Third-quarter 2014
operating-basis1 EPS was $1.35, up 13.4 percent, on
strong revenue of $2.7 billion, up 8.5 percent compared to the
third quarter of 2013
In announcing today's financial results, Joseph L. Hooley, State
Street's chairman, president and chief executive officer, said,
"Our third-quarter results demonstrated good growth in asset
servicing and asset management fees, which together were up 9
percent from the third quarter of 2013, reflecting improved equity
markets and new business. Our market-driven revenues also performed
well in a traditionally seasonally slow quarter. We won new
business commitments of $302 billion of assets to be serviced and
had $3 billion of net new assets to be managed during the quarter
demonstrating the continued strength of our business."
"Despite the current challenges we face from low interest rates,
we have leveraged our strong market positions and capabilities to
generate profitable top-line growth."
"We continue to prioritize the return of capital to our
shareholders. During the third quarter of 2014, we purchased
approximately $410 million of our common stock and ended the third
quarter with approximately $880 million remaining under our March
2014 common stock purchase program authorizing the purchase of up
to $1.7 billion of our common stock through March 31, 2015. We also
declared a common stock dividend during the quarter of $0.30 per
share."
Third-Quarter 2014 GAAP-Basis Results
- Earnings per common share (EPS)
of $1.26 decreased from $1.38 in the second quarter of 2014 and
increased from $1.17 in the third quarter of 2013. Third-quarter
2014 results include a net after-tax charge of $53 million, or
$0.12 per share, reflecting our intention to seek to resolve some,
but not all, of the outstanding and potential claims arising out of
our indirect FX client activities.
- Net income available to common
shareholders of $542 million decreased from $602 million in the
second quarter of 2014 and increased from $531 million in the third
quarter of 2013.
- Revenue of $2.58 billion
decreased from $2.60 billion in the second quarter of 2014 and
increased from $2.43 billion in the third quarter of 2013.
- Net interest revenue of $570
million increased from $561 million in the second quarter of 2014
and from $546 million in the third quarter of 2013.
- Provision for loan losses of $2
million was flat with the second quarter of 2014 and increased $2
million from the third quarter of 2013.
- Expenses of $1.89 billion
increased from $1.85 billion in the second quarter of 2014 and from
$1.72 billion in the third quarter of 2013.
- Return on average common
shareholders' equity (ROE) of 10.6% decreased from 11.9% in the
second quarter of 2014 and from 10.8% in the third quarter of
2013.
Non-GAAP Financial Measures
In addition to presenting State Street's financial results in
conformity with U.S. generally accepted accounting principles, or
GAAP, management also presents results on a non-GAAP, or operating
basis, in order to highlight comparable financial trends with
respect to State Street's business operations from period to
period. Non-GAAP measures are not a substitute for, and are not
superior to, measures presented on a GAAP basis. Summary results
presented on a GAAP basis, descriptions of our non-GAAP, or
operating-basis, financial measures, and reconciliations of
operating-basis information to GAAP-basis information are provided
in the addendum included with this news release.
The following table reconciles selected third-quarter 2014
operating-basis financial information to financial information
prepared and reported in conformity with GAAP for the same period.
The addendum included with this news release includes additional
reconciliations.
(In millions, except per share amounts)
Income BeforeIncome
TaxExpense
Net IncomeAvailable
toCommon
Shareholders
Earnings
PerCommonShare
GAAP basis
$ 688 $ 542 $
1.26 Tax-equivalent adjustments Tax-advantaged investments
(processing fees and other revenue)
86 Tax-exempt investment
securities (net interest revenue)
43 Total
129
Non-operating adjustments Discount accretion associated with former
conduit securities (net interest revenue)
(33 )
(20 ) (.05 ) Severance costs associated
with staffing realignment (compensation and employee benefits
expenses)
(2 ) (1 ) — Provision
for foreign exchange matters (other expenses)
70 53
.12 Provisions for other litigation exposure and other
costs, net (other expenses)
(4 ) (3 )
— Acquisition costs (expenses)
12 8 .02
Restructuring charges, net (expenses)
8 5 .01
Effect on income tax rate of non-operating adjustments
—
(3 ) (.01 ) Total
51
39 .09 Operating basis
$
868 $ 581 $ 1.35
Third-Quarter 2014 Operating-Basis (Non-GAAP)
Results1
- EPS of $1.35 decreased from
$1.39 in the second quarter of 2014 and increased from $1.19 in the
third quarter of 2013.
