make, including, for example, incentive comp for the full year. That true-up, whatever it is, will show up in Q4.
And at this point, it's too early to try to put a number on it. The other comment I would make is around the other expenses.
Again, the other expenses do bounce around a fair amount quarter-to-quarter. It's got things in there like litigation expenses.
Well, those are basically impossible to predict with any confidence. So again, difficult to try to estimate the other expenses for Q4.
Ed had commented last quarter that he would expect a normal run rate for the second half of the year to be in the $270 million to $280 million range for other expenses. That's still reasonable, but it doesn't count on anything in terms of unusual items flowing through there.
So other than those 2 sort of macro points, I wouldn't expect the other line items for Q4 to look a lot different than Q3. And in terms of how that translates to positive operating leverage, obviously, that will depend in large part on the market-driven revenues.
And there's several points, both plus and minus, of uncertainty out there, so that would be difficult to anticipate. Let me ask Jay if he wants to add in terms of the longer term.
Joseph L. Hooley
Yes, Howard. The only thing I would add is I think, consciously, we've been doing a good job of creating operating leverage in this, I would say, less-than-normal market-driven operating environment.
And that's largely IT and ops and trying to become more efficient in all parts of the business. I would expect over time, as Mike points out, in a more normalized market-driven revenue environment that we should continue to have good operating leverage.
The higher the revenue growth, the higher the operating leverage, is a general theme. But that's the general strategy.
Howard Chen - Crédit Suisse AG, Research Division
Okay, great. And Jay, my second question.
You've spoken a good bit about the alternatives servicing opportunity. I was just hoping you could just take a step back, help us place that 47 new mandates in context and talk a bit more about what you're seeing out there today, as the fundraising environment for these folks seems like it's improving, how the competitive landscape and profitability of that client segment is progressing?
Joseph L. Hooley
Sure. Happy to do that, Howard.
Just to remind everybody, we got into the alternatives business early and have not only gone global with it, but have diversified across not only hedge but private equity and real estate. So we're pretty confident across the landscape of the alternatives assets.
As a general theme, when we talk to our institutional asset owners, pension funds and the like, there continues to be greater allocation into alternatives. You can look at some of the alternative returns and question that judgment, but that is the trend.
And so we see more assets flowing to alternatives, point one. Point two, you see more demands on the alternative asset classes for a higher level of compliance and risk reporting, both regulatory and nonregulatory.
So the level of outsourcing continues to move in our favor. We have referenced before that we think 70% of the hedge marketplace is outsourced to third-party providers, but only 30% in the case of real estate and private equity.
And so we're seeing kind of across-the-board gains across the 3 asset classes, across the 3 geographies. And we don't see that letting up.
The last point I would make is that -- I make the point that we get into this early because if you look at the league[ph] table of who we're competing with, there are some unusual names. It's not the typical trust bank names.
So we think we're pretty well-positioned competitively, and continue to invest in the platform to differentiate our service offering.
Operator
Your next question comes from the line of Robert Lee with KBW.
Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division
I guess, my first question, maybe, Jay, this is for you. But I would like to maybe get -- if we could maybe get a little bit better sense within the asset servicing.
I mean, you called out the alternative business, but maybe a little bit better sense of what other segments you may be seeing some relative strength or weakness in. And I mean, if I just look at your disclosure around AUA and AUC, and knowing that, that's not -- it's far from a perfect metric.
But you do see things like insurance and other growing pretty slowly, whereas collective trust products growing pretty rapidly. So could you maybe give us a little bit more insight and color in terms of the moving pieces underneath there and where the successes are or aren't?
Joseph L. Hooley
Sure. I would say, Rob, the -- you got to look at it geographically and by product segment.
Geographically, even though 42% of the new commitments this quarter came from outside the U.S., tilted towards Asia, by the way, North America continues to be a big driver in spite of maybe expectations a few years ago. Within the different subcategories, we have a preferred position from a market share standpoint.
And the asset manager segment, we like it. We think it offers the most diversity as far as growth and product expansion.
And we continue to do well there. We've had several competitive wins.
We like the segment. The segment continues to grow.
Pensions, a little bit flatter. Alternatives, up into the right.
