Third-quarter 2016 operating-basis EPS was
$1.35, on revenue of $2.75 billion
In announcing today’s financial results, Joseph L. Hooley, State
Street’s Chairman and Chief Executive Officer, said, “Our
third-quarter 2016 results reflect continued momentum in fee
revenue and our ongoing commitment to expense management.
Consistent with the breadth and depth of our client relationships,
our new business results remain strong with $1.2 trillion in new
asset servicing commitments year-to-date, including $212 billion in
the third quarter.”
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Hooley added, “We are making good progress in the implementation
of State Street Beacon, our multi-year program to digitize our
business, deliver significant value and innovation for our clients
and lower expenses across the organization. Importantly, through
the execution of State Street Beacon, we are able to differentiate
our capabilities by providing enhanced analytics and insights to
help our clients manage their enterprise data and enhance their
operational performance and risk management.”
Hooley continued, “The integration of our recent acquisition of
GE Asset Management is well underway with over 260 employees
successfully on-boarded and the client retention exceeding our
objectives. This acquisition extends SSGA’s core investment
management capabilities and enhances the delivery of value-added
solutions to our client base.”
Hooley concluded, "We remain focused on our five strategic
priorities for 2016: Becoming a digital leader in financial
services; driving growth from our core franchise; continuing to
invest in new products and solutions; increasing our focus on
expense management; and leveraging our strong capital position to
return capital to shareholders. Our solid progress and momentum
give me confidence that we are on track to significantly advance
these priorities by year-end.
3Q16 Highlights:
- New business(a):
New asset servicing mandates during the third-quarter of 2016
totaled $212 billion. In our asset management business, excluding
the contribution from the acquired GE Asset Management (GEAM)
business, we experienced net outflows of $36 billion during the
third-quarter of 2016. Net inflows of $12 billion to ETFs were more
than offset by outflows primarily from cash and institutional
clients.
- Currency impact: Compared to the
third-quarter of 2015, the strengthening of the U.S. dollar reduced
our fee revenue outside of the U.S. by approximately $16 million,
but a similar benefit to expenses largely offsets the currency
impact on our bottom line.
- Capital(b): Our
common equity tier 1 ratios as of September 30, 2016 were
12.3% and 12.5%, 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, 2016
were 11.8% and 12.0%, calculated under the advanced approaches and
standardized approach, respectively, in conformity with the Basel
III final rule.
- Return of capital to
shareholders: We purchased approximately $325 million of our
common stock at an average price of $69.03 per share in the
third-quarter of 2016. In addition, we declared a quarterly common
stock dividend of $0.38 per share in the third-quarter of 2016,
representing an increase of 12%.
(a) 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 any new asset servicing and asset
management mandates is reflected in our assets under custody and
administration and assets under management, as of
September 30, 2016. 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.(b) 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. 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.
Third-Quarter 2016 GAAP-Basis Results:
(Table presents summary
results, dollars in millions, except per share amounts, or where
otherwise noted)
3Q16 2Q16 Increase (Decrease) 3Q15 Increase
(Decrease) Total fee revenue
$ 2,079 $ 2,053 1.3 % $
2,103 (1.1 )% Net interest revenue
537 521 3.1 513 4.7 Total
revenue
2,620 2,573 1.8 2,614 0.2 Provision for loan losses
— 4 nm 5 nm Total expenses
1,984 1,860 6.7 1,962 1.1
Net income available to common shareholders
507 585 (13.3 )
539 (5.9 )
Earnings per common share(1)
:
Diluted
1.29 1.47 (12.2 ) 1.31 (1.5 )
Financial
ratios: Return on average common equity
10.6 %
12.4 %
(180
)bps
11.3 %
(70
)bps
Total assets as of period-end
$ 256,140 $
255,386 0.3 % $ 247,235 3.6 % Quarterly average total assets
233,017 229,197 1.7 251,013 (7.2 ) Net unrealized gains on
investment securities, after-tax, as of period end(2)
703
796 (11.7 ) 411 71.0
(1) The second- and third-quarters of 2016 included net
after-tax charges of $8 million and $5 million, respectively, or
$0.02 and $0.01 per share, respectively, primarily related to State
Street Beacon. No amounts were accrued during the third-quarter of
2015.(2) Includes net unrealized gains on investment securities,
after tax, for securities classified as available for sale and held
to maturity.nm Not meaningful
Third-quarter of 2016 GAAP-basis results included the following
notable items:
- Third-quarter results included
estimated revenue of $65 million and estimated expenses of $57
million associated with the GEAM business acquired on July 1, 2016.
