Net Interest Income Up 11% Compared to
3Q17
Pre-Tax Margin Increased Compared to 3Q17,
Reflecting Continued Expense Management
Completed Acquisition of Charles River
Development to Enable the First-Ever Front to Back
Platform(a)
In announcing today’s financial results, Joseph L. Hooley, State
Street’s Chairman and Chief Executive Officer, said, "Our
third-quarter and year-to-date results reflect solid performance
demonstrated by EPS growth of 13% and 24% compared to 3Q17 and the
2017 year-to-date period, respectively. Our new business remains
strong as evidenced by $300 billion in new asset servicing
commitments in the third quarter and $1.8 trillion
year-to-date."
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20181019005271/en/
Hooley added, "We continue to digitize our business largely
through the Beacon program to drive efficiencies in core operations
while investing in differentiating our data and analytic solutions.
These cost savings initiatives will continue for some time,
enabling us to calibrate our expenses to the revenue environment,
while continuing to deliver strong new business results. The
acquisition of Charles River Development, which we closed earlier
this month, is an example of differentiating our services while
investing for the future."
(a)Offered by a single provider
3Q18 Highlights
AUCA/AUM
- Client asset growth: Asset
servicing AUCA as of quarter-end increased 6% from 3Q17 reflecting
higher equity markets. Asset management AUM as of quarter-end
increased 5% compared to 3Q17, primarily driven by strength in
equity markets and ETF inflows, partially offset by cash and
institutional outflows.
- New business: Asset servicing
mandates announced in 3Q18 totaled approximately $300 billion and
year-to-date new mandates of $1.8 trillion. Servicing assets
remaining to be installed in future periods totaled approximately
$465 billion and our outlook for new business continues to be
strong. In our asset management business, we experienced net
inflows of $8 billion during 3Q18 driven by net institutional and
ETF flows, partially offset by cash outflows.
Revenue
- Total revenue: 3Q18 revenue
increased 4% compared to 3Q17.
- Fee revenue: Increased 2%, or
$38 million, relative to 3Q17, reflecting higher management fees
and trading services revenue, partially offset by lower servicing
fees as a result of a previously announced client transition and
challenging industry conditions.
- The impact of the new revenue
recognition standard contributed $70 million, or approximately 3%
points, to fee revenue growth.
- Prior year fee revenue included a $26
million gain related to the sale of an equity trading
platform.
- Net interest income: Increased
11% relative to 3Q17, driven by higher market interest rates in the
U.S. and disciplined liability pricing, partially offset by a mix
shift to HQLA.
Expenses
- Expenses: Increased 3%, or $58
million, compared to 3Q17, reflecting investments to support new
client business, partially offset by net Beacon savings and the
absence of restructuring costs. We expect to actively manage
expenses with additional efficiency initiatives, while continuing
to invest in the business.
- The impact of the new revenue
recognition standard contributed $70 million, or approximately 3%
points, to expense growth.
- Compensation and employee benefit costs
as well as contractor services expenses were well controlled from
the year-ago quarter, demonstrating the focus to calibrate expenses
against the revenue environment.
- Prior year expenses included $33
million of acquisition and restructuring costs.
Beacon and organizational efficiencies:
- Year-over-year Beacon savings:
We expect 2018 net savings of approximately $200 million, exceeding
our initial guidance of $150 million. We realized approximately $65
million of savings in 3Q18 for total year-to-date savings of
approximately $180 million.
- Expenses flat
sequentially:(a) We continue to execute on our next
phase of efficiency initiatives which includes management
streamlining to further standardize and globalize our business,
along with vendor and occupancy cost improvements.
(a)Excluding $77 million of repositioning costs in 2Q18, 3Q18
expenses were substantially flat to 2Q18. This is a non-GAAP
presentation. On a GAAP-basis, expenses decreased sequentially.
Please refer to the addendum for an explanation and reconciliation
of non-GAAP measures.
Metrics
- Operating leverage: Positive
operating leverage was approximately 0.8% points, compared to
3Q17.
- Fee operating leverage: Fee
operating leverage was -1.2% points, compared to 3Q17.
