2Q18 Results Include a $77 Million, or $0.17
Per Share, Repositioning Charge Related to Organizational
Realignment
2Q18 Revenue of $3.0 Billion, up 8% Compared
to 2Q17, Reflecting Strength in Both Fee Revenue and Net Interest
Income
Expenses Down Sequentially; Beacon to
Deliver $200 Million in Savings in 2018, up from $150
Million
In announcing today’s financial results, Joseph L. Hooley, State
Street’s Chairman and Chief Executive Officer, said,
"Second-quarter and year-to-date 2018 results reflect strength
across our asset servicing and asset management businesses as well
as the benefit from higher net interest income. Importantly,
year-to-date EPS growth of 30% compared to the first half of 2017
was supported by a 6% and 20% increase in servicing fees and
management fees, respectively. Demand remains strong across our
global client base as demonstrated by new servicing commitments
announced in the first half of 2018 of $1.5 trillion."
Hooley added, "Through State Street Beacon, we have gained
efficiencies across the organization, while delivering significant
value and innovation to our clients. Building on the success of
Beacon, we are now focused on achieving greater organizational
effectiveness and streamlining to further advance the
standardization and globalization of our business."
Hooley continued, "It continues to remain a priority to
prudently manage expenses against the revenue environment and we
remain on track to achieve our 2018 financial objectives."
Hooley concluded, "Building on our market-leading servicing
capabilities, our announcement today of our agreement to acquire
Charles River Development positions us to deliver the industry's
first-ever front-to-middle-to-back office servicing platform. A
comprehensive front to back solution coupled with enhanced data
management provides State Street with the capabilities to further
expand and deepen our client relationships and help solve some of
their most pressing business challenges. The addition of Charles
River Development's capabilities to State Street's existing product
set provides another growth avenue for shareholders."
2Q18 Highlights
AUCA/AUM
- Broad-based business momentum:
Asset servicing AUCA as of quarter-end increased 9% from 2Q17 due
to strength in equity markets, new business, and higher client
flows, partially offset by client transitions. Asset management AUM
as of quarter-end, increased 5% compared to 2Q17, primarily driven
by strength in equity markets, partially offset by lower yielding
institutional outflows.
- New business: Asset servicing
mandates announced year-to-date totaled approximately $1.5
trillion, of which $105 billion was newly announced in 2Q18.
Servicing assets remaining to be installed in future periods
totaled approximately $300 billion. In our asset management
business, we experienced net outflows of $14 billion during
2Q18.
Revenue
- Fee revenue: Increased 6% from
2Q17, driven by higher servicing fees, management fees, trading
services, the favorable impact of currency translation, and the
impact of the new revenue recognition standard, partially offset by
lower securities finance fees.
- Servicing and management fees:
Servicing fees increased 3% relative to 2Q17, benefiting from
higher global equity markets and new business. Management fees
increased 17% relative to 2Q17, primarily driven by higher global
equity markets and the impact of the new revenue recognition
standard.
- Net interest income: Increased
15% relative to 2Q17, driven by higher market interest rates in the
U.S. and disciplined liability pricing, partially offset by a mix
shift to HQLA assets.
Expenses
- Expenses: 2Q18 expenses
increased 6% compared to 2Q17, primarily due to investments to
support new business, higher salaries and benefits, and the impact
of the new revenue recognition standard, partially offset by Beacon
savings and lower performance-based incentive compensation.
- The impact of the new revenue revenue
recognition standard and the unfavorable impact of currency
translation contributed 4% points to expense growth.
- Expenses include a $77 million
repositioning charge related to organizational changes and
management streamlining, consisting of $61 million of compensation
and employee benefits and $16 million of occupancy costs.
- Beacon and organizational
efficiencies:
- Savings: We now expect $200
million in savings in 2018 which exceeds our previously announced
guidance of $150 million. We realized approximately $60 million of
savings in both 1Q18 and 2Q18 for total year-to-date savings of
approximately $120 million.
- Building on success: We are
transitioning to our next phase of efficiency initiatives which
includes management streamlining to further advance the
standardization and globalization of our business. To achieve these
efficiency initiatives, we recognized the above referenced 2Q18
repositioning charge of $77 million.
- Operating leverage: Compared to
2Q17, the growth rate of total revenue exceeded the growth rate of
total expenses, resulting in positive operating leverage of
approximately 1.4% points.
