First-quarter 2015
operating-basis1 EPS was $1.17, up 18.2%, on
revenueof $2.7 billion, up 4.6%, compared to the first
quarter of 2014
As previously disclosed, authorized to
purchase up to $1.8 billion of common stock through June 30,
2016
In announcing today's financial results, Joseph L. Hooley, State
Street's chairman and chief executive officer said, "We are pleased
with our first-quarter 2015 results, which reflect strong fee
revenue growth compared to the first quarter of 2014, continued
momentum of our core business, and our focus on managing expenses.
We continue to benefit from our strong market position and client
demand for our servicing solutions remains robust as evidenced by
$214 billion of new servicing commitments."
Hooley continued, “Our fee revenue growth in the first quarter
was supported by strong foreign exchange trading activity. The
divergence in interest rate expectations for the United States
relative to most other major economies and the actions taken by
several central banks around the world to increase their
quantitative easing has contributed to an increase in volatility
and volumes of foreign exchange trading. The strengthening of the
U.S. dollar during the quarter reduced our fee revenue outside of
the U.S., but the parallel reduction in expenses largely offset
this impact on our bottom line."
Hooley concluded, "We continue to prioritize returning capital
to our shareholders. During the first quarter of 2015, we executed
the final phase of our $1.7 billion common stock purchase program
announced in March 2014. In March 2015, our Board of Directors
approved a $1.8 billion common stock purchase program following the
Federal Reserve's Comprehensive Capital Analysis and Review (CCAR)
2015 process. Our 2015 capital plan also includes a proposed
increase in our quarterly common stock dividend to $0.34 per share
starting in the second quarter of 2015."
First-Quarter 2015 GAAP-Basis Results:
- Earnings per common share (EPS)
of $0.90 decreased from $1.12 in the fourth quarter of 2014 and
increased from $0.81 in the first quarter of 2014. First-quarter
2015 and fourth-quarter 2014 results include net after-tax charges
of $150 million and $92 million, or $0.36 and $0.22 per share,
respectively, to increase our legal accrual associated with
indirect foreign exchange matters.
- Net income available to common
shareholders of $377 million decreased from $473 million in the
fourth quarter of 2014 and increased from $356 million in the first
quarter of 2014.
- Revenue of $2.61 billion
decreased from $2.63 billion in the fourth quarter of 2014 and
increased from $2.49 billion in the first quarter of 2014.
- Net interest revenue of $546
million decreased from $574 million in the fourth quarter of 2014
and from $555 million in the first quarter of 2014.
- Provision for loan losses of $4
million was flat with the fourth quarter of 2014 and increased from
$2 million in the first quarter of 2014.
- Expenses of $2.10 billion
increased from $2.06 billion in the fourth quarter of 2014 and from
$2.03 billion in the first quarter of 2014. First-quarter 2015
pre-tax expenses included an incremental $137 million (down from
$146 million, recorded in the first quarter of 2014), primarily
associated with the seasonal deferred incentive compensation
expense for retirement-eligible employees and payroll taxes.
- Return on average common
shareholders' equity (ROE) of 7.9% decreased from 9.4% in the
fourth quarter of 2014 and increased from 7.2% in the first quarter
of 2014.
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 first-quarter 2015
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)
IncomeBeforeIncome
TaxExpense
Net IncomeAvailable
toCommonShareholders
Earnings
PerCommonShare
GAAP basis
$ 504 $ 377 $
.90 Tax-equivalent adjustments Tax-advantaged investments
(processing fees and other revenue)
53 Tax-exempt investment
securities (net interest revenue)
44 Total
97
Non-operating adjustments Discount accretion associated with former
conduit securities (net interest revenue)
(25 )
(15 ) (.04 ) Severance costs associated
with staffing realignment (compensation and employee benefits
expenses)
(1 ) (1 ) — Provisions
for legal contingencies (other expenses)
150 150
.36 Acquisition costs (expenses)
5 3
.01 Restructuring charges, net (expenses)
1 1
— Effect on income tax of non-operating adjustments
—
(24 ) (.06 ) Total
130
114 .27 Operating basis
$
731 $ 491 $ 1.17
First-Quarter 2015 Operating-Basis (Non-GAAP)
Results1:
- EPS of $1.17 decreased from
$1.37 in the fourth quarter of 2014 and increased from $0.99 in the
first quarter of 2014.