- Pre-tax margin: Pre-tax margin
increased 0.5% points to 29.4%, compared to 3Q17. Historical
operating-basis pre-tax margin reached 31.4%.(b)
(b) This is a non-GAAP presentation. Please refer to the
addendum for an explanation and reconciliation of non-GAAP
measures.
Capital
- Key metrics: Quarter-end ratios
reflect our previously announced issuances of common and preferred
stock and the suspension of common stock repurchases for the
purpose of funding our acquisition of Charles River Development.
Following the closing of the Charles River acquisition and with the
previously announced suspension of common stock repurchases through
the end of the fourth quarter, capital levels are expected to
return to approximate prior recent historical levels.
- Capital Return: Declared 3Q18
quarterly common stock dividend of $0.47 per share, an increase of
12% from the 2Q18 dividend. We intend to resume our common stock
repurchases in 1Q19 and plan to repurchase up to $600 million
through June 30, 2019 under our previously announced program.
Financial Results
(Table presents summary results, dollars in millions, except per
share amounts, or where otherwise noted)
3Q18
2Q18
Increase(Decrease)
3Q17
Increase(Decrease)
Total fee revenue(1)
$ 2,280 $ 2,358 (3.3 )% $ 2,242
1.7 % Net interest income
672 659 2.0 603 11.4 Total revenue
2,951 3,026 (2.5 ) 2,846 3.7 Provision for loan losses
5 2 150.0 3 66.7 Total expenses(1)
2,079 2,159 (3.7 )
2,021 2.9 Net income available to common shareholders
709
698 1.6 629 12.7
Earnings per common share: Diluted earnings
per share
1.87 1.88 (0.5 ) 1.66 12.7
Financial ratios and
other metrics: Quarterly average total assets
221,313
224,089 (1.2 ) 218,369 1.3 Fee operating leverage(2) 40 bps (118 )
bps Operating leverage(2) 123 82 Return on average common equity
14.0 % 14.7 % (70 ) 13.0 % 100 Return on tangible
common equity(3)
19.4 21.1 (170 ) 18.0 140 Pre-tax margin
(GAAP-basis)
29.4 28.6 80 28.9 50 Pre-tax margin (historical
Operating-basis)
31.4 30.6 80 32.9 (150 ) Effective tax rate
11.8 15.1 (330 ) 16.7 (490 ) (1) Effects of the new
revenue recognition standard (ASU 2014-09): The newly effective
revenue recognition standard increased 3Q18 total fee revenue and
total expenses by $70 million each. Relative to 3Q17, the new
revenue recognition standard contributed 3% to fee revenue growth
and 3% to expense growth. The revenue impact was $50 million in
management fees, $12 million in trading services revenue, and $8
million in other line items. The expense impact was $18 million in
transaction processing, $38 million in other expenses, and $14
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.
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 and foreign exchange
rates)
3Q18 2Q18
Increase(Decrease)
3Q17
Increase(Decrease)
Assets under custody and administration(1)(2)
$
33,996 $ 33,867 0.4 % $ 32,110 5.9 % Assets under
management(2)
2,810 2,723 3.2 2,673 5.1 Market Indices(3):
S&P 500® daily average
2,850 2,703 5.4 2,467 15.5 MSCI
EAFE® daily average
1,964 2,018 (2.7 ) 1,934 1.6 MSCI®
Emerging Markets daily average
1,054 1,138 (7.4 ) 1,068 (1.3
) HFRI Asset Weighted Composite® monthly average
1,414 1,406
0.6 1,358 4.1 Barclays Capital U.S. Aggregate Bond Index®
period-end
2,014 2,013 — 2,038 (1.2 ) Barclays Capital
Global Aggregate Bond Index® period-end
473 478 (1.0 ) 480
(1.5 ) Average Foreign Exchange Rate (Euro vs. USD)
1.163
1.192 (2.4 ) 1.175 (1.0 ) Average Foreign Exchange Rate (GBP vs.
USD)
1.303 1.360 (4.2 ) 1.309 (0.5 ) (1) Includes
assets under custody of $25,300 billion, $25,415 billion, and
$24,240 billion, as of 3Q18, 2Q18, and 3Q17, 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 3Q18 activity in AUM by product
category.