I see that continuing. So that's kind of the way I see it.
I mean, the sovereign wealth fund marketplace -- we -- I was in Asia last week, we're very well-positioned with the sovereign wealth funds. Whether it's oil-driven or other commodity-driven growth, those funds are growing.
They're getting more sophisticated. They're investing more in alternatives.
Their needs in the middle and back office are increasing. So I'd add that as an additional segment.
Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division
Great. Maybe as my follow-up, I'm just curious, a couple of years ago, I mean, yourselves and your peers and everyone, it's clearly had a similar kind of pressures on top line.
And it seemed like everyone had been focused on pricing, and maybe a little more rationality was creeping into the market. I'm just kind of curious what you're seeing now.
I mean, maybe you've got some more competitors in Europe who are feeling their oats a little bit more, at least because they want more fee business, or just given that everyone is kind of still under the gun as it relates to revenue pressure. Are you seeing any kind of more, I guess, I'll call it irrationality creep into the market at all?
Or is it still being reasonably sane?
Joseph L. Hooley
I would say, Rob, the -- a couple of things. That matters a lot by segment.
So in an alternative segment, better than a U.S. pension segment, as a for instance, and who the competitors are.
But directionally, I would say same, if not a little better. I think what you hear from me and other trust banks, at least the domestic, the U.S.
trust banks, as people try to get a little bit more rational around fees and try to work the fee arrangements with their customers to a better place, given the market-driven revenue pressure. There's some movement I think we're all seeing on that.
And I think that's brought in some maybe more responsible pricing. In Europe, which would be the other place where custodians live, there's an occasional crazy bid.
But I would say, directionally, nothing really feels very different.
Operator
Your next question comes from the line of Alex Blostein with Goldman Sachs.
Alexander Blostein - Goldman Sachs Group Inc., Research Division
So just picking up on the last question. When you look at the growth in your average assets under custody year-over-year, this year versus last year, you're up about 12%.
When you do the same on just the total servicing fees, you're up about 10%. So it feels like there's still a bit of a lag between fees and asset growth.
Is there -- I guess, a, why do you guys think that is? And b, should we expect that gap to close in some sort of a different market environment?
Or should we think of the fees growing, I guess, at a slower pace than the assets?
Joseph L. Hooley
Yes, I mean, assets, that's a tough relationship and there's a lot of things that go into the fee side of that, but if I just pick on the third quarter, just by way of example, I think that the third quarter equity markets performed pretty well, our service fees were up a little bit. What sits in the middle of that is a mix question.
So there was, on balance, client de-risking, which brings less attractive -- well, makes it less attractive from a service fee standpoint. And the other thing was that transaction volumes were down, so that's another factor that drives the service-fee-to-overall-asset-growth relationship.
So I would say, I'd just point to that as an example of how these things can shift quarter-to-quarter, year-to-date. I would say overall, in a -- whatever a normalized market looks like these days, but markets where there's investor confidence, where there's investment across the full spectrum of asset classes, including emerging markets, global, we'd expect to see a pretty good relationship, a pretty consistent relationship between assets and service fees.
Alexander Blostein - Goldman Sachs Group Inc., Research Division
Got you. And then on your -- just going back to the balance sheet for a second, your point you make on de-risking during the summer.
I guess I'm surprised to see the deposits come down as much as they did sequentially, so maybe a little bit of color on that and how we should think about the overall kind of balance sheet size heading into 2014.
Michael William Bell
Okay. Alex, it's Mike.
The size of the balance sheet, of course, as well as the level of customer deposits, those vary based on a number of different factors. We've typically had seasonality in the past, where Q3 has tended to be a little bit lower than Q2 and Q4.
We do anticipate the average earning assets for Q4 to be somewhat higher than Q3, which, as I mentioned earlier, is one of the reasons we anticipate a small uptick in NIR for Q4. But again, this is -- it is an unpredictable period of time.
Obviously, the -- some of the noise in Washington around the debt-ceiling crisis led to a temporary increase in our customer deposits. Most of that has abated, but some has not.
So it -- again, it's really at this point, difficult to predict with certainty where the average earning assets will end up for the quarter.