- Fee operating leverage: Compared
to 2Q17, fee operating leverage was (0.8)% points. The impact from
lower 2Q18 securities finance seasonality relative to 2Q17
contributed approximately 1%.
- Pre-tax margin: Compared to
2Q17, pre-tax margin increased 1% point to 28.6%.
Capital
- Key metrics: Relative to 2Q17,
under the standardized approach, the estimated Basel III common
equity tier 1 ratio for 2Q18 increased 10 basis points to 11.3%.
The estimated 2Q18 leverage ratio was 7.1%, reflecting an increase
of 10 basis points from 2Q17.
- Capital Return: Declared a
quarterly common stock dividend of $0.42 per share and on July 19,
2018, declared a 3Q18 dividend of $0.47 per share, representing an
increase of 12% from the 2Q18 dividend. In anticipation of today's
separately announced acquisition, we did not repurchase any common
stock in 2Q18 and do not anticipate repurchasing any common stock
for the remainder of the year.
Financial Results
(Table presents summary results, dollars
inmillions, except per share amounts, or whereotherwise noted)
2Q18 1Q18
Increase(Decrease)
2Q17
Increase(Decrease)
Total fee revenue(1)
$ 2,358 $ 2,378 (0.8 )% $ 2,235
5.5 % Net interest income(2)
659 643 2.5 575 14.6 Total
revenue
3,026 3,019 0.2 2,810 7.7 Provision for loan losses
2 — nm 3 nm Total expenses(1)
2,159 2,256 (4.3 )
2,031 6.3 Net income available to common shareholders
698
605 15.4 584 19.5
Earnings per common share: Diluted
earnings per share
1.88 1.62 16.0 1.53 22.9
Financial
ratios: Quarterly average total assets
224,089 226,870
(1.2 ) 223,917 0.1 Fee operating leverage(3) 346 bps (80 ) bps
Operating leverage(3) 453 139 Return on average common equity
14.7 % 12.8 % 190 12.6 % 210 Return on tangible
common equity(4)
21.1 20.1 100 17.3 380 Pre-tax margin
(GAAP-basis)
28.6 25.3 330 27.6 100 Pre-tax margin
(historical Operating-basis)
30.6 27.4 320 33.3 (270 )
Effective tax rate
15.1 13.5 160 20.1 (500 )
(1) Effects of the new revenue recognition standard (ASU
2014-09): The newly effective revenue recognition standard
increased 2Q18 total fee revenue and total expenses by
approximately $70 million each. Relative to 2Q17, the new revenue
recognition standard contributed 2.4% and 2.9% to both fee revenue
growth and expense growth, respectively. The revenue impact was
approximately $45 million in management fees, $20 million in
brokerage and other fees, and $5 million in other line items. The
expense impact was approximately $15 million in transaction
processing, $45 million in other expenses, and $10 million in
information systems and communication.(2) Approximately $15 million
of swap costs in 1Q18 were reclassified from processing fees and
other revenue within fee revenue to net interest income to conform
to current presentation. No other prior periods were revised.(3)
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.(4) 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
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
foreign exchange rates for the periods indicated.
(Dollars in billions, except market
indices andforeign exchange rates)
2Q18 1Q18
Increase(Decrease)
2Q17
Increase(Decrease)
Assets under custody and administration(1)(2)
$
33,867 $ 33,284 1.8 % $ 31,037 9.1 % Assets under
management(2)
2,723 2,729 (0.2 ) 2,606 4.5 Market
Indices(3): S&P 500® daily average
2,703 2,733 (1.1 )
2,398 12.7 MSCI EAFE® daily average
2,018 2,072 (2.6 ) 1,856
8.7 MSCI® Emerging Markets daily average
1,138 1,204 (5.5 )
993 14.6 HFRI Asset Weighted Composite® monthly average
1,407 1,406 0.1 1,339 5.1 Barclays Capital U.S. Aggregate
Bond Index® period-end
2,013 2,016 (0.1 ) 2,021 (0.4 )
Barclays Capital Global Aggregate Bond Index® period-end
478
491 (2.6 ) 471 1.5 Average Foreign Exchange Rate (Euro vs. USD)
1.192 1.229 (3.0 ) 1.101 8.3 Average Foreign Exchange Rate
(GBP vs. USD)
1.360 1.391 (2.2 ) 1.280 6.3
(1) Includes assets under custody of $25,415 billion, $25,046
billion, and $23,362 billion, as of 2Q18, 1Q18, and 2Q17,
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 2Q18 activity in AUM by product
category.
