Fourth-quarter 2014
operating-basis1 EPS was $1.37, up 19.1%, on revenue
of $2.7 billion, up 7.8%, compared to the fourth quarter of
2013
Full-year 2014 operating-basis EPS was
$5.09, up 12.1%, on revenue of $10.6 billion, up 5.9%, compared to
full-year 2013
In announcing today's financial results, Joseph L. Hooley, State
Street's chairman and chief executive officer said, "Our
fourth-quarter and full-year 2014 results reflect strength across
our asset servicing and asset management businesses. Despite the
low interest rate environment in 2014, our revenue experienced
solid growth compared to 2013 from both asset servicing and asset
management. As a result, operating-basis total fee revenue for 2014
exceeded 2013 by 7.4 percent. Our focus on developing and
delivering solutions to serve our clients' evolving needs continues
to position us well against strong global growth trends. As a
result of this we achieved new asset servicing commitments in 2014
of $1.1 trillion, including approximately $400 billion in the
fourth quarter of 2014, and 2014 net new assets to be managed of
approximately $28 billion, including approximately $7 billion in
the fourth quarter of 2014.
Hooley continued, "We are pleased we completed our Business
Operations and Information Technology Transformation program at the
end of 2014 as planned and I want to acknowledge the efforts of the
entire State Street team for helping us complete this important
initiative. Managing expenses and continuing to drive efficiencies
remain ongoing priorities, despite continued pressure from
regulatory costs."
Hooley concluded, "We recently submitted our 2015 capital plan
for review to the Federal Reserve and continue to emphasize the
return of capital to shareholders through dividends and our common
stock purchase program. We purchased approximately $410 million of
our common stock during the fourth quarter, and $1.23 billion since
April 1, 2014, under our current $1.7 billion common stock purchase
program, which is effective through March 2015."
Fourth-Quarter 2014 GAAP-Basis Results:
- Earnings per common share (EPS)
of $1.24 decreased from $1.26 in the third quarter of 2014 and
increased from $1.22 in the fourth quarter of 2013. Fourth-quarter
2014 results include a net after-tax charge of $40 million, or
$0.10 per share, to increase our legal accrual associated with
indirect foreign exchange matters. Fourth-quarter 2014 results also
include a net after-tax restructuring charge of $27 million, or
$0.06 per share, related to the completion of the Business
Operations and Information Technology Transformation program.
- Net income available to common
shareholders of $525 million decreased from $542 million in the
third quarter of 2014 and from $545 million in the fourth quarter
of 2013.
- Revenue of $2.63 billion
increased from $2.58 billion in the third quarter of 2014 and from
$2.46 billion in the fourth quarter of 2013.
- Net interest revenue of $574
million increased from $570 million in the third quarter of 2014
and decreased from $585 million in the fourth quarter of 2013.
- Provision for loan losses of $4
million increased from $2 million in the third quarter of 2014 and
decreased from $6 million in the fourth quarter of 2013.
- Expenses of $1.99 billion
increased from $1.89 billion in the third quarter of 2014 and from
$1.85 billion in the fourth quarter of 2013.
- Return on average common
shareholders' equity (ROE) of 10.4% decreased from 10.6% in the
third quarter of 2014 and from 10.9% in the fourth quarter of
2013.
Full-Year 2014 GAAP-Basis Results:
- EPS of $4.69 increased 1.5% from
$4.62 in 2013. Revenue increased 4.2% to $10.3 billion from
$9.88 billion in 2013. Expenses increased 7.9% to $7.76
billion from $7.19 billion in 2013. ROE decreased to 10.1%
in 2014 from 10.5% in 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 select fourth-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
toCommonShareholders
Earnings
PerCommonShare
GAAP basis
$
634
$ 525 $ 1.24 Tax-equivalent adjustments
Tax-advantaged investments (processing fees and other revenue)
81 Tax-exempt investment securities (net interest revenue)
44 Total
125 Non-operating adjustments
Discount accretion associated with former conduit securities (net
interest revenue)
(31 ) (19 )
(.04 ) Severance costs associated with staffing
realignment (compensation and employee benefits expenses)
10
7 .01 Provisions for other litigation exposure and
other costs, net (other expenses)
50 40 .10
Acquisition costs (expenses)
10 7 .01
Restructuring charges, net (expenses)
42 27
.06 Effect on income tax of non-operating adjustments
— (5 ) (.01 ) Total
81 57 .13 Operating basis
$ 840 $ 582 $
1.37
Fourth-Quarter 2014 Operating-Basis (Non-GAAP)
Results:1
- EPS of $1.37 increased from
$1.35 in the third quarter of 2014 and from $1.15 in the fourth
quarter of 2013.
