On an operating-basis, fourth-quarter 2016
EPS was $1.48 and ROE of 12.5%, on revenue of $2.7 billion;
Full-year 2016 operating-basis EPS was $5.27 and ROE of 11.1%, on
revenue of $10.8 billion
Two notable items during the fourth quarter
of 2016 which affected both GAAP and operating-basis results, with
a net benefit of $0.13 per share, were an acceleration of deferred
compensation expense of $0.41 per share and an aggregate reduction
of accrued tax expense of $0.54 per share, attributable to
indefinitely invested foreign earnings and benefits attributable to
incremental foreign tax credits and a foreign affiliate tax
loss
In announcing today’s financial results, Joseph L. Hooley, State
Street’s Chairman and Chief Executive Officer, said, “Our
fourth-quarter and full-year 2016 results reflect the strength of
our business and our commitment to advancing key strategic
priorities that support State Street’s growth. Highlights for
full-year 2016 include:
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- New asset servicing commitments of $1.4
trillion, including $180 billion in the fourth quarter, reflecting
strong growth with significant participation from Europe;
- Strong expense management and continued
focus on positive fee operating leverage;
- Advancement of our strategic priority
to become a digital leader in financial services through our State
Street Beacon initiative, delivering tangible benefits to clients
and more than doubling the expected annual pre-tax savings in 2016
to $175 million;
- Significant progress across all of our
other strategic priorities - driving growth from our core
franchise; continuing to invest in new products and solutions; and
leveraging our strong capital position to return capital to
shareholders.
Hooley concluded, “We are focused on our 2017 strategic
priorities, which include: advancing our digital leadership through
State Street Beacon; driving growth from core franchises;
continuous investment in new products and solutions; and achieving
our financial goals, including generating positive fee operating
leverage and continuing to return capital to shareholders. We look
forward to updating you on our progress throughout the year."
Fourth-Quarter 2016 and Full-Year 2016 Highlights:
- New business: New asset
servicing mandates during the fourth-quarter of 2016 and full-year
2016 totaled approximately $180 billion and $1.4 trillion,
respectively. In our asset management business, we experienced
fourth quarter net inflows of $16 billion and net outflows of $42
billion during full-year 2016. Notably, ETFs experienced $36
billion and $52 billion of net inflows during the fourth-quarter
and full-year 2016, respectively.
- Currency impact: Compared to
third-quarter 2016 and fourth-quarter of 2015, the strengthening of
the U.S. dollar reduced our fee revenue outside of the U.S. in the
fourth-quarter of 2016 by approximately $21 million and $27
million, respectively. Compared to full-year 2015, the
strengthening U.S. dollar reduced our fee revenue outside the U.S.
for full-year 2016 by approximately $67 million. A corresponding
benefit to expenses in 2016 largely offset the currency impact on
our fee revenues in each of the comparisons.
- Capital(a): Our
common equity tier 1 ratios as of December 31, 2016 were 11.7%
and 11.6%, 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 December 31, 2016
were 10.9% and 10.9%, calculated under both 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 $76.70 per share in the
fourth-quarter of 2016. In addition, we declared a quarterly common
stock dividend of $0.38 per share in the fourth-quarter of
2016.
(a) 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.
Fourth-quarter of 2016 GAAP-basis and operating-basis results
included the following notable items:
- A $145 million ($0.37 per share) tax
benefit from the designation of certain of our foreign earnings as
indefinitely invested overseas, based on a review of our need for
capital, liquidity and future investment.
- Income taxes were also impacted by a
$66 million ($0.17 per share) tax benefit attributable to
incremental foreign tax credits and a foreign affiliate tax
loss.