Operator
Your next question comes from the line of Mike Mayo with CLSA.
Michael Mayo - CLSA Limited, Research Division
First, a general question. As a new CFO, how are you looking to manage things differently than in the past?
What are your few areas of greatest focus?
Michael William Bell
Sure, Mike. Well, I think it's a little bit early for me to try to put a stake in the ground on that particular question.
I mean, I really have spent my first 100 days in the job just working to learn the business, learn about our issues as a company, learn the internal structure. So at this point, I wouldn't try to put a stake in the ground saying this is how my regime, hopefully, multi-year regime, will differ from the past.
But we could certainly have ongoing dialogue in 2014 on that. But I think a little early at this point.
Michael Mayo - CLSA Limited, Research Division
Okay. And 3 very small follow-ups.
Why did you guys report so late this quarter? You aren't usually last, the week after everybody else.
Joseph L. Hooley
Yes, it's a quick one, Mike. The -- we had our board meeting off-site in Hong Kong last week.
We usually -- and we have a strategy session. We decided to do it in Hong Kong.
Calendars could only be coordinated for the last week, so really that's the reason we put it off a week, simply.
Michael Mayo - CLSA Limited, Research Division
And then a detailed question. I mean, like, if you look at the bottom of Slide 13, the bottom right-hand corner, the bullet, where it talks about unusual items that helped the third quarter, the gain of $19 million from the sale of a legacy Lehman Brothers-related asset and then the Lehman Brothers-related recovery of $11 million, that's a pretty big onetime benefit for the quarter.
So if you take that out, then it would have been an earnings miss for the third quarter. I know this is in the eyes of the beholder, but are there any unusual items that would have offset some of those onetime benefits a little bit?
And, I guess, I ask you, Mike, welcome to the job as CFO, here's an earnings miss, or maybe that's the wrong conclusion.
Michael William Bell
Well, Mike, first of all, as you said, the underlying run rate, as you try to scrub onetime items, is really in the eye of the beholder, so it is really a term of art, not science. I mean, I'd make the same comment like what you just said on some of the global market-driven revenue.
I mean, because FX volumes were down and as part of the seasonal slowdown, I would also think of that as not necessarily the long-term run rate as well. But I would just -- since you cited the Slide 13, I would also reference the $7 million assessment that we got from the Fed for the supervisory fee, and that wasn't there at Q2.
So there were several different moving parts. I wouldn't try to put my number -- my finger on an underlying number at this stage, but just to say that we think the underlying fundamental trends for 2013 continue to be good.
We're pleased with the progress we're making on our highest priorities. And to me, those are the most important headlines for the quarter.
Operator
Your next question comes from the line of Luke Montgomery with Sanford Bernstein.
Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division
Guys, I just want to take another stab on the operating margin. I think you were targeting 400 basis points of expansion with the efficiency initiative.
I think that was off a 2010 base of 28% or 29%, and that assumes all else equal. I was wondering if you might discuss what hasn't been equal, so to speak, in terms of expenses and how that affects your outlook on the level of the margin.
It seems like you're saying now that we need a change in the operating environment -- revenue environment, really, to exceed a 30.5% margin, but I thought perhaps the projection of 400 basis points really didn't depend on that.
Michael William Bell
Okay. Luke, it's Mike.
First, just to recap what Ed said again last quarter and what he has said pretty consistently in the past. The starting point for 2010 is 27.5%.
There were some nonrecurring items that he had spiked out in there. So you really want to think about it as 27.5% plus 400 basis points to get to an overall pretax margin of 31.5%.
Now on a year-to-date basis, we're at 30.2%. At this point, we expect to achieve in 2014 and beyond another $180 million of ops and IT transformation savings.
Bottom line is we still think we can get from the 30.2% to the 31.5%. Now again, an important caveat, as Ed said many, many times, is that, that does assume all things equal.
And as you indicate, all things are never exactly equal. And how our mix of business changes, things like the regulatory environment, where will our interest rates be, I mean, there are a number of other moving parts that can impact our longer-term margins.
But at this point, we feel good about the savings we've gotten from our IT and ops transformation and feel good about our trajectory on the year-to-date profit margins.
Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division
Okay. That was helpful context and a helpful reminder.
And just a longer-term question on the balance sheet size. Could you remind us of what your estimate of excess deposits is currently, and then what impact, if any, do expect on your deposit balances if the Fed were to unwind its balance sheet and take excess reserves out of the system?
In other words, like, how strong is the linkage between the amount of reserves in the banking system and the liquidity that's been aggregating, specifically on your balance sheet?
Michael William Bell
Okay. So the -- in terms of the excess deposits, Luke, at Q3, on average, we estimate that our excess deposits were $19 billion for the quarter.
As the Fed -- if the Fed unwinds quantitative easing, assuming that interest rates would rise, I would expect that we would see those $19 billion of excess deposits move off of our balance sheet. Now again, the pace of that, the timing of that, what other alternatives are out there for clients to look at, their level of risk appetite in that scenario, those are all moving parts.
Those are all factors that will impact the timing and the amount. But basically, we think of it as $19 billion of average excess deposits in Q3.
The only other thing I would add is that they've been running higher thus far in October. But again, we would think that that's probably a temporary phenomenon because of the debt-ceiling crisis.
But that's also something that we're watching.
Operator
Your next question comes from the line of Betsy Graseck with Morgan Stanley.
Betsy Graseck - Morgan Stanley, Research Division
A couple of questions. One is on NIM, and you highlighted that there's an outlook for a little bit of an improvement as you go into 4Q overall.
Could you speak to the discount accretion, because it looks like there was a fall-off maybe about half Q-on-Q, and I'm wondering if -- how you're thinking about that rate of change going forward?
Michael William Bell
Are you specifically referring, Betsy, to the discount accretion from the conduit program?
Betsy Graseck - Morgan Stanley, Research Division
Correct.
Michael William Bell
Yes, we did have a rather large paydown in Q2. I don't specifically have that number off the top of my head.
Again, I think if you adjust for that, we wouldn't anticipate a major change. But again, I must admit I have not squirreled the legacy conduit program in detail to be able to answer your question with a lot of specificity.
Betsy Graseck - Morgan Stanley, Research Division
Okay. But would you expect that, that would just grind down from here, not increase, right?
Michael William Bell
Yes, that's correct.
Betsy Graseck - Morgan Stanley, Research Division
Yes, okay. And then maybe we could just touch base a little bit on the securities finance.
I know industry-wide, there's been -- sec lending has been down Q-on-Q and year-on-year, but maybe you could just highlight if there's anything specifically that was going on in your program to drive the year-on-year decline that we saw.
Joseph L. Hooley
No, Betsy, I don't think so. Our on-loan balances are pretty consistent.
They were off a little bit year-over-year, but a little bit north of $300 billion. Customers that are in the program, are staying in the program.
Demand was off in the third quarter and spreads were compressed, and I think it's that simple. We would expect in a little bit -- in a better environment, demand would improve and hopefully, spreads.
I mean, spreads are compressed quite a bit from where they were a year ago, but nothing other than that.
Betsy Graseck - Morgan Stanley, Research Division
Okay. So that's more volume driven than, obviously, value driven in terms of the market, right?
Because the market was up nicely.
Joseph L. Hooley
Correct.
Betsy Graseck - Morgan Stanley, Research Division
And then in the equity market environment that we got, I don't know, I would've expected that AUC might have been up a little bit more. And I know you spoke through earlier on the call where you're strong, and one of the places you are strong is in the mutual fund industry.
So maybe you could square that a little bit for us.
Joseph L. Hooley
Yes, I would say we tracked almost to the -- as far as our flows intra-quarter to the ICI. But we're a little bit different in that we had more of a -- more flows into money market funds, for instance.
Equities, equity -- the -- out of bonds into equity funds, but proportionately more into money funds, which is a little bit off of where the ICI data would lead you. And so the mix was, on balance, slightly negative from a standpoint of risk-taking and related fees.
Betsy Graseck - Morgan Stanley, Research Division
Okay, so you say this is an unusual quarter based on how market participants were behaving relative to the volatility in the rates market and the [indiscernible].