- Net income available to common
shareholders of $581 million decreased from $603 million in the
second quarter of 2014 and increased from $537 million in the third
quarter of 2013.
- Revenue of $2.68 billion
increased slightly from the second quarter of 2014 and increased
from $2.47 billion in the third quarter of 2013.
- Net interest revenue of $580
million increased from $575 million in the second quarter of 2014
and from $553 million in the third quarter of 2013. Operating-basis
net interest revenue excluded discount accretion on former conduit
securities of $33 million, $28 million and $28 million for the
third quarter of 2014, the second quarter of 2014, and the third
quarter of 2013, respectively. All quarters are presented on a
fully taxable-equivalent basis.
- Expenses of $1.81 billion
decreased slightly from $1.82 billion in the second quarter of 2014
and increased from $1.69 billion in the third quarter of 2013.
- ROE of 11.4% decreased from
11.9% in the second quarter of 2014 and increased from 11.0% in the
third quarter of 2013.
Third-Quarter 2014 Highlights
- Total operating-basis revenue
increased slightly from the second quarter of 2014 despite the
second quarter benefit from seasonality within securities
finance.
- New business2 New asset
servicing mandates during the third quarter of 2014 totaled $302
billion and net new assets to be managed were $3 billion.
- Business Operations and Information
Technology Transformation program3 remains on track to
achieve $575 million to $625 million in annualized pre-tax expense
savings by 2015.
- Capital4 Our tier 1
common ratio as of September 30, 2014, calculated under the
advanced approaches in conformity with the Basel III final rule,
was 12.7%. Our estimated pro forma Basel III tier 1 common ratio as
of September 30, 2014, calculated under the standardized
approach in conformity with the Basel III final rule, was
10.9%.
- Return of capital to
shareholders Purchased approximately $410 million of our common
stock at an average price of $70.61 per share and declared a
quarterly common stock dividend of $0.30 per share in the third
quarter of 2014.
1 Operating basis is a non-GAAP presentation. For an explanation
of operating-basis information and related reconciliations, refer
to the addendum included with this news release.
2 New business in assets to be serviced is reflected in our
assets under custody and administration after we begin servicing
the assets, and net new business in assets to be managed is
reflected in our assets under management after we begin managing
the assets. As such, only a portion of these new asset servicing
and asset management mandates is reflected in our assets under
custody and administration and assets under management, as the case
may be, as of September 30, 2014. Distribution fees from the
SPDR® Gold Exchange-Traded Fund, or ETF, are recorded in brokerage
and other fee revenue and not in management fee revenue.
3 Estimated pre-tax expense savings relate only to the Business
Operations and Information Technology Transformation program and
are based on projected improvement from our total 2010
operating-basis expenses, all else being equal. Our actual total
expenses have increased since 2010, and may increase or decrease in
the future, due to other factors.
4 Earlier this year, we announced that we had completed our
Basel III qualification period. As a result, beginning with the
second quarter of 2014, we have been required to calculate and
disclose our regulatory capital ratios under the advanced
approaches framework of the Basel III final rule. Our estimated pro
forma Basel III tier 1 common ratio, calculated under the
standardized approach, is an estimate, calculated in conformity
with the standardized approach in the Basel III final rule. Refer
to the “Capital” section of this news release for important
information about the Basel III final rule, our calculations of our
tier 1 common ratios thereunder, factors that could influence State
Street's calculations of its tier 1 common ratios and other
information about our capital ratios. Unless otherwise specified,
all capital ratios referenced in this news release refer to State
Street Corporation and not State Street Bank and Trust Company.
Refer to the addendum included with this news release for a further
description of these ratios.
Selected Financial Information and Ratios
The table below provides a summary of selected financial
information and key ratios for the indicated periods, presented on
an operating, or non-GAAP, basis where noted. Amounts are presented
in millions of dollars, except for per-share amounts or where
otherwise noted.