- Net income available to common
shareholders of $491 million decreased from $582 million in the
fourth quarter of 2014 and increased from $433 million in the first
quarter of 2014.
- Revenue of $2.68 billion
decreased from $2.72 billion in the fourth quarter of 2014 and
increased from $2.56 billion in the first quarter of 2014.
- Net interest revenue of $565
million decreased from $587 million in the fourth quarter of 2014
and from $572 million in the first quarter of 2014. Operating-basis
net interest revenue excluded discount accretion on former conduit
securities of $25 million, $31 million and $27 million for the
first quarter of 2015, the fourth quarter of 2014, and the first
quarter of 2014, respectively. Operating-basis net interest revenue
for all quarters is presented on a fully taxable-equivalent
basis.
- Expenses of $1.94 billion
increased from $1.88 billion in the fourth quarter of 2014 and from
$1.92 billion in the first quarter of 2014. First-quarter 2015
pre-tax expenses included an incremental $137 million (down from
$146 million, recorded in the first quarter of 2014), primarily
associated with the seasonal deferred incentive compensation
expense for retirement-eligible employees and payroll taxes.
- ROE of 10.4% decreased from
11.6% in the fourth quarter of 2014 and increased from 8.8% in the
first quarter of 2014.
First-Quarter 2015 Highlights1:
- The strengthening of the U.S.
dollar during the first quarter of 2015 reduced our fee revenue
outside of the U.S., but the parallel reduction in expenses largely
offset this impact on our bottom line.
- New business2: New
asset servicing mandates during the first quarter of 2015 totaled
$214 billion. In asset management we experienced net outflows of
$38 billion during the first quarter of 2015, primarily due to
seasonal outflows from SPY, our S&P 500 ETF.
- Capital3: Our
common equity tier 1 ratios as of March 31, 2015 were 12.1%
and 10.4%, calculated under the advanced approaches and
standardized approach provisions, respectively, in conformity with
the Basel III final rule. On a fully phased-in basis, our estimated
pro forma Basel III common equity tier 1 ratios as of
March 31, 2015 were 11.5% and 9.8%, calculated under the
advanced approaches and standardized approach provisions,
respectively, in conformity with the Basel III final rule.
- Return of capital to
shareholders: During the first quarter of 2015, we completed
the final phase of our $1.7 billion common stock purchase program
announced in March 2014 with the purchase of 6.3 million shares of
our common stock at an average price of $74.88 per share. In
addition, we declared a quarterly common stock dividend of $0.30
per share in the first quarter of 2015.
- After the annual CCAR 2015 process
was completed in March 2015, our Board of Directors approved a
new common stock purchase program authorizing the purchase of up to
$1.8 billion of our common stock through June 30, 20164.
Additionally, our 2015 capital plan includes a proposed increase to
our quarterly common stock dividend to $0.34 per share starting in
the second quarter of 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 March 31, 2015. 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 Our estimated pro forma fully phased-in Basel III common
equity tier 1 ratios calculated under the Basel III advanced
approaches and standardized approach (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 1 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.
4 Stock purchases may be made using various types of mechanisms,
including open market purchases or transactions off market, and may
be made under Rule 10b5-1 trading programs. The timing of stock
purchases, types of transactions and number of shares purchased
will depend on several factors, including, market conditions and
State Street’s capital positions, its financial performance and
investment opportunities. The common stock purchase program does
not have specific price targets and may be suspended at any time.
State Street’s second-quarter 2015 common stock and other stock
dividends, including the declaration, timing and amount thereof,
remain subject to consideration and approval by its Board of
Directors at the relevant times.
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)
Q1 2015 Q4 2014
% Increase(Decrease)
Q1 2014
% Increase(Decrease)
Total revenue1
$ 2,677 $ 2,724 (1.7 )% $ 2,559 4.6 %
Total expenses1
1,942 1,880 3.3 1,917 1.3 Net income
available to common shareholders1
491 582 (15.6 ) 433 13.4
Earnings per common share1
1.17 1.37 (14.6 ) .99 18.2 Return
on average common equity1
10.4 % 11.6 % (120) bps 8.8
% 160 bps Total assets as of period-end
$ 279,476 $
274,119 2.0 % $ 256,663 8.9 % Quarterly average total assets
259,082 254,439 1.8 215,569 20.2 Net interest margin1
1.01 % 1.04 % (3) bps 1.24 % (23) bps Net unrealized
gains (losses) on investment securities, after-tax, as of
period-end2
$ 699 $ 487 $ 124
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 Includes net unrealized gains (losses) on investment
securities, after tax, for securities classified as available for
sale and held to maturity.