- A pre-tax charge of $249 million ($161
million after-tax, or $0.41 per share) associated with an amendment
of the terms of outstanding deferred cash-settled incentive
compensation awards for employees below executive vice president to
remove continued service requirements, thereby accelerating the
future expense that would have been recognized over the remaining
term of the awards (1-4 years, depending on the award) had the
continued service requirement not been removed. The deferred
portion of many of our bonus-eligible employees' total compensation
had become disproportionate relative to our peer organizations
hindering our efforts to attract and retain talent. The expense
that would otherwise have been associated with the amended awards
will no longer be reflected in future periods. We expect that the
acceleration of the expense will financially allow us to increase
the immediate cash component of our mix of incentive compensation
in future periods relative to what we have had in recent years and
that the impact of increased immediate cash awards in 2017 will
offset the going-forward effects of the 2016 expense acceleration
in 2017. The expense impact of future immediate and deferred
incentive compensation awards will depend upon corporate
performance and market, regulatory, and other factors and
conditions, including the form of those awards.
- Fourth-quarter results included
estimated revenue of $64 million and estimated expenses of $58
million associated with the GE Asset Management (GEAM) business
acquired on July 1, 2016. In addition to the estimated $58 million
of fourth-quarter expenses, fourth-quarter results included $25
million of non-recurring acquisition costs related to the acquired
GEAM business.
Fourth-Quarter 2016 GAAP-Basis Results:
(Table presents summary results, dollars
inmillions, except per share amounts, or whereotherwise noted)
4Q16 3Q16
Increase(Decrease)
4Q15
Increase
(Decrease)
Total fee revenue
$ 2,014 $ 2,079 (3.1 )% $ 2,044
(1.5 )% Net interest revenue
514 537 (4.3 ) 494 4.0 Total
revenue
2,530 2,620 (3.4 ) 2,538 (0.3 ) Provision for loan
losses
2 — nm 1 nm Total expenses
2,183 1,984 10.0
1,857 17.6 Net income available to common shareholders
557
507 9.9 547 1.8
Earnings per common share: Diluted
1.43 1.29 10.9 1.34 6.7
Financial ratios:
Return on average common equity
12.1 % 10.6 % 150 bps
11.6 % 50 bps Total assets as of period-end
$
242,698 $ 256,140 (5.2 )% $ 245,155 (1.0 )% Quarterly
average total assets
232,999 233,017 — 228,163 2.1
nm Not meaningful
Full-Year 2016 GAAP-Basis Results:
(Table presents summary results, dollars
in millions, except per shareamounts, or where otherwise noted)
2016 2015
Increase(Decrease)
Total fee revenue
$ 8,116 $ 8,278 (2.0 )% Net
interest revenue
2,084 2,088 (0.2 ) Total revenue
10,207 10,360 (1.5 ) Provision for loan losses
10 12
nm Total expenses
8,077 8,050 0.3 Net income available to
common shareholders
1,968 1,848 6.5
Earnings per common
share(1):
Diluted
4.97 4.47 11.2
Financial ratios:
Return on average common equity
10.5 % 9.8 % 70 bps
Total assets as of year-end
$ 242,698 $
245,155 (1.0 )% Average total assets
229,727 250,432 (8.3 )
(1) The 2016 and 2015 results included net after-tax charges of
$83 million and $4 million, respectively, or $0.21 and $0.01 per
share, respectively, primarily related to State Street Beacon.nm
Not meaningful
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.
Fourth-Quarter 2016 Operating-Basis (Non-GAAP)
Results:
(Table presents summary results, dollars
inmillions, except per share amounts, or whereotherwise noted)
4Q16 3Q16
Increase(Decrease)
4Q15
Increase(Decrease)
Total fee revenue
$ 2,200 $ 2,213 (0.6 )% $ 2,075 6.0
% Net interest revenue
547 537 1.9 513 6.6 Total revenue
2,749 2,754 (0.2 ) 2,588 6.2 Provision for loan losses
2 — nm 1 nm Total expenses
2,143 1,909 12.3 1,820
17.7 Net income available to common shareholders
577 532 8.5
494 16.8 Total assets as of period-end
242,698 256,140 (5.2
) 245,155 (1.0 ) Quarterly average total assets
232,999
233,017 — 228,163 2.1 Diluted Earnings per Share
1.48 1.35
9.6 1.21 22.3 Return on average common equity
12.5 %
11.1 % 140 bps 10.5 % 200 bps Net unrealized (losses) gains on
investment securities, after-tax, as of period-end(1)
$
(170 ) $ 703 (124.2 )% $ 58 (393.1 )%
nm Not meaningful(1) Includes net unrealized (losses) gains on
investment securities, after tax, for securities classified as
available for sale (included in accumulated other comprehensive
income) of $(35) million, and held-to-maturity, representing the
unrecognized difference between amortized cost and fair value, of
$(135) million as of December 31, 2016.
