State Street announces multi-year plan to
accelerate the next phase of its transformation program to generate
approximately $500 million in annualized savings when fully
implemented
Third-quarter GAAP-basis results includes
pre-tax severance costs of $75 million associated with staff
reductions
Third-quarter 2015
operating-basis1 EPS was $1.16 on revenue of $2.6
billion
In announcing the third quarter of 2015’s financial results,
Joseph L. Hooley, State Street's chairman and chief executive
officer said, "This quarter’s results reflect the decline in equity
valuations globally, particularly in emerging economies and
combined with the continued low interest rates and the strength in
the U.S. dollar, negatively impacted our revenue. Despite this
market environment, we were able to advance our core business,
growing operating basis fee revenue by 4% and 1% compared to the
nine months and quarter ended September 30, 2014, respectively, and
adding $141 billion of new servicing commitments during the third
quarter. In addition, consistent with our previously stated
objectives, we significantly reduced the level of deposits on our
balance sheet during the third quarter.”
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Hooley continued, “In light of the continued challenging
environment we are accelerating the next phase of our
transformation program to create cost efficiencies and to further
digitize our interfaces with our clients in order to deliver more
value. Our multi-year plan is to generate approximately $500
million in annualized savings when fully implemented and builds on
our recently completed Business Operations and Information
Technology transformation program that delivered more than $625
million in annualized savings. In the interim, we continue to focus
on driving internal efficiencies, which will result in staff
reductions. We’re balancing investing in our business with managing
against macroeconomic challenges and elevated regulatory
costs.”
Hooley concluded, "We continue to emphasize returning capital to
our shareholders. During the third quarter of 2015, we purchased
approximately $350 million of our common stock and at quarter end
had approximately $1.1 billion remaining on our March 2015 common
stock purchase program, authorizing the purchase of up to $1.8
billion of our common stock through June 30, 2016."
Third-Quarter 2015 GAAP-Basis
Results:
(Table presents summary results, dollars
in millions,except per share amounts, or where otherwise noted)
3Q15 2Q15
%Increase(Decrease)
3Q14
%Increase(Decrease)
Total fee revenue
$ 2,108 $ 2,082 1.2 % $ 2,012 4.8 %
Net interest revenue
513 535 (4.1 ) 570 (10.0 ) Total
revenue
2,619 2,614 0.2 2,582 1.4 Provision for loan losses
5 2 150.0 2 150.0 Total expenses
1,962 2,134 (8.1 )
1,892 3.7 Net income available to common shareholders
543
393 38.2 542 0.2
Earnings Per common
share(1): Diluted
1.32 0.94 40.4 1.26 4.8
Financial ratios: Return on average common equity
11.3 % 8.3 % 300 bps 10.6 % 70 bps
(1) Second-quarter 2015 and third-quarter 2014 results include
net after-tax charges of $156 million, or $0.37 per share, and $53
million, or $0.12 per share, respectively, related to legal
accruals associated with indirect foreign exchange matters. No
additional amounts were accrued as to such legal proceedings in the
third-quarter 2015.
Net income available to common shareholders of $543 million, or
$1.32 earnings per common share, for the third quarter of 2015
compared with $393 million, or $0.94 earnings per common share, for
the second quarter of 2015, and $542 million, or $1.26 earnings per
common share, for the third quarter of 2014.
Third quarter of 2015 GAAP-basis results included the following
notable items:
- $75 million of pre-tax severance costs,
or $47 million after-tax, related to targeted staff reductions.
This measure was taken to better calibrate the Company's expenses
to the current environment and will involve the gross and net
worldwide reduction of approximately 600 and 200 positions,
respectively. We expect these staff reductions to be complete by
the end of 2016 with projected savings of $50 million.
- $83 million pre-tax gain, or $49
million after-tax, related to the sale of commercial real estate
acquired as a result of the Lehman Brothers bankruptcy.
- $59 million reduction of an Italian
deferred tax liability as a consequence of our European legal
entity restructuring activities.
