2Q17 GAAP-Basis Revenue and Fee Revenue up
9% Compared to 2Q16, Reflecting Higher Equity Markets and New
Client Business Momentum
2Q17 GAAP-Basis Pre-Tax Margin of 27.6% and
Fee Operating Leverage of -32 Basis Points, Tempered by
Restructuring Costs of $0.11 Per Share
On an operating-basis, results for 2Q17
compared to 2Q16 include:
- EPS was $1.67, up 14%
- ROE of 13.7%, up 140 basis
points
- Revenue up 10%; and Fee revenue up
9%
- Fee operating leverage of 189 basis
points
- Pre-tax operating margin of 33.3%,
up 180 basis points
In announcing today’s financial results, Joseph L. Hooley, State
Street’s Chairman and Chief Executive Officer, said, "We are very
pleased with our second-quarter results, delivering a record level
of quarterly earnings per share that reflect continued strength in
global equity markets as well as momentum in our asset servicing
and asset management businesses. We also for the first time
exceeded $31 trillion in assets under custody and administration
this quarter fueled by a combination of new business activity and
higher equity markets."
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Hooley added, "In June we celebrated our 225th anniversary.
We're proud to be in a rare category of companies whose success is
measured not in years or decades, but in centuries. We’ve been able
to achieve this success by focusing on our clients and on key
markets, while delivering new solutions to address our clients'
needs. We continue to invest and obtain long-term benefits from
Beacon, which is core to our next phase of advancing State Street.
We're making progress in digitizing our operations and providing
new capabilities and information advantages to our clients."
Hooley concluded, "We continue to prioritize returning capital
to our shareholders. In June, our Board of Directors approved a
$1.4 billion common stock purchase program following the Federal
Reserve's review of our capital plan under its 2017 Comprehensive
Capital Analysis and Review (CCAR) process. Our 2017 capital plan
also includes an increase of approximately 11% in our quarterly
common stock dividend to $0.42 per share starting in the third
quarter of 2017."
2Q17 Highlights:
- Broad-based business momentum:
Strength in equity markets and new business lifted AUCA and AUM to
record levels. Asset servicing AUCA grew 12% as compared to 2Q16
quarter-end (4% growth compared to 1Q17 quarter-end). Asset
management AUM grew 13% as compared to 2Q16 quarter-end (2% growth
compared to 1Q17 quarter-end).
- New business: New asset
servicing mandates during 2Q17 totaled approximately $135 billion.
Servicing assets remaining to be installed in future periods
totaled approximately $370 billion at quarter-end.
- The acquired GE Asset Management
(GEAM) operations delivered accretive earnings ahead of our
announced plans, excluding merger and integration costs.
- Strength in trading services
and securities finance reflecting multiple product offerings
globally and higher client activity compared to 2Q16.
- Growth in net interest income
driven by higher market interest rates in the U.S. and continued
focus on the optimization of our liability mix.
- To achieve future cost savings and
efficiencies, GAAP-basis 2Q17 results included $62 million, or
$0.11 per share, in restructuring expenses related to State Street
Beacon.
- Carefully pacing investments to
support business expansion, while delivering positive
operating-basis fee operating leverage of 189 basis-points.
- Capital: Our estimated Basel III
common equity tier 1 ratio as of June 30, 2017 was 12.0% and
our estimated supplementary leverage ratio was 6.2%, while
delivering GAAP ROE of 12.6% and 13.7% on an operating basis.
2Q17 GAAP-Basis Results:
(Table presents summary results, dollars
in millions, except per share amounts, or where otherwise
noted)
2Q17 1Q17
Increase(Decrease)
2Q16
Increase(Decrease)
Total fee revenue
$ 2,235 $ 2,198 1.7 % $ 2,053 8.9 %
Net interest income
575 510 12.7 521 10.4 Total revenue
2,810 2,668 5.3 2,573 9.2 Provision for loan losses
3
(2 ) nm 4 (25.0 ) Total expenses
2,031 2,086 (2.6 ) 1,860
9.2 Net income available to common shareholders
584 446 30.9
585 (0.2 )
Earnings per common share: Diluted earnings per
share
1.53 1.15 33.0 1.47 4.1
Financial ratios:
Quarterly average total assets
223,917 219,209 2.1 229,197
(2.3 ) Fee operating leverage(1) 432 bps (32 ) bps Operating
leverage(1) 796 2
Return on average common equity
12.6 % 9.9 % 270 12.4 % 20
nm Not meaningful(1) The financial ratio represents the rate of
growth of total revenue (or fee revenue) less the rate of growth of
expenses relative to the preceding or prior year period, as the
case may be.