The growth rate of operating-basis total expenses exceeded the
growth rate of operating-basis fee revenue during the
fourth-quarter of 2016 relative to the fourth-quarter of 2015,
representing negative fee operating leverage of 1,173 basis points.
The growth rate of operating-basis total expenses exceeded the
growth rate of operating-basis fee revenue by 280 basis points
during full-year 2016 relative to full-year 2015.
Excluding the expense associated with the acceleration of
deferred cash awards and the impact of the acquired GEAM business1,
the growth rate of operating-basis fee revenue exceeded the growth
rate of operating-basis expenses during the fourth-quarter of 2016
relative to the fourth-quarter of 2015, representing positive fee
operating leverage of 206 basis points. Excluding the items noted
above1, the growth rate of operating-basis total fee revenue
exceeded the growth rate of operating-basis total expenses by 51
basis points during full-year 2016 relative to full-year 2015.
State Street Beacon, our multi-year transformation program,
delivered $175 million in estimated annual pre-tax savings in
2016.
1Please refer to the addendum for a reconciliation of operating
leverage on a stated basis to operating leverage excluding the
impact of the acceleration of deferred cash awards and the acquired
GEAM business.
Full-Year 2016 Operating-Basis (Non-GAAP) Results:
(Table presents summary results, dollars
in millions, except pershare amounts, or where otherwise noted)
2016 2015
Increase(Decrease)
Total fee revenue
$ 8,576 $ 8,472 1.2 % Net interest
revenue
2,169 2,163 0.3 Total revenue
10,752 10,629
1.2 Provision for loan losses
10 12 nm Total expenses
7,823 7,520 4.0 Net income available to common shareholders
2,087 2,022 3.2 Total assets as of year-end
242,698
245,155 (1.0 ) Average total assets
229,727 250,432 (8.3 )
Diluted Earnings per Share
5.27 4.89 7.8 Return on average
common equity
11.1 % 10.7 % 40 bps Net unrealized
(losses) gains on investment securities, after-tax, as of
period-end(1)
$ (170 ) $ 58 (393.1 )%
nm Not meaningful(1) Includes net unrealized (losses) gains on
investment securities, after tax, for securities classified as
available for sale (included in accumulated other comprehensive
income) of $(35) million, and held-to-maturity, representing the
unrecognized difference between amortized cost and fair value, of
$(135) million as of December 31, 2016.
The following tables reconcile select fourth-quarter 2016 and
full-year 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.
Fourth-Quarter 2016 Selected Operating-Basis (Non-GAAP)
Reconciliations:
(In millions, except per
share amounts)
IncomeBeforeIncome TaxExpense
Net IncomeAvailable
toCommonShareholders
EarningsPerCommonShare
GAAP-basis
$ 345 $ 557 $
1.43 Tax-equivalent adjustments Tax-advantaged investments
(processing fees and other revenue)
186 Tax-exempt
investment securities (net interest revenue)
43 Total
229 Non-operating adjustments Discount accretion associated
with former conduit securities (net interest revenue)
(10
) (6 ) (.01 ) Severance costs
associated with staffing realignment (compensation and employee
benefits expenses)
(2 ) (1 ) —
Provision for legal contingencies
(1 ) 9
.02 Acquisition & restructuring costs (expenses)(1)
43 23 .05 Effect on income tax of
non-operating adjustments
— (5 )
(.01 ) Total
30 20
.05 Operating-basis
$ 604
$ 577 $ 1.48
(1) Includes a pre-tax charge of $21 million ($8 million after
tax or $0.02 per share) primarily related to State Street
Beacon.