- Net income available to common
shareholders of $582 million increased from $581 million in the
third quarter of 2014 and from $514 million in the fourth quarter
of 2013.
- Revenue of $2.72 billion
increased from $2.68 billion in the third quarter of 2014 and from
$2.53 billion in the fourth quarter of 2013.
- Net interest revenue of $587
million increased from $580 million in the third quarter of 2014
and decreased from $596 million in the fourth quarter of 2013.
Operating-basis net interest revenue excluded discount accretion on
former conduit securities of $31 million, $33 million and $31
million for the fourth quarter of 2014, the third quarter of 2014,
and the fourth quarter of 2013, respectively. Operating-basis net
interest revenue for all quarters is presented on a fully
taxable-equivalent basis.
- Expenses of $1.88 billion
increased from $1.81 billion in the third quarter of 2014 and from
$1.76 billion in the fourth quarter of 2013.
- ROE of 11.6% increased from
11.4% in the third quarter of 2014 and from 10.3% in the fourth
quarter of 2013.
Full-Year 2014 Operating-Basis (Non-GAAP)
Results:1
- EPS of $5.09 increased 12.1%
from $4.54 in 2013. Revenue increased 5.87% to $10.64
billion from $10.05 billion in 2013. Expenses increased
5.86% to $7.42 billion from $7.01 billion in 2013. ROE
increased to 10.9% in 2014 from 10.3% in 2013.
Fourth-Quarter 2014 and Full-Year 2014
Highlights:1
- New business2: New
asset servicing mandates during full-year and fourth quarter of
2014 totaled $1.1 trillion and approximately $400 billion,
respectively. Net new assets to be managed during full-year and
fourth quarter of 2014 were approximately $28 billion and
approximately $7 billion, respectively.
- Completed Business Operations and
Information Technology Transformation program3 at the
end of 2014, achieving greater than $625 million of total
annualized pre-tax savings with full effect in 2015, based on
projected improvement from our total 2010 expenses from operations,
all else being equal.
- Achieved positive operating
leverage4 of 1 basis point for full-year 2014 compared
to full-year 2013, despite a persistent low interest rate
environment and elevated regulatory and compliance costs.
- Capital5: Our
common equity tier 1 ratio as of December 31, 2014, calculated
under the advanced approaches in conformity with the Basel III
final rule, was 12.5%. Our estimated pro forma Basel III common
equity tier 1 ratio as of December 31, 2014, calculated under
the standardized approach in conformity with the Basel III final
rule, was 10.8%. On a fully phased-in basis, our estimated pro
forma Basel III common equity tier 1 ratio as of December 31,
2014, calculated under the advanced approaches in conformity with
the Basel III final rule, was 11.6%. On a fully phased-in basis,
our estimated pro-forma Basel III common equity tier 1 ratio as of
December 31, 2014, calculated under the standardized approach
in conformity with the Basel III final rule, was 10.0%.
- Return of capital to
shareholders: Purchased approximately $410 million of our
common stock at an average price of $73.71 per share and declared a
quarterly common stock dividend of $0.30 per share in the fourth
quarter of 2014. During full-year 2014, we purchased approximately
23.7 million shares of our common stock at a total cost of
approximately $1.65 billion and an average price of $69.48 per
share. We have approximately $470 million remaining at year end
under the $1.7 billion March 2014 common stock purchase program,
which extends through March 31, 2015.
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 December 31, 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, with the full
effect to be realized in 2015. Our actual total expenses have
increased since 2010, and may increase or decrease in the future,
due to other factors.
4 Operating leverage is defined as the rate of growth of total
revenue less the rate of growth of total expenses, each as
determined on an operating basis. Operating leverage presenting the
fourth quarter of 2014 in relation to each of the third quarter of
2014 and the fourth quarter of 2013 is set forth in the addendum
included with this news release.
