4Q17 Operating-Basis Results Include EPS of
$1.83, ROE of 14.1%, and Revenue of $3.0 Billion
Expects Beacon Target Savings of $550
Million to Be Realized by Mid-2019, 18 Months Ahead of
Schedule
Assets under Custody and Administration of
$33.1 Trillion and Assets under Management of $2.8 Trillion,
Reached Record Levels at Year-End
Achieved Previously Announced 2017 Financial
Objectives (2)
In announcing today’s financial results, Joseph L. Hooley, State
Street’s Chairman and Chief Executive Officer, said, "Our full-year
2017 results reflect strength across our asset servicing and asset
management businesses, with record levels of assets under custody
and administration and assets under management, and importantly,
achievement of our 2017 financial objectives. We also made
significant progress with our Beacon program, achieving benefits
for our clients while also realizing $150 million in savings. I am
pleased that we have already exceeded our Beacon target to achieve
an operating-basis pre-tax margin of 31% by 2018, and generated 210
basis points of positive fee operating leverage in 2017."
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(1) The effects of the TCJA described in this News Release are
estimates. Actual effects of the TCJA may differ from these
estimates, among other things, due to additional tax and regulatory
guidance and changes in State Street assumptions and
interpretations.
(2) Operating-basis 2017 financial objectives (relative to 2016)
consist of: revenue growth of 4-6%; positive fee operating leverage
of 100-200 basis points; a 4-6% increase of NII; and a reduction in
average interest earning assets of 0-5%.
Hooley added, "Our strong fourth-quarter results included a 7%
increase in servicing fees from the year-ago quarter. Excluding the
impact related to the recent tax law changes, we achieved
double-digit EPS growth as well as an increase in return on equity.
We continue to benefit from our strong market position and our
ability to deliver servicing solutions evidenced by the
approximately $445 billion of new servicing commitments in the
fourth quarter. Our business is well-positioned for growth in 2018
including the further advancement and benefits from Beacon. We now
expect to realize Beacon's financial objectives by the middle of
2019."
Hooley concluded, "We’ve maintained a strong capital position,
enabling significant return of capital to shareholders. In 4Q17, we
purchased approximately $350 million of our common stock and
declared a quarterly common stock dividend of $0.42 per share."
4Q17 Highlights
Selected Results: GAAP-basis(a)
(Dollars in millions, except per share
data, or where otherwise noted)
4Q16 GAAP-basis Financial Results
4Q17 GAAP-basis Financial Results
% change ex notable items
As reported
4Q16 notable items
4Q16 ex notable items
As reported
Tax law change impact
4Q17 notable items
Diluted earnings per share $ 1.43 $ 0.13
$
1.30 $ 0.89 $ (0.72 )
$ 1.61 24 %
Return on
average common equity 12.1 % 1.1 % pts
11.0 % 6.9
% (5.5 )% pts
12.4 % 1.4 % pts Total revenue $ 2,530
$ —
$ 2,530 $ 2,846 $ (20 )
$ 2,866 13
% Fee revenue 2,014 —
2,014 2,230 (18 )
2,248 12 %
Total expenses 2,183 249
1,934 2,131 —
2,131 10 %
Pre-tax operating margin 13.6 % (9.9 )% pts
23.5 %
25.2 % (0.5 )% pts
25.7 % 2.2 % pts Fee Operating
Leverage 1.4 % pts
Selected Results: Operating-basis
(a)
(Dollars in millions, except per share
data, or where otherwise noted)
4Q16 Operating-basis Financial Results
4Q17 Operating-basis Financial Results As
reported
% change ex notable items
(Operating-basis)
As reported
4Q16
notable items
4Q16 ex notable items
Diluted earnings per share $ 1.48 $ 0.13
$
1.35 $ 1.83 36 %
Return on average common
equity 12.5 % 1.1 % pts
11.4 % 14.1
% 2.7 % pts Total revenue $ 2,749 —
$ 2,749
$ 2,984 9 % Fee revenue 2,200 —
2,200
2,326 6 % Total expenses 2,143 249
1,894 1,998
5 % Pre-tax operating margin 22.0 % (9.0 )% pts
31.0
% 33.1 % 2.1 % pts Fee Operating Leverage 0.2