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
additional meaningful analysis and comparisons of trends with
respect to State Street's business operations from period to
period, as well as information, such as capital ratios calculated
under regulatory standards scheduled to be effective in the future
or other standards, that management uses in evaluating State
Street’s business and activities. Non-GAAP financial measures
should be considered in addition to, and not as a substitute for or
superior to, financial measures determined in conformity with GAAP.
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.
2Q17 Operating-Basis (Non-GAAP)
Results:
(Table presents summary results, dollars
in millions, except per share amounts, or where otherwise
noted)
2Q17 1Q17
Increase(Decrease)
2Q16
Increase(Decrease)
Total fee revenue(1)
$ 2,324 $ 2,268 2.5 % $ 2,130
9.1 % Net interest income(2)
617 553 11.6 546 13.0 Total
revenue(1)(2)
2,941 2,781 5.8 2,675 9.9 Provision for loan
losses
3 (2 ) nm 4 (25.0 ) Total expenses
1,960 2,057
(4.7 ) 1,828 7.2 Net income available to common shareholders
635 468 35.7 582 9.1
Earnings per common share:
Diluted earnings per share
1.67 1.21 38.0 1.46 14.4
Financial ratios: Fee operating leverage(3) 719 bps 189 bps
Operating leverage(3) 1,047 272 Return on average common equity
13.7 % 10.4 % 330 12.3 % 140
nm Not meaningful(1) The 1Q17 operating-basis results included a
pre-tax gain of approximately $30 million on the sale of State
Street's interest in BFDS/IFDS, reflecting a change in our
operating-basis presentation effective in 1Q17 to include
gains/losses on sales of businesses. In 2Q16, under our historical
presentation, operating-basis results excluded a $53 million
pre-tax gain on the sale of WM/Reuters business, and such results
have not been revised.(2) Beginning in 1Q17, management no longer
presents discount accretion associated with former conduit
securities as an operating-basis adjustment. Therefore, 2Q17 and
1Q17 GAAP and operating-basis results included $6 million and $5
million, respectively, of discount accretion. In 2Q16,
operating-basis net interest income excluded $15 million of
discount accretion, and such results have not been revised.(3) The
financial ratio represents the rate of growth of total
operating-basis revenue (or fee revenue) less the rate of growth of
operating-basis expenses relative to the preceding or prior year
period, as the case may be.
The following table reconciles select 2Q17 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.
2Q17 Selected Operating-Basis
(Non-GAAP) Reconciliations:
(In millions, except per share amounts)
IncomeBeforeIncome TaxExpense
Net IncomeAvailable to
CommonShareholders
EarningsPer CommonShare
GAAP-basis
$ 776 $ 584 $
1.53 Tax-equivalent non-operating adjustments Tax-advantaged
investments (processing fees and other revenue)
89
Tax-exempt investment securities (net interest income)
42
Total
131 Other non-operating adjustments Acquisition
& restructuring costs (expenses)(1)
71 46
.13 Effect on income tax of non-operating adjustments
— 5 .01 Total
71
51 .14 Operating-basis
$ 978
$ 635 $ 1.67
(1) Includes a pre-tax charge of $62 million ($40 million after
tax or $0.11 per share) related to State Street Beacon.
Selected Financial Information and Metrics
The tables below provide a summary of selected financial
information and key ratios for the indicated periods.