In addition to the estimated $57 million of third quarter expenses,
third quarter results included $29 million of non-recurring
acquisition costs related to the acquired GEAM business.
- A pre-tax charge of approximately $42
million to establish a legal reserve related to previously
disclosed investigations by U.S. governmental agencies concerning
our U.K. transition management business in 2010 and 2011.
Operating-Basis (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, as it believes this presentation supports
meaningful analysis and comparisons of trends with respect to State
Street's normal ongoing business operations from period to period,
as well as additional information (such as capital ratios
calculated under regulatory standards scheduled to be effective in
the future) that management uses in evaluating State Street’s
business and activities. 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.
Third-Quarter 2016 Operating-Basis (Non-GAAP)
Results:
(Table presents summary
results, dollars in millions, except per share amounts, or where
otherwise noted)
3Q16 2Q16 Increase (Decrease) 3Q15 Increase
(Decrease) Total fee revenue
$ 2,213 $ 2,130 3.9 % $
2,115 4.6 % Net interest revenue
537 546 (1.6 ) 529 1.5
Total revenue
2,754 2,675 3.0 2,642 4.2 Provision for loan
losses
— 4 nm 5 nm Total expenses
1,909 1,828 4.4
1,877 1.7 Net income available to common shareholders
532
582 (8.6 ) 476 11.8 Total assets as of period-end
256,140
255,386 0.3 247,235 3.6 Quarterly average total assets
233,017 229,197 1.7 251,013 (7.2 ) Diluted Earnings per
Share
1.35 1.46 (7.5 ) 1.15 17.4 Return on average common
equity
11.1 % 12.3 %
(120
)bps
10.0 %
110
bps
Net unrealized gains on investment securities, after-tax, as of
period-end(1)
$ 703 $ 796 (11.7 )% $ 411 71.0 %
nm Not meaningful(1) Includes net unrealized gains on investment
securities, after tax, for securities classified as available for
sale and held to maturity.
The growth rate of operating-basis fee revenue exceeded the
growth rate of operating-basis expenses during the third-quarter of
2016 relative to the third-quarter of 2015, representing positive
fee operating leverage of approximately 293 basis points, of which
approximately 4 basis points was attributable to the acquired GEAM
business.
We now expect State Street Beacon, our multi-year transformation
program(a), to deliver at least $165 million in estimated annual
pre-tax savings in 2016 including targeted staff reductions
announced in October 2015.
(a)Estimated pre-tax expense savings relate only to State Street
Beacon, our multi-year transformation program, and are based on
projected improvement from our full-year 2015 operating-basis
expenses, all else equal. The full effect of the savings generated
each year will be felt the following year. Actual expenses may
increase or decrease in the future due to other factors.
The following table reconciles select third-quarter 2016
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.