(Dollars in billions)
Equity
Fixed-Income
Cash(2)
Multi-Asset-ClassSolutions
AlternativeInvestments(3)
Total Balance as of March 31, 2018
$
1,670 $ 433 $ 336 $
146 $ 144 $ 2,729 Long-term
institutional inflows(1)
48 33 — 18
3 102 Long-term institutional outflows(1)
(68
) (24 ) — (19 )
(3 ) (114 ) Long-term institutional
flows, net
(20 ) 9 — (1 )
— (12 ) ETF flows, net
(2 )
3 — — (1 ) — Cash fund
flows, net
— — (2 )
— — (2 ) Total flows, net
(22 ) 12 (2 ) (1 )
(1 ) (14 ) Market appreciation
34 (2 ) 1 1 1 35
Foreign exchange impact
(15 ) (6 )
(2 ) (2 ) (2 ) (27
) Total market/foreign exchange impact
19
(8 ) (1 ) (1 ) (1
) 8 Balance as of June 30, 2018
$
1,667 $ 437 $ 333
$ 144 $ 142
$ 2,723
(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)
2Q18 1Q18
Increase(Decrease)
2Q17
Increase(Decrease)
Servicing fees
$ 1,381 $ 1,421 (2.8 )% $ 1,339 3.1 %
Management fees
465 472 (1.5 ) 397 17.1 Trading services
revenue
315 304 3.6 289 9.0 Securities finance revenue
154 141 9.2 179 (14.0 ) Processing fees and other revenue
43 40 7.5 31 38.7 Total fee revenue(1)
2,358 2,378 (0.8 ) 2,235 5.5 Net interest income(1)
659 643 2.5 575 14.6 Gains (losses) related to investment
securities, net
9 (2 ) nm — —
Total
Revenue $ 3,026 $ 3,019 0.2 $ 2,810
7.7 Net interest margin
1.46 % 1.40 % 6 bps
1.27 % 19 bps
(1) Approximately $15 million of swap costs in 1Q18 were
reclassified from processing fees and other revenue within fee
revenue to net interest income to conform to current presentation.
No other prior periods were revised. The newly effective revenue
recognition standard increased 2Q18 total fee revenue by
approximately $70 million. The fee revenue impact was approximately
$45 million in management fees, $20 million in brokerage and other
fees, and $5 million in other line items.nm Not meaningful
Servicing fees increased from 2Q17, primarily due to
higher global equity markets, increased client activity, new
business, and the favorable impact of currency translation.
Compared to 1Q18, servicing fees decreased, primarily due to lower
global equity markets, client transitions, and the unfavorable
impact of currency translation.
Management fees increased from 2Q17, primarily due to
higher global equity markets and the adoption of the new revenue
recognition accounting standard. Management fees decreased from
1Q18, primarily due to lower global equity markets.
Trading Services revenue increased from 2Q17 and 1Q18,
the increase over both periods reflects higher FX client
volumes.
Securities finance revenue decreased from 2Q17,
reflecting lower seasonal activity in 2Q18 relative to 2Q17.
Compared to 1Q18, securities finance revenue increased primarily
due to seasonality.
Processing fees and other revenue increased from 2Q17,
largely reflecting lower amortization related to tax-advantaged
investments and higher software fees. Compared to 1Q18, processing
fees and other revenue increased due to higher software fees.
Net interest income increased from 2Q17 and 1Q18,
primarily due to higher market interest rates in the U.S. and
disciplined liability pricing, partially offset by a mix shift to
HQLA assets. Net interest margin increased 19 and 6 basis points
compared to 2Q17 and 1Q18, respectively, driven by higher U.S.
interest rates and disciplined liability pricing and a smaller
balance sheet.
Expenses
(Dollars in millions)
2Q18 1Q18
Increase(Decrease)
2Q17
Increase(Decrease)
Compensation and employee benefits
$ 1,125 $ 1,249
(9.9 )% $ 1,071 5.0 % Information systems and communications
321 315 1.9 283 13.4 Transaction processing services
246 242 1.7 207 18.8 Occupancy
124 120 3.3 116 6.9
Acquisition and restructuring costs(1)
— — — 71 (100.0 )
Other
343 330 3.9 283 21.2
Total
Expenses(1) $ 2,159 $ 2,256
(4.3 ) $ 2,031 6.3
(1) Effects of the new revenue recognition standard: The newly
effective revenue recognition standard increased 2Q18 total
expenses by approximately $70 million. Relative to the expense
impact was approximately $15 million in transaction processing, $45
million in other expenses, and $10 million across other expense
line items.