Full-Year 2016 Selected Operating-Basis (Non-GAAP)
Reconciliations:
(In millions, except per
share amounts)
IncomeBeforeIncome TaxExpense
Net IncomeAvailable
toCommonShareholders
EarningsPerCommonShare
GAAP-basis
$ 2,120 $ 1,968 $
4.97 Tax-equivalent adjustments Tax-advantaged investments
(processing fees and other revenue)
470 Tax-exempt
investment securities (net interest revenue)
167
Total
637 Non-operating adjustments Discount accretion
associated with former conduit securities (net interest revenue)
(82 ) (50 ) (.13 )
Severance costs associated with staffing realignment (compensation
and employee benefits expenses)
(11 ) (6
) (.02 ) Provision for legal contingencies
41 51 .13 Acquisition & restructuring
costs (expenses)(1)
209 126 .32 Gain on sale
of WM/Reuters
(53 ) (40 ) (.10
) Expense billing matter(2)
58 38
.10 Total
162 119
.30 Operating-basis
$ 2,919
$ 2,087 $ 5.27
(1) Includes a pre-tax charge of $140 million ($83 million after
tax or $0.21 per share) primarily related to State Street
Beacon.(2) Expense billing matter, net, 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. Refer to
reconciliations of GAAP to operating-basis expenses on the
following pages.
Selected Financial Information and Ratios
The tables below provide a summary of selected financial
information and key ratios for the indicated periods. 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)
4Q16 3Q16
Increase(Decrease)
4Q15
Increase(Decrease)
Assets under custody and administration(1)(2)
$
28,771 $ 29,178 (1.4 )% $ 27,508 4.6 % Assets under
management(2)(3)
2,468 2,446 0.9 2,245 9.9 Market
Indices(4): S&P 500® daily average
2,185 2,162 1.1 2,052
6.5 MSCI EAFE® daily average
1,660 1,678 (1.1 ) 1,732 (4.2 )
MSCI® Emerging Markets daily average
877 887 (1.1 ) 828 5.9
S&P 500® average of month-end
2,188 2,171 0.8 2,068 5.8
MSCI EAFE® average of month-end
1,660 1,692 (1.9 ) 1,743
(4.8 ) MSCI® Emerging Markets average of month-end
877 890
(1.5 ) 819 7.1 Barclays Capital U.S. Aggregate Bond Index®
period-end
1,976 2,037 (3.0 ) 1,925 2.6 Barclays Capital
Global Aggregate Bond Index® period-end
451 486 (7.2 ) 442
2.0 Average Foreign Exchange Rate (Euro vs. USD)
1.078 1.116
(3.4 ) 1.095 (1.6 ) Average Foreign Exchange Rate (GBP vs. USD)
1.242 1.312 (5.3 ) 1.517 (18.1 )
(1) Includes assets under custody of $21,725 billion, $21,910
billion and $21,258 billion, as of December 31, 2016,
September 30, 2016 and December 31, 2015,
respectively.(2) As of period-end.(3) Includes assets under
management as part of the GEAM business acquired on July 1,
2016.(4) The index names listed in the table are service marks of
their respective owners.