Third-Quarter 2016 Selected Operating-Basis (Non-GAAP)
Reconciliations:
(In millions, except per share amounts)
IncomeBeforeIncome TaxExpense
Net IncomeAvailable
toCommonShareholders
EarningsPerCommonShare
GAAP-basis
$ 636 $ 507 $
1.29 Tax-equivalent adjustments Tax-advantaged investments
(processing fees and other revenue)
134 Tax-exempt
investment securities (net interest revenue)
42
Total
176 Non-operating adjustments Discount
accretion associated with former conduit securities (net interest
revenue)
(42 ) (25 ) (.07
) Severance costs associated with staffing realignment
(compensation and employee benefits expenses)
(9 )
(5 ) (.01 ) Provision for Legal
Contingencies
42 42 .11 Acquisition &
restructuring costs (expenses)(1)
42 24 .06
Effect on income tax of non-operating adjustments
—
(11 ) (.03 ) Total
33 25 .06
Operating-basis
$ 845 $
532 $ 1.35
(1) Includes a pre-tax charge of $9 million ($5 million after
tax or $0.01 per share) primarily related to State Street
Beacon.
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.
Assets Under Custody and Administration
The following table presents assets under custody and
administration, assets under management, market indices and average
foreign exchange rates for the periods indicated.
Assets Under Custody and Administration and Assets Under
Management (Dollars in billions, except market indices)
3Q16 2Q16
Increase(Decrease)
3Q15
Increase(Decrease)
Assets under custody and administration(1)(2)
$
29,178 $ 27,786 5.0 % $ 27,265 7.0 % Assets under
management(2)
2,446 2,301 6.3 2,203 11.0 Market Indices(3):
S&P 500® daily average
2,162 2,075 4.2 2,027 6.7 MSCI
EAFE® daily average
1,678 1,648 1.8 1,785 (6.0 ) S&P
500® average of month-end
2,171 2,087 4.0 1,999 8.6 MSCI
EAFE® average of month-end
1,692 1,656 2.2 1,754 (3.5 )
Average Foreign Exchange Rate (Euro vs. USD)
1.116 1.129
(1.2 ) 1.112 0.3 Average Foreign Exchange Rate (GBP vs. USD)
1.312 1.434 (8.5 ) 1.549 (15.3 )
(1) Includes assets under custody of $21,910 billion, $21,354
billion and $20,947 billion, as of September 30, 2016,
June 30, 2016 and September 30, 2015, respectively.(2) As
of period-end.(3) The index names listed in the table are service
marks of their respective owners.
Assets Under Management
The following table presents third-quarter 2016 activity in
assets under management, by product category.
(Dollars in
billions)
Equity
Fixed-Income
Cash(3)
Multi-Asset-ClassSolutions
AlternativeInvestments(4)
Total Balance as of June 30, 2016 $ 1,307 $ 335 $ 380 $ 117
$ 162 $ 2,301 Long-term institutional inflows(1)
55
26 — 13 3 97 Long-term
institutional outflows(1)
(62 )
(31 ) — (9
) (10 ) (112 ) Long-term
institutional flows, net
(7 ) (5 )
— 4 (7 ) (15 ) ETF flows,
net
9 3 — — — 12 Cash
fund flows, net
— —
(33 ) — —
(33 ) Total flows, net
2 (2
) (33 ) 4 (7 ) (36
) Market appreciation
62 2 — 1
2 67 Foreign exchange impact
1
— — —
1 2 Total market/foreign
exchange impact
63 2 — 1 3
69 Acquisitions and transfers(2)
38
56 4 3
11 112 Balance as of
September 30, 2016
$ 1,410 $ 391
$ 351 $ 125
$ 169 $ 2,446
The following table presents year-to-date activity for the
period ending September 30, 2016 of assets under management,
by product category.
(Dollars in
billions)
Equity
Fixed-Income
Cash(3)
Multi-Asset-ClassSolutions
AlternativeInvestments(4)
Total Balance as of December 31, 2015 $ 1,326 $ 312 $ 368 $
103 $ 136 $ 2,245 Long-term institutional inflows(1)
161
62 — 34 9 266 Long-term
institutional outflows(1)
(206 )
(71 ) — (26
) (16 ) (319 )
Long-term institutional flows, net
(45 ) (9
) — 8 (7 ) (53 )
ETF flows, net
(3 ) 7 (1 )
— 13 16 Cash fund flows, net
—
— (21 )
— — (21 )
Total flows, net
(48 ) (2 ) (22
) 8 6 (58 ) Market appreciation
84 19 1 11 15 130 Foreign
exchange impact
10 6
— — 1
17 Total market/foreign exchange impact
94 25 1 11 16 147
Acquisitions and transfers(2)
38
56 4 3
11 112 Balance as of
September 30, 2016
$ 1,410 $ 391
$ 351 $ 125
$ 169 $ 2,446
(1) Amounts represent long-term portfolios, excluding ETFs.(2)
Includes assets under management acquired as part of the
acquisition of GEAM.(3) Includes both floating- and
constant-net-asset-value portfolios held in commingled structures
or separate accounts.(4) 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.