Assets Under Custody and Administration and Assets Under
Management (Dollars in billions)
Q1
2015 Q4 2014
% Increase(Decrease)
Q1 2014
% Increase(Decrease)
Assets under custody and administration1, 2
$ 28,491
$ 28,188 1.1 % $ 27,477 3.7 % Assets under management2
2,443
2,448 (0.2 ) 2,381 2.6 Market Indices3: S&P 500® daily average
2,064 2,009 2.7 1,835 12.5 MSCI EAFE® daily average
1,817 1,795 1.2 1,894 (4.1 ) S&P 500® average of
month-end
2,056 2,048 0.4 1,838 11.9 MSCI EAFE® average of
month-end
1,839 1,811 1.5 1,896 (3.0 )
1 Includes assets under custody of $21,978 billion, $21,656
billion and $20,996 billion, as of March 31, 2015,
December 31, 2014 and March 31, 2014, 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 first-quarter 2015 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 December 31, 2014 $ 1,475 $ 319 $ 399 $
127 $ 128 $ 2,448 Long-term institutional inflows1
67
19 — 10 9 105 Long-term
institutional outflows1
(66 ) (17 )
— (25 ) (5 ) (113
) Long-term institutional flows, net
1 2
— (15 ) 4 (8 ) ETF flows,
net
(33 ) 4 — — 2
(27 ) Cash fund flows, net
— —
(3 ) — — (3
) Total flows, net
(32 ) 6 (3
) (15 ) 6 (38 ) Market
appreciation2
47 5 1 7 11
71 Foreign exchange impact2
(18 ) (7
) (4 ) (4 ) (5 )
(38 ) Total market/foreign exchange impact
29
(2 ) (3 ) 3
6 33 Balance as of March 31, 2015
$ 1,472 $ 323 $
393 $ 115 $ 140
$ 2,443
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)
Q1 2015 Q4 2014
% Increase(Decrease)
Q1 2014
% Increase(Decrease)
Servicing fees
$ 1,273 $ 1,301 (2.2 )% $ 1,238 2.8 %
Management fees
301 299 0.7 292 3.1 Trading services
revenue: Foreign exchange trading
203 168 20.8 134 51.5
Brokerage and other fees2
121 125 (3.2 ) 119
1.7 Total trading services revenue
324 293
10.6 253 28.1 Securities finance revenue
101 106 (4.7 ) 85
18.8 Processing fees and other revenue1, 2, 3
114 138
(17.4 ) 113 0.9 Total fee revenue1, 2, 3
2,113 2,137 (1.1 ) 1,981 6.7 Net interest revenue1, 4
565 587 (3.7 ) 572 (1.2 ) Gains (losses) related to
investment securities, net
(1 ) — nm 6
nm
Total Operating-Basis Revenue1 $
2,677 $ 2,724 (1.7 )% $ 2,559 4.6 %
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 first quarter of 2015 and
fourth 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 first quarter of 2014 have been
adjusted for comparative purposes.
3 Processing fees and other revenue for the first quarter of
2015, fourth quarter of 2014 and first quarter of 2014, presented
in the table, included tax-equivalent adjustments of $53 million,
$81 million and $57 million, respectively, related to tax credits
generated by tax-advantaged investments. GAAP-basis processing fees
and other revenue for these periods was $61 million, $57 million
and $56 million, respectively.
4 Net interest revenue for the first quarter of 2015, fourth
quarter of 2014 and first quarter of 2014, presented in the table,
included tax-equivalent adjustments of $44 million, $44 million and
$44 million, respectively, and excluded conduit-related discount
accretion of $25 million, $31 million and $27 million,
respectively. GAAP-basis net interest revenue for these periods was
$546 million, $574 million and $555 million, respectively.
nm Not meaningful.
Servicing fees of $1,273 million in the first quarter of
2015 decreased 2.2% from the fourth quarter of 2014, primarily due
to the impact of the stronger U.S. dollar, partially offset by
stronger global equity markets. Compared to the first quarter of
2014, servicing fees increased 2.8%, primarily due to net new
business and stronger U.S. equity markets, partially offset by the
impact of the stronger U.S. dollar.
Management fees of $301 million in the first quarter of
2015 increased 0.7% from the fourth quarter of 2014. Compared to
the fourth quarter of 2014, management fees were relatively flat as
positive revenue contributions from net new business and higher
markets were offset by the impact of the stronger U.S. dollar.