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 information is not a substitute for, and is not
superior to, information 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 third-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)
Income BeforeIncome TaxExpense
Net IncomeAvailable
toCommonShareholders
Earnings PerCommonShare
GAAP basis
$ 652 $ 543 $
1.32 Tax-equivalent adjustments Tax-advantaged investments
(processing fees and other revenue)
95 Tax-exempt investment
securities (net interest revenue)
43 Total
138
Non-operating adjustments Gain on sale of commercial real estate
(83 ) (49 ) (.12 )
Discount accretion associated with former conduit securities (net
interest revenue)
(27 ) (16 )
(.04 ) Severance costs associated with staffing
realignment (compensation and employee benefits expenses)
75
47 .11 Acquisition & Restructuring costs
(expenses)
10 7 .01 Italian deferred tax
liability
— (59 ) (.14 ) Effect
on income tax of non-operating adjustments
— 7
.02 Total
(25 ) (63
) (.16 ) Operating basis
$ 765
$ 480 $ 1.16
Third-Quarter 2015 Operating-Basis
(Non-GAAP) Results1:
(Table presents summary results, dollars
in millions,except per share amounts, or where otherwise noted)
3Q15(1) 2Q15(1)
%Increase(Decrease)
3Q14(1)
%Increase(Decrease)
Operating-Basis Results: Total fee revenue
$
2,120 $ 2,180 (2.8 )% $ 2,098 1.0 % Operating-basis net
interest revenue(2)
$ 529 $ 556 (4.9 ) $ 580 (8.8 )
Total revenue
2,647 2,733 (3.1 ) 2,678 (1.2 ) Total expenses
1,877 1,881 (0.2 ) 1,808 3.8 Net income available to common
shareholders
480 569 (15.6 ) 581 (17.4 )
Earnings
Per common share: Diluted
1.16 1.37 (15.3 ) 1.35 (14.1 )
Financial ratios: Return on average common equity
10.0 % 12.0 % (200
) bps
11.4 % (140
) bps
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 Operating basis
net interest revenue excluded discount accretion on former conduit
securities of $27 million, $23 million and $33 million for the
third quarter of 2015, the second quarter of 2015, and the third
quarter of 2014, respectively. Operating-basis net interest revenue
for all quarters is presented on a fully taxable-equivalent
basis.
Third-Quarter 2015 Highlights1:
- Currency Impact: Compared to the
third quarter of 2014 the strengthening of the U.S. dollar reduced
our fee revenue outside of the U.S. by $66 million, but a similar
corresponding reduction in expenses largely offset this impact on
our bottom line.
- New business2: New
asset servicing mandates awarded during the third quarter of 2015
totaled $141 billion. In asset management we experienced net
outflows of $29 billion during the third quarter of 2015.
- Expenses: The growth rate of
operating-basis total fee revenue was below the growth rate of
operating-basis expenses by 277 basis points during the third
quarter of 2015 as compared to the third quarter of 2014. However,
the growth rate of operating-basis total fee revenue exceeded the
growth rate of operating-basis expenses by 91 basis points during
the first nine months of 2015 as compared to the first nine months
of 2014 and this is in line with our emphasis on operating-basis
total fee revenue growth outpacing operating-basis expense growth
on a year to date basis.
- Capital3: Our
common equity tier 1 ratios as of September 30, 2015 were
12.1% and 12.0%, calculated under the advanced approaches and
standardized approach, 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 September 30, 2015
were 11.4% and 11.2%, calculated under the advanced approaches and
standardized approach, respectively, in conformity with the Basel
III final rule.
