1Q18 Revenue of $3.0 Billion, up 13%
Compared to 1Q17, Reflecting Strength in Servicing Fees and Net
Interest Income
Assets under Custody and Administration of
$33.3 Trillion and Assets under Management of $2.7 Trillion, up 12%
and 7%, Respectively, Compared to 1Q17, Driven by Strength in
Equity Markets and New Business
Record $1.3 Trillion of Newly Announced
Servicing Mandates
In announcing today’s financial results, Joseph L. Hooley, State
Street’s Chairman and Chief Executive Officer, said, "First-quarter
2018 results reflect strong growth in both fee revenue and net
interest income. Servicing fees increased 10% from 1Q17, reflecting
strength in equity markets and continued strong business
momentum."
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Hooley added, "We continue to execute on State Street Beacon,
enhancing the client experience by providing new solutions and
insights, while driving efficiencies across the organization. As a
result of our multi-year investment in technology, we have been
able to win new mandates and expand existing relationships as
demonstrated by the record level of new servicing commitments of
$1.3 trillion in 1Q18."
Hooley concluded, "We are well positioned to achieve the
financial objectives for 2018 we announced in January, while
remaining focused on servicing our clients and investing in new
products and offerings."
1Q18 Highlights
AUCA/AUM
- Broad-based business momentum:
Asset servicing AUCA at 1Q18 quarter-end, increased 12% from 1Q17
due to strength in equity markets, new business and client
activity. Asset management AUM at 1Q18, increased 7% compared to
1Q17, primarily driven by strength in equity markets and ETF net
inflows, partially offset by thinner-yielding institutional
outflows.
- New business: Asset servicing
mandates newly announced in 1Q18 totaled approximately $1.3
trillion.(1) Servicing assets remaining to be installed in future
periods totaled approximately $1.6 trillion. In our asset
management business, we experienced net outflows of $27 billion
during 1Q18 given the difficult market conditions for our
institutional offerings.
Revenue
- Fee revenue(2):
Broad-based strength in fee revenue, up 8% in 1Q18 compared to
1Q17, driven by higher servicing fees, management fees, trading
services, securities finance, and the favorable impact of currency
translation, partially offset by lower processing fees and other
revenue.
- Servicing and management fees:
Servicing fees increased 10% relative to 1Q17, benefiting from
higher global equity markets, new business, client activity, and
the favorable impact of currency translation. Management fees
increased 24% relative to 1Q17, primarily driven by higher global
equity markets and the impact of the new revenue recognition
standard.(2)
- Processing fees and other
revenue: Decreased from 1Q17, largely reflecting the absence of
a $30 million one-time gain in 1Q17 from the sale of a business and
the episodic impact of $22 million in higher FX swap costs not
included in the net interest income deposit hedging program.
- Net interest income: Increased
29% in 1Q18 from 1Q17, driven by higher market interest rates in
the U.S., disciplined liability pricing, and higher client
balances.
Expenses(2)
- Expenses: 1Q18 expenses
increased 8% compared to 1Q17 due to investments to support new
business, compensation costs, transaction processing costs, the
expense impact of the new Revenue Recognition Standard,(2)and the
unfavorable impact of currency translation, partially offset by the
absence of restructuring charges and Beacon savings.
- Operating leverage: Compared to
1Q17, the growth rate of total revenue exceeded the growth rate of
total expenses, resulting in positive operating leverage of
approximately 5.0% points.
- Fee operating leverage: Compared
to 1Q17, fee operating leverage was (0.6)% points. The episodic
increase in FX swap costs contributed approximately -1% point to
this result.
- Pre-tax margin: Compared to
1Q17, pre-tax margin increased 3.4% points.
(1) We expect that for the remainder of the
year newly announced asset servicing mandates will return to levels
more commonly reflected historically. See “Additional Information”
below in this news release for a description of our calculation
methodology for newly announced asset servicing mandates.(2)
Effects of the new Revenue Recognition Standard (ASU 2014-09): The
newly effective revenue recognition standard increased 1Q18 total
fee revenue and total expenses by approximately $65 million each.