Compared to the first quarter of 2014, management fees increased
3.1%, primarily due to net new business and stronger U.S. equity
markets, partially offset by the impact of the stronger U.S.
dollar.
Foreign exchange trading revenue of $203 million in the
first quarter of 2015 increased 20.8% from the fourth quarter of
2014 and increased 51.5% from the first quarter of 2014. The
increase over both periods was due to higher volatility and
volumes. Brokerage and other fees of $121 million in the
first quarter of 2015 decreased 3.2% from the fourth quarter of
2014, primarily due to lower transition management revenue.
Compared to the first quarter of 2014, brokerage and other fees
increased 1.7%.
Securities finance revenue of $101 million in the first
quarter of 2015 decreased 4.7% from the fourth quarter of 2014,
primarily due to lower spreads. Compared to the first quarter of
2014, securities finance revenue increased 18.8%, primarily due to
new business from enhanced custody, our principal securities
lending service for custody clients, and higher volumes.
Processing fees and other revenue of $114 million in the
first quarter of 2015 decreased 17.4% from the fourth quarter of
2014, primarily due to lower equity earnings from joint ventures
and lower revenue associated with tax advantaged investments.
Compared to the first quarter of 2014, processing fees and other
revenue increased 0.9%. 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 $565 million in the first quarter
of 2015 decreased 3.7% from the fourth quarter of 2014, primarily
due to a one-time accelerated loan prepayment recorded in the
fourth quarter of 2014, two fewer days in the first quarter of
2015, and the impact of lower market interest rates, partially
offset by higher deposit levels. Compared to the first quarter of
2014, net interest revenue decreased 1.2%.
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 $343 million in interest
revenue from April 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 101 basis
points in the first quarter of 2015 from 104 basis points in the
fourth quarter of 2014 and from 124 basis points in the first
quarter of 2014. The reduction in the net interest margin compared
to the first quarter of 2014 reflects higher interest-earning
assets and lower yields. Refer to the addendum included with this
news release for reconciliations of our operating-basis net
interest margin.
Expenses1
The following table provides the components of our
operating-basis (non-GAAP) expenses1 for the periods noted:
(Dollars in millions)
Q1 2015 Q4 2014
% Increase(Decrease)
Q1 2014
% Increase(Decrease)
Compensation and employee benefits1, 2
$ 1,088 $ 962
13.1 % $ 1,085 0.3 % Information systems and communications
247 246 0.4 244 1.2 Transaction processing services
197 201 (2.0 ) 191 3.1 Occupancy
113 113 — 114 (0.9 )
Other1, 3
297 358 (17.0 ) 283 4.9
Total
Operating-Basis Expenses1 $ 1,942 $ 1,880
3.3 % $ 1,917 1.3 %
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 first
quarter of 2015, fourth quarter of 2014 and first quarter of 2014
presented in the table, excluded a severance cost credit adjustment
of $1 million and severance costs of $10 million and $72 million,
respectively, related to staffing realignment. GAAP-basis
compensation and employee benefits expenses for the first quarter
of 2015, fourth quarter of 2014 and first quarter of 2014 were
$1,087 million, $972 million and $1,157 million, respectively.
3 GAAP-basis other expenses for the first quarter of 2015,
fourth quarter of 2014 and first quarter of 2014 were $447 million,
$473 million and $289 million, respectively.
Compensation and employee benefits expenses of $1,088
million in the first quarter of 2015 increased 13.1% from the
fourth quarter of 2014, primarily due to an incremental $137
million, or $0.23 per share, primarily associated with the seasonal
deferred incentive compensation expense for retirement-eligible
employees and payroll taxes, partially offset by the impact of the
stronger U.S. dollar. Compared to the first quarter of 2014,
compensation and employee benefits expenses remained relatively
flat reflecting increased costs to support new business and
regulatory initiatives, mostly offset by the benefit of the
stronger U.S. dollar.
Information systems and communications expenses of $247
million in the first quarter of 2015 increased 0.4% and 1.2% from
the fourth quarter of 2014 and the first quarter of 2014,
respectively.
Transaction processing services expenses of $197
million in the first quarter of 2015 decreased 2.0% from the fourth
quarter of 2014. Compared to the first quarter of 2014, transaction
processing expenses increased 3.1%, primarily due to higher
volumes.