(Dollars in billions)
Equity
Fixed-Income
Cash(2)
Multi-Asset-ClassSolutions
AlternativeInvestments(3)
Total Balance as of June 30, 2018
$ 1,667
$ 437 $ 333 $ 144
$ 142 $ 2,723 Long-term institutional
inflows(1)
150 31 — 12 2
195 Long-term institutional outflows(1)
(121 )
(42 ) — (13 ) (4
) (180 ) Long-term institutional flows, net
29 (11 ) — (1 ) (2
) 15 ETF flows, net
12 3 —
— (3 ) 12 Cash fund flows, net
—
— (19 ) — —
(19 ) Total flows, net
41 (8
) (19 ) (1 ) (5 )
8 Market appreciation
85 (4 ) 3
2 — 86 Foreign exchange impact
(4
) (2 ) — —
(1 ) (7 ) Total market/foreign exchange
impact
81 (6 ) 3 2
(1 ) 79 Balance as of September
30, 2018
$ 1,789 $ 423
$ 317 $ 145 $
136 $ 2,810 (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)
3Q18 2Q18
Increase(Decrease)
3Q17
Increase(Decrease)
Servicing fees
$ 1,333 $ 1,381 (3.5 )% $ 1,351 (1.3
)% Management fees
474 465 1.9 419 13.1 Trading services
revenue
288 315 (8.6 ) 259 11.2 Securities finance revenue
128 154 (16.9 ) 147 (12.9 ) Processing fees and other
revenue
57 43 32.6 66 (13.6 ) Total fee
revenue(1)
2,280 2,358 (3.3 ) 2,242 1.7 Net interest
income
672 659 2.0 603 11.4
Gains (losses) related to investment
securities, net
(1 ) 9 nm 1 nm
Total Revenue
$ 2,951 $ 3,026 (2.5 ) $
2,846 3.7 Net interest margin
1.48 % 1.46 % 2
bps 1.35 % 13 bps (1) The newly effective revenue
recognition standard increased 3Q18 total fee revenue by $70
million. The fee revenue impact was $50 million in management fees,
$12 million in trading services revenue, and $8 million in other
line items. nm Not meaningful
Servicing fees decreased from 3Q17 mainly due to a
previously announced client transition and challenging industry
conditions, partially offset by strong new business wins and market
appreciation. Compared to 2Q18, servicing fees decreased, primarily
reflecting a previously announced client transition and lower
client activity.
Management fees increased from 3Q17, reflecting higher
global equity markets. The new revenue recognition standard
contributed $50 million to 3Q18 management fees relative to 3Q17.
Management fees increased from 2Q18, primarily due to higher U.S.
equity markets.
Trading Services revenue increased from 3Q17, reflecting
higher FX client volumes. The new revenue recognition standard
contributed $12 million to 3Q18 trading services relative to 3Q17.
Compared to 2Q18, trading services revenue decreased primarily
reflecting seasonally lower FX client volumes and lower
volatility.
Securities finance revenue decreased from 3Q17,
reflecting balance sheet optimization efforts. Compared to 2Q18,
securities finance revenue decreased, primarily due to 2Q18
seasonality.
Processing fees and other revenue decreased from 3Q17,
reflecting a 3Q17 gain related to the sale of an equity trading
platform, partially offset by higher software fees. Compared to
2Q18, processing fees and other revenue increased due to higher
software fees.
Net interest income increased from 3Q17, primarily due to
higher market interest rates in the U.S., disciplined liability
pricing, and increased client engagement across cash products,
partially offset by a mix shift to HQLA. Compared to 2Q18, net
interest income increased primarily due to higher U.S. interest
rates and disciplined liability pricing. Net interest margin on a
fully taxable-equivalent basis increased 13 and 2 basis points,
respectively, compared to 3Q17 and 2Q18, driven by higher U.S.
interest rates, disciplined liability pricing and a smaller
interest earning balance sheet.