Financial Highlights (Dollars in millions)
Q3 2014
Q2 2014
% Increase(Decrease)
Q3 2013
% Increase(Decrease)
Total revenue1
$ 2,678 $ 2,676 0.1 % $ 2,469 8.5 %
Total expenses1
1,808 1,818 (0.6 ) 1,687 7.2 Net income
available to common shareholders1
581 603 (3.6 ) 537 8.2
Earnings per common share1
1.35 1.39 (2.9 ) 1.19 13.4 Return
on average common equity1
11.4 % 11.9 % (50) bps 11.0
% 40 bps Total assets as of period-end
$ 274,976 $
282,324 (2.6 )% $ 217,180 26.6 % Quarterly average total assets
247,310 234,664 5.4 201,282 22.9 Net interest margin1
1.06 % 1.12 % (6) bps 1.27 % (21) bps Net unrealized
gains (losses) on investment securities, after-tax, as of
period-end
$ 411 $ 456 $ (79 )
1 Presented on an operating basis, a non-GAAP presentation.
Refer to the addendum included with this news release for
explanations of our non-GAAP financial measures and for
reconciliations of our operating-basis financial information.
Assets Under Custody and Administration and Assets
Under Management (Dollars in billions)
Q3 2014 Q2 2014
% Increase(Decrease)
Q3 2013
% Increase(Decrease)
Assets under custody and administration1, 2
$ 28,465
$ 28,400 0.2 % $ 26,033 9.3 % Assets under management2
2,421
2,480 (2.4 ) 2,241 8.0 Market Indices: S&P 500® daily average
1,976 1,900 4.0 1,675 18.0 MSCI EAFE® daily average
1,924 1,942 (0.9 ) 1,748 10.1 S&P 500® average of
month-end
1,969 1,923 2.4 1,667 18.1 MSCI EAFE® average of
month-end
1,901 1,955 (2.8 ) 1,747 8.8
1 Includes assets under custody of $21,707 billion, $21,687
billion and $19,206 billion, as of September 30, 2014,
June 30, 2014 and September 30, 2013, respectively.
2 As of period-end.
Revenue1
The following table provides the components of our
operating-basis (non-GAAP) revenue1 for the periods noted:
(Dollars in
millions)
Q3 2014 Q2 2014
% Increase(Decrease)
Q3 2013
% Increase(Decrease)
Servicing fees
$ 1,302 $ 1,288 1.1 % $ 1,211 7.5 %
Management fees
316 300 5.3 276 14.5 Trading services
revenue: Foreign-exchange trading
161 144 11.8 147 9.5
Brokerage and other fees2
117 116 0.9
118 (0.8 ) Total trading services revenue
278 260 6.9
265 4.9 Securities finance revenue
99 147 (32.7 ) 74 33.8
Processing fees and other revenue1, 2, 3
103 108
(4.6 ) 94 9.6 Total fee revenue1, 2, 3
2,098 2,103 (0.2 ) 1,920 9.3 Net interest revenue1, 4
580 575 0.9 553 4.9 Gains (losses) related to investment
securities, net
— (2 ) (100.0 ) (4 ) (100.0 )
Total Operating-Basis Revenue1 $ 2,678
$ 2,676 0.1 % $ 2,469 8.5 %
1 Presented on an operating basis, a non-GAAP presentation.
Refer to the addendum included with this news release for
explanations of our non-GAAP financial measures and for
reconciliations of our operating-basis financial information.
2 Brokerage and other fees for the third quarter of 2014 and
second quarter of 2014 reflect the reclassification of revenue
associated with currency management from processing fees and other
revenue. Brokerage and other fees and processing fees and other
revenue previously reported for the third quarter of 2013 have been
adjusted for comparative purposes.
3 Processing fees and other revenue for the third quarter of
2014, second quarter of 2014 and third quarter of 2013, presented
in the table, included tax-equivalent adjustments of $86 million,
$64 million and $37 million, respectively, related to tax credits
generated by tax-advantaged investments. GAAP-basis processing fees
and other revenue for these periods was $17 million, $44 million
and $57 million, respectively.
4 Net interest revenue for the third quarter of 2014, second
quarter of 2014 and third quarter of 2013, presented in the table,
included tax-equivalent adjustments of $43 million, $42 million and
$35 million, respectively, and excluded conduit-related discount
accretion of $33 million, $28 million and $28 million,
respectively. GAAP-basis net interest revenue for these periods was
$570 million, $561 million and $546 million, respectively. The
Company expects to record aggregate pre-tax conduit-related
accretion of approximately $427 million in interest revenue from
October 1, 2014 through the remaining lives of the former conduit
securities. This expectation is based on numerous assumptions,
including holding the securities to maturity, anticipated
pre-payment speeds and credit quality.