Joseph L. Hooley
Yes, I mean, I would say equally important was the volume of trading. That is also a revenue component of the service fees.
So I would weight that equally with the mix shift. And I would think the third quarter was an unusual environment, particularly the tail end of the third quarter.
And we saw not only capital markets volumes down, but I think consistent with assets ramping up on our balance sheet, trading was down end of the third quarter. I would hope that's unusual.
Operator
Your next question comes from the line of Jim Mitchell with Buckingham Research.
James F. Mitchell - The Buckingham Research Group Incorporated
Two questions. One, Jay, you mentioned you've had some pressure on the fee rate from de-risking, particularly in emerging markets.
But over the last 6 weeks, we've seen a pretty big jump in emerging markets. Do you think that could begin to start helping you in the fourth quarter on the fee rate side?
Joseph L. Hooley
Yes, if it sustains itself, Jim, it certainly would. We've -- I would say, last 6 weeks, you're right, and even in the last couple of days, post debt-ceiling debacle, the -- it looks like risking has improved.
But that's -- 2 days doesn't make a trend. But if that were to sustain itself through the quarter, that would be a good, positive factor for us.
James F. Mitchell - The Buckingham Research Group Incorporated
Right, okay. And then just on the capital ratios, when we look at the difference between standardized and advanced, should we -- will that difference persist or should we expect to see that gap close, for instance, as you run off the held-to-maturity conduit assets?
Is that the major difference, or no?
Michael William Bell
No. Jim, it's Mike.
That is -- that's not really the major difference. The major difference is that the standardized approach has standard risk factors and haircuts, which are more punitive really in 2 areas.
First, they're particularly punitive for the high-quality assets on our balance sheet, which is obviously the bulk of the portfolio. And then there are certain off-balance-sheet items, for example, securities finance, that the standardized approach is more punitive as well.
So those are really the 2 primary differences. I would not anticipate that the runoff of the legacy conduit program to be a material driver of that delta.
James F. Mitchell - The Buckingham Research Group Incorporated
All right. It won't close the gap, but you'll get some RWA benefit for both?
Michael William Bell
We will get some RWA benefit for both.
Operator
Your next question comes from the line of Andrew Marquardt with Evercore.
Andrew Marquardt - Evercore Partners Inc., Research Division
Just staying on the capital question. Can you remind us what is the constraining factor for you guys?
Is it the Tier 1 common Basel III standardized or advanced in the CCAR process? Or is it now the SLR?
How do you think about it? Or is it something else?
Michael William Bell
Sure. Good morning.
The -- well, first, as it relates to this upcoming CCAR, Andrew, I think it's premature to give you a definitive answer because, in fact, we haven't seen the instructions yet. So we'll obviously know a lot more when we see the final instructions and the final parameters.
But the way I'm thinking about it really is at 2 different levels. The first is the quantitative level, and yes, we do expect that the Basel III standardized Tier 1 common ratio would be an important ratio here for us, beginning 1/1/2015.
We had anticipated that being the case, and again, believe quantitatively that will be important here for 2000 -- beginning 1/1/2015. I think, though, equally importantly would be the qualitative considerations.
I mean, really what CCAR is about qualitatively is demonstrating that we do have a robust, long-term capital plan to be in compliance with the new rules. Now -- and so I think both will be important here in terms of the capital distribution plan.
You asked about the supplementary leverage ratio. I think at this point, that would be premature in all likelihood.
Although again, subject to the caveat that we haven't seen the final instructions yet for CCAR. I'd just ask you to remember that the SLR at this point is proposed, it's not final.
And in prior years, we've not been held to proposed rules that are not yet finalized. So we'll learn more over the next coming months and give you an update.
But what we're really focused on are the Basel III ratios, and again, that qualitatively having a long-term robust plan.
Joseph L. Hooley
And Andrew, just to add to that for a minute. The -- we, I think, just yesterday, put in our commentary on the supplemental leverage ratio, as did other big banks.
The issue that's front and center for us is this whole excess deposit issue. We hold excess deposits for customers, we lay them off on central banks.