Assets Under Management
The following table presents fourth-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 September 30, 2016 $ 1,410 $ 391 $ 351 $
125 $ 169 $ 2,446 Long-term institutional inflows(1)
83
29 — 14 4 130 Long-term
institutional outflows(1)
(95 ) (25 )
— (9 ) (6 ) (135
) Long-term institutional flows, net
(12 )
4 — 5 (2 ) (5 )
ETF flows, net
41 1 — — (6
) 36 Cash fund flows, net
— —
(15 ) — —
(15 ) Total flows, net
29 5 (15
) 5 (8 ) 16 Market appreciation
56 (9 ) (1 ) (1 )
(1 ) 44 Foreign exchange impact
(21
) (9 ) (2 ) (3 )
(3 ) (38 ) Total market/foreign
exchange impact
35 (18 ) (3
) (4 ) (4 ) 6
Balance as of December 31, 2016
$ 1,474
$ 378 $ 333 $
126 $ 157 $ 2,468
The following table presents year-to-date activity for the
period ending December 31, 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)
244
90 — 48 13 395 Long-term
institutional outflows(1)
(301 ) (96 )
— (34 ) (21 ) (452
) Long-term institutional flows, net
(57 )
(6 ) — 14 (8 ) (57
) ETF flows, net
37 9 — —
6 52 Cash fund flows, net
— —
(37 ) — —
(37 ) Total flows, net
(20 ) 3
(37 ) 14 (2 ) (42
) Market appreciation
140 10 — 9
14 173 Foreign exchange impact
(10 )
(3 ) (2 ) (3 ) (2
) (20 ) Total market/foreign exchange impact
130 7 (2 ) 6 12
153 Acquisitions and transfers(2)
38 56
4 3 11 112
Balance as of December 31, 2016
$ 1,474
$ 378 $ 333 $
126 $ 157 $ 2,468
(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.
Revenue
The following tables provide the components of our GAAP-basis
and operating-basis revenue for the periods noted:
GAAP- basis Revenue
(Dollars in millions)
4Q16 3Q16
Increase(Decrease)
4Q15
Increase(Decrease)
Servicing fees
$ 1,289 $ 1,303 (1.1 )% $ 1,277 0.9 %
Management fees
361 368 (1.9 ) 282 28.0 Trading services
revenue: Foreign exchange trading
182 159 14.5 143 27.3
Brokerage and other fees
111 108 2.8
104 6.7 Total trading services revenue
293 267
9.7 247 18.6 Securities finance revenue
136 136 — 127 7.1
Processing fees and other revenue
(65 ) 5 nm
111 (158.6 ) Total fee revenue
2,014 2,079 (3.1 )
2,044 (1.5 ) Net interest revenue
514 537 (4.3 ) 494 4.0
Gains (losses) related to investment securities, net
2
4 nm — nm
Total Revenue $
2,530 $ 2,620 (3.4 )% $ 2,538 (0.3 )%
nm Not meaningful
Operating-Basis (non-GAAP) Revenue
(Dollars in millions)
4Q16 3Q16
Increase(Decrease)
4Q15
Increase(Decrease)
Servicing fees
$ 1,289 $ 1,303 (1.1 )% $ 1,277 0.9 %
Management fees
361 368 (1.9 ) 282 28.0 Trading services
revenue: Foreign exchange trading
182 159 14.5 143 27.3
Brokerage and other fees
111 108 2.8
104 6.7 Total trading services revenue
293 267
9.7 247 18.6 Securities finance revenue
136 136 — 127 7.1
Processing fees and other revenue
121 139
(12.9 ) 142 (14.8 ) Total fee revenue
2,200 2,213
(0.6 ) 2,075 6.0 Net interest revenue
547 537 1.9 513 6.6
Gains (losses) related to investment securities, net
2
4 nm — nm
Total Revenue $
2,749 $ 2,754 (0.2 )% $ 2,588 6.2 %
nm Not meaningful
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 decreased from the third-quarter of 2016,
primarily due to the impact of the stronger U.S. dollar. Compared
to the fourth-quarter of 2015, servicing fees increased primarily
due to net new business, partially offset by the stronger U.S.
dollar.
Management fees decreased from the third-quarter of 2016,
primarily due to the impact of the stronger U.S. dollar and cash
outflows, partially offset by ETF inflows. Compared to the
fourth-quarter of 2015, management fees increased primarily due to
an estimated $64 million from the acquired GEAM business, lower
money market fee waivers, higher global equity markets, and ETF
inflows, partially offset by the stronger U.S. dollar and cash
outflows.