- Return of capital to
shareholders4: We purchased approximately $350
million of our common stock at an average price of $72.43 per
share, and have approximately $1.1 billion remaining on our March
2015 common stock purchase program which runs through June 30,
2016. In addition, we declared a quarterly common stock dividend of
$0.34 per share in the third 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 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 new asset servicing and asset management mandates is
reflected in our assets under custody and administration and assets
under management, as of September 30, 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 position,
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 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 tables below provide 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 (Table presents summary results, dollars in
millions, except per share amounts, or where otherwise noted)
3Q15 2Q15 % Increase (Decrease) 3Q14 % Increase (Decrease)
Total revenue1
$ 2,647 $ 2,733 (3.1 )% $ 2,678 (1.2
)% Total expenses1
1,877 1,881 (0.2 ) 1,808 3.8 Net income
available to common shareholders1
480 569 (15.6 ) 581 (17.4
) Earnings per common share1
1.16 1.37 (15.3 ) 1.35 (14.1 )
Return on average common equity1
10.0 % 12.0 % (200 )
bps 11.4 %
(140
) bps
Total assets as of period-end
$ 247,274 $ 294,571
(16.1 )% $ 274,805 (10.0 )% Quarterly average total assets
251,046 263,862 (4.9 ) 247,310 1.5 Net interest margin1
0.95 % 0.96 % (1 ) bps 1.06 %
(11
) bps
Net unrealized gains (losses) on investment securities, after-tax,
as of period-end2
$ 411 $ 346 $ 411
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)
3Q15
2Q15
% Increase(Decrease)
3Q14
% Increase(Decrease)
Assets under custody and administration1, 2
$ 27,265
$ 28,650 (4.8 )% $ 28,465 (4.2 )% Assets under management2
2,203 2,374 (7.2 ) 2,421 (9.0 ) Market Indices3: S&P
500® daily average
2,027 2,102 (3.6 ) 1,976 2.6 MSCI EAFE®
daily average
1,785 1,905 (6.3 ) 1,924 (7.2 ) S&P 500®
average of month-end
1,999 2,085 (4.1 ) 1,969 1.5 MSCI EAFE®
average of month-end
1,754 1,887 (7.0 ) 1,901 (7.7 ) Average
Foreign Exchange Rate (Euro vs. USD)
1.112 1.107 0.5 1.325
(16.1 ) Average Foreign Exchange Rate (GBP vs. USD)
1.549
1.533 1.0 1.669 (7.2 )
1 Includes assets under custody of $20,947 billion, $22,064
billion and $21,707 billion, as of September 30, 2015,
June 30, 2015 and September 30, 2014, respectively.2 As
of period-end.3 The index names listed in the table are service
marks of their respective owners.
The following tables present third-quarter 2015 and year-to-date
activity in assets under management, by product category.
Assets Under Management
(In billions)
Equity
Fixed-Income
Cash2
Multi-Asset-ClassSolutions
AlternativeInvestments3
Total Balance as of June 30, 2015 $ 1,422 $ 320 $ 376 $ 118
$ 138 $ 2,374 Long-term institutional inflows1
89 14
— 13 19 135 Long-term institutional
outflows1
(125 ) (18 ) —
(15 ) (19 ) (177 )
Long-term institutional flows, net
(36 ) (4
) — (2 ) — (42 )
ETF flows, net
9 — 2 — (1
) 10 Cash fund flows, net
— —
3 — — 3
Total flows, net
(27 ) (4 )
5 (2 ) (1 ) (29 )
Market appreciation4
(122 ) 1 —
(4 ) (2 ) (127 ) Foreign
exchange impact
(7 ) (1 ) (1
) (1 ) (5 ) (15 )
Total market/foreign exchange impact
(129 ) —
(1 ) (5 ) (7 )
(142 ) Balance as of September 30, 2015
$
1,266 $ 316 $ 380
$ 111 $ 130
$ 2,203 (In billions)
Equity
Fixed-Income
Cash2
Multi-Asset-ClassSolutions
AlternativeInvestments3
Total Balance as of December 31, 2014 $ 1,475 $ 319 $
399 $ 127 $ 128 $ 2,448 Long-term institutional inflows1
218
48 — 42 30 338 Long-term
institutional outflows1
(291 ) (48 )
— (53 ) (28 ) (420
) Long-term institutional flows, net
(73 )
— — (11 ) 2 (82 )
ETF flows, net
(38 ) 3 2 —
— (33 ) Cash fund flows, net
—
— (18 ) — —
(18 ) Total flows, net
(111 ) 3
(16 ) (11 ) 2 (133
) Market appreciation4
(79 ) — —
(2 ) 9 (72 ) Foreign exchange
impact
(19 ) (6 ) (3 )
(3 ) (9 ) (40 ) Total
market/foreign exchange impact
(98 ) (6
) (3 ) (5 ) —
(112 ) Balance as of September 30, 2015
$
1,266 $ 316 $ 380
$ 111 $ 130
$ 2,203
1 Amounts represent long-term portfolios, excluding ETFs.2
Includes both floating- and constant-net-asset-value portfolios
held in commingled structures or separate accounts.3 Includes real
estate investment trusts, currency and commodities, including SPDR®
Gold Fund, for which State Street is not the investment manager,
but acts as distribution agent.4 Includes impact of the sale of
Sectoral Asset Management Inc. in the third quarter of 2015.