RevenueThe following table provides the components of our
GAAP-basis revenue for the periods noted:
(Dollars in millions)
3Q16 2Q16
Increase(Decrease)
3Q15
Increase(Decrease)
Servicing fees
$ 1,303 $ 1,239 5.2 % $ 1,289 1.1 %
Management fees(1)
368 293 25.6 287 28.2 Trading services
revenue: Foreign exchange trading
159 157 1.3 177 (10.2 )
Brokerage and other fees
108 110 (1.8 )
117 (7.7 ) Total trading services revenue
267
267 — 294 (9.2 ) Securities finance revenue
136 156 (12.8 )
113 20.4 Processing fees and other revenue
5
98 (94.9 ) 120 (95.8 ) Total fee revenue
2,079 2,053 1.3 2,103 (1.1 ) Net interest revenue
537
521 3.1 513 4.7 Gains (losses) related to investment securities,
net
4 (1 ) nm (2 ) nm
Total
Revenue $ 2,620 $ 2,573 1.8 % $ 2,614
0.2 %
nm Not meaningful.(1) GEAM has now been integrated in to SSGA's
operations. Therefore, the contribution of revenue, expenses and
assets under management are informed estimates.
The following table provides a reconciliation of our
operating-basis (non-GAAP) revenue for the periods noted:
(Dollars in millions)
3Q16 2Q16
Increase(Decrease)
3Q15
Increase(Decrease)
Servicing Fees: Total servicing fees, GAAP-basis
$
1,303 $ 1,239 5.2 % $ 1,289 1.1 % Expense billing matter(1)
— 48 — Total
servicing fees, operating-basis
$ 1,303 $
1,287 1.2 $ 1,289 1.1
Management Fees:
Total management fees, GAAP-basis
$ 368 $ 293 25.6 $
287 28.2 Expense billing matter(1)
— (5
) — Total management fees, operating-basis
$
368 $ 288 27.8 $ 287 28.2
Processing Fees and Other Revenue: Total processing fees and
other revenue, GAAP-basis
$ 5 $ 98 (94.9 ) $ 120
(95.8 ) Tax-equivalent adjustment associated with tax-advantaged
investments
134 87 95 Gain on sale of CRE and CRE loan
extinguishment / paydown
— — (83 ) Gain on sale of
WM/Reuters Business
— (53 ) —
Total processing fees and other revenue, operating-basis
$ 139 $ 132 5.3 $ 132 5.3
Fee Revenue: Total fee revenue, GAAP-basis
$
2,079 $ 2,053 1.3 $ 2,103 (1.1 ) Tax-equivalent adjustment
associated with tax-advantaged investments
134 87 95 Gain on
sale of CRE and CRE loan extinguishment / paydown
— — (83 )
Gain on sale of WM/Reuters Business
— (53 ) — Expense
billing matter, net(1)
— 43
— Total fee revenue, operating-basis
$
2,213 $ 2,130 3.9 $ 2,115 4.6
Net Interest Revenue: Net interest revenue, GAAP-basis
$ 537 $ 521 3.1 $ 513 4.7 Tax-equivalent adjustment
associated with tax-exempt investment securities
42
40 43 Net interest revenue,
fully taxable-equivalent basis
579 561 556 Average interest
earning assets
202,155 198,243
221,424 Net interest margin, fully taxable equivalent
basis
1.14 % 1.14 %
—
bps
1.00 %
14
bps
Net interest revenue, fully taxable-equivalent basis
$ 579 $ 561 3.2 % $ 556 4.1 % Discount accretion
associated with former conduit securities
(42
) (15 ) (27 ) Net interest revenue,
operating-basis(2)
$ 537 $ 546 (1.6 ) $
529 1.5
(1) Expense billing matter, net, for the second-quarter of 2016
includes a charge of $48 million to servicing fee revenue, a credit
of $5 million to management fee revenue and $15 million of other
expenses. Reconciliations of GAAP to operating-basis revenues are
on this page; expenses on the following pages.(2) Operating-basis
net interest revenue excludes discount accretion on former conduit
securities and is presented on a fully taxable-equivalent basis. We
expect to record aggregate pre-tax conduit-related accretion of
approximately $173 million in interest revenue 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.