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 and foreign exchange rates)
2Q17 1Q17
Increase(Decrease)
2Q16
Increase(Decrease)
Assets under custody and administration(1)(2)
$
31,037 $ 29,833 4.0 % $ 27,786 11.7 % Assets under
management(2)(3)
2,606 2,561 1.8 2,301 13.3 Market
Indices(4): S&P 500® daily average
2,398 2,326 3.1 2,075
15.6 MSCI EAFE® daily average
1,856 1,749 6.1 1,648 12.6
MSCI® Emerging Markets daily average
993 927 7.1 819 21.2
HFRI Asset Weighted Composite® monthly average
1,339 1,323
1.2 1,250 7.1 Barclays Capital U.S. Aggregate Bond Index®
period-end
2,021 1,993 1.4 2,028 (0.3 ) Barclays Capital
Global Aggregate Bond Index® period-end
471 459 2.6 482 (2.3
) Average Foreign Exchange Rate (Euro vs. USD)
1.101 1.065
3.4 1.129 (2.5 ) Average Foreign Exchange Rate (GBP vs. USD)
1.280 1.239 3.3 1.434 (10.7 )
(1) Includes assets under custody of $23,362 billion, $22,505
billion and $21,354 billion, as of 2Q17, 1Q17, and 2Q16,
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 2Q17 activity in assets under
management, by product category.
(Dollars in billions)
Equity
Fixed-Income
Cash(2)
Multi-Asset-ClassSolutions
AlternativeInvestments(3)
Total Balance as of March 31, 2017 $ 1,559 $ 381 $ 335 $ 132
$ 154 $ 2,561 Long-term institutional inflows(1)
63
23 — 9 4 99 Long-term
institutional outflows(1)
(78 ) (20 )
— (12 ) (11 ) (121
) Long-term institutional flows, net
(15 )
3 — (3 ) (7 ) (22
) ETF flows, net
(9 ) 4 —
— 1 (4 ) Cash fund flows, net
—
— (2 ) — —
(2 ) Total flows, net
(24 )
7 (2 ) (3 ) (6 )
(28 ) Market appreciation
50 6 —
— — 56 Foreign exchange impact
9
4 1 2 1
17 Total market/foreign exchange impact
59
10 1 2 1
73 Balance as of June 30, 2017
$
1,594 $ 398 $ 334
$ 131 $ 149
$ 2,606
(1) Amounts represent long-term portfolios, excluding ETFs.(2)
Includes both floating and constant-net-asset-value portfolios held
in commingled structures or separate accounts.(3) Includes real
estate investment trusts, currency and commodities, including SPDR®
Gold ETF and SPDR® Long Dollar Gold Trust ETF. State Street is not
the investment manager for the SPDR® Gold ETF and the SPDR® Long
Dollar Gold Trust ETF, but acts as the marketing agent.
The following table presents year-to-date activity for the
period ending June 30, 2017 of assets under management, by
product category.
(Dollars in billions)
Equity
Fixed-Income Cash(2)
Multi-Asset-ClassSolutions
AlternativeInvestments(3)
Total Balance as of December 31, 2016 $ 1,474 $ 378 $ 333 $
126 $ 157 $ 2,468 Long-term institutional inflows(1)
134
45 — 21 12 212 Long-term
institutional outflows(1)
(163 ) (45 )
— (23 ) (29 ) (260
) Long-term institutional flows, net
(29 )
— — (2 ) (17 ) (48
) ETF flows, net
1 5 — —
2 8 Cash fund flows, net
— —
1 — — 1
Total flows, net
(28 ) 5 1
(2 ) (15 ) (39 ) Market
appreciation
131 8 (2 ) 3
4 144 Foreign exchange impact
17
7 2 4 3
33 Total market/foreign exchange impact
148
15 — 7 7
177 Balance as of June 30, 2017
$
1,594 $ 398 $ 334
$ 131 $ 149
$ 2,606
(1) Amounts represent long-term portfolios, excluding ETFs.(2)
Includes both floating and constant-net-asset-value portfolios held
in commingled structures or separate accounts.(3) Includes real
estate investment trusts, currency and commodities, including SPDR®
Gold ETF and SPDR® Long Dollar Gold Trust ETF. State Street is not
the investment manager for the SPDR® Gold ETF and the SPDR® Long
Dollar Gold Trust ETF, but acts as the marketing 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)
2Q17 1Q17
Increase(Decrease)
2Q16
Increase(Decrease)
Servicing fees
$ 1,339 $ 1,296 3.3 % $ 1,239 8.1 %
Management fees
397 382 3.9 293 35.5 Trading services
revenue: Foreign exchange trading
178 164 8.5 157 13.4
Brokerage and other fees
111 111 — 110
0.9 Total trading services revenue
289 275 5.1
267 8.2 Securities finance revenue
179 133 34.6 156 14.7
Processing fees and other revenue
31 112 (72.3
) 98 (68.4 ) Total fee revenue
2,235 2,198 1.7 2,053