Relative to 1Q17, the new revenue recognition standard contributed
3% to both fee revenue growth and expense growth. The revenue
impact was approximately $45 million in management fees, $15
million in trading services, and $5 million across other revenue
line items. The expense impact was approximately $15 million in
transaction processing, $45 million in other expenses, and $5
million across other expense line items.
Capital
- Key metrics: Relative to 1Q17,
the estimated Basel III common equity tier 1 ratio for 1Q18
decreased 70 basis points to 10.8%. The estimated 1Q18 leverage
ratio was 6.9%, reflecting an increase of 10 basis points from
1Q17.
- Capital Return: Purchased $350
million of our common stock and declared a quarterly common stock
dividend of $0.42 per share in 1Q18.
Financial Results
(Table presents summary results,dollars in
millions, except per share amounts,or where otherwise noted)
1Q18 4Q17
Increase(Decrease)
1Q17
Increase(Decrease)
Total fee revenue(1)
$ 2,363 $ 2,230 6.0 % $ 2,198
7.5 % Net interest income
658 616 6.8 510 29.0 Total revenue
3,019 2,846 6.1 2,668 13.2 Provision for loan losses
— (2 ) nm (2 ) nm Total expenses(1)
2,256 2,131 5.9
2,086 8.1 Net income available to common shareholders
605
334 81.1 446 35.7
Earnings per common share: Diluted
earnings per share
1.62 0.89 82.0 1.15 40.9
Financial
ratios: Quarterly average total assets
226,870 216,348
4.9 219,209 3.5 Fee operating leverage(2) 9 bps (64 ) bps Operating
leverage(2) 21 501 Return on average common equity
12.8
% 6.9 % 590 9.9 % 290 Return on tangible common equity(3)
20.1 16.7 340 16.0 410 Pre-tax margin (GAAP-basis)
25.3 25.2 10 21.9 340 Pre-tax margin (historical
Operating-basis)
27.4 33.1 (570 ) 26.1 130 Effective tax
rate(4)
13.5 48.4 (3,490 ) 14.0 (50 )
(1) Effects of the new Revenue Recognition Standard (ASU
2014-09): The newly effective revenue recognition standard
increased 1Q18 total fee revenue and total expenses by
approximately $65 million each. Relative to 1Q17, the new revenue
recognition standard contributed 3% to both fee revenue growth and
expense growth. The revenue impact was approximately $45 million in
management fees, $15 million in trading services, and $5 million
across other revenue line items. The expense impact was
approximately $15 million in transaction processing, $45 million in
other expenses, and $5 million across other expense line items.(2)
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.(3) 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.(4) 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 $250 million. The impact
of this item on the GAAP-basis effective tax rate for the
fourth-quarter of 2017 was 13.2%.nm Not meaningful
Summary of Notable Items
Pre-tax impact(Dollars in millions, except per share
data)
1Q18 4Q17 1Q17 Revenue: Gains on
sales of businesses
$ — $ — $ 30 Investment portfolio
repositioning
— — (40 ) Tax Cuts & Jobs Act (TCJA)
impact(1) (20 ) —
Expense: Acquisition & restructuring
costs
—
(133
)
29
Tax: Tax Cuts & Jobs Act (TCJA) impact(1)
—
(250
)
—
Total EPS Impact $ — $ (0.94 ) $ (0.06 )
(1) The effects of the TCJA described in this presentation 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.
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 marketindices
and foreign exchange rates)
1Q18 4Q17
Increase(Decrease)
1Q17
Increase(Decrease)
Assets under custody and administration(1)(2)
$
33,284 $ 33,119 0.5 % $ 29,833 11.6 % Assets under
management(2)
2,729 2,782 (1.9 ) 2,561 6.6 Market
Indices(3):
S&P 500® daily average
2,733 2,603 5.0 2,326 17.5 MSCI EAFE® daily average
2,072 2,005 3.3 1,749 18.5 MSCI® Emerging Markets daily
average
1,204 1,125 7.0 927 29.9 HFRI Asset Weighted
Composite® monthly average
1,406 1,386 1.4 1,323 6.3
Barclays Capital U.S. Aggregate Bond Index® period-end
2,016
2,046 (1.5 ) 1,993 1.2 Barclays Capital Global Aggregate Bond
Index® period-end
491 485 1.2 459 7.0 Average Foreign
Exchange Rate (Euro vs. USD)
1.229 1.178 4.3 1.065 15.4
Average Foreign Exchange Rate (GBP vs. USD)
1.391 1.328 4.7
1.239 12.3
(1) Includes assets under custody of $25,046 billion, $25,020
billion and $22,505 billion, as of 1Q18, 4Q17, and 1Q17,
respectively.(2) As of period-end.(3) The index names listed in the
table are service marks of their respective owners.