The following highlights primary drivers of changes in our
revenue for the noted periods, indicating (where relevant)
differences between our GAAP-basis and operating-basis results.
Servicing fees on a GAAP-basis increased from the
second-quarter of 2016, primarily due to a $48 million reduction in
the second-quarter of 2016 related to our previously disclosed
expense billing matter. Compared to the third-quarter of 2015,
servicing fees increased primarily due to net new business.
Servicing fees on an operating-basis increased from the
second-quarter of 2016, primarily due to net new business and
higher global equity markets. Compared to the third-quarter of
2015, servicing fees increased primarily due to net new
business.
Management fees increased from the second-quarter of 2016
primarily due to the estimated contribution of $65 million from the
acquired GEAM business and higher global equity markets. Compared
to the third-quarter of 2015, management fees increased primarily
due to the contribution from the acquired GEAM business, lower
money market fee waivers and higher global equity markets.
Foreign exchange trading revenue increased slightly from
the second-quarter of 2016. Compared to the third-quarter of 2015,
foreign exchange trading revenue decreased, primarily due to lower
volatility and client related volumes.
Brokerage and other fees decreased slightly from the
second-quarter of 2016. Compared to the third-quarter of 2015,
brokerage and other fees decreased, primarily due to lower
transition management revenue.
Securities finance revenue decreased from the
second-quarter of 2016, primarily due to second-quarter
seasonality. Compared to the third-quarter of 2015, securities
finance revenue increased, primarily due to increased revenue from
enhanced custody and agency lending.
Processing fees and other revenue on a GAAP-basis
decreased from the second-quarter of 2016 and the third-quarter of
2015, primarily reflecting the gain on the sale of the WM/Reuters
branded foreign exchange benchmark business to Thomson Reuters in
the second quarter of 2016 and a gain recorded in the third-quarter
of 2015 related to the sale of commercial real estate acquired as a
result of the Lehman Brothers bankruptcy.
Processing fees and other revenue on an operating
basis increased compared to the second-quarter of 2016 and the
third-quarter of 2015, each comparison primarily reflecting higher
revenue associated with tax advantaged investments.
Net interest revenue on a GAAP-basis increased compared
to the second-quarter of 2016 and the third-quarter of 2015. The
increase from both periods reflects higher discount accretion
associated with the former conduit securities.
Net interest revenue on an operating basis, decreased
from the second-quarter of 2016, primarily due to the maturity of
higher yielding securities, a temporary increase in wholesale
funding and additional income associated with a larger than normal
number of discrete security prepayments in the second-quarter of
2016. Compared to the third-quarter of 2015, net interest revenue
increased, primarily due to higher market interest rates and
disciplined liability pricing partially offset by lower interest
earning assets. Net interest margin, calculated based on
operating-basis net interest revenue, changed to 106 basis points
in the third-quarter of 2016 from 111 and 95 basis points in the
second-quarter of 2016 and the third-quarter of 2015,
respectively.