8.9 Net interest income
575 510 12.7 521 10.4 Gains (losses)
related to investment securities, net
— (40 ) nm (1 )
nm
Total Revenue $ 2,810 $ 2,668
5.3 $ 2,573 9.2
nm Not meaningful
Operating-Basis (Non-GAAP)
Revenue
(Dollars in millions)
2Q17 1Q17
Increase(Decrease)
2Q16
Increase(Decrease)
Servicing fees
$ 1,339 $ 1,296 3.3 % $ 1,287 4.0 %
Management fees
397 382 3.9 288 37.8 Trading services
revenue: Foreign exchange trading
178 164 8.5 157 13.4
Brokerage and other fees
111 111 — 110
0.9 Total trading services revenue
289 275 5.1
267 8.2 Securities finance revenue
179 133 34.6 156 14.7
Processing fees and other revenue(1)
120 182
(34.1 ) 132 (9.1 ) Total fee revenue(1)
2,324 2,268
2.5 2,130 9.1 Net interest income(2)
617 553 11.6 546 13.0
Gains (losses) related to investment securities, net
—
(40 ) nm (1 ) nm
Total Revenue(1)(2) $
2,941 $ 2,781 5.8 $ 2,675 9.9
nm Not meaningful(1) The 1Q17 operating-basis results included a
pre-tax gain of approximately $30 million on the sale of State
Street's interest in BFDS/IFDS, reflecting a change in our
operating-basis presentation effective in 1Q17 to include
gains/losses on sales of businesses. In 2Q16, under our historical
presentation, operating-basis results excluded a $53 million
pre-tax gain on the sale of WM/Reuters business, and such results
have not been revised.(2) Beginning in 1Q17, management no longer
presents discount accretion associated with former conduit
securities as an operating-basis adjustment. Therefore, 2Q17 and
1Q17 GAAP and operating-basis results included $6 million and $5
million, respectively, of discount accretion. In 2Q16,
operating-basis net interest income excluded $15 million of
discount accretion, and such results have not been revised.
The following highlights primary drivers of changes in our 2Q17
revenue for the noted periods, indicating differences between our
GAAP-basis and operating-basis results as appropriate.
Servicing fees increased from 2Q16, primarily due to
higher global equity markets and net new business. Compared to
1Q17, servicing fees increased, primarily due to higher global
equity markets, the impact of the weaker U.S. dollar and net new
business.
Management fees increased from 2Q16, primarily due to an
estimated $72 million from the acquired GEAM business, higher
global equity markets, and higher revenue-yielding net ETF flows.
Compared to 1Q17, management fees increased, primarily due to
higher global equity markets.
Trading services revenue increased from 2Q16 and 1Q17.
The increase from both periods primarily reflects higher foreign
exchange client-related volumes.
Securities finance revenue increased from 2Q16,
reflecting higher revenue from enhanced custody. Compared to 1Q17,
securities finance revenue increased, primarily due to seasonality
and growth in enhanced custody.
Processing fees and other revenue on a GAAP-basis
decreased from 2Q16, primarily reflecting the gain on the sale of
the WM/Reuters business in 2Q16 and unfavorable foreign exchange
swap costs. Compared to 1Q17, processing fees and other revenue
decreased, primarily due to the 1Q17 gain associated with the sale
of BFDS/IFDS and unfavorable foreign exchange swap costs.
Processing fees and other revenue on an
operating-basis decreased from 2Q16, primarily reflecting
unfavorable foreign exchange swap costs.
Net interest income increased from 2Q16, primarily due to
higher market interest rates in the U.S. and disciplined liability
pricing as well as improved liability mix, partially offset by a
smaller investment portfolio. Compared to 1Q17, net interest income
increased primarily due to higher U.S. market interest rates,
disciplined liability pricing, and improved liability mix.
GAAP-basis net interest income does not include a taxable
equivalent adjustment. Net interest margin, calculated based on
operating-basis, increased to 127 basis points in 2Q17 from 111
basis points in 2Q16 and 117 basis points in 1Q17.