5 In 2014, we announced that we had completed our Basel III
qualification period. As a result, beginning with the second
quarter of 2014, we have calculated and disclosed our regulatory
capital ratios under the advanced approaches framework of the Basel
III final rule. Our estimated pro forma Basel III common equity
tier 1 ratio, calculated under the standardized approach, is an
estimate, calculated in conformity with the Basel III final rule.
Our estimated pro forma fully phased-in Basel III common equity
tier 1 ratio calculated under the Basel III advanced approaches and
our estimated pro forma fully phased-in Basel III common equity
tier 1 ratio calculated in conformity with the standardized
approach in the Basel III final rule (in each case, fully phased in
as of January 1, 2019, as per Basel III phase-in requirements for
capital) are preliminary estimates based on our interpretations of
the Basel III final rule as applied to our current businesses and
operations as currently conducted. Refer to the “Capital” section
of this news release for important information about the Basel III
final rule, our calculations of our common equity tier 1 ratios
thereunder, factors that could influence State Street's
calculations of its common equity tier 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)
Q4 2014 Q3 2014
% Increase(Decrease)
Q4 2013
% Increase(Decrease)
Total revenue1
$ 2,724 $ 2,678 1.7 % $ 2,528 7.8 %
Total expenses1
1,880 1,808 4.0 1,760 6.8 Net income
available to common shareholders1
582 581 0.2 514 13.2
Earnings per common share1
1.37 1.35 1.5 1.15 19.1 Return on
average common equity1
11.6 % 11.4 % 20 bps 10.3 %
130 bps Total assets as of period-end
$
274,119 $ 274,805
(0.2)
%
$ 243,291 12.7 % Quarterly average total assets
254,439
247,310 2.9 210,915 20.6 Net interest margin1
1.04 %
1.06 % (2) bps 1.30 % (26) bps Net unrealized gains (losses) on
investment securities, after-tax, as of period-end
$
487 $ 411 $ (213 )
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)
Q4 2014
Q3 2014
% Increase(Decrease)
Q4 2013
% Increase(Decrease)
Assets under custody and administration1, 2
$ 28,188
$ 28,465 (1.0 )% $ 27,427 2.8 % Assets under management2
2,448 2,421 1.1 2,345 4.4
Market Indices3:
S&P 500® daily average
2,009 1,976 1.7 1,769 13.6 MSCI
EAFE® daily average
1,795 1,924 (6.7 ) 1,860 (3.5 ) S&P
500® average of month-end
2,048 1,969 4.0 1,804 13.5 MSCI
EAFE® average of month-end
1,811 1,901 (4.7 ) 1,894 (4.4 )
1 Includes assets under custody of $21,656 billion, $21,707
billion and $20,411 billion, as of December 31, 2014,
September 30, 2014 and December 31, 2013,
respectively.
2 As of period-end.
3 The index names listed in the table are service marks of their
respective owners.
The following table presents fourth-quarter 2014 activity in
assets under management, by product category.
Assets Under Management
(In billions) Equity
Fixed-Income
Cash
Multi-Asset-ClassSolutions
AlternativeInvestments
Total Balance as of September 30, 2014
$ 1,411 $ 338 $ 410 $ 138 $ 124 $ 2,421 Long-term institutional
inflows1
86 20 — 7 4 117
Long-term institutional outflows1
(81 ) (45
) — (8 ) (3 )
(137 ) Long-term institutional flows, net
5
(25 ) — (1 ) 1 (20
) ETF flows, net
37 1 — —
(2 ) 36 Cash fund flows, net
—
— (9 ) — —
(9 ) Total flows, net
42 (24 )
(9 ) (1 ) (1 ) 7
Market appreciation2
39 14 — (8
) 9 54 Foreign exchange impact2
(17
) (9 ) (2 ) (2 )
(4 ) (34 ) Total market/foreign
exchange impact
22 5 (2 )
(10 ) 5 20 Balance as of
December 31, 2014
$ 1,475 $ 319
$ 399 $ 127
$ 128 $ 2,448
1 Amounts represent long-term portfolios, excluding ETFs.2
Amounts represent aggregate impact on each product category for the
period.