% pts (a) Notable items referenced in the above GAAP-basis
table consist of: 4Q17 estimated one-time net costs of $270 million
(-$0.72 per share) related to tax reform of which $250 million is
recorded in tax expense and $20 million is recorded as a reduction
in revenue; and, in 4Q16, a tax benefit of $211 million ($0.54 per
share) and an acceleration of compensation expense of $249 million
pre-tax, $161 million after-tax (-$0.41 per share) for a combined
net benefit of $0.13 per share. Notable items referenced in the
above operating-basis table consist of the foregoing referenced
4Q16 tax benefit ($211 million, or $0.54 per share) and
acceleration of compensation expense ($249 million pre-tax, $161
million after-tax, or -$0.41 per share). Our presentation of
financial results excluding notable items, as well as our
presentation of operating-basis financial results generally, are
non-GAAP presentations. The final impact of the recently enacted
tax reform, may differ from these estimates due to additional
guidance from the taxing authorities and changes in State Street
assumptions and interpretations. Refer to the addendum to this News
Release for explanations of our non-GAAP financial measures and
related reconciliations.
AUCA/AUM
- Broad-based business momentum:
Record asset servicing AUCA at 4Q17 quarter-end increased 15% from
4Q16 quarter-end due to strength in equity markets, flows, and new
business. Record asset management AUM at 4Q17 quarter-end,
increased 13% compared to 4Q16 quarter-end, driven by strength in
equity markets.
- New business: New asset
servicing mandates during 4Q17 totaled approximately $445 billion.
Servicing assets remaining to be installed in future periods
totaled approximately $350 billion at quarter-end. In our asset
management business, we experienced net inflows of $6 billion
during 4Q17.
Revenue
- Fee revenue: Increased in 4Q17
from 4Q16, primarily driven by strength in servicing fees,
management fees, securities finance revenue, and the impact of the
weaker U.S. dollar, partially offset by lower trading services
revenue.
- Servicing and management fees:
Benefiting from higher global equity markets and new business, 4Q17
servicing and management fees increased 7% and 16%, respectively,
compared to 4Q16.
- Net interest income: Increased
in 4Q17 from 4Q16, driven by higher market interest rates in the
U.S., disciplined liability pricing, and loan portfolio growth,
partially offset by a smaller balance sheet.
Expenses
- Expenses: 4Q16 expenses included
$249 million related to the acceleration of compensation expense.
Excluding the 4Q16 acceleration of compensation expense, 4Q17
operating-basis expenses increased compared to 4Q16 due to
investments to support new business, annual merit increases and
performance-based incentives and the impact of the weaker U.S.
dollar, partially offset by Beacon savings.
- Fee operating leverage:
Excluding the acceleration of compensation expense, compared to
4Q16, achieved 24 basis points of positive fee operating
leverage.
Beacon
- Solutions and services: Beacon
initiatives continue to enhance product development and deliver
value-added benefits to clients.
- Automations and efficiencies: We
now expect to realize the previously announced Beacon target
savings of $550 million by the middle of 2019, 18 months early. In
2017, we realized $150 million in pre-tax savings toward that goal,
including $50 million in 4Q17.
- GAAP-basis 4Q17: Results
included $133 million, $87 million after-tax ( $0.23 per share), in
restructuring expenses related to our previously announced Beacon
goals.
Tax Law Impact(a)
- Tax reform: 4Q17 includes a
one-time estimated net impact of $270 million associated with the
Tax Cuts and Jobs Act (TCJA).
- Estimated tax expense of approximately
$250 million primarily consisting of a one-time repatriation tax of
$454 million, partially offset by a reduction in deferred tax
liabilities of $197 million.