Revenue1
The following table provides the components of our
operating-basis (non-GAAP) revenue1 for the periods noted:
(Dollars in millions)
3Q15 2Q15
% Increase(Decrease)
3Q14
% Increase(Decrease)
Servicing fees
$ 1,294 $ 1,325 (2.3 )% $ 1,302 (0.6
)% Management fees
287 304 (5.6 ) 316 (9.2 ) Trading
services revenue: Foreign exchange trading
177 167 6.0 161
9.9 Brokerage and other fees2
117 114 2.6
117 — Total trading services revenue
294 281 4.6 278 5.8 Securities finance revenue
113
155 (27.1 ) 99 14.1 Processing fees and other revenue1, 2, 3
132 115 14.8 103 28.2
Total fee revenue1, 2, 3
2,120 2,180 (2.8 ) 2,098 1.0 Net
interest revenue1, 4
529 556 (4.9 ) 580 (8.8 ) Gains
(losses) related to investment securities, net
(2 )
(3 ) nm — nm
Total Operating-Basis Revenue1
$ 2,647 $ 2,733 (3.1 )% $ 2,678
(1.2 )%
1 Presented on an operating basis, a non-GAAP presentation.
Refer to the addendum included with this news release for
explanations of our non-GAAP financial measures and for
reconciliations of our operating-basis financial information.2
Brokerage and other fees for the third quarter of 2014 reflect the
reclassification of revenue associated with currency management
from processing fees and other revenue, and have been adjusted for
comparative purposes.3 Processing fees and other revenue for the
third quarter of 2015, second quarter of 2015 and third quarter of
2014, presented in the table, reflect tax-equivalent increases of
$95 million, $98 million and $86 million, respectively, related to
tax credits generated by tax-advantaged investments. Third quarter
of 2015 also includes a credit of $83 million for a gain on sale of
commercial real estate. GAAP-basis processing fees and other
revenue for these periods was $120 million, $17 million and $17
million, respectively.4 Net interest revenue for the third quarter
of 2015, second quarter of 2015 and third quarter of 2014,
presented in the table, reflect tax-equivalent increases of $43
million, $44 million and $43 million, respectively, and excluded
conduit-related discount accretion of $27 million, $23 million and
$33 million, respectively. GAAP-basis net interest revenue for
these periods was $513 million, $535 million and $570 million,
respectively.nm Not meaningful.
Servicing fees of $1,294 million in the third quarter of
2015 decreased 2.3% from the second quarter of 2015, primarily due
to lower global equity markets. Compared to the third quarter of
2014, servicing fees decreased 0.6%, primarily due to the impact of
the stronger U.S. dollar and lower international equity markets,
partially offset by net new business and higher transaction
volumes.
Management fees of $287 million in the third quarter of
2015 decreased 5.6% from the second quarter of 2015, primarily due
to lower global equity markets. Compared to the third quarter of
2014, management fees decreased 9.2%, primarily due to the impact
of the stronger U.S. dollar, lower performance fees, and lower
international equity markets.
Foreign exchange trading revenue of $177 million in the
third quarter of 2015 increased 6.0% from the second quarter of
2015, primarily due to higher direct foreign exchange revenue.
Compared to the third quarter of 2014, foreign exchange trading
revenue increased 9.9%, due to higher currency volatility and
client-related volumes. Brokerage and other fees of $117
million in the third quarter of 2015 increased 2.6% from the second
quarter of 2015 and were flat from the third quarter of 2014.
Securities finance revenue of $113 million in the third
quarter of 2015 decreased $42 million, or 27.1%, from the second
quarter of 2015, primarily due to second-quarter seasonality.
Compared to the third quarter of 2014, securities finance revenue
increased 14.1%, due to new business from enhanced custody, our
principal securities lending service for custody clients.
Processing fees and other revenue of $132 million in the
third quarter of 2015 increased 14.8% and 28.2% compared to the
second quarter of 2015 and the third quarter of 2014, respectively.