Expenses
(Dollars in millions)
3Q18 2Q18
Increase(Decrease)
3Q17
Increase(Decrease)
Compensation and employee benefits
$ 1,103 $ 1,125
(2.0
)%
$ 1,090 1.2 % Information systems and communications
332 321
3.4 296 12.2 Transaction processing services
236 246 (4.1 )
215 9.8 Occupancy
110 124 (11.3 ) 118 (6.8 ) Acquisition and
restructuring costs
— — — 33 nm Other
298 343
(13.1 ) 269 10.8
Total Expenses(1)
$ 2,079 $ 2,159 (3.7 ) $
2,021 2.9 (1) The newly effective revenue recognition
standard increased 3Q18 total expenses by $70 million. The expense
impact was $18 million in transaction processing, $38 million in
other expenses, and $14 million across other expense line items. nm
Not meaningful
Compensation and employee benefits expenses increased
from 3Q17, primarily reflecting higher investments to support new
business and annual merit increases, partially offset by net Beacon
and contractor savings. Compared to 2Q18, compensation and employee
benefits expenses decreased primarily due to 2Q18 repositioning
costs related to management streamlining and Beacon savings,
partially offset by lower prior period incentive compensation and
continued investments.
Information systems and communications expenses increased
from 3Q17, primarily due to Beacon related investments and
technology infrastructure enhancements. Compared to 2Q18,
information systems and communications expenses increased,
reflecting technology infrastructure enhancements.
Transaction processing services expenses increased from
3Q17, reflecting the new revenue recognition standard, partially
offset by lower sub-custody costs. Compared to 2Q18, transaction
processing services expenses decreased, primarily reflecting lower
sub-custody costs.
Occupancy expenses decreased from 3Q17, reflecting
advancement of our footprint optimization efforts. Compared to
2Q18, occupancy expenses decreased primarily due to 2Q18 costs
related to right-sizing the real estate footprint as part of our
organizational realignment.
Other expenses increased from 3Q17, primarily due to $38
million related to the new revenue recognition standard, offset by
lower discretionary spend. Compared to 2Q18, other expenses
decreased primarily due to lower professional fees and lower
discretionary expenses.
The 3Q18 effective tax rate was 11.8% compared to 16.7%
in 3Q17 and 15.1% in 2Q18. The decrease in 3Q18 tax rate includes a
reduction to the estimated impact of the 2017 tax legislation
changes recorded in 4Q17, as well as a change in the mix of
earnings.
The following table presents regulatory capital ratios for State
Street Corporation. 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. Quarter-end ratios reflect our
previously announced issuances of common and preferred stock and
the suspension of common stock repurchases for the purpose of
funding our acquisition of Charles River Development. Following the
closing of the Charles River acquisition and with the previously
announced suspension of common stock repurchases through the end of
the fourth quarter, capital levels are expected to return to
approximate prior recent historical levels.
September 30, 2018(1)
Basel IIIAdvancedApproaches(Estimated)
Pro-Forma(2)(3)
Basel
IIIStandardizedApproach(Estimated)Pro-Forma(3)
FullyPhasedin SLR
Common equity tier 1 ratio
14.0 % 12.9
% Tier 1 capital ratio
17.8 16.4 Total capital
ratio
18.6 17.2 Tier 1 leverage ratio
8.1
8.1 Supplementary Leverage Ratio
7.1 % June
30, 2018 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 Supplementary Leverage Ratio 6.2 (1) September 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
September 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, October 19, 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 #
3578659.
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 # 3578659.
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 3Q18,
State Street expects to publish its updates during the period
beginning today and ending on or about November 1, 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 $33,996 billion in assets under custody and
administration and $2,810 billion* in assets under management as of
September 30, 2018, State Street operates globally in more than 100
geographic markets and employs over 39,000 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 $28
billion as of September 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 September 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.
- Operating leverage is defined as the
rate of growth of total revenue less the rate of growth of
expenses, relative to the successive prior year period, as
applicable. Fee operating leverage is defined as the rate of growth
of total fee revenue less the rate of growth of expenses, relative
to the successive prior year period, as applicable. Year-over-year
or YoY, refers to the current year period compared to the same
period a year ago.
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
October 19, 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, 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,
including our acquisition of Charles River Development, 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/20181019005271/en/
State Street CorporationInvestor Contact:Ilene Fiszel Bieler, +1
617-664-3477orMedia Contact:Marc Hazelton, +1 617-513-9439
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