Revenue1
The following table provides the components of our
operating-basis (non-GAAP) revenue1 for the periods noted:
(Dollars in millions)
Q4 2014
Q3 2014
% Increase(Decrease)
Q4 2013
% Increase(Decrease)
Servicing fees
$ 1,301 $ 1,302 (0.1 )% $ 1,232 5.6 %
Management fees
299 316 (5.4 ) 290 3.1 Trading services
revenue: Foreign exchange trading
168 161 4.3 125 34.4
Brokerage and other fees2
125 117 6.8
111 12.6 Total trading services revenue
293
278 5.4 236 24.2 Securities finance revenue
106 99 7.1 76
39.5 Processing fees and other revenue1, 2, 3
138 103
34.0 98 40.8 Total fee revenue1, 2, 3
2,137 2,098 1.9 1,932 10.6 Net interest revenue1, 4
587 580 1.2 596 (1.5 ) Gains (losses) related to investment
securities, net
— — nm — nm
Total
Operating-Basis Revenue1 $ 2,724 $
2,678 1.7 % $ 2,528 7.8 %
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 fourth quarter of 2014 and
third 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 fourth quarter of 2013 have
been adjusted for comparative purposes.
3 Processing fees and other revenue for the fourth quarter of
2014, third quarter of 2014 and fourth quarter of 2013, presented
in the table, included tax-equivalent adjustments of $81 million,
$86 million and $53 million, respectively, related to tax credits
generated by tax-advantaged investments. GAAP-basis processing fees
and other revenue for these periods was $57 million, $17 million
and $45 million, respectively.
4 Net interest revenue for the fourth quarter of 2014, third
quarter of 2014 and fourth quarter of 2013, presented in the table,
included tax-equivalent adjustments of $44 million, $43 million and
$42 million, respectively, and excluded conduit-related discount
accretion of $31 million, $33 million and $31 million,
respectively. GAAP-basis net interest revenue for these periods was
$574 million, $570 million and $585 million, respectively.
nm Not meaningful.
Servicing fees of $1.30 billion in the fourth quarter of
2014 decreased slightly from the third quarter of 2014, primarily
due to the impact of the stronger U.S. dollar and partially offset
by net new business. Compared to the fourth quarter of 2013,
servicing fees increased 5.6%, primarily due to net new business
and stronger U.S. equity markets and partially offset by the impact
of the stronger U.S. dollar.
Management fees of $299 million in the fourth quarter of
2014 decreased 5.4% from the third quarter of 2014, primarily due
to the impact of the stronger U.S. dollar, lower performance fees
and lower global equity markets. Compared to the fourth quarter of
2013, management fees increased 3.1%, primarily due to net new
business and stronger U.S. equity markets and partially offset by
the impact of the stronger U.S. dollar.
Foreign exchange trading revenue of $168 million in the
fourth quarter of 2014 increased 4.3% and $43 million, or 34.4%,
from the third quarter of 2014 and the fourth quarter of 2013,
respectively. The increase over both periods was due to higher
volatility and volumes. Brokerage and other fees of $125
million in the fourth quarter of 2014 increased 6.8% from the third
quarter of 2014, primarily due to higher revenue from transition
management. Compared to the fourth quarter of 2013, brokerage and
other fees increased 12.6%, primarily due to higher revenue from
transition and currency management.
Securities finance revenue of $106 million in the fourth
quarter of 2014 increased 7.1% from the third quarter of 2014,
primarily due to higher spreads. Compared to the fourth quarter of
2013, securities finance revenue increased $30 million, or 39.5%,
primarily due to higher spreads and volumes and new business in
enhanced custody.
Processing fees and other revenue of $138 million in the
fourth quarter of 2014 increased $35 million, or 34.0% from the
third quarter of 2014, primarily due to higher equity earnings from
joint ventures and other fees. Compared to the fourth quarter of
2013, processing fees and other revenue increased $40 million, or
40.8%, primarily due to higher equity earnings from joint ventures
and increased revenue associated with tax advantaged investments.
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 $587 million in the fourth
quarter of 2014 increased 1.2% from the third quarter of 2014,
primarily due to $9 million from a one-time accelerated loan
prepayment. Compared to the fourth quarter of 2013, net interest
revenue decreased 1.5%. Excluding $9 million in the fourth quarter
of 2014 from a one-time accelerated loan prepayment and $19 million
in the fourth quarter of 2013 from a municipal security that was
previously impaired, net interest revenue was approximately flat
from fourth quarter of 2013, primarily due to lower yields offset
by higher interest-earning assets.