Servicing fees of $1.30 billion in the third quarter of
2014 increased 1.1% from the second quarter of 2014, primarily due
to net new business and stronger global equity markets, partially
offset by the impact of the stronger U.S. dollar. Compared to the
third quarter of 2013, servicing fees increased 7.5%, primarily due
to stronger global equity markets and net new business.
Management fees of $316 million in the third quarter of
2014 increased 5.3% from the second quarter of 2014, primarily due
to net new business, higher performance fees, and stronger global
equity markets. Compared to the third quarter of 2013, management
fees increased 14.5%, primarily due to stronger global equity
markets, net new business, and higher performance fees.
Foreign-exchange trading revenue of $161 million
increased 11.8% from the second quarter of 2014, due to higher
volumes and volatility. Compared to the third quarter of 2013,
foreign-exchange trading revenue increased 9.5%, due to higher
volumes, partially offset by lower volatility. Brokerage and
other fees of $117 million in the third quarter of 2014 were
relatively flat with the second quarter of 2014 and the third
quarter of 2013.
Securities finance revenue of $99 million in the third
quarter of 2014 decreased 32.7% from the second quarter of 2014,
primarily due to second-quarter seasonality. Compared to the third
quarter of 2013, securities finance revenue increased 33.8%,
primarily due to higher volumes.
Processing fees and other revenue of $103 million in the
third quarter of 2014 decreased 4.6% from the second quarter of
2014. Compared to the third quarter of 2013, processing fees and
other revenue increased 9.6%, primarily due to higher revenue
associated with tax-advantaged investments and other fees,
partially offset by valuation adjustments. See notes 1, 2 and 3 to
the table above for a description of the presentation of
operating-basis processing fees and other revenue.
Net interest revenue of $580 million in the third quarter
of 2014 increased 0.9% from the second quarter of 2014. Compared to
the third quarter of 2013, net interest revenue increased 4.9%,
primarily due to a higher level of interest-earning assets,
partially offset by lower yields on interest-earning assets. See
notes 1 and 4 to the table above for a description of the
presentation of operating-basis net interest revenue.
Net interest margin, including balances held at the
Federal Reserve and other central banks, decreased to 106 basis
points in the third quarter of 2014 from 112 basis points in the
second quarter of 2014 and from 127 basis points in the third
quarter of 2013. Refer to the addendum included with this news
release for reconciliations of our net interest margin.
Expenses1
The following table provides the components of our
operating-basis (non-GAAP)1 expenses for the periods noted:
(Dollars in
millions)
Q3 2014 Q2 2014
% Increase(Decrease)
Q3 2013
% Increase(Decrease)
Compensation and employee benefits1, 2
$ 955 $ 974
(2.0 )% $ 903 5.8 % Information systems and communications
242 244 (0.8 ) 235 3.0 Transaction processing services
199 193 3.1 185 7.6 Occupancy
119 115 3.5 113 5.3
Other1, 3
293 292 0.3 251 16.7
Total Operating-Basis Expenses1 $
1,808 $ 1,818 (0.6 )% $ 1,687 7.2 %
1 Presented on an operating basis, a non-GAAP presentation.
Refer to the addendum included with this news release for
explanations of our non-GAAP financial measures and for
reconciliations of our operating-basis financial information.
2 Compensation and employee benefits expenses for the third
quarter of 2014 and the second quarter of 2014, presented in the
table, excluded severance cost credit adjustments of $2 million and
severance costs of $4 million, respectively, related to staffing
realignment. GAAP-basis compensation and employee benefits expenses
for the third quarter of 2014, second quarter of 2014 and third
quarter of 2013 were $953 million, $978 million and $903 million,
respectively.
3 GAAP-basis other expenses for the third quarter of 2014,
second quarter of 2014 and third quarter of 2013 were $359 million,
$292 million and $256 million, respectively.
Compensation and employee benefits expenses of $955
million in the third quarter of 2014 decreased 2.0% from the second
quarter of 2014, primarily due to the impact of a stronger U.S.
dollar and lower incentive compensation costs. Compared to the
third quarter of 2013, compensation and employee benefits expenses
increased 5.8%, primarily due to new business support, lower
employee benefit expense recorded in the third quarter of 2013
resulting from plan changes, and higher regulatory compliance
costs, partially offset by savings associated with Business
Operations and Information Technology Transformation program. See
notes 1 and 2 to the table above for a description of the
presentation of operating-basis compensation and employee benefits
expenses for the relevant periods.
Information systems and communications expenses decreased
0.8% compared with the second quarter of 2014 and increased 3.0%
compared to the third quarter of 2013.