Assets Under ManagementThe following table presents 1Q18
activity in AUM by product category.
(Dollars in
billions)
Equity
Fixed-Income
Cash(2)
Multi-Asset-ClassSolutions
AlternativeInvestments(3)
Total Balance as of December 31, 2017 $ 1,745 $ 414 $ 330 $
147 $ 146 $ 2,782 Long-term institutional inflows(1)
62
47 — 19 6 134 Long-term
institutional outflows(1)
(109 ) (29 )
— (18 ) (5 ) (161
) Long-term institutional flows, net
(47 )
18 — 1 1 (27 ) ETF flows,
net
(8 ) 2 1 — —
(5 ) Cash fund flows, net
— —
6 — — 6
Total flows, net
(55 ) 20 7
1 1 (26 ) Market appreciation
(28 ) (5 ) (2 ) (3
) (2 ) (40 ) Foreign exchange
impact
8 4 1 1
(1 ) 13 Total market/foreign
exchange impact
(20 ) (1 ) (1
) (2 ) (3 ) (27 )
Balance as of March 31, 2018
$ 1,670 $
433 $ 336 $ 146
$ 144 $ 2,729
(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
(Dollars in millions)
1Q18 4Q17
Increase(Decrease)
1Q17
Increase(Decrease)
Servicing fees
$ 1,421 $ 1,379 3.0 % $ 1,296 9.6 %
Management fees
472 418 12.9 382 23.6 Trading services
revenue
304 248 22.6 275 10.5 Securities finance revenue
141 147 (4.1 ) 133 6.0 Processing fees and other revenue
25 38 (34.2 ) 112 (77.7 ) Total fee
revenue(1)
2,363 2,230 6.0 2,198 7.5 Net interest income
658 616 6.8 510 29.0 Gains (losses) related to investment
securities, net
(2 ) —
nm
(40 ) (95.0 )
Total Revenue $ 3,019 $
2,846 6.1 $ 2,668 13.2 Net interest margin
1.43 % 1.38 % 5 bps 1.17 % 26 bps
(1) Effects of the new Revenue Recognition Standard (ASU
2014-09): The newly effective revenue recognition standard
increased 1Q18 total fee revenue by approximately $65 million.
Relative to 1Q17, the new revenue recognition standard contributed
3% to fee revenue growth. The revenue impact was approximately $45
million in management fees, $15 million in trading services, and $5
million across other revenue line items.nm Not meaningful
Servicing fees increased from 1Q17, primarily due to
higher global equity markets, new business, client activity, and
the favorable impact of currency translation, partially offset by
modest hedge fund outflows. Compared to 4Q17, servicing fees
increased, primarily due to new business, increased client
activity, and stronger global equity markets.
Management fees increased from 1Q17, primarily due to
higher global equity markets, the favorable impact of currency
translation, and the adoption of the new revenue recognition
accounting standard. Compared to 4Q17, management fees increased,
primary due to higher global equity markets and the adoption of the
new revenue recognition accounting standard.
Trading Services revenue increased from 1Q17, primarily
due to stronger client FX volumes and higher electronic trading
activity. Compared to 4Q17, trading services revenue increased due
primarily to higher FX volatility, client volumes, and higher
electronic trading activity.
Securities finance revenue increased from 1Q17,
reflecting higher lending activity from the agency business.
Compared to 4Q17, securities finance revenue decreased due to
modestly lower revenue related to enhanced custody on lower
balances.
Processing fees and other revenue decreased from 1Q17,
largely reflecting the absence of a $30 million one-time gain in
1Q17 from the sale of a business and the episodic impact of $22
million in higher FX swap costs not included in the net interest
income deposit hedging program. Compared to 4Q17, processing fees
and other revenue decreased, reflecting seasonally lower software
fees.