For us to have to hold 6% capital against that, it doesn't seem to make a lot of sense, given that, I think, the intent of the supplemental leverage ratio is that it's a backstop or a secondary ratio. So we're hoping that reason will prevail as they finalize that rule.
Andrew Marquardt - Evercore Partners Inc., Research Division
That's helpful. And then maybe related, I mean, is it also premature to assume that you guys should keep to kind of what you've been doing the last couple of years of 100% combined payout going into '14, given these factors and other kind of -- the tough top line, but yet still[ph] expense leverage, et cetera?
Michael William Bell
The short answer, Andrew, is yes. It is premature to comment on that.
Andrew Marquardt - Evercore Partners Inc., Research Division
Okay. And then if I might, 1 second topic on just expenses.
Can you remind us in terms of where you stand on the IT expense initiative? I know you're about 70% through that, I guess.
Did you say that you were going to basically be at kind of the full run rate by the end of 2014? Did I hear that right?
And then also, you had that additional expense initiative of $90 million savings that you have previously talked about, kind of being at 70% heading into this quarter or -- sorry, at the end of last quarter. Where do we stand on that as well?
Michael William Bell
Okay. Sure, Andrew.
We would anticipate achieving our aggregate IT and ops savings of $600 million in the first half of 2015. So what that means is we've got approximately $180 million left.
We've got $130 million that we expect to impact 2014, and then another $50 million that we would expect to impact 2015. And again, we're on track for the 2013 target.
So I would not expect, for example, incrementally more expense saves in Q4 versus Q3 on the 2013 tranche. That -- those expenses at this point have been basically captured.
On your question on the year-end 2012 program, at this point, we have captured those savings in the run rate. And so again, at this point, those have been executed on.
Andrew Marquardt - Evercore Partners Inc., Research Division
So with that, is it fair to assume that you can achieve positive operating leverage on a year-over-year basis again, even in this tough top environment, if it lasts for longer into 2014? Is that a fair assumption?
Michael William Bell
Yes, again, it's a little early to comment on 2014 definitively. Again, I think the main question is really the market-driven revenues, what is that environment going to look like.
If we saw a more return to normal, for example, with interest rates, as well as some of the market-driven revenues, we would anticipate a positive operating leverage. But again, certainly, at this point, that's a goal, but I wouldn't say that we could give you guidance at this point on 2014.
Operator
Your next question comes from the line of Cynthia Mayer with Bank of America Merrill Lynch.
Cynthia Mayer - BofA Merrill Lynch, Research Division
I guess, just to clarify on the improvement you expect for 4Q in NIR. Is there any reason that wouldn't continue into 1Q of next year and beyond?
Is there anything particularly seasonal about the increase in earning assets you're expecting and the improvement?
Michael William Bell
Yes, Cynthia, it's Mike. The -- again, it's really early to try to give you thoughts on 2014.
It will just depend upon a lot of different factors. Notably, I would point out, would be the view on market interest rates.
I mean, if market interest rates continue to be static, then we would anticipate additional downward pressure on NIR and NIM next year. But again, early to try to put any numbers around it.
On the deposit question, we do anticipate continuing growth in the book of business. But again, at this point, I wouldn't try to give you a definitive outlook for 2014.
Cynthia Mayer - BofA Merrill Lynch, Research Division
Okay. And just a follow-up on the AUC.
And I realize a few people have asked about this, so at the risk of beating a dead horse, it seemed like your AUC was up about 1% sequentially despite pretty strong markets and an asset mix which is pretty well weighted toward equities. So aside from things like fee rate, questions of fee rate and that sort of thing, just based on the mix of assets you began with, why wouldn't it have been up more just based on the market appreciation in the equity assets?
And should we conclude that you had some net outflows that offset the $200 million or so -- or the $200 million of wins you mentioned? Or was there something lumpy beyond that?
Joseph L. Hooley
Yes, let me try that. We didn't have any big outflows or losses that contributed to that.
It's really more a matter of our mix, which was more negative from a standpoint of client risking, meaning more into money market funds versus equities, which is a slight difference from where the market was, combined with, in our service fee business, transaction fees are an important component of the fee rate, and transactions were off quite a bit in the third quarter. So really, those are the factors.