Foreign exchange trading revenue increased from the
third-quarter of 2016 and the fourth-quarter of 2015, in each case
reflecting higher volatility and client-related volumes.
Brokerage and other fees increased slightly from the
third-quarter of 2016. Compared to the fourth-quarter of 2015,
brokerage and other fees increased, primarily due to higher
transition management revenue.
Securities finance revenue was flat from the
third-quarter of 2016. Compared to the fourth-quarter of 2015,
securities finance revenue increased, primarily due to increased
revenue from enhanced custody, partially offset by lower agency
revenue.
Processing fees and other revenue on a GAAP-basis
decreased compared to the third-quarter of 2016, primarily due to
increased amortization related to the tax advantaged investment
business, unfavorable valuation adjustments (including the impact
of foreign exchange swaps), and lower revenue from joint ventures.
Compared to the fourth-quarter of 2015, processing fees and other
revenue decreased, reflecting a gain recorded in the fourth-quarter
of 2015 related to the sale of commercial real estate acquired as a
result of the Lehman Brothers bankruptcy, increased amortization
related to the tax advantaged investment business, unfavorable
valuation adjustments, and lower revenue from joint ventures.
Processing fees and other revenue on an operating
basis decreased compared to the third-quarter of 2016 and the
fourth-quarter of 2015. The decrease from both periods reflects
unfavorable valuation adjustments (including the impact of foreign
exchange swaps) and lower revenue from joint ventures, partially
offset by higher revenue associated with tax advantaged
investments.
Net interest revenue on a GAAP-basis in the
fourth-quarter of 2016 reflects lower discount accretion associated
with the former conduit securities compared to the third-quarter of
2016 and the fourth-quarter of 2015.
Net interest revenue on an operating basis increased from
the third-quarter of 2016, primarily due to a decrease in wholesale
funding from elevated levels in the third-quarter of 2016 and
several discrete security prepayments in the investment portfolio
that represented $8 million net interest revenue. These benefits
were partially offset by continued declines in foreign security
yields. Compared to the fourth-quarter of 2015, net interest
revenue increased, primarily due to higher market interest rates in
the U.S., disciplined liability pricing and several discrete
security prepayments in the investment portfolio that represented
$8 million in net interest revenue. Net interest margin, calculated
based on operating-basis net interest revenue, increased to 108
basis points in the fourth-quarter of 2016 from 106 and 101 basis
points in the third-quarter of 2016 and the fourth-quarter of 2015,
respectively.
Expenses
The following tables provide the components of our GAAP-basis
and operating-basis expenses for the periods noted:
GAAP-basis Expenses
(Dollars in millions)
4Q16 3Q16
Increase(Decrease)
4Q15
Increase(Decrease)
Compensation and employee benefits
$ 1,244 $ 1,013
22.8 % $ 939 32.5 % Information systems and communications
278 285 (2.5 ) 261 6.5 Transaction processing services
199 200 (0.5 ) 194 2.6 Occupancy
109 107 1.9 112 (2.7
) Acquisition and restructuring costs(1)
43 42 2.4 6 616.7
Other
310 337 (8.0 ) 345 (10.1 )
Total Expenses $ 2,183 $ 1,984
10.0 % $ 1,857 17.6 %
(1) The acquisition costs associated with the GEAM business
acquired on July 1, 2016 were $25 million and $29 million for the
fourth-quarter and third-quarter of 2016, respectively.