- A one-time reduction of approximately
$20 million in revenue, primarily within processing fees and other
revenue, due to accelerated amortization expense associated with
tax-advantaged investments.
- A decrease in the 4Q17 common equity
tier 1 ratio and supplementary leverage ratio of approximately 30
basis points and 15 basis points, respectively.
Capital
- Key metrics: Relative to 4Q16,
the estimated Basel III common equity tier 1 ratio for 4Q17 was
11.9% and our estimated leverage ratio was 7.3%; up 30 basis points
and 80 basis points, respectively.
(a)The effects of the TCJA described in this News Release are
estimates. Actual effects of the TCJA may differ from these
estimates, among other things, due to additional tax and regulatory
guidance and changes in State Street assumptions and
interpretations.
4Q17 GAAP-Basis Results
(Table presents summary results, dollars in millions, except per
share amounts, or where otherwise noted)
4Q17
3Q17 Increase (Decrease)
4Q16 Increase (Decrease) Total fee revenue
$
2,230 $ 2,242 (0.5 )% $ 2,014 10.7 % Net interest income
616 603 2.2 514 19.8 Total revenue
2,846 2,846 —
2,530 12.5 Provision for loan losses
(2 ) 3 nm 2 nm
Total expenses
2,131 2,021 5.4 2,183 (2.4 ) Net income
available to common shareholders
334 629 (46.9 ) 557 (40.0 )
Earnings per common share: Diluted earnings per share
0.89 1.66 (46.4 ) 1.43 (37.8 )
Financial ratios:
Quarterly average total assets
216,348 218,369 (0.9 )
232,999 (7.1 ) Fee operating leverage(1) (598 ) bps 1,310 bps
Operating leverage(1) (544 ) 1,487 Return on average common equity
6.9 % 13.0 % (610 ) 12.1 % (520 ) Return on tangible
common equity(2)
16.7 18.0 (130 ) 17.7 (100 ) Pre-tax
operating margin
25.2 28.9 (370 ) 13.6 1,160
(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 applicable.(2)
Return on tangible common equity is calculated by dividing
year-to-date annualized net income available to common shareholders
(GAAP-basis) by tangible common equity. For additional information
on the Reconciliation of Tangible Common Equity Ratio refer to the
addendum included with this News Release.nm Not meaningful
4Q17 Operating-Basis (Non-GAAP) Results
(Table presents summary results, dollars in millions, except per
share amounts, or where otherwise noted)
4Q17
3Q17 Increase (Decrease)
4Q16 Increase (Decrease) Total fee revenue(1)
$ 2,326 $ 2,321 0.2 % $ 2,200 5.7 % Net interest
income(2)
658 645 2.0 547 20.3 Total revenue(2)
2,984
2,967 0.6 2,749 8.5 Provision for loan losses
(2 ) 3
nm 2 nm Total expenses
1,998 1,988 0.5 2,143 (6.8 ) Net
income available to common shareholders
687 648 6.0 577 19.1
Earnings per common share: Diluted earnings per share
1.83 1.71 7.0 1.48 23.6
Financial ratios: Fee
operating leverage(3) (28 ) bps 1,250 bps Operating leverage(3) 7
1,532 Return on average common equity
14.1 % 13.4 %
70 12.5 % 160 Return on tangible common equity(4)
20.4 19.0
140 18.8 160 Pre-tax operating margin
33.1 32.9 20 22.0
1,110
(1) Beginning with the first quarter of 2017, operating-basis
results reflect gains/losses on sales of businesses. The third
quarter of 2017 operating-basis results include a pre-tax gain of
approximately $26 million on the sale of an alternative trading
system.(2) Beginning in 1Q17, management no longer presents
discount accretion associated with former conduit securities as an
operating-basis adjustment. Therefore, 4Q17 and 3Q17 GAAP and
operating-basis results both included $4 million of discount
accretion. In 4Q16, operating-basis NII excluded $10 million of
discount accretion, and such results have not been revised.(3) See
footnote 1 in the 4Q17 GAAP-Basis Results table above.(4) Return on
tangible common equity is calculated by dividing year-to-date
annualized net income available to common shareholders
(operating-basis) by tangible common equity. For additional
information on the Reconciliation of Tangible Common Equity Ratio
refer to the addendum included with this News Release.nm Not
meaningful
Operating-Basis (Non-GAAP) Financial MeasuresIn addition
to presenting State Street's financial results in conformity with
U.S. generally accepted accounting principles, or GAAP, management
has also historically (and in this News Release) presented results
on a non-GAAP, or operating-basis. Management believed this
presentation would support additional meaningful analysis and
comparisons of trends with respect to State Street's business
operations from period to period. Management may also provide, as
appropriate (and in this News Release has provided) additional
non-GAAP measures, including capital ratios calculated under
regulatory standards scheduled to be effective in the future or
other standards, that management also 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 financial measures and reconciliations of non-GAAP
information to GAAP-basis information are provided in the addendum
included with this News Release.