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)
2Q17 1Q17
Increase(Decrease)
2Q16
Increase(Decrease)
Compensation and employee benefits
$ 1,071 $ 1,166
(8.1 )% $ 989 8.3 % Information systems and communications
283 287 (1.4 ) 270 4.8 Transaction processing services
207 197 5.1 201 3.0 Occupancy
116 110 5.5 111 4.5
Acquisition and restructuring costs(1)
71 29 144.8 20 255.0
Other
283 297 (4.7 ) 269 5.2
Total Expenses $ 2,031 $ 2,086
(2.6 ) $ 1,860 9.2 Effective income tax rate
20.1 % 14.0 % 12.9 %
(1) The 2Q16 and 1Q17 acquisition costs associated with the GEAM
business acquired on July 1, 2016 were $9 million and $12 million,
respectively. In 2Q17, 1Q17 and 2Q16, the restructuring costs
associated with State Street Beacon were $62 million, $16 million
and $13 million, respectively.
Operating-Basis (Non-GAAP)
Expenses
(Dollars in millions)
2Q17 1Q17
Increase(Decrease)
2Q16
IncreaseDecrease)
Compensation and employee benefits
$ 1,071 $ 1,166
(8.1 )% $ 992 8.0 % Information systems and communications
283 287 (1.4 ) 270 4.8 Transaction processing services
207 197 5.1 201 3.0 Occupancy
116 110 5.5 111 4.5
Other
283 297 (4.7 ) 254 11.4
Total Expenses $ 1,960 $ 2,057
(4.7 ) $ 1,828 7.2 Effective income tax rate
31.4 % 27.8 % 27.0 %
The following highlights primary drivers of changes in our 2Q17
expenses for the noted periods, indicating differences between our
GAAP-basis and operating-basis results as appropriate.
Compensation and employee benefits expenses increased
from 2Q16, primarily due to increased costs to support new
business, higher incentive compensation and annual merit increases,
costs related to the acquired GEAM business, and regulatory
initiatives, partially offset by Beacon savings. Compared to 1Q17,
compensation and employee benefits expenses decreased, primarily
due to 1Q17 expenses associated with the seasonal deferred
incentive compensation expense for retirement-eligible employees
and payroll taxes as well as Beacon savings, partially offset by
timing of incentive compensation and annual merit increases,
increased costs to support new business, as well as the impact of
the weaker U.S. dollar.
Information systems and communications expenses increased
from 2Q16, primarily due to technology infrastructure costs, new
business and State Street Beacon.
Transaction processing services expenses increased from
2Q16 and 1Q17. The increase from both periods reflects higher
client volumes.
Occupancy expenses increased compared to 2Q16, primarily
due to the acquired GEAM business and Beacon-related global
footprint investments. Compared to 1Q17, occupancy expenses
increased, primarily due to Beacon-related global footprint
investments.
Other expenses increased from 2Q16, primarily reflecting
increased costs associated with the acquired GEAM business and
higher regulatory and insurance expenses, partially offset by lower
legal related costs. Other expenses decreased from 1Q17, primarily
due to lower legal related costs.
2Q17 acquisition and restructuring costs of $71
million increased from $20 million and $29 million compared to 2Q16
and 1Q17, respectively.
The 2Q17 GAAP-basis effective tax rate was 20.1% compared
to 12.9% in 2Q16 and 14.0% in 1Q17. The 2Q17 rate reflects a
decrease in alternative energy investments compared to 2Q16. The
1Q17 rate included tax benefits for share-based compensation, and
the disposition of BFDS. The 2Q17 operating-basis effective tax
rate was 31.4% compared to 27.0% in 2Q16 and 27.8% in 1Q17. The
variance in the operating-basis effective tax rate from 2Q16 and
1Q17 are the same as the above GAAP-basis commentary.
Capital
The following table presents our regulatory capital ratios as of
June 30, 2017 and March 31, 2017. 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. 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.