Transaction processing services expenses of $199
million in the third quarter of 2014 increased 3.1% and 7.6% from
the second quarter of 2014 and the third quarter of 2013,
respectively. The increase over both periods is primarily due to
higher equity values and higher volumes in the investment servicing
business.
Occupancy expenses of $119 million in the third quarter
of 2014 increased 3.5% from the second quarter of 2014, primarily
due to a one-time recovery of $5 million recorded in the second
quarter of 2014. Compared to the third quarter of 2013, occupancy
expenses increased 5.3%.
Other expenses of $293 million in the third quarter of
2014 increased 0.3% from the second quarter of 2014. Compared to
the third quarter of 2013, other expenses increased 16.7%,
primarily due to Lehman Brothers-related gains and recoveries
recorded in the third quarter of 2013. See notes 1 and 3 to the
table above for a description of GAAP-basis other expenses for the
relevant periods.
Income Taxes
Our third-quarter 2014 GAAP-basis effective tax rate was 18.6%,
up from 16.6% in the second quarter of 2014 and down from 23.2% in
the third quarter of 2013. Our third-quarter 2014 operating-basis
tax rate was 31.0%, up from 27.2% in the second quarter of 2014 and
from 30.2% in the third quarter of 2013.
Capital
In July 2013, the Federal Reserve issued a final rule intended
to implement the Basel III framework in the U.S., referred to as
the Basel III final rule. Provisions of the Basel III final rule
become effective under a transition timetable which began on
January 1, 2014. On February 21, 2014, we were notified by the
Federal Reserve that we completed our Basel III qualification
period and would be required to begin using the advanced approaches
framework provided in the Basel III final rule in the determination
of our risk-based capital requirements. Pursuant to this
notification, we have used the advanced approaches framework to
calculate our regulatory capital ratios beginning with the second
quarter of 2014.
For the remainder of 2014, including the third quarter of 2014,
the lower of our regulatory capital ratios calculated under the
Basel III advanced approaches and those ratios calculated under the
transitional provisions of Basel III will apply in the assessment
of our capital adequacy for regulatory purposes. Once the
provisions of the Basel III final rule are fully implemented
effective January 1, 2015, the lower of the Basel III regulatory
capital ratios calculated by us under the Basel III advanced
approaches and the Basel III standardized approach will apply in
the assessment of our capital adequacy for regulatory purposes.
The following table presents our regulatory capital ratios as of
September 30, 2014 and June 30, 2014. Refer to notes 1, 2 and
3 following the table for an explanation of the methodology as of
those dates. Refer to the addendum included with this news release
for a further description of these ratios, and for a reconciliation
applicable to State Street's tangible common equity, or TCE, ratio
presented in the table. All capital ratios presented in the table
and elsewhere in this news release refer to State Street
Corporation and not State Street Bank and Trust Company.
Capital ratios
Basel
IIIAdvancedApproachSeptember
30,20141
Basel
IIITransitionalSeptember
30,20142
Basel IIIAdvancedApproachJune 30,20141
Basel IIITransitionalJune 30,20142
Total capital ratio
16.2 % 19.1 % 16.1
% 20.2 % Tier 1 capital ratio
14.2 16.7 14.1 17.7
Tier 1 common ratio
12.7 15.0 12.8 16.0 Tier 1
leverage ratio
6.4
6.4 6.9
6.9 TCE ratio3
6.6 7.0
1 Total capital, tier 1 capital, tier 1 common and tier 1
leverage ratios as of September 30, 2014 and as of
June 30, 2014 were calculated in conformity with the advanced
approaches provisions of the Basel III final rule.
2 Total capital, tier 1 capital, tier 1 common and tier 1
leverage ratios as of September 30, 2014 and as of
June 30, 2014 were calculated in conformity with the
transitional provisions of the Basel III final rule. Specifically,
these ratios reflect total and tier 1 capital, as applicable (the
numerator), calculated in conformity with the provisions of the
Basel III final rule and total risk-weighted assets or, with
respect to the tier 1 leverage ratio, quarterly average assets (in
both cases, the denominator), calculated in conformity with the
provisions of Basel I.