Compensation and employee benefits expenses increased
from 2Q17, primarily due to the $61 million related to the
repositioning charge, increased costs to support new business,
annual merit increases, and the unfavorable impact of currency
translation, partially offset by lower performance based incentive
compensation and Beacon savings. Compared to 1Q18, compensation and
employee benefits expenses decreased primarily due to the absence
of expenses associated with the seasonal deferred incentive
compensation for retirement-eligible employees, lower 2Q18
performance based incentives and Beacon savings, partially offset
by the 2Q18 repositioning charge related to organizational changes
and management streamlining.
Information systems and communications expenses increased
from 2Q17, primarily due to Beacon related investments and costs to
support new business.
Transaction processing services expenses increased from
2Q17, reflecting higher client volumes and higher market levels as
well as the impact of the new revenue recognition standard.
Occupancy expenses increased from both 2Q17 and 1Q18. The
increase over both periods reflects a 2Q18 $16 million charge
related to right-sizing the real estate footprint as part of our
organizational realignment.
Other expenses increased from 2Q17, primarily due to the
impact of the new revenue recognition accounting standard. Compared
to 1Q18, other expenses increased reflecting higher Beacon related
investments and regulatory professional costs.
The 2Q18 effective tax rate was 15.1% compared to 20.1%
in 2Q17 and 13.5% in 1Q18. The decrease in 2Q18 tax rate compared
to 2Q17 reflects the impact of the lower U.S. tax rate under the
TCJA as well as a reduction in deferred tax liabilities, partially
offset by a decline in tax exempt income. The 1Q18 tax rate
included elevated benefits attributable to the vesting of stock
based compensation.
The following table presents regulatory capital ratios as of
June 30, 2018 and March 31, 2018. 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.
June 30, 2018(1)
Basel
IIIAdvancedApproaches(Estimated)Pro-Forma(2)(3)
Basel
IIIStandardizedApproach(Estimated)Pro-Forma(3)
Common equity tier 1 ratio
12.4 % 11.3
% Tier 1 capital ratio
15.7 14.3 Total capital
ratio
16.4 15.1 Tier 1 leverage ratio
7.1
7.1 March 31, 2018 Common equity tier 1 ratio 12.1 %
10.8 % Tier 1 capital ratio 15.4 13.7 Total capital ratio 16.3 14.6
Tier 1 leverage ratio 6.9 6.9 As of June 30, 2018(Dollars in
millions)(1) Fully Phased-In SLR
Tier 1 Capital $
15,419 Total assets for SLR
250,160 Supplementary
Leverage Ratio 6.2 % As of March 31,
2018(Dollars in millions)
Tier 1 Capital $ 15,146 Total
assets for SLR 252,362
Supplementary Leverage Ratio 6.0 %
(1) June 30, 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 June 30, 2018 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.
Investor Conference Call and Quarterly
Website Disclosures
State Street will webcast an investor conference call today,
Friday, July 20, 2018, at 8:00 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 # 5069567.
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 # 5069567.
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 2Q18, State Street expects to publish its updates
during the period beginning today and ending on or about
July 25, 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 $33.9 trillion in assets under custody and
administration and $2.7 trillion* in assets under management as of
June 30, 2018, State Street operates globally in more than 100
geographic markets and employs over 38,000 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 $33
billion as of June 30, 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, which from time to time be significant.
- 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 June 30, 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 July 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; the
possibility that our clients or regulators will assert claims that
our fees with respect to such investment products are not
appropriate or consistent with our fiduciary responsibilities;
- 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 our proposed acquisition
of Charles River Development, and our 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 integrate Charles River
Development's front office systems with our middle and back office
capabilities to offer an front to back office system that is
competitive and meets our clients requirements;
- 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/20180720005142/en/
State Street CorporationInvestor Contact:Ilene Fiszel Bieler, +1
617-664-3477orMedia Contact:Marc Hazelton, +1 617-513-9439
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