Net interest income increased from 1Q17, primarily due to
higher U.S. market interest rates, disciplined liability pricing,
higher client balances, and a continued shift away from wholesale
CDs. Net interest margin increased 26 basis points compared to
1Q17, driven by higher U.S. market interest rates, disciplined
liability pricing, higher client balances, and a continued shift
away from wholesale CDs. Compared to 4Q17, NII increased primarily
due to higher U.S. market interest rates, partially offset by lower
day count. Compared to 4Q17, net interest margin increased 5 basis
points, reflecting higher U.S. market interest rates, partially
offset by a lower tax equivalent adjustment on municipal bonds and
a larger balance sheet.
Expenses
(Dollars in millions)
1Q18 4Q17
Increase(Decrease)
1Q17
Increase(Decrease)
Compensation and employee benefits
$ 1,249 $ 1,067
17.1 % $ 1,166 7.1 % Information systems and communications
315 301 4.7 287 9.8 Transaction processing services
242 219 10.5 197 22.8 Occupancy
120 117 2.6 110 9.1
Acquisition and restructuring costs(1)
— 133 (100.0 ) 29
(100.0 ) Other
330 294 12.2 297 11.1
Total Expenses(2) $ 2,256 $
2,131 5.9 $ 2,086 8.1
(1) In 4Q17 and 1Q17, the restructuring costs associated with
Beacon were $133 million and $16 million, respectively.(2) Effects
of the new Revenue Recognition Standard (ASU 2014-09): The newly
effective revenue recognition standard increased 1Q18 total
expenses by approximately $65 million. Relative to 1Q17, the new
revenue recognition standard contributed 3% to expense growth. The
expense impact was approximately $15 million in transaction
processing, $45 million in other expenses, and $5 million across
other expense line items.
Compensation and employee benefits expenses increased
from 1Q17, primarily due to increased costs to support new
business, annual merit and performance-based incentives, and the
unfavorable impact of currency translation, partially offset by
Beacon savings. Compared to 4Q17, compensation and employee
benefits expenses increased primarily due to higher expenses
associated with the seasonal deferred incentive compensation for
retirement-eligible employees, as well as seasonal payroll taxes,
and increased costs to support new business.
Information systems and communications expenses increased
from both 1Q17 and 4Q17. The increase from both periods is due to
higher technology costs.
Transaction processing services expenses increased from
both 1Q17 and 4Q17. The increase from both periods reflects higher
client volumes and higher market levels.
Occupancy expenses increased from 1Q17, primarily
reflecting Beacon-related global footprint investments.
Acquisition and restructuring expenses decreased from
1Q17, primarily related to lower acquisition costs and Beacon
restructuring charges. Compared to 4Q17, acquisition and
restructuring expenses decreased due to lower Beacon-related
restructuring charges.
Other expenses increased from 1Q17 and 4Q17. The increase
from both periods primarily reflects the adoption of the new
revenue recognition accounting standard.
The 1Q18 GAAP-basis effective tax rate was 13.5% compared
to 14.0% in 1Q17 and 48.4% in 4Q17. The 4Q17 tax rate included a
one-time estimated net tax cost of $250 million as a result of the
enactment of the Tax Cuts and Jobs Act (TCJA). The decrease in 1Q18
tax rate compared to 1Q17 reflects the impact of the lower U.S. tax
rate under the TCJA partially offset by a reduction in tax
advantaged investments and fewer discrete items.
The following table presents regulatory capital ratios as of
March 31, 2018 and December 31, 2017. The lower of 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 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.