3 The tangible common equity, or TCE, ratio is an additional
capital ratio that management believes provides context useful in
understanding and assessing State Street's capital adequacy. The
TCE ratio is not required by GAAP or by banking regulations, but is
a metric used by management to evaluate the adequacy of State
Street’s capital levels. The TCE ratio is a non-GAAP financial
measure and should be considered in addition to, not as a
substitute for or superior to, financial measures determined in
accordance with GAAP. Reconciliations with respect to the
calculations of our TCE ratios as of September 30, 2014 and
June 30, 2014 are provided in the addendum included with this
news release.
Our tier 1 common ratios as of September 30, 2014 and
June 30, 2014, calculated in conformity with the advanced
approaches provisions of the Basel III final rule, were 12.7% and
12.8%, respectively. Our estimated pro forma Basel III tier 1
common ratio, calculated in conformity with the advanced approaches
provisions of the Basel III final rule, was 11.3% as of
September 30, 2013. Our estimated pro forma Basel III tier 1
common ratios, calculated in conformity with the standardized
approach in the Basel III final rule, were 10.9% as of September
30, 2014, 11.3% as of June 30, 2014 and 10.2% as of
September 30, 2013. Our estimated pro forma tier 1 common
ratios are preliminary estimates, calculated in conformity with the
advanced approaches or the standardized approach (as the case may
be) in the Basel III final rule, based on our interpretations of
the Basel III final rule as of the respective date of each
estimate’s first public announcement.
The advanced approaches ratios (actual and estimated) presented
in this news release reflect calculations and determinations with
respect to our capital and related matters, based on State Street
and external data, quantitative formulae, statistical models,
historical correlations and assumptions, collectively referred to
as “advanced systems,” in effect and used by us for those purposes
as of the respective date of each ratio’s first public
announcement. Significant components of these advanced systems
involve the exercise of judgment by us and our regulators, and
these advanced systems may not accurately represent or calculate
the scenarios, circumstances, outputs or other results for which
they are designed or intended. Due to the influence of changes in
these advanced systems, whether resulting from changes in data
inputs, regulation or regulatory supervision or interpretation,
State Street-specific or market activities or experiences or other
updates or factors, we expect that our advanced systems and our
capital ratios calculated in conformity with the Basel III
framework will change and may be volatile over time, and that those
latter changes or volatility could be material as calculated and
measured from period to period.
Refer to the addendum included with this news release for
information concerning our estimated pro forma Basel III tier 1
common ratios calculated under the advanced and standardized
approaches, and for reconciliations of these estimated pro forma
ratios to our tier 1 common ratio calculated under then currently
applicable regulatory requirements.
Additional Information
All earnings per share amounts represent fully diluted earnings
per common share. Return on average common shareholders' equity is
determined by dividing annualized net income available to common
equity by average common shareholders' equity for the period.
Operating-basis return on average common equity utilizes annualized
operating-basis net income available to common equity in the
calculation.
Investor Conference Call and Quarterly
Website Disclosures
State Street will webcast an investor conference call today,
Friday, October 24, 2014, at 9:30 a.m. EDT, available at
www.statestreet.com/stockholder. The conference call will also be
available via telephone, at +1 877-423-4013 inside the U.S. or at
+1 706-679-5594 outside of the U.S. The Conference ID is #
88300396.
Recorded replays of the conference call will be available on the
website, and by telephone at +1 855-859-2056 inside the U.S. or at
+1 404-537-3406 outside the U.S. beginning approximately two hours
after the call's completion. The Conference ID is # 88300396.
The telephone replay will be available for approximately two
weeks following the conference call. This news release,
presentation materials referred to on the conference call
(including those concerning our investment portfolio), and
additional financial information are available on State Street's
website, at www.statestreet.com/stockholder under “Investor
Relations--Investor News & Events" and under the title “Events
and Presentations.”
State Street intends to publish updates to its public disclosure
regarding regulatory capital, as required by the Basel III final
rule, on a quarterly basis on its website at
www.statestreet.com/stockholder, under "Filings & Reports."
Those updates will be published each quarter, during the period
beginning after State Street's public announcement of its quarterly
results of operations and ending on or prior to the due date under
applicable bank regulatory requirements (i.e., ordinarily, ending
no later than 60 days following year-end or 45 days following each
other quarter-end, as applicable). For the third quarter of 2014,
State Street expects to publish its updates during the period
beginning today and ending on November 14, 2014.