Expenses(1)The following table provides the
components of our GAAP-basis expenses for the periods noted:
(Dollars in millions)
3Q16 2Q16
Increase(Decrease)
3Q15
Increase(Decrease)
Compensation and employee benefits
$ 1,013 $ 989 2.4
% $ 1,051 (3.6 )% Information systems and communications
285
270 5.6 265 7.5 Transaction processing services
200 201 (0.5
) 201 (0.5 ) Occupancy
107 111 (3.6 ) 110 (2.7 ) Acquisition
and restructuring costs
42 20 110.0 10 320.0 Other
337 269 25.3 325 3.7
Total
Expenses $ 1,984 $ 1,860 6.7 % $ 1,962 1.1 %
(1) GEAM business acquired on July 1, 2016 has now been
integrated in to SSGA's operations. Therefore, the contribution of
revenue, expenses and assets under management are informed
estimates.
The following table provides a reconciliation of our
operating-basis (non-GAAP) expenses for the periods noted:
(Dollars in millions)
3Q16 2Q16
Increase(Decrease)
3Q15
Increase(Decrease)
Compensation and Employee Benefits Expenses: Total
compensation and employee benefits expenses, GAAP-basis
$
1,013 $ 989 2.4 % $ 1,051 (3.6 )% Severance costs associated
with staffing realignment
9 3
(75 ) Total compensation and employee benefits expenses,
operating-basis
$ 1,022 $ 992 3.0 $ 976
4.7
Other Expenses: Total other expenses,
GAAP-basis
$ 337 $ 269 25.3 $ 325 3.7 Provisions for
legal contingencies
(42 ) — — Expense billing matter
— (15 ) — Total other
expenses, operating-basis
$ 295 $ 254
16.1 $ 325 (9.2 )
Expenses: Total expenses,
GAAP-basis
$ 1,984 $ 1,860 6.7 $ 1,962 1.1 Severance
costs associated with staffing realignment
9 3 (75 )
Provisions for legal contingencies
(42 ) — — Expense
billing matter
— (15 ) — Acquisition costs(1)
(33
) (7 ) (7 ) Restructuring charges, net
(9
) (13 ) (3 ) Total expenses, operating-basis
$ 1,909 $ 1,828 4.4 $ 1,877 1.7
(1) The acquisition costs associated with the GEAM business
acquired on July 1, 2016 were $29 million for the third-quarter of
2016.
The following highlights primary drivers of changes in our
expenses for the noted periods, indicating (where relevant)
differences between our GAAP-basis and operating-basis results.
Third-quarter 2016 estimated expenses related to the GEAM business
acquired on July 1, 2016, totaled $82 million on a GAAP-basis and
$57 million on an operating-basis, which excludes acquisition costs
of $29 million. The additional third-quarter 2016 expenses related
to the acquired GEAM business largely impacted compensation and
employee benefits expenses and other expenses.
Compensation and employee benefits expenses on a
GAAP-basis increased from the second-quarter of 2016, due to
costs associated with the acquired GEAM business and increased
costs to support regulatory initiatives and new business. Compared
to the third-quarter of 2015, compensation and employee benefits
expenses decreased primarily due to lower severance costs and
savings related to State Street Beacon, partially offset by higher
costs related to the acquired GEAM business and increased costs to
support regulatory initiatives and new business.
Compensation and employee benefits expenses on an
operating-basis increased from the second-quarter of 2016, due
to costs associated with the acquired GEAM business and increased
costs to support regulatory initiatives and new business.
Compensation and employee benefits expenses increased from the
third-quarter of 2015, primarily due to increased costs to support
regulatory initiatives and new business, higher incentive
compensation and increased costs associated with the acquired GEAM
business, partially offset by State Street Beacon savings.
Information systems and communications expenses increased
from the second-quarter of 2016, primarily due to investments
supporting new business and State Street Beacon, as well as the
impact of the acquired GEAM business. Compared to the third-quarter
of 2015, Information systems and communication expenses increased,
due to investments supporting new business and State Street Beacon,
the impact of the acquired GEAM business, and costs to related to
regulatory initiatives.