March 31, 2018(1)
TransitionalBasel
IIIAdvancedApproaches(2)
TransitionalBasel
IIIStandardizedApproach
Basel III
FullyPhased-InAdvancedApproaches(Estimated)Pro-Forma(2)(3)
Basel III
FullyPhased-InStandardizedApproach (Estimated)Pro-Forma(3)
Common equity tier 1 ratio
N/A N/A
12.1
%
10.8
%
Tier 1 capital ratio
N/A N/A 15.4 13.7
Total capital ratio
N/A N/A 16.3 14.6
Tier 1 leverage ratio
N/A N/A 6.9 6.9
December 31, 2017 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
As of March 31, 2018(Dollars in
millions)(1)
Transitional SLR
Fully Phased-In SLR(4)
Tier 1 Capital
N/A
$ 15,143 Total assets for SLR
N/A
252,360 Supplementary Leverage Ratio
N/A
6.0
%
As of December 31, 2017(Dollars in
millions)
Tier 1 Capital
$
15,382
$ 15,080 Total assets for SLR
236,986
236,708
Supplementary Leverage Ratio
6.5
%
6.4
%
(1) March 31, 2018 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. Effective
January 1, 2018, the applicable final rules are in effect and the
ratios presented are calculated based on fully phased-in CET1, tier
1 and total capital numbers.(3) Estimated pro-forma fully phased-in
ratios as of December 31, 2017 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 then applicable
regulatory requirements. Effective January 1, 2018, the applicable
final rules are in effect and the ratios presented are calculated
based on fully phased-in CET1, tier 1 and total capital numbers.(4)
Estimated pro-forma fully phased-in SLRs as of December 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 the then
applicable regulatory requirements. Effective January 1, 2018, the
applicable final rules are in effect and the ratios presented are
calculated based on fully phased-in CET1, tier 1 and total capital
numbers.
Investor Conference Call and Quarterly
Website Disclosures
State Street will webcast an investor conference call today,
Friday, April 20, 2018, at 9:30 a.m. EDT, available at
http://investors.statestreet.com/. The conference call will also be
available via telephone, at +1 877-423-4013 inside the U.S. or at
+1 706-679-5594 outside of the U.S. The Conference ID is #
6679436.
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 # 6679436.
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 1Q18,
State Street expects to publish its updates during the period
beginning today and ending on or about May 3, 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 $33.3 trillion in assets under custody and
administration and $2.7 trillion* in assets under management as of
March 31, 2018, State Street operates globally in more than 100
geographic markets and employs 37,192 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 $36
billion as of March 31, 2018), 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.
- 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. These excluded assets, which from time to time
may be significant, will be included in new asset servicing
mandates and reflected in servicing assets remaining to be
installed in the period in which the client provides its
permission. Newly announced servicing asset mandates for the first
quarter for 2018 include a significant amount of assets contracted
for in the fourth quarter of 2017 for which we received client
consent to disclose in the first quarter of 2018. Servicing
mandates and servicing assets remaining to be installed in future
periods are presented on a gross basis and therefore also do not
include the impact of clients who have notified us during the
period of their intent to terminate or reduce their relationship
with State Street.
- 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 mandates may be reflected in
our AUCA and AUM as of March 31, 2018. 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.
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 April 20,
2018.
Important factors that may affect future results and outcomes
include, but are not limited to:
- the financial strength of the
counterparties with which we or our clients do business and to
which we have investment, credit or financial exposures as a result
of our acting as agent for our clients, including as asset
manager;
- 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 changes in 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; the liquidity of
the assets on our balance sheet and changes or volatility in the
sources of such funding, particularly the deposits of our clients;
and demands upon our liquidity, including the liquidity demands and
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 U.S. 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 such 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 the level
and pricing 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, implementation of international
standards applicable to financial institutions, such as those
proposed by the Basel Committee 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 and liquidity 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, or will be, required to meet, whether arising
under the Dodd-Frank Act or implementation of international
standards applicable to financial institutions, such as those
proposed by the Basel Committee, 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 or liquidity 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 potential
changes in trade policy and bi-lateral and multi-lateral trade
agreements proposed by the U.S.;
- our ability 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 AUCA or our AUM 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, the possibility of significant reductions in the liquidity
or valuation of assets underlying those pools and the potential
that clients will seek to hold us liable for such losses;
- 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;
- 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,
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 in accounting standards and
practices; and
- the impact of the U.S. tax legislation
enacted in 2017, 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 2017 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: https://www.businesswire.com/news/home/20180420005150/en/
State Street CorporationInvestor Contact:Ilene Fiszel Bieler, +1
617-664-3477orMedia Contact:Marc Hazelton, +1 617-513-9439
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