Operating-basis (non-GAAP) Expenses
(Dollars in millions)
4Q16 3Q16
Increase(Decrease)
4Q15
Increase(Decrease)
Compensation and employee benefits
$ 1,246 $ 1,022
21.9 % $ 940 32.6 % Information systems and communications
278 285 (2.5 ) 261 6.5 Transaction processing services
199 200 (0.5 ) 194 2.6 Occupancy
109 107 1.9 112 (2.7
) Other
311 295 5.4 313 (0.6 )
Total Expenses $ 2,143 $ 1,909
12.3 % $ 1,820 17.7 %
Compensation and employee benefits expenses increased
from the third-quarter of 2016, primarily due to $249 million
associated with the acceleration of certain deferred cash settled
awards, partially offset by the impact of the stronger U.S. dollar,
one fewer payroll day in the fourth quarter of 2016, and State
Street Beacon savings. Compensation and employee benefits expenses
increased from the fourth-quarter of 2015, primarily due to costs
associated with the acceleration of certain deferred cash settled
awards, higher incentive compensation, costs associated with the
acquired GEAM business, and higher costs to support regulatory
initiatives and new business, partially offset by State Street
Beacon savings.
Information systems and communications expenses decreased
slightly from the third-quarter of 2016. Compared to the
fourth-quarter of 2015, Information systems and communication
expenses increased, due to investments supporting new business and
State Street Beacon, and the impact of the acquired GEAM
business.
Occupancy expenses increased slightly compared to the
third-quarter of 2016. Compared to fourth-quarter of 2015,
occupancy expenses decreased, reflecting the impact of the stronger
U.S. dollar.
Other expenses on a GAAP-basis decreased from the
third-quarter of 2016, primarily due to lower litigation-related
expenses, partially offset by higher professional services fees and
securities processing costs. Other expenses decreased compared to
the fourth-quarter of 2015, reflecting lower litigation-related
expenses and higher expenses in the fourth quarter of 2015
associated with the previously disclosed expense billing
matter.
Other expenses on an operating-basis increased from the
third-quarter of 2016, primarily due to higher professional service
fees and securities processing costs, partially offset by lower
insurance expenses. Other expenses decreased slightly from the
fourth-quarter of 2015, reflecting lower professional services fees
and travel expenses, partially offset by costs associated with the
acquired GEAM business and higher securities processing costs.
Fourth-quarter of 2016 GAAP-basis effective tax rate was
-72.3% compared to 11.4% in the third-quarter of 2016 and 15.1% in
the fourth-quarter of 2015. The fourth-quarter of 2016 reflects a
reduction of $145 million in accrued tax expense attributable to
the designation of certain of our foreign earnings as indefinitely
invested overseas and tax benefits of $66 million from incremental
foreign tax credits and a foreign affiliate tax loss.
Fourth-quarter of 2016 operating-basis effective tax rate
was -1.5% compared to 30.3% in the third-quarter of 2016 and 31.8%
in the fourth-quarter of 2015. Excluding the $145 million reduction
of accrued tax expense and the $66 million of tax benefits from
capital actions, the operating-basis effective tax rate in the
fourth-quarter of 2016 was 34% which was higher than both the
third-quarter of 2016 and the fourth-quarter of 2015 due to an
increase in alternative energy investments.
Capital
The following table presents our regulatory capital ratios as of
December 31, 2016 and September 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
December 31, 2016 and September, 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.
December
31, 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
11.7 % 11.6
% 10.9 % 10.9 % Tier 1 capital
ratio
14.8 14.7 14.1 14.1 Total capital
ratio
16.0 16.0 15.3 15.3 Tier 1
leverage ratio
6.5 6.5 6.2 6.2
September, 2016 Common equity tier 1 ratio 12.3 % 12.5 %
11.8 % 12.0 % Tier 1 capital ratio 15.4 15.7 15.0 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
State Street
State Street Bank
As of December 31, 2016(Dollars in
millions)(1)
Transitional SLR
Fully Phased-InSLR(4)
Transitional SLR
Fully Phased-InSLR(4)
Tier 1 Capital $ 14,717 $ 14,051
$ 15,805 $ 15,169 Total assets for SLR
251,032
250,558
247,410
246,956 Supplementary Leverage Ratio
5.9
%
5.6 %
6.4 %
6.1 % As of September 30,
2016(Dollars in millions)
Tier 1 Capital $ 15,407 $
14,928
15,817
15,374 Total assets for SLR
250,991
250,694
246,306
246,032
Supplementary Leverage Ratio
6.1 %
6.0 %
6.4 %
6.2 %
(1) December 31, 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
December 31, 2016 and September, 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
December 31, 2016 and September, 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
In this news release:
- All earnings per share amounts (EPS)
represent fully diluted earnings per common share.