Occupancy expenses of $113 million in the first quarter
of 2015 remained flat compared to the fourth quarter of 2014 and
decreased 0.9% from the first quarter of 2014.
Other expenses of $297 million in the first quarter of
2015 decreased $61 million, or 17.0%, from the fourth quarter of
2014, primarily due to lower professional services and securities
processing costs, expenses associated with our withdrawal from
derivatives clearing and execution activities in the fourth quarter
of 2014 and an impairment primarily associated with an intangible
asset in the fourth quarter of 2014, partially offset by higher
regulatory and compliance costs. Compared to the first quarter of
2014, other expenses increased 4.9%, primarily due to a new bank
levy and higher securities processing costs. See notes 1 and 3 to
the table above for a description of GAAP-basis other expenses for
the relevant periods.
Income Taxes
Our first quarter of 2015 GAAP-basis effective tax rate was
18.9%, up from 13.5% in the fourth quarter of 2014 and down from
20.3% in the first quarter of 2014. The first quarter of 2015 rate
was affected by a legal accrual, whereas the fourth quarter of 2014
rate reflected a net benefit attributable to foreign operations.
The first quarter of 2015 operating-basis effective tax rate was
28.4%, in line with 28.5% from the fourth quarter of 2014 and a
decrease from 31.2% in the first quarter of 2014 due to the mix of
earnings.
Capital
Provisions of the Basel III final rule, issued by U.S. banking
regulators in July 2013, become effective under a transition
timetable which began on January 1, 2014. We have used the advanced
approaches provisions provided in the Basel III final rule to
calculate our regulatory capital ratios beginning with the second
quarter of 2014. Beginning with the first quarter of 2015, we began
to also use the standardized approach provisions provided in the
Basel III final rule to calculate our regulatory capital
ratios.
Prior to the first quarter of 2015, 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 were applied in the assessment of our capital adequacy
for regulatory purposes. Beginning in the first quarter of 2015,
capital ratios calculated under the Basel III standardized approach
replaced the transitional ratios in the assessment of our capital
adequacy for regulatory purposes.
The following table presents our regulatory capital ratios as of
March 31, 2015 and December 31, 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. 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
IIIAdvancedApproachesMarch 31,
20151
Basel
IIIStandardizedApproach March 31,
20152
Basel IIIAdvancedApproachesDecember
31,20141
Basel IIITransitionalDecember 31,20143
Common equity tier 1 ratio
12.1 % 10.4
% 12.5 % 14.9 % Tier 1 capital ratio
14.1 %
12.1 % 14.6 17.4 Total capital ratio
16.2
% 13.8 % 16.6 19.8 Tier 1 leverage ratio
5.8 % 5.8 % 6.4 6.4
1 Common equity tier 1, tier 1 capital, total capital and tier 1
leverage ratios as of March 31, 2015 and December 31,
2014 were calculated in conformity with the advanced approaches
provisions of the Basel III final rule.
2 Common equity tier 1, tier 1 capital, total capital and tier 1
leverage ratios as of March 31, 2015 were calculated in
conformity with the standardized approach provisions of the Basel
III final rule.
3 Common equity tier 1, tier 1 capital, total capital and tier 1
leverage ratios as of December 31, 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.
On a fully phased-in basis, our estimated pro forma Basel III
common equity tier 1 ratios as of March 31, 2015, calculated
under the advanced approaches and standardized approach provisions
in conformity with the Basel III final rule, were 11.5% and 9.8%,
respectively. Our estimated pro forma fully phased-in Basel III
common equity tier 1 ratios are preliminary estimates, calculated
in conformity with the advanced approaches and the standardized
approach provisions (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 April 24,
2015 and as applied to our businesses and operations as of
March 31, 2015. Refer to the addendum included with this news
release for information concerning our estimated pro forma fully
phased-in Basel III common equity tier 1 ratios calculated under
the advanced approaches and standardized approach, and for
reconciliations of these estimated pro forma fully phased-in ratios
to our common equity tier 1 ratios calculated under the currently
applicable regulatory requirements.
In 2014, U.S. banking regulators issued final rules implementing
a supplementary leverage ratio, or SLR, for certain bank holding
companies, like State Street, and their insured depository
institution subsidiaries, like State Street Bank. We refer to these
final rules as the SLR final rule. Under the SLR final rule, upon
implementation as of January 1, 2018, (i) State Street Bank must
maintain an SLR of at least 6% to be well capitalized under the
U.S. banking regulators’ Prompt Corrective Action framework and
(ii) if State Street maintains an SLR of at least 5%, it is not
subject to limitations on distribution and discretionary bonus
payments under the SLR final rule. Beginning with reporting for
March 31, 2015, State Street is required to include SLR
disclosures with its other Basel disclosures.