The increase over both periods primarily reflects the impact of
certain valuation adjustments and increased revenue from bank-owned
life insurance. 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 $529 million in the third quarter
of 2015 decreased 4.9% from the second quarter of 2015, primarily
due to persistently low market interest rates, lower deposit levels
and the ongoing repositioning of the investment portfolio. Compared
to the third quarter of 2014, net interest revenue decreased 8.8%,
primarily due to lower yields from 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 $233 million in interest
revenue from October 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 95 basis
points in the third quarter of 2015 from 96 basis points in the
second quarter of 2015 and from 106 basis points in the third
quarter of 2014. 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)
3Q15 2Q15
% Increase(Decrease)
3Q14
% Increase(Decrease)
Compensation and employee benefits1, 2
$ 976 $ 984
(0.8 )% $ 955 2.2 % Information systems and communications
265 249 6.4 242 9.5 Transaction processing services
201 201 — 199 1.0 Occupancy
110 109 0.9 119 (7.6 )
Other1, 3
325 338 (3.8 ) 293 10.9
Total
Operating-Basis Expenses1 $ 1,877 $
1,881 (0.2 )% $ 1,808 3.8 %
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 third quarter
of 2015, second quarter of 2015 and third quarter of 2014 presented
in the table, excluded severance costs of $75 million, zero and $2
million, respectively, related to staffing realignment. GAAP-basis
compensation and employee benefits expenses for the third quarter
of 2015, second quarter of 2015 and third quarter of 2014 were
$1,051 million, $984 million and $953 million, respectively.3
GAAP-basis other expenses for the third quarter of 2015, second
quarter of 2015 and third quarter of 2014 were $325 million, $588
million and $359 million, respectively.
Compensation and employee benefits expenses of $976
million in the third quarter of 2015 decreased 0.8% from the second
quarter of 2015, primarily due to lower incentive compensation,
partially offset by the impact of an additional payroll day in the
quarter and increased costs for new hires to support new business
and regulatory initiatives. Compared to the third quarter of 2014,
compensation and employee benefits expenses increased 2.2%,
reflecting increased costs to support new business and regulatory
initiatives, partially offset by the benefit of the stronger U.S.
dollar and lower incentive compensation expense.
Information systems and communications expenses of $265
million in the third quarter of 2015 increased 6.4% and 9.5% from
the second quarter of 2015 and the third quarter of 2014,
respectively. The increase over both periods primarily reflects
increased costs to support new business and additional data center
capacity.
Transaction processing services expenses of $201
million were flat from the second quarter of 2015 and third quarter
of 2014.
Occupancy expenses of $110 million in the third quarter
of 2015 increased 0.9% from the second quarter of 2015. Compared to
the third quarter of 2014, occupancy expenses decreased 7.6%,
primarily due to the impact of the stronger U.S. dollar.
Other expenses of $325 million in the third quarter of
2015 decreased 3.8% from the second quarter of 2015, primarily due
to a third-quarter 2015 gain of $41 million related to a recovery
from certain Lehman Brothers claims, partially offset by an
increase in securities processing costs. Third quarter 2015
securities processing costs were $41 million, mostly reflecting a
singular event, and compares to $14 million and $8 million in the
second quarter of 2015 and the third quarter of 2014, respectively.
Compared to the third quarter of 2014, other expenses increased
10.9%, primarily due to higher professional services fees including
costs to support regulatory initiatives and higher securities
processing costs, partially offset by a recovery in the
third-quarter 2015 from certain Lehman Brothers claims and lower
charitable contributions. See notes 1 and 3 to the table above for
a description of GAAP-basis other expenses for the relevant
periods.
Income Taxes
Our third quarter of 2015 GAAP-basis effective tax rate was
10.6%, down from 11.6% in the second quarter of 2015 and down from
18.6% in the third quarter of 2014. Our third quarter of 2015
operating-basis effective tax rate was 32.0%, an increase from
29.6% in the second quarter of 2015 and an increase from 31.0% in
the third quarter of 2014. The third quarter of 2015 tax rate
included a non-operating benefit due to the reduction of an Italian
deferred tax liability. The second quarter of 2015 tax rate was
affected by the approval of a tax refund and a change in New York
tax law.
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 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 provided in the Basel III final rule
to calculate our regulatory capital ratios.