- Return on average common shareholders'
equity (ROE) 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.
- References to expense savings
associated with State Street Beacon are: (1) estimated pre-tax
expense savings and relate only to State Street Beacon, our
multi-year transformation program; and (2) are based on projected
improvement from our full-year 2015 operating-basis expenses, all
else equal. In addition, 2016 State Street Beacon expense savings
include targeted staff reductions announced in October 2015. The
full effect of the savings generated each year will be reflected
the following year. Actual expenses may increase or decrease in the
future due to other factors.
- 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
December 31, 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.
- The fourth-quarter 2016 charge
associated with an amendment of the terms of outstanding deferred
cash-settled incentive compensation awards was accomplished by
removing the continued service requirement associated with those
awards for employees below the executive vice president level. The
change did not affect deferred equity-settled incentive
compensation awards (which, in the aggregate, represents a majority
of the outstanding deferred compensation awards for the relevant
employees), and we expect that future deferred cash-settled
incentive compensation awards will retain the continued service
requirement. The payment schedule associated with the recent
deferred cash-settled incentive compensation awards will no longer
be reflected in future periods.
Investor Conference Call and Quarterly
Website Disclosures
State Street will webcast an investor conference call today,
Wednesday, January 25, 2017, at 9:30 a.m. EST, 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 #
46613806.
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 # 46613806.
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 fourth-quarter of 2016,
State Street expects to publish its updates during the period
beginning today and ending on or about February 16, 2017.
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
December 31, 2016, State Street operates globally in more than
100 geographic markets and employs 33,783 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 $31 billion as of December 31, 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 January 25, 2017.
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 needs, regulatory 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 have a credible resolution plan by July 2017, or that plan
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 to be filed on July 1, 2017 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 or non-objection 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
corporate activities, including, without limitation, acquisitions,
dividends and stock purchases, without which our growth plans,
distributions to shareholders, share repurchase programs or other
capital or corporate 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 U.K.'s referendum to exit from the European Union may continue
to disrupt financial markets or economic growth in Europe or
similarly, financial markets may react sharply or abruptly to
actions taken by the new Presidential Administration in the United
States;
- our ability to develop and execute
State Street Beacon, our multi-year transformation program to
digitize our business, 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,
ethical behavior and governance that meets our expectations and
those of our clients and our regulators, and the financial,
regulatory, reputation and other consequences of our failure to
meet such expectations;
- 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, including, without limitation, that a resolution of
the SEC's previously disclosed investigation concerning six
EMEA-based (Europe, Middle-East and Africa) clients that were
overcharged for transition management services in 2010 and 2011, on
the previously disclosed terms agreed upon in principle with the
SEC Staff or otherwise, is not final and is subject to completion
of negotiations with the SEC Staff, followed by review and
consideration by the SEC, and the terms of any such settlement,
including, without limitation, the amount of the related penalty,
remain subject to change;
- due to the large pools of assets
controlled by our institutional clients, we are subject to the risk
of potentially significant variability in our assets under custody
and administration and assets under management, and correspondingly
in our fee revenue and results of operations, in the event of the
loss or gain of any one client or the re-balancing or re-investment
of a significant portion of any one or more clients’ assets into
lower- or higher-fee asset classes, and we are subject to
significant pressure to reduce the fees we charge for our services
as a result of the considerable market influence exerted by those
clients and other competitive forces;
- 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 should not by relied on
as representing our expectations or beliefs as of any time
subsequent to the time this news release is first issued, and we do
not undertake efforts to revise those forward-looking statements to
reflect events after that time.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170125005382/en/
State Street CorporationInvestor Contact:Anthony Ostler, +1
617-664-3477orMedia Contact:Hannah Grove, +1 617-664-3377
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