The following table reconciles select 4Q17 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.
4Q17 Selected Operating-Basis (Non-GAAP)
Reconciliations
(In millions, except per share amounts) Income Before
Income Tax Expense Net Income Available to Common
Shareholders Earnings
Per
Common Share
GAAP-basis
$ 717 $ 334 $
.89 Tax-equivalent non-operating adjustments Tax-advantaged
investments (processing fees and other revenue)
78
Tax-exempt investment securities (net interest income)
40
Total
118 Other non-operating adjustments
Restructuring costs (expenses)(1)
133 87 .23
Effect on income tax of non-operating adjustments
—
(4 ) (.01 ) Impact of tax legislation
20 270 .72 Total
153 353 .94
Operating-basis
$ 988 $ 687
$ 1.83
(1) Represents a pre-tax charge of $133 million ($87 million
after tax or $.23 per share) related to 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 AUCA, AUM, market indices and
average foreign exchange rates for the periods indicated.
(Dollars in billions, except market indices and foreign exchange
rates)
4Q17 3Q17
Increase (Decrease) 4Q16 Increase
(Decrease) Assets under custody and administration(1)(2)
$
33,119 $ 32,110 3.1 % $ 28,771 15.1 % Assets under
management(2)
2,782 2,673 4.1 2,468 12.7 Market Indices(3):
S&P 500® daily average
2,603 2,467 5.5 2,185 19.1 MSCI
EAFE® daily average
2,005 1,934 3.7 1,660 20.8 MSCI®
Emerging Markets daily average
1,125 1,068 5.3 877 28.3 HFRI
Asset Weighted Composite® monthly average
1,386 1,358 2.1
1,292 7.3 Barclays Capital U.S. Aggregate Bond Index® period-end
2,046 2,038 0.4 1,976 3.5 Barclays Capital Global Aggregate
Bond Index® period-end
485 480 1.0 451 7.5 Average Foreign
Exchange Rate (Euro vs. USD)
1.178 1.175 0.3 1.078 9.3
Average Foreign Exchange Rate (GBP vs. USD)
1.328 1.309 1.5
1.242 6.9
(1) Includes assets under custody of $25,020 billion, $24,240
billion and $21,725 billion, as of 4Q17, 3Q17, and 4Q16,
respectively.(2) As of period-end.(3) The index names listed in the
table are service marks of their respective owners.
Assets Under Management
The following table presents 4Q17 activity in AUM by product
category.
(Dollars in billions)
Equity
Fixed-Income Cash(2)
Multi-Asset-Class Solutions
Alternative Investments(3) Total
Balance as of September 30, 2017 $ 1,640 $ 399 $ 347 $ 134 $ 153 $
2,673 Long-term institutional inflows(1)
89 28
— 27 3 147 Long-term institutional
outflows(1)
(102 ) (19 ) —
(19 ) (8 ) (148 )
Long-term institutional flows, net
(13 ) 9
— 8 (5 ) (1 ) ETF flows,
net
26 3 — — (1 )
28 Cash fund flows, net
— —
(21 ) — — (21
) Total flows, net
13 12 (21 )
8 (6 ) 6 Market appreciation
90
2 4 5 (1 ) 100 Foreign
exchange impact
2 1 —
— — 3 Total
market/foreign exchange impact
92 3
4 5 (1 ) 103
Balance as of December 31, 2017
$ 1,745
$ 414 $ 330 $
147 $ 146 $ 2,782
(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 Shares ETF and SPDR® Long Dollar Gold Trust ETF. State Street
is not the investment manager for the SPDR® Gold Shares ETF and the
SPDR® Long Dollar Gold Trust ETF, but acts as the marketing
agent.