Operating-basis net interest revenue excludes discount accretion
on former conduit securities and is presented on a fully
taxable-equivalent basis. See notes 1 and 4 to the table above for
a description of the presentation of operating-basis net interest
revenue. The Company expects to record aggregate pre-tax
conduit-related accretion of approximately $387 million in interest
revenue from January 1, 2015 through the remaining lives of the
former conduit securities. This expectation is based on numerous
assumptions, including holding the securities to maturity,
anticipated prepayment speeds and credit quality.
Net interest margin, including balances held at the
Federal Reserve and other central banks, decreased to 104 basis
points in the fourth quarter of 2014 from 106 basis points in the
third quarter of 2014 and from 130 basis points in the fourth
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)
Q4 2014
Q3 2014
% Increase(Decrease)
Q4 2013
% Increase(Decrease)
Compensation and employee benefits1, 2
$ 962 $ 955
0.7 % $ 934 3.0 % Information systems and communications
246
242 1.7 228 7.9 Transaction processing services
201 199 1.0
182 10.4 Occupancy
113 119 (5.0 ) 124 (8.9 ) Other1, 3
358 293 22.2 292 22.6
Total Operating-Basis Expenses1 $ 1,880
$ 1,808 4.0 % $ 1,760 6.8 %
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 fourth
quarter of 2014, third quarter of 2014 and fourth quarter of 2013
presented in the table, excluded severance costs of $10 million,
severance cost credit adjustments of $2 million and severance costs
of $11 million, respectively, related to staffing realignment.
GAAP-basis compensation and employee benefits expenses for the
fourth quarter of 2014, third quarter of 2014 and fourth quarter of
2013 were $972 million, $953 million and $945 million,
respectively.
3 GAAP-basis other expenses for the fourth quarter of 2014,
third quarter of 2014 and fourth quarter of 2013 were $408 million,
$359 million and $337 million, respectively.
Compensation and employee benefits expenses of $962
million in the fourth quarter of 2014 increased 0.7% and 3.0% from
the third quarter of 2014 and fourth quarter of 2013, respectively.
The increase from both periods is primarily due to increased costs
to support new business and regulatory compliance initiatives as
well as higher incentive compensation, partially offset by the
impact of the stronger U.S. dollar.
Information systems and communications expenses of $246
million in the fourth quarter of 2014 increased 1.7% from the third
quarter of 2014. Compared to the fourth quarter of 2013,
information systems and communication expenses increased 7.9%.
Fourth-quarter 2014 information systems and communications expenses
included $6 million related to our withdrawal from derivatives
clearing and execution activities in the fourth quarter of
2014.
Transaction processing services expenses of $201
million in the fourth quarter of 2014 increased 1.0% from the third
quarter of 2014. Compared to the fourth quarter of 2013,
transaction processing expenses increased 10.4%, primarily due to
higher volumes in the investment servicing business.
Occupancy expenses of $113 million in the fourth quarter
of 2014 decreased 5.0% from the third quarter of 2014. Compared to
the fourth quarter of 2013, occupancy expenses decreased 8.9%,
primarily due to the effect of an $8 million charge in the fourth
quarter of 2013 associated with a sublease renegotiation.
Other expenses of $358 million in the fourth quarter of
2014 increased $65 million, or 22.2%, from the third quarter of
2014, primarily due to higher securities processing costs, higher
professional services primarily related to regulatory compliance
initiatives, costs associated with our withdrawal from derivatives
clearing and execution activities in the fourth quarter of 2014,
and a $9 million impairment primarily associated with an intangible
asset. Compared to the fourth quarter of 2013, other expenses
increased $66 million, or 22.6%, primarily due to higher
professional services primarily related to regulatory compliance
initiatives, costs associated with our withdrawal from derivatives
clearing and execution activities in the fourth quarter of 2014, a
$9 million impairment primarily associated with an intangible
asset, and in the fourth quarter of 2013 $28 million of Lehman
Brothers-related gains and recoveries.
Income Taxes
Our fourth-quarter 2014 GAAP-basis effective tax rate was 14.2%,
down from 18.6% in the third quarter of 2014 and up from 9.6% in
the fourth quarter of 2013. Our fourth-quarter 2014 operating-basis
tax rate was 28.5%, down from 31.0% in the third quarter of 2014
and from 31.5% in the fourth quarter of 2013. The decrease in the
operating-basis tax rate from both periods was primarily due to a
net reduction in taxes attributable to foreign operations.