Occupancy expenses decreased compared to the
second-quarter of 2016 and the third-quarter of 2015, the decrease
from both periods reflects a tax credit of $6 million.
Other expenses on a GAAP-basis increased from the
second-quarter of 2016, primarily due to establishing a legal
reserve related to previously disclosed investigations by U.S.
governmental agencies concerning our U.K. transition management
business in 2010 and 2011, the acquired GEAM business, and higher
costs to support regulatory initiatives, partially offset by
interest expense associated with the expense billing matter
recorded in the second-quarter of 2016. The increase from the
third-quarter of 2015 reflects the above legal reserve and the
acquired GEAM business, partially offset by lower professional
services expenses.
Other expenses on an operating-basis, increased from the
second-quarter of 2016, due to the acquired GEAM business and
higher costs related to regulatory initiatives. Compared to the
third-quarter of 2015, other expenses decreased, primarily due to
lower professional services and travel expenses, partially offset
by increased costs related to the acquired GEAM business.
Third-quarter of 2016 GAAP-basis effective tax rate was
11.4% compared to 12.9% in the second-quarter of 2016 and 10.5% in
the third-quarter of 2015. The operating-basis effective tax rates
for the third-quarter of 2016 was 30.3% compared to 27.0% in the
second-quarter of 2016 and 32.0% in the third-quarter of 2015.
CapitalThe following table presents our regulatory
capital ratios as of September 30, 2016 and June 30,
2016. The lower of our capital ratios calculated under the Basel
III advanced approaches and under the Basel III standardized
approach are applied in the assessment of our capital adequacy for
regulatory purposes. Also presented is the calculation of State
Street's and State Street Bank's supplementary leverage ratio (SLR)
under final U.S. banking regulator rules adopted in 2014 as of
September 30, 2016 and June 30, 2016. Unless otherwise
noted, 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.
September 30, 2016(1)
Basel IIIAdvancedApproaches(2)
Basel IIIStandardizedApproach
Basel III
FullyPhased-InAdvancedApproaches(Estimated) Pro-Forma(2)(3)
Basel III
FullyPhased-InStandardizedApproach(Estimated) Pro-Forma(3)
Common equity tier 1 ratio
12.3 % 12.5
% 11.8 % 12.0 % Tier 1 capital
ratio
15.5 15.7 15.1 15.3 Total capital
ratio
17.6 17.9 17.2 17.5 Tier 1
leverage ratio
6.8 6.8 6.6 6.6
June 30, 2016 Common equity tier 1 ratio 12.0 % 12.0 % 11.6 % 11.5
% Tier 1 capital ratio 15.0 15.0 14.7 14.6 Total capital ratio 17.1
17.1 16.7 16.7 Tier 1 leverage ratio 7.0 7.0 6.9 6.9
State Street State Street Bank As of
September 30, 2016(Dollars in millions)(1) Transitional SLR
Fully Phased-InSLR(4)
Transitional SLR
Fully Phased-InSLR(4)
Tier 1 Capital
$ 15,410 $ 14,935
$ 15,821 $ 15,380 Total assets for SLR
250,927 250,700 246,256 246,052
Supplementary Leverage Ratio
6.1 % 6.0
% 6.4 % 6.3 % As of June
30, 2016(Dollars in millions) Tier 1 Capital $ 15,642 $ 15,249
15,742 15,385 Total assets for SLR 249,050 248,767 244,483 244,226
Supplementary Leverage Ratio 6.3 % 6.1 % 6.4 % 6.3 %
(1) September 30, 2016 capital ratios are preliminary
estimates.(2) The advanced approaches-based ratios (actual and
estimated) included in this presentation 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.” Refer to the
addendum included with this news release for a description of the
advanced approaches and a discussion of related risks.(3) Estimated
pro-forma fully phased-in ratios as of September 30, 2016 and
June 30, 2016 (fully phased in as of January 1, 2019, as per
Basel III phase-in requirements for capital) reflect capital and
total risk-weighted assets calculated under the Basel III final
rule. Refer to the addendum included with this news release for
reconciliations of these estimated pro-forma fully phased-in ratios
to our capital ratios calculated under the currently applicable
regulatory requirements.(4) Estimated pro-forma fully phased-in
SLRs as of September 30, 2016 and June 30, 2016 (fully
phased-in as of January 1, 2018, as per the phase-in requirements
of the SLR final rule) are preliminary estimates as calculated
under the SLR final rule. Refer to the addendum included with this
news release for reconciliations of these estimated pro-forma fully
phased-in SLRs to our SLRs under currently applicable regulatory
requirements.