June 30,
2017(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
12.0 % 11.3
% 11.7 % 11.0 % Tier 1 capital
ratio
15.2 14.2 14.9 14.0 Total capital
ratio
16.3 15.3 16.0 15.0 Tier 1
leverage ratio
7.0 7.0 6.9 6.9
March 31, 2017 Common equity tier 1 ratio 11.2 % 11.5 % 10.9
% 11.1 % Tier 1 capital ratio 14.4 14.7 14.0 14.4 Total capital
ratio 15.4 15.9 15.1 15.5 Tier 1 leverage ratio 6.8 6.8 6.7 6.7
State Street State Street
Bank As of June 30, 2017(Dollars in millions)(1) Transitional SLR
Fully Phased-In SLR(4) Transitional SLR
Fully Phased-In SLR(4)
Tier 1 Capital $ 15,165
$ 14,888 $ 16,002 $
15,737 Total assets for SLR
243,692 243,487
240,734 240,536 Supplementary Leverage Ratio
6.2 % 6.1 % 6.6 %
6.5 % As of March 31, 2017(Dollars in
millions)
Tier 1 Capital $ 14,475 $ 14,176 $ 15,492 $ 15,206
Total assets for SLR 238,146 237,877 235,141 234,880
Supplementary Leverage Ratio 6.1 % 6.0 % 6.6 % 6.5 %
(1) June 30, 2017 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 June 30, 2017 and
March 31, 2017 (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 June 30, 2017 and March 31, 2017 (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.
Investor Conference Call and Quarterly
Website Disclosures
State Street will webcast an investor conference call today,
Wednesday, July 26, 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 # 35907312.
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 # 35907312.
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, 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 2Q17, State Street expects to publish its updates
during the period beginning today and ending on or about
August 3, 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 $31.0 trillion in assets under custody and
administration and $2.6 trillion* in assets under management as of
June 30, 2017, State Street operates globally in more than 100
geographic markets and employs 35,606 worldwide. For more
information, visit State Street's website at
www.statestreet.com.
* Assets under management include the assets of the SPDR® Gold
ETF and the SPDR® Long Dollar Gold Trust ETF (approximately $34
billion as of June 30, 2017), for which State Street Global
Markets, LLC, an affiliate of SSgA, serves as the distribution
agent.
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.
- 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
June 30, 2017. Distribution fees from the SPDR® Gold ETF and
the SPDR® Long Dollar Gold Trust ETF are recorded in brokerage and
other fee revenue and not in management fee revenue.
- State Street’s common stock and other
stock dividends, including the declaration, timing and amount
thereof, remain subject to consideration and approval by its Board
of Directors at the relevant times. Stock purchases may be made
using various types of mechanisms, including open market purchases
under our announced common stock purchase program, accelerated
share repurchases, or transactions off market, and may be made
under Rule 10b5-1 trading programs. The timing of stock purchases,
types of transactions and number of shares purchased will depend on
several factors, including market conditions and State Street’s
capital position, its financial performance and investment
opportunities. The common stock purchase program does not have
specific price targets and may be suspended at any time.
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 July 26, 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 income, 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; and the impact of
monetary and fiscal policy in the United States and internationally
on prevailing rates of interest and currency exchange rates in the
markets in which we provide services to our clients;
- 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 or
reevaluate changes to the regulatory framework applicable to our
operations, including implementation or modification 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, compliance
programs, and changes in governmental enforcement approaches to
perceived failures to comply with regulatory or legal
obligations;
- our resolution plan, submitted to the
Federal Reserve and FDIC in June 2017, 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 in June 2017 or 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;
- requirements to obtain the prior
approval or non-objection of the Federal Reserve or 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, investments in
subsidiaries, 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 those which
may result from recessions or political instability; for example,
the U.K.'s decision 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 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 impact on our compliance and
controls enhancement programs of the appointment of a monitor under
the deferred prosecution agreement with the DOJ and compliance
consultant expected to be appointed under a potential settlement
with the SEC, including the potential for such monitor and
compliance consultant to require changes to our programs or to
identify other issues that require substantial expenditures,
changes in our operations, or payments to clients or reporting to
U.S. authorities;
- 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;
- 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;
- the large institutional clients on
which we focus are often able to exert considerable market
influence, and this, combined with strong competitive market
forces, subjects us to significant pressure to reduce the fees we
charge, to potentially significant changes in our assets under
custody and administration or our assets under management in the
event of the acquisition or loss of a client, in whole or in part,
and to potentially significant changes in our fee revenue in the
event a client re-balances or changes its investment approach or
otherwise re-directs assets to lower- or higher-fee asset
classes;
- 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;
- 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 evolving 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 2016 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.
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version on businesswire.com: http://www.businesswire.com/news/home/20170726005546/en/
State Street CorporationInvestor Contact:Anthony Ostler, +1
617-664-3477orMedia Contact:Hannah Grove, +1 617-664-3377
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