State Street Corporation (NYSE: STT) is the world's leading
provider of financial services to institutional investors including
investment servicing, investment management and investment research
and trading. With $28.47 trillion in assets under custody and
administration and $2.42 trillion* in assets under management as of
September 30, 2014, State Street operates globally in more
than 100 geographic markets and employs 29,510 worldwide. For more
information, visit State Street's website at www.statestreet.com or
call +1 877-639-7788 [NEWS STT] toll-free in the United States and
Canada, or +1 678-999-4577 outside those countries.
* Assets under management include the assets of the SPDR® Gold
ETF (approximately $30 billion as of September 30, 2014), for
which State Street Global Markets, LLC, an affiliate of SSgA,
serves as the distribution agent.
Forward-Looking
Statements
This news release contains forward-looking statements as defined
by United States securities laws, including statements relating to
our goals and expectations regarding our business, financial and
capital condition, results of operations, investment portfolio
performance and strategies, the financial and market outlook,
dividend and stock purchase programs, governmental and regulatory
initiatives and developments, and the business environment.
Forward-looking statements are often, but not always, identified by
such forward-looking terminology as “expect,” “objective,”
“intend,” “plan,” “forecast,” “outlook,” “believe,” “anticipate,”
“estimate,” “seek,” “may,” “will,” “trend,” “target,” “strategy”
and “goal,” or similar statements or variations of such terms.
These statements are not guarantees of future performance, are
inherently uncertain, are based on current assumptions that are
difficult to predict and involve a number of risks and
uncertainties. Therefore, actual outcomes and results may differ
materially from what is expressed in those statements, and those
statements should not be relied upon as representing our
expectations or beliefs as of any date subsequent to
October 24, 2014.
In particular, in this news release, we announced a $53 million
net after-tax third-quarter 2014 charge (due to a $70 million
pre-tax legal accrual recorded in that quarter) reflecting our
intention to seek to resolve some, but not all, of the outstanding
and potential claims arising out of our indirect FX client
activities. We have reported on these matters in our previous
public filings with the SEC. With respect to that legal accrual:
(1) we are engaged in discussions with some, but not all, of the
governmental agencies and civil litigants that we have described in
connection with these matters regarding potential settlements of
their outstanding or potential claims; (2) there can be no
assurance that we will reach a settlement in any of these matters,
that the cost of such settlements would not materially exceed such
accrual, or that other claims will not be asserted; and (3) we do
not currently intend to seek to negotiate settlements with respect
to all outstanding and potential claims, and our current efforts,
even if successful, will address only a portion of our potential
material legal exposure arising out of our indirect FX client
activities.
Important factors that may also affect future results and
outcomes include, but are not limited to:
- the financial strength and continuing
viability of the counterparties with which we or our clients do
business and to which we have investment, credit or financial
exposure, including, for example, the direct and indirect effects
on counterparties of the sovereign-debt risks in the U.S., Europe
and other regions;
- increases in the volatility of, or
declines in the level of, our net interest revenue, changes in the
composition or valuation of the assets recorded in our consolidated
statement of condition (and our ability to measure the fair value
of investment securities) and the possibility that we may change
the manner in which we fund those assets;
- the liquidity of the U.S. and
international securities markets, particularly the markets for
fixed-income securities and inter-bank credits, and the liquidity
requirements of our clients;
- the level and volatility of interest
rates and the performance and volatility of securities, credit,
currency and other markets in the U.S. and internationally;
- the credit quality, credit-agency
ratings and fair values of the securities in our investment
securities portfolio, a deterioration or downgrade of which could
lead to other-than-temporary impairment of the respective
securities and the recognition of an impairment loss in our
consolidated statement of income;
- our ability to attract deposits and
other low-cost, short-term funding, and our ability to deploy
deposits in a profitable manner consistent with our liquidity
requirements and risk profile;
- the manner and timing with which the
Federal Reserve and other U.S. and foreign regulators implement the
Dodd-Frank Act changes to the Basel III capital framework and
European legislation, such as the Alternative Investment Fund
Managers Directive and Undertakings for Collective Investment in
Transferable Securities Directives, with respect to the levels of
regulatory capital we must maintain, our credit exposure to third
parties, margin requirements applicable to derivatives, banking and
financial activities and other regulatory initiatives in the U.S.