Cynthia Mayer - BofA Merrill Lynch, Research Division
I guess, I was asking more about the ending asset level than the fees?
Joseph L. Hooley
Ending asset levels...
Cynthia Mayer - BofA Merrill Lynch, Research Division
Up only 1%?
Joseph L. Hooley
Yes, let me take a look at that, Cynthia. From $18.8 trillion to $19.2 trillion, is that the reference.
Cynthia Mayer - BofA Merrill Lynch, Research Division
Okay. You know what, maybe we can just pursue this off-line?
Joseph L. Hooley
Okay, great. Fine.
Operator
Your next question comes from the line of Ken Usdin with Jefferies.
Kenneth M. Usdin - Jefferies LLC, Research Division
Jay, I was wondering if you could just elaborate a little bit more on the pipeline, the pace of potential wins across both servicing and asset management. I heard your comment about the big win coming in just after the end of the quarter.
I'm just wondering if that's any indication that you're starting to see some potential chunk of your pieces of business up for bid and potentially landable.
Joseph L. Hooley
Yes, I would say, Ken, pretty steady. I mean, that new business, the one that we committed after the quarter, was chunky.
But I would say pretty steady. I am particularly pleased with our competitive win rate when we're in the not only alternative but asset management business.
Our win rate is quite high. We've had -- and the pipeline is pretty solid and pretty diversified.
So I wouldn't directionally say better or worse, but pretty steady.
Kenneth M. Usdin - Jefferies LLC, Research Division
What about just underneath that granularity of, like, is the type of business you're bringing on higher or lower incremental margin relative to history or recent periods? Are you seeing better business?
If the volume is static, what's the context of the type of new business you're bringing on?
Joseph L. Hooley
Yes, I would say in a world of $200 billion a quarter, which is a lot of deals underlying that, it's a real mix. I would give you a few examples.
We seem to have an addition to alternatives. The ETF servicing business is a real strong category for us.
In the Goldman acquisition, the GSAS acquisition, we said we thought we could cross-sell. We have done a terrific job at not only cross-selling, but taking relationships that were thinly serviced and moving up into the back, middle office, 2 big deals there, which are very attractive from the standpoint of return.
So it's -- without going through a list, Ken, it's hard to directionally say better or worse, other than very diversified and a good, solid pipeline.
Kenneth M. Usdin - Jefferies LLC, Research Division
And, Mike, you announced the $200 billion of new, but could you give us the left to convert on both the asset servicing and asset management side?
Joseph L. Hooley
I'll give you that, Ken. The -- on the asset servicing side, between everything we have committed up till now plus the $200 billion, it's about 185 that's in the pipeline waiting to convert.
Is that what you're looking for?
Kenneth M. Usdin - Jefferies LLC, Research Division
Yes, and that's as of the third, right? That's x the new win?
Joseph L. Hooley
That -- that's x the new win, correct. So the 127 plus 184 would be the to-be installed number.
Kenneth M. Usdin - Jefferies LLC, Research Division
And then how about on the management side?
Joseph L. Hooley
I don't know that I could give you that number.
Kenneth M. Usdin - Jefferies LLC, Research Division
Okay. Last really quick one, just one final one on the expenses.
So you're at the run rate for this year's plan. This year, the bulk of the saves came in earlier in the year.
Is that the same context we should expect from the incremental benefits for '14? Does it -- most of it come in early part of the year like it did this year?
Michael William Bell
Ken, I would say generally the answer is yes. I wouldn't say -- necessarily use the exact same percentages that we delivered on this year.
We're still working through the specifics of the 2014 budget. But generally, it is right that we tend to focus on getting those saves in the first half of the year, but not necessarily all of them.
Operator
Your next question comes from the line of Gerard Cassidy with RBC.
Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division
Can you guys go over the loan portfolio, how you grew it, Mike, in the quarter? Can you tell us -- you said it was going to grow to a larger size.
I may have missed the percentage of loans, but how big do you think that could get to the -- on the BB/B credits that you mentioned earlier?
Michael William Bell
Yes, good morning, Gerard. At this point, we haven't specifically sized our capacity there, Gerard.