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 fourth 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 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
December 31, 2014 and September 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
IIIAdvancedApproachDecember
31,20141
Basel
IIITransitionalDecember
31,20142
Basel IIIAdvancedApproachSeptember
30,20141
Basel IIITransitionalSeptember
30,20142
Total capital ratio
16.6 % 19.8 % 16.2
% 19.1 % Tier 1 capital ratio
14.7 17.5 14.2 16.7
Common equity tier 1 ratio
12.5 15.0 12.8 15.0 Tier 1
leverage ratio
6.4 6.4
6.4 6.4 TCE ratio3
6.8 6.6
1 Total capital, tier 1 capital, common equity tier 1 and tier 1
leverage ratios as of December 31, 2014 and as of
September 30, 2014 were calculated in conformity with the
advanced approaches provisions of the Basel III final rule.
2 Total capital, tier 1 capital, common equity tier 1 and tier 1
leverage ratios as of December 31, 2014 and as of
September 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 December 31, 2014 and
September 30, 2014 are provided in the addendum included with
this news release.
Our common equity tier 1 ratios as of December 31, 2014 and
September 30, 2014, calculated in conformity with the advanced
approaches provisions of the Basel III final rule, were 12.5% and
12.8%, respectively. Our estimated pro forma Basel III common
equity tier 1 ratio, calculated in conformity with the advanced
approaches provisions of the Basel III final rule, was 11.8% as of
December 31, 2013. Our estimated pro forma Basel III common
equity tier 1 ratios, calculated in conformity with the
standardized approach in the Basel III final rule, were 10.8% as of
December 31, 2014, 10.9% as of September 30, 2014 and
10.1% as of December 31, 2013. On a fully phased-in basis, our
estimated pro forma Basel III common equity tier 1 ratio as of
December 31, 2014, calculated under the advanced approaches in
conformity with the Basel III final rule, was 11.6%. On a fully
phased-in basis, our estimated pro-forma Basel III common equity
tier 1 ratio as of December 31, 2014, calculated under the
standardized approach in conformity with the Basel III final rule,
was 10.0%. Our estimated pro forma common equity tier 1
ratios are preliminary estimates (historical, as of
December 31, 2014 and presented on a fully phased-in basis),
calculated in conformity with the advanced approaches or the
standardized approach (as the case may be, and in each case, fully
phased in as of January 1, 2019, as per Basel III phase-in
requirements for capital) 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 and as applied to
our businesses and operations as of the respective date of such
estimate.
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, individually or collectively,
precisely 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 common
equity tier 1 ratios calculated under the advanced and standardized
approaches, and for reconciliations of these estimated pro forma
ratios to our common equity tier 1 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, January 23, 2015, 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 #
54579745.
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 # 54579745.
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 fourth quarter of 2014,
State Street expects to publish its updates during the period
beginning today and ending on March 2, 2015.
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 $28.19 trillion in assets under custody and
administration and $2.45 trillion* in assets under management as of
December 31, 2014, State Street operates globally in more than
100 geographic markets and employs 29,970 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 $27 billion as of December 31, 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
January 23, 2015.
In particular, in each of the third and fourth quarters of 2014,
we announced charges (due to pre-tax legal accruals recorded in
those quarters) 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 those legal accruals: (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 accruals, 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 not address all
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
changes to the regulatory framework applicable to our operations,
including implementation of the Dodd-Frank Act, 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); among other
consequences, these regulatory changes impact the levels of
regulatory capital we must maintain, acceptable levels of credit
exposure to third parties, margin requirements applicable to
derivatives, and restrictions on banking and financial activities.
In addition, our regulatory posture and related expenses have been
and will continue to be affected by changes in regulatory
expectations for globally systemically important financial
institutions applicable to, among other things, risk management,
capital planning and compliance programs, and changes in
governmental enforcement approaches to perceived failures to comply
with regulatory or legal obligations;
- 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;
- 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 or liabilities 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, January 23, 2015, and we do not undertake efforts to
revise those forward-looking statements to reflect events after
that date.
Photos/Multimedia Gallery Available:
http://www.businesswire.com/multimedia/home/20150123005137/en/
State Street CorporationInvestor Contact:Anthony Ostler, +1
617-664-3477orMedia Contact:Hannah Grove, +1 617-664-3377
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