The following table presents 2017 activity for the year ended
December 31, 2017 in AUM by product category.
(Dollars in billions)
Equity
Fixed-Income Cash(2)
Multi-Asset-Class Solutions
Alternative Investments(3) Total
Balance as of December 31, 2016 $ 1,474 $ 378 $ 333 $ 126 $ 157 $
2,468 Long-term institutional inflows(1)
271 93
— 57 19 440 Long-term institutional
outflows(1)
(344 ) (92 ) —
(52 ) (40 ) (528 )
Long-term institutional flows, net
(73 ) 1
— 5 (21 ) (88 ) ETF
flows, net
25 11 — — 2 38
Cash fund flows, net
— — (8
) — — (8 ) Total
flows, net
(48 ) 12 (8 )
5 (19 ) (58 ) Market
appreciation
293 14 2 11 3
323 Foreign exchange impact
26 10
3 5 5 49
Total market/foreign exchange impact
319
24 5 16 8
372 Balance as of December 31, 2017
$
1,745 $ 414 $ 330
$ 147 $ 146
$ 2,782
(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 Shares ETF and SPDR® Long Dollar Gold Trust ETF. State Street
is not the investment manager for the SPDR® Gold Shares 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)
4Q17 3Q17
Increase (Decrease) 4Q16
Increase (Decrease) Servicing fees
$ 1,379 $ 1,351
2.1 % $ 1,289 7.0 % Management fees
418 419 (0.2 ) 361 15.8
Trading services revenue: Foreign exchange trading
149 150
(0.7 ) 182 (18.1 ) Brokerage and other fees
99 109
(9.2 ) 111 (10.8 ) Total trading services revenue
248 259 (4.2 ) 293 (15.4 ) Securities finance revenue
147 147 — 136 8.1 Processing fees and other revenue
38 66 (42.4 ) (65 ) nm Total fee revenue
2,230 2,242 (0.5 ) 2,014 10.7 Net interest income
616
603 2.2 514 19.8 Gains (losses) related to investment securities,
net
— 1 nm 2 nm
Total Revenue
$ 2,846 $ 2,846 — $ 2,530 12.5
Net interest margin
1.38 % 1.35 % 3 bps 1.09 % 29 bps
nm Not meaningful
Operating-Basis (Non-GAAP) Revenue
(Dollars in millions)
4Q17 3Q17
Increase (Decrease) 4Q16
Increase (Decrease) Servicing fees
$ 1,379 $ 1,351
2.1 % $ 1,289 7.0 % Management fees
418 419 (0.2 ) 361 15.8
Trading services revenue: Foreign exchange trading
149 150
(0.7 ) 182 (18.1 ) Brokerage and other fees
99 109
(9.2 ) 111 (10.8 ) Total trading services revenue
248 259 (4.2 ) 293 (15.4 ) Securities finance revenue
147 147 — 136 8.1 Processing fees and other revenue
134 145 (7.6 ) 121 10.7 Total fee
revenue(1)
2,326 2,321 0.2 2,200 5.7 Net interest income(2)
658 645 2.0 547 20.3 Gains (losses) related to investment
securities, net
— 1 nm 2 nm
Total
Revenue(2) $ 2,984 $ 2,967
0.6 $ 2,749 8.5 Net interest margin
1.38 %
1.35 % 4 bps 1.08 % 31 bps
(1) Beginning with the first quarter of 2017, operating-basis
results reflect gains/losses on sales of businesses. The third
quarter of 2017 operating-basis results include a pre-tax gain of
approximately $26 million on the sale of an alternative trading
system.(2) Beginning in 1Q17, management no longer presents
discount accretion associated with former conduit securities as an
operating-basis adjustment. Therefore, 4Q17 and 3Q17 GAAP and
operating-basis results both included $4 million of discount
accretion. In 4Q16, operating-basis NII excluded $10 million of
discount accretion, and such results have not been revised.nm Not
meaningful
The following highlights primary drivers of changes in our 4Q17
revenue for the noted periods, indicating differences between our
GAAP-basis and operating-basis results as appropriate.