and internationally, including regulatory developments that result
in changes to our structure or operating model, increased costs or
other changes to how we provide services;
- adverse changes in the regulatory
capital ratios that we are required or will be required to meet,
whether arising under the Dodd-Frank Act or the Basel III capital
and liquidity standards, or due to changes in regulatory positions,
practices or regulations in jurisdictions in which we engage in
banking activities, including changes in internal or external data,
formulae, models, assumptions or other advanced systems used in the
calculation of our capital ratios that cause changes in those
ratios as they are measured from period to period;
- increasing requirements to obtain the
prior approval of the Federal Reserve or our other regulators for
the use, allocation or distribution of our capital or other
specific capital actions or programs, including acquisitions,
dividends and equity purchases, without which our growth plans,
distributions to shareholders, equity purchase programs or other
capital initiatives may be restricted;
- changes in law or regulation, or the
enforcement of law or regulation, that may adversely affect our
business activities or those of our clients or our counterparties,
and the products or services that we sell, including additional or
increased taxes or assessments thereon, capital adequacy
requirements, margin requirements and changes that expose us to
risks related to the adequacy of our controls or compliance
programs;
- financial market disruptions or
economic recession, whether in the U.S., Europe, Asia or other
regions;
- our ability to promote a strong culture
of risk management, operating controls, compliance oversight and
governance that meet our expectations and those of our clients and
our regulators;
- the results of, and costs associated
with, government investigations, litigation and similar claims,
disputes, or proceedings;
- delays or difficulties in the execution
of our previously announced Business Operations and Information
Technology Transformation program, which could lead to changes in
our estimates of the charges, expenses or savings associated with
the planned program and may cause volatility of our earnings;
- the potential for losses arising from
our investments in sponsored investment funds;
- the possibility that our clients will
incur substantial losses in investment pools for which we act as
agent, and the possibility of significant reductions in the
liquidity or valuation of assets underlying those pools;
- our ability to anticipate and manage
the level and timing of redemptions and withdrawals from our
collateral pools and other collective investment products;
- the credit agency ratings of our debt
and depository obligations and investor and client perceptions of
our financial strength;
- adverse publicity, whether specific to
State Street or regarding other industry participants or
industry-wide factors, or other reputational harm;
- our ability to control operational
risks, data security breach risks and outsourcing risks, and our
ability to protect our intellectual property rights, the
possibility of errors in the quantitative models we use to manage
our business and the possibility that our controls will prove
insufficient, fail or be circumvented;
- dependencies on information technology
and our ability to control related risks, including cyber-crime and
other threats to our information technology infrastructure and
systems and their effective operation both independently and with
external systems, and complexities and costs of protecting the
security of our systems and data;
- our ability to grow revenue, control
expenses, attract and retain highly skilled people and raise the
capital necessary to achieve our business goals and comply with
regulatory requirements;
- changes or potential changes to the
competitive environment, including changes due to regulatory and
technological changes, the effects of industry consolidation and
perceptions of State Street as a suitable service provider or
counterparty;
- changes or potential changes in how and
in what amounts clients compensate us for our services, and the mix
of services provided by us that clients choose;
- our ability to complete acquisitions,
joint ventures and divestitures, including the ability to obtain
regulatory approvals, the ability to arrange financing as required
and the ability to satisfy closing conditions;
- the risks that our acquired businesses
and joint ventures will not achieve their anticipated financial and
operational benefits or will not be integrated successfully, or
that the integration will take longer than anticipated, that
expected synergies will not be achieved or unexpected negative
synergies will be experienced, that client and deposit retention
goals will not be met, that other regulatory or operational
challenges will be experienced, and that disruptions from the
transaction will harm our relationships with our clients, our
employees or regulators;
- our ability to recognize emerging needs
of our clients and to develop products that are responsive to such
trends and profitable to us, the performance of and demand for the
products and services we offer, and the potential for new products
and services to impose additional costs on us and expose us to
increased operational risk;
- changes in accounting standards and
practices; and
- changes in tax legislation and in the
interpretation of existing tax laws by U.S. and non-U.S. tax
authorities that affect the amount of taxes due.
Other important factors that could cause actual results to
differ materially from those indicated by any forward-looking
statements are set forth in our 2013 Annual Report on Form 10-K and
our subsequent SEC filings. We encourage investors to read these
filings, particularly the sections on risk factors, for additional
information with respect to any forward-looking statements and
prior to making any investment decision. The forward-looking
statements contained in this news release speak only as of the date
hereof, October 24, 2014, and we do not undertake efforts to
revise those forward-looking statements to reflect events after
that date.
State Street CorporationInvestor Contact:Anthony Ostler, +1
617/664-3477orMedia Contact:Hannah Grove, +1 617/664-3377
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