It will be something that we'll continue to look at throughout 2014. I'd say to put an upper ceiling on it, I would not anticipate it, for example, reaching 3% of our total balance sheet.
But other than giving you that as an outer ceiling, I wouldn't try to put a size on it for 2014 yet. It's still something that we're looking at.
Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division
And did that portfolio contribute to the drop in the average rates that you reported on your average balance sheet, which came in at 1.66% for loans and leases down from 2.29%?
Michael William Bell
No, that -- again, it was a relatively small number in terms of volume, Gerard, and that particular loan book is mainly -- actually, has mainly nothing to do with leveraged loans. Leveraged loans are only $0.5 billion of that number.
The particular number that you're focused on is mainly the loans that we do, for example, to -- for closed-end mutual funds. And so again, apples and oranges there.
Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division
Sure. What contributed then to the decline in the yield in the portfolio?
Or was the yield unusually high in the second quarter?
Michael William Bell
Again, it's basically just a change in mix. We've been growing that particular loan book.
We like the characteristics of that book. We think they're attractive risk-adjusted spreads.
But the nominal yield in any particular quarter is going to bounce around based on the mix of those funds.
Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division
Okay. And then finally, in your interest-bearing deposit section of the liabilities, we noticed all year a steady decline in the U.S.
accounts. Can you share with us what's driven that number down to about $5.8 billion from about $16 billion at the beginning of the year?
Michael William Bell
Oh, right. The -- Gerard, mainly that is the maturing of the wholesale CDs that we had, really, back in 2012.
That's been -- those have been generally maturing off of the balance sheet.
Operator
Your final question is a follow-up from Mike Mayo with CLSA.
Michael Mayo - CLSA Limited, Research Division
One question for you, Jay, is just when you benchmark your pretax margin, you're squarely in the 30s whereas your peers are in the mid- to upper-20s. And I'm trying to -- do you claim victory there?
Are there business mix differences and is there a lot more to go once you finish this process with the IT and op transformation? But before you answer that, maybe for you, Mike, just to get clarification, how much in the IT and ops savings did you have in the third quarter for the total program?
And how does that compare to the second quarter?
Michael William Bell
Let's see, Mike, the -- in terms of the IT and ops program, we are now at the full year run rate saves here at Q3. So again, we'll get another tranche in Q4.
But incrementally, Q3 to Q4 is approximately 0, so we're already at the full year rate. I just don't quite remember Ed's number from Q2.
So there was a small benefit Q3 to Q2. It was not particularly material in the grand scheme of things.
And as I mentioned in the prepared remarks, Mike, we're essentially offset by some of the incremental operating expenses from new business installations. So again, when you wash out those 2 together, it's approximately flat.
Michael Mayo - CLSA Limited, Research Division
Yes, just -- so you have $180 million left or $230 million left for the entire program?
Michael William Bell
$180 million for 2014 and 2015.
Michael Mayo - CLSA Limited, Research Division
Okay, $180 million total. So if you add that to the 30.2% year-to-date rate, then you're at already -- if you get that, that's 32% pretax margin, you'll be there.
Michael William Bell
Well, okay. Yes, but importantly, that's all things equal.
There are any number of different things in terms of mix of business, regulatory costs, where will NIM be. I mean, again, I -- there -- your arithmetic is correct, but I wouldn't conclude then you should plug 32% into your model.
Joseph L. Hooley
And, Mike, let me just pick up the other question with regard of declaring victory. I mean, to me, the IT and ops transformation, everybody wants to focus on the expense saves, which are important.
But equally important to me is transforming our IT operation to improve our operating environment, to reduce cost, to improve client service deliveries. So I think it's transformational, not only because of the efficiently but because of where it puts us relative to the introduction of new products and evolving the cloud.
So it just seems like a natural for this kind of business to move in that direction. Hey, Christie, before we end, let me just -- I don't know if Ken Usdin is still on the line, but I just wanted to reference that to his question of the SSgA, the uninstalled new business was around $25 billion, just for the record.
And with that, I would just conclude. We look forward to speaking to everybody at the conclusion of the fourth quarter.
Thank you.
Operator
That does conclude today's conference call. Thank you for your participation.
You may now disconnect.