Servicing fees increased from 4Q16, primarily due to
higher global equity markets, new business and the impact of the
weaker U.S. dollar, partially offset by modest hedge fund outflows.
Compared to 3Q17, servicing fees increased, primarily due to the
impact of higher global equity markets and net new business.
Management fees increased from 4Q16, primarily due to
higher global equity markets and higher revenue yielding ETF
inflows. Compared to 3Q17, management fees were down slightly.
Trading Services revenue decreased from 4Q16, as strong
client volumes were offset by lower foreign exchange volatility, as
well as the modest impact of the businesses we exited in 2017.
Compared to 3Q17, trading services revenue decreased slightly
primarily due to the modest impact of the businesses we exited in
2017.
Securities finance revenue increased from 4Q16,
reflecting higher client volumes from the agency and enhanced
custody businesses, partially offset by spread compression.
Compared to 3Q17, securities finance revenue was flat.
Processing fees and other revenue on a GAAP-basis
increased from 4Q16, primarily due to lower amortization related to
tax-advantaged investments. Compared to 3Q17, processing fees and
other revenue on a GAAP-basis decreased, reflecting higher
amortization expense associated with tax-advantaged investments
related to the recently enacted tax law and the impact of a gain
related to the sale of an equity trading platform in 3Q17.
Processing fees and other revenue increased from 4Q16,
reflecting favorable valuation adjustments, partially offset by
lower revenue related to tax-advantaged investments. Compared to
3Q17, processing fees and other revenue decreased, primarily
reflecting a gain related to the sale of an equity trading platform
in 3Q17.
Net interest income increased from 4Q16, primarily due to
higher U.S. market interest rates, disciplined liability pricing,
and loan portfolio growth, partially offset by a smaller balance
sheet. Compared to 3Q17, NII increased primarily due to central
bank rate hikes and a shift toward higher yielding interest earning
assets, partially offset by a smaller balance sheet. GAAP-basis NII
does not include a taxable-equivalent adjustment for tax-exempt
investment securities. Net interest margin, calculated on an
operating-basis, increased 31 basis points compared to 4Q16, and
increased 4 basis points compared to 3Q17.
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)
4Q17 3Q17
Increase (Decrease) 4Q16
Increase (Decrease) Compensation and employee benefits
$
1,067 $ 1,090 (2.1 )% $ 1,244 (14.2 )% Information systems
and communications
301 296 1.7 278 8.3 Transaction
processing services
219 215 1.9 199 10.1 Occupancy
117 118 (0.8 ) 109 7.3 Acquisition and restructuring
costs(1)
133 33 303.0 43 209.3 Other
294 269
9.3 310 (5.2 )
Total Expenses $
2,131 $ 2,021 5.4 $ 2,183 (2.4 )
Effective income tax rate(2)
48.4 % 16.7 % (72.3 )%
(1) The 4Q16 acquisition costs associated with the GEAM business
acquired on July 1, 2016 was $25 million. In 4Q17, 3Q17 and 4Q16,
the restructuring costs associated with Beacon were $133 million,
$33 million and $22 million, respectively.(2) As a result of the
enactment of the Tax Cuts and Jobs Act, the fourth-quarter of 2017
included a one-time estimated net cost of $270 million. The
fourth-quarter of 2016 reflected a one-time benefit of $211
million. The impact of each of these items on the GAAP-basis
effective tax rate for the fourth-quarter of 2017 and 2016 was
13.2% and 8.5%, respectively.
