Kevin McDevitt: You mentioned in your last shareholder letter, European banks, and perhaps some potential for improving profitability there. What might be the catalyst for improving profitability?
Harry Hartford: Hopefully, we won't have too many more fines levied on the banking industry. I think the catalyst will be the burden associated with regulatory oversight starting to fade into the background.
In addition to that, as has been the case in the United States, when you do have these stress tests and to the extent that the companies pass the stress tests--and there will be one later in the year in Europe--but to the extent that the banks pass the stress test, then that will afford management the opportunity to go to regulators and say, "We have more than enough capital, we've built up the capital base, and it's now time to start rewarding shareholders."
A number of banks are not paying dividends, or if they are, they are quite small. And so, I would anticipate that a fading of the regulatory issues into the background, coupled with the ability to distribute more and more of the income stream to shareholders, will be the two catalysts that will drive an improvement into European banks. It's not one that will be driven by a dramatic recovery in European economic activity; I don't think that's likely in the current environment.
McDevitt: Or [it won't be driven by] an improvement in net interest margin? I guess, that depends to some extent on what the European Central Bank is doing?
Hartford: Yeah, I think relying on an improvement in net interest margin might be a little bit wishful thinking. Obviously, you now have a situation where the European Central Bank is charging you to deposit funds at the European Central Bank. Your natural tendency then is to say, "I need to find somewhere to put this money to work." And that generally takes the form of additional lending. But in the absence of an improvement in net interest margin, the impact on the top line, I would say, would be fairly muted. And it's hard to anticipate net interest margin expansion when the interest-rate environment remains where it is.
McDevitt: Harry, thanks for your time.
Hartford: You're very welcome. Thank you very much, Kevin. Good to see you.