The lower of our regulatory capital ratios calculated under the
Basel III advanced approaches and those ratios calculated under the
standardized approach provisions of Basel III are applied in the
assessment of our capital adequacy for regulatory purposes.
The following table presents our regulatory capital ratios as of
September 30, 2015 and June 30, 2015. 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
IIIAdvancedApproachesSeptember30,
2015
Basel
IIIStandardizedApproachSeptember30,
2015
Basel
IIIAdvancedApproachesJune 30, 2015
Basel
IIIStandardizedApproachJune 30, 2015
Common equity tier 1 ratio
12.1 % 12.0
% 12.2 % 11.6 % Tier 1 capital ratio
14.9 %
14.7 % 14.9 14.2 Total capital ratio
16.9
% 16.8 % 16.9 16.1 Tier 1 leverage ratio
6.3 % 6.3 % 6.0 6.0
On a fully phased-in basis, our estimated pro forma Basel III
common equity tier 1 ratios as of September 30, 2015,
calculated under the advanced approaches and standardized approach
in conformity with the Basel III final rule, were 11.4% and 11.2%,
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 (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 October 23, 2015 and as
applied to our businesses and operations as of September 30,
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 distributions and discretionary bonus
payments under the SLR final rule. Since March 31, 2015, State
Street has included SLR disclosures with its other Basel
disclosures.
State Street Corporation's SLR as of September 30, 2015 and
June 30, 2015, calculated in conformity with the SLR final
rule, were 5.7% and 5.4%, respectively. State Street Corporation's
estimated pro forma fully phased-in SLRs as of September 30,
2015 and June 30, 2015, calculated in conformity with the SLR
final rule, were 5.4% and 5.1%, respectively. State Street Bank's
SLR as of September 30, 2015 and June 30, 2015,
calculated in conformity with the SLR final rule, were 5.7% and
5.2%, respectively. State Street Bank's estimated pro forma fully
phased-in SLRs as of September 30, 2015 and June 30,
2015, calculated in conformity with the SLR final rule, were 5.4%
and 4.9%, respectively. Estimated pro forma fully phased-in SLRs as
of September 30, 2015 and June 30, 2015 are preliminary
estimates, calculated based on our interpretations of the SLR final
rule as of October 23, 2015 and July 24, 2015, respectively,
and as applied to our businesses and operations as of
September 30, 2015 and June 30, 2015, 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, October 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 #
45500823.
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 # 45500823.
The telephone replay will be available for approximately two
weeks following the conference call. This news release,
presentation materials referred to on the conference call
(including those concerning our investment portfolio), and
additional financial information are available on State Street's
website, at www.statestreet.com/stockholder under “Investor
Relations--Investor News & Events" and under the title “Events
and Presentations.”
State Street intends to publish updates to its public disclosure
regarding regulatory capital, as required by the Basel III final
rule, on a quarterly basis on its website at
www.statestreet.com/stockholder, under "Filings & Reports."
Those updates will be published each quarter, during the period
beginning after State Street's public announcement of its quarterly
results of operations and ending on or prior to the due date under
applicable bank regulatory requirements (i.e., ordinarily, ending
no later than 60 days following year-end or 45 days following each
other quarter-end, as applicable). For the third quarter of 2015,
State Street expects to publish its updates during the period
beginning today and ending on or about November 6, 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 $27.3 trillion in assets under custody and
administration and $2.2 trillion* in assets under management as of
September 30, 2015, State Street operates globally in more
than 100 geographic markets and employs 31,862 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 $25 billion as of September 30, 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
October 23, 2015.
Important factors that may also affect future results and
outcomes include, but are not limited to:
- The development, finalization and
execution of our plan to accelerate the next phase of our
transformation program to create cost efficiencies and to further
digitize our interfaces with our clients in order to deliver more
value, including identifying and implementing significant
reductions in our cost structure and related restructuring and
investment initiatives.
- 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, our ability to manage levels of
such deposits and 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, Undertakings for Collective Investment in
Transferable Securities Directives and Markets in Financial
Instruments Directive II); 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, liquidity and 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, October 23, 2015, and we do not undertake efforts to
revise those forward-looking statements to reflect events after
that date.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151023005297/en/
State Street CorporationInvestor ContactAnthony Ostler, +1
617-664-3477orMedia Contact:Hannah Grove, +1 617-664-3377
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