State Street Corporation's SLR as of March 31, 2015 and
estimated pro forma SLR as of December 31, 2014, calculated in
conformity with the SLR final rule, were 5.2% and 5.7%,
respectively. State Street Corporation's estimated pro forma fully
phased-in SLRs as of March 31, 2015 and December 31,
2014, calculated in conformity with the SLR final rule, were 4.9%
and 5.1%, respectively. State Street Bank's SLR as of
March 31, 2015 and estimated pro forma SLR as of
December 31, 2014, calculated in conformity with the SLR final
rule, were 5.0% and 5.1%, respectively. State Street Bank's
estimated pro forma fully phased-in SLRs as of March 31, 2015
and December 31, 2014, calculated in conformity with the SLR
final rule, were 4.8% and 4.8%, respectively. Estimated pro forma
fully phased-in SLRs as of March 31, 2015 and December 31,
2014 are preliminary estimates, calculated based on our
interpretations of the SLR final rule as of April 24, 2015 and
January 23, 2015, respectively, and as applied to our businesses
and operations as of March 31, 2015 and December 31, 2014,
respectively. Refer to the addendum included with this news release
for information concerning our estimated pro forma fully phased-in
SLRs and for reconciliations of these estimated pro forma fully
phased-in SLRs to our SLRs under currently applicable regulatory
requirements.
The advanced approaches-based ratios (actual and estimated pro
forma) 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.
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, April 24, 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 #
98667454.
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 # 98667454.
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 first quarter of 2015,
State Street expects to publish its updates during the period
beginning today and ending on or about May 8, 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 $28.5 trillion in assets under custody and
administration and $2.4 trillion* in assets under management as of
March 31, 2015, State Street operates globally in more than
100 geographic markets and employs 30,495 worldwide. For more
information, visit State Street's website at
www.statestreet.com.
* Assets under management include the assets of the SPDR® Gold
ETF (approximately $28 billion as of March 31, 2015), 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 “outlook,” “expect,”
“objective,” “intend,” “plan,” “forecast,” “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 April 24,
2015.
In particular, in the first quarter of 2015, we increased from
$185 million to $335 million our legal accrual associated with
indirect foreign exchange matters. This accrual reflects continued
negotiations in connection with our intention to seek to resolve
the outstanding claims asserted in the United States against us by
federal governmental entities and civil litigants with regard to
our indirect foreign exchange client activities. As of
March 31, 2015, our total accrued reserve associated with
these matters was $335 million. There can be no assurance that we
will reach settlements in these matters or that the cost of any
settlements or other resolutions of these matters will not
materially exceed our accrual. Our current efforts, even if
successful, may not address all of our potential legal exposure
arising out of our indirect foreign exchange client activities, and
other claims, which may be material, could be asserted against us.
An adverse outcome with respect to one or more claims relating to
our indirect foreign exchange client activities could have a
material adverse effect on our reputation, on our consolidated
results of operations for the period in which the adverse outcome
occurs (or an accrual is determined to be required), or on our
consolidated financial condition.
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, the valuation of the U.S. dollar relative to other
currencies in which we record revenue or accrue expenses 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, the relative portion of our
deposits that are determined to be operational under regulatory
guidelines 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 final
rule 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 global
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
ratios that we are required or will be required to meet, whether
arising under the Dodd-Frank Act or the Basel III final rule, 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 U.S. and
non-U.S. regulators for the use, allocation or distribution of our
capital or other specific capital actions or programs, including
acquisitions, dividends and stock purchases, without which our
growth plans, distributions to shareholders, share repurchase
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, governmental or regulatory inquiries and 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, 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;
- our ability to expand our use of
technology to enhance the efficiency, accuracy and reliability of
our operations and our 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, manage
expenses, attract and retain highly skilled people and raise the
capital necessary to achieve our business goals and comply with
regulatory requirements and expectations;
- 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 the
amount of compensation we receive from clients 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 2014 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, April 24, 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/20150424005174/en/
State Street CorporationInvestor Contact:Anthony Ostler,
+1-617-664-3477orMedia Contact:Hannah Grove, +1-617-664-3377
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