Operating-Basis (Non-GAAP) Expenses
(Dollars in millions)
4Q17 3Q17
Increase (Decrease) 4Q16
Increase (Decrease) Compensation and employee benefits(1)
$
1,067 $ 1,090 (2.1 )% $ 1,246 (14.4 )% Information systems
and communications
301 296 1.7 278 8.3 Transaction
processing services
219 215 1.9 199 10.1 Occupancy
117 118 (0.8 ) 109 7.3 Other
294 269
9.3 311 (5.5 )
Total Expenses $ 1,998
$ 1,988 0.5 $ 2,143 (6.8 ) Effective income
tax rate
26.8 % 27.9 % (1.5 )%
(1) Compensation and employee benefits includes $249 million of
accelerated compensation expense (-$0.41 per share) for the fourth
quarter of 2016.
The following highlights primary drivers of changes in our 4Q17
expenses for the noted periods, indicating differences between our
GAAP-basis and operating-basis results as appropriate.
Compensation and employee benefits expenses decreased
from 4Q16, primarily due to $249 million related to the
acceleration of compensation expense in 4Q16 and Beacon-related
savings, partially offset by increased costs to support new
business, annual merit and performance-based incentive compensation
increases, and the impact of the weaker U.S. dollar. Compared to
3Q17, compensation and employee benefits expenses decreased,
primarily due to Beacon savings, partially offset by increased
costs to support new business.
Information systems and communications expenses increased
from both 4Q16 and 3Q17. The increase from both periods is due to
higher technology infrastructure costs and Beacon investments.
Transaction processing services expenses increased from
both 4Q16 and 3Q17. The increase from both periods reflects higher
client volumes and higher market levels.
Occupancy expenses increased from 4Q16, primarily
reflecting Beacon-related global footprint investments.
Other expenses decreased from 4Q16, reflecting lower
professional services costs. Other expenses increased from 3Q17,
primarily due to higher costs to support new business, including
marketing.
4Q17 acquisition and restructuring costs of $133
million increased from $43 million and $33 million in 4Q16 and
3Q17, respectively, related to Beacon.
The 4Q17 GAAP-basis effective tax rate was 48.4% compared
to (72.3)% in 4Q16 and 16.7% in 3Q17. As a result of the enactment
of the TCJA, 4Q17 included a one-time estimated net tax cost of
$270 million.(1) 4Q16 reflected a one-time net tax benefit of $211
million. Excluding these items, the 4Q17 and 4Q16 effective tax
rates are 13.2% and 8.5%, respectively. The increase in 4Q17 tax
rate compared to 4Q16 reflects a decrease in tax-advantaged
investments. As compared to 3Q17, the decrease in tax rate is
related to an increase in the mix of foreign earnings.
The 4Q17 operating-basis effective tax rate was 26.8%
compared to (1.5)% in 4Q16 and 27.9% in 3Q17. Excluding a one-time
net tax benefit of $211 million, the 4Q16 effective tax rate was
34%. The decrease in the tax rate from 4Q16 is primarily related to
a reduction in tax-advantaged investments.
(1)The effects of the TCJA described in this News Release are
estimates. Actual effects of the TCJA may differ from these
estimates, among other things, due to additional tax and regulatory
guidance and changes in State Street assumptions and
interpretations.