Additional Information
All earnings per share amounts represent fully diluted earnings
per common share. Return on average common shareholders' equity is
determined by dividing annualized net income available to common
equity by average common shareholders' equity for the period.
Operating-basis return on average common equity utilizes annualized
operating-basis net income available to common equity in the
calculation.
Investor Conference Call and Quarterly
Website Disclosures
State Street will webcast an investor conference call today,
Wednesday, October 26, 2016, at 9:30 a.m. EDT, available at
http://investors.statestreet.com/. 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 #
72846579.
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 # 72846579.
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 http://investors.statestreet.com/ 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
http://investors.statestreet.com/, 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 2016,
State Street expects to publish its updates during the period
beginning today and ending on or about November 4, 2016.
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 $29 trillion in assets under custody and
administration and $2 trillion* in assets under management as of
September 30, 2016, State Street operates globally in more
than 100 geographic markets and employs 33,332 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 $40 billion as of September 30, 2016), 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 within the
meaning of United States securities laws, including statements
about our goals and expectations regarding our business, financial
and capital condition, results of operations, 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,” "priority," “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 26, 2016.
Important factors that may 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, 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,
resolution planning, and compliance programs, and changes in
governmental enforcement approaches to perceived failures to comply
with regulatory or legal obligations;
- we may not successfully implement our
plans to address the deficiencies jointly identified by the Federal
Reserve and the FDIC in April 2016 with respect to our 2015
resolution plan, or those plans may not be considered to be
sufficient by the Federal Reserve and the FDIC, due to a number of
factors, including, but not limited to challenges we may experience
in interpreting and addressing regulatory expectations, failure to
implement remediation in a timely manner, the complexities of
development of a comprehensive plan to resolve a global custodial
bank and related costs and dependencies. If we fail to meet
regulatory expectations to the satisfaction of the Federal Reserve
and the FDIC in our resolution plan submission filed on October 1,
2016 or in any future submission, we could be subject to more
stringent capital, leverage or liquidity requirements, or
restrictions on our growth, activities or operations;
- 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;
- economic or financial market
disruptions in the U.S. or internationally, including that which
may result from recessions or political instability, for example,
the decision by the U.K.'s referendum to exit from the European
Union may continue to disrupt financial markets or economic growth
in Europe;
- our ability to develop and execute
State Street Beacon, our multi-year transformation program digitize
our business to deliver significant value and innovation for our
clients and lower expenses across the organization, any failure of
which, in whole or in part, may among other things, reduce our
competitive position, diminish the cost-effectiveness of our
systems and processes or provide an insufficient return on our
associated investment;
- 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 our review of our
billing practices, including additional amounts we may be required
to reimburse clients, as well as potential consequences of such
review, including damage to our client relationships and adverse
actions by governmental authorities;
- the results of, and costs associated
with, governmental or regulatory inquiries and investigations,
litigation and similar claims, disputes, or civil or criminal
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 depositary 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 (including those of our third-party service providers) and
their effective operation both independently and with external
systems, and complexities and costs of protecting the security of
such 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 2015 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 26, 2016, 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/20161026005494/en/
State Street CorporationInvestor Contact:Anthony Ostler, +1
617-664-3477orMedia Contact:Hannah Grove, +1 617-664-3377
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