The following table presents our regulatory capital ratios as of
December 31, 2017 and September 30, 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). 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, 2017(1) Basel III Advanced Approaches(2)
Basel III Standardized Approach Basel
III Fully Phased-In Advanced Approaches (Estimated) Pro-Forma(2)(3)
Basel III Fully Phased-In Standardized Approach
(Estimated) Pro-Forma(3) Common equity tier 1 ratio
12.3
% 11.9 % 12.0 % 11.6
% Tier 1 capital ratio
15.5 15.0 15.2
14.7 Total capital ratio
16.5 16.0 16.2
15.7 Tier 1 leverage ratio
7.3 7.3 7.2
7.2 September 30, 2017 Common equity tier 1 ratio
12.6 % 11.6 % 12.3 % 11.3 % Tier 1 capital ratio 15.8 14.5 15.5
14.3 Total capital ratio 16.9 15.6 16.6 15.3 Tier 1 leverage ratio
7.4 7.4 7.3 7.3 State Street
State Street Bank As of December 31, 2017(Dollars in millions)(1)
Transitional SLR Fully Phased-In SLR(4) Transitional
SLR Fully Phased-In SLR(4)
Tier 1 Capital
$ 15,382 $ 15,080 $
16,531 $ 16,240 Total assets for SLR
236,986 236,708 233,790 233,519
Supplementary Leverage Ratio 6.5 % 6.4
% 7.1 % 7.0 % As of
September 30, 2017(Dollars in millions)
Tier 1 Capital $
15,606 $ 15,338 $ 16,323 $ 16,067 Total assets for SLR 240,636
240,366 237,579 237,319
Supplementary Leverage Ratio 6.5 %
6.4 % 6.9 % 6.8 %
(1) December 31, 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 December 31, 2017 and
September 30, 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 December 31, 2017 and September 30, 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,
Tuesday, January 23, 2018, 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 # 7497823.
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 # 7497823.
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, and the liquidity coverage ratio, 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 4Q17, State Street expects to publish its updates
during the period beginning today and ending on or about
February 16, 2018.
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 $33.1 trillion in assets under custody and
administration and $2.8 trillion* in assets under management as of
December 31, 2017, State Street operates globally in more than
100 geographic markets and employs 36,643 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 $35
billion as of December 31, 2017), for which State Street
Global Advisors Funds Distributors, LLC (SSGA FD) serves as
marketing agent; SSGA FD and State Street Global Advisors are
affiliated.
Additional Information
In this News Release:
- All earnings per share amounts
represent fully diluted earnings per common share.
- Return on average common shareholders'
equity is determined by dividing annualized net income available to
common equity by average common shareholders' equity for the
period. Operating-basis return on average common equity utilizes
annualized operating-basis net income available to common equity in
the calculation.
- New asset servicing mandates and
servicing assets remaining to be installed in future periods
exclude new business which has been contracted, but for which the
client has not yet provided permission to publicly disclose and is
not yet installed. New business in assets to be serviced is
reflected in our AUCA after we begin servicing the assets, and new
business in assets to be managed is reflected in our AUM after we
begin managing the assets. As such, only a portion of any new asset
servicing and asset management mandate is reflected in our AUCA and
AUM as of December 31, 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, amount and
continuation 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 acquisition and other investment
opportunities. The common stock purchase programs do not have
specific price targets and may be suspended at any time.
Forward-Looking
Statements
This News Release (and the conference call referenced herein)
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 23, 2018.
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 NII, 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 the regulatory framework applicable to our operations
(as well as changes to that framework), including implementation or
modification of the Dodd-Frank Act and related stress testing and
resolution planning requirements, the Basel III final rule and
European legislation (such as the AIFMD, UCITS, the Money Market
Funds Regulation and MiFID II/MiFIR); 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,
restrictions on banking and financial activities and the manner in
which we structure and implement our global operations and
servicing relationships. 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;
- 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
create cost efficiencies through changes in our operational
processes and to further digitize our processes and interfaces with
our clients, 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 associated with the appointment of a
monitor under the deferred prosecution agreement with the DOJ and
compliance consultant appointed under a 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 findings or amounts we may
be required to reimburse clients, as well as potential consequences
of such review, including damage to our client relationships or our
reputation 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 have diverse investment activities, 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 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,
operational and product innovation 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;
- 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 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180123005773/en/
State Street CorporationInvestor Contact:Ilene Fiszel Bieler, +1
617-664-3477orMedia Contact:Julie Kane, +1 617-664-3001
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