Net Interest Income up 13% with NIM
Expansion Year-on-Year
Initiated New $350 Million Expense Savings
Program
Better Positioned for CCAR 2019 Due to
Balance Sheet Optimization
Full-Year 2018 ROE of 12.2%, up 1.6% Points
from Full-Year 2017
In announcing today's financial results, Ronald O'Hanley,
President and Chief Executive Officer, said "Over the course of
2018, I have engaged with State Street’s stakeholders including our
investors, clients, employees and regulators. I have also led a
reexamination of our Investment Servicing and Investment Management
strategies. State Street has strong client relationships, unique
assets and is well-positioned in attractive, high-growth markets.
While we have made progress on our technology transformation, much
remains to be done and we are not satisfied with our recent
performance. Structural costs are still too high and our automation
efforts have not moved fast enough."
This press release features multimedia. View
the full release here:
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O'Hanley continued, "New business wins remained strong, with a
record $1.9 trillion of new asset servicing commitments in 2018,
including $140 billion of new mandates in the fourth quarter. Net
interest income increased significantly and foreign exchange
trading performed well, while weaker equity markets and challenging
industry conditions drove underperformance in servicing fees.
Amidst challenging market and industry headwinds, we have launched
a new expense program designed to reduce costs. As part of that
program, we recorded a $223 million pre-tax repositioning charge,
the benefits of which we expect to fully realize within 12-15
months. Our newly acquired Charles River Development business
performed consistent with our expectations. Charles River
Development is driving new activity with existing and new clients
and we are making progress towards creating the industry's first
fully integrated front-to-back offering."
(a)Results excluding notable items are a non-GAAP presentation.
Please refer to the addendum for an explanation and reconciliation
of non-GAAP measures.
O'Hanley concluded, "The changes we are making will position us
well to realize our three-year strategic vision to be the leading
asset servicer, asset manager, and data insight provider to the
owners and managers of the world's capital, which I outlined last
month. We have already initiated a series of actions and as a
result we are highly focused on increasing capital return, revenue
growth and margin expansion. I am confident that our strategy
represents a significant opportunity to deliver growth, drive
innovation and enhance shareholder value."
4Q18 Highlights
AUCA/AUM
- Client Assets: Asset servicing
AUCA as of quarter-end decreased 5% from 4Q17 primarily reflecting
lower equity market levels. Asset management AUM as of quarter-end
decreased 10% compared to 4Q17, primarily driven by weaker equity
markets as well as institutional and cash outflows, partially
offset by ETF inflows
New Business
- Asset servicing mandates announced in
4Q18 totaled approximately $140 billion and total new mandates in
2018 were $1.9 trillion. Year-end servicing assets remaining to be
installed in future periods totaled approximately $385 billion
- Charles River Development (CRD):
Mandates in 4Q18 include annual contract value bookings(b) of $14
million
Revenue
- Total Revenue: 4Q18 revenue
increased 5% compared to 4Q17
- Fee Revenue: Increased 3%, or
$59 million, relative to 4Q17, reflecting the acquisition of CRD
and higher FX trading services revenue, partially offset by lower
servicing fees and securities finance revenue
- CRD contributed $121 million to fee
revenue
- The impact of the new revenue
recognition standard contributed $67 million to fee revenue
relative to 4Q17
- Net Interest Income: Increased
13% relative to 4Q17, driven by higher market interest rates in the
U.S. and disciplined liability pricing
Expenses
- Expenses: Increased 16%, or $343
million, compared to 4Q17, reflecting the repositioning charge and
other notable items, and the contribution of CRD, partially offset
by net Beacon savings. The impact of the new revenue recognition
standard contributed $67 million to expenses relative to 4Q17
- Total expenses, including notable items
and CRD-related expenses, in the second half and first half of 2018
were $4.55 billion and $4.42 billion, respectively. Second-half
2018 underlying expenses were flat to the first-half of
2018(c)
(b) Annual contract value bookings represent signed annual
recurring revenue contract value.(c) Underlying expenses exclude
notable items, CRD operating expenses and CRD-related intangible
asset amortization. Underlying expenses are non-GAAP measures. 1Q18
GAAP and underlying expenses of $2,256 million included seasonal
deferred incentive compensation for retirement-eligible employees
of $148 million. 1Q18 underlying expenses excluding these effects
were $2,108 million. 2Q18 GAAP expenses of $2,159 million included
$77 million of notable items related to repositioning charges.
Excluding these items, 2Q18 underlying expenses were $2,082
million. 3Q18 GAAP and underlying expenses were $2,079 million.
4Q18 GAAP expenses of $2,474 million included notable items of $313
million (consisting of $223M of repositioning charges, $24 million
of acquisition and restructuring charges, $24 million of expenses
related to a business exit, and $42 million of legal and related
expenses) and CRD-related expense of $57 million (consisting of $39
million of operating expenses and $18 million of intangible asset
amortization). Excluding these items, 4Q18 underlying expenses were
$2,104 million. 1H18 underlying expenses further excluding for the
seasonal effects noted above were therefore $4,190 million,
relative to 2H18 underlying expenses of $4,183 million.
- New Expense Program Initiated:
State Street has initiated a new expense program to accelerate
efforts to become a higher-performing organization and help
navigate challenging market and industry conditions. Through
increased resource discipline, process re-engineering and
automation, State Street expects to realize $350 million in
underlying expense savings in 2019. As part of the expense
program's initiation, 4Q18 expenses included a repositioning charge
of $223 million, including $198 million of compensation and
employee benefits and $25 million of occupancy costs. The expense
program includes:
- Resource Discipline:
- Reduction of senior managers by 15%
through management delayering and aligning global
organizations
- Introduction of a more rigorous
performance management system
- Increased vendor management in
subcustody and professional services
- Optimization of real estate
footprint
- Process Re-engineering and Automation:
- Workforce reduction of 6%, or
approximately 1,500 employees, in high cost locations as the
Company realizes benefits of automation and standardized global
processes
- Rationalization and streamlining of 3
operational hubs and 2 joint ventures
- Retirement of legacy applications and
accelerated move to common platforms
- Limiting regional and client operating
differences and reducing the number of manual, bespoke
activities
Notable Items
(Dollars in millions, except EPS
amounts)
Pre-tax EPS Impact
Diluted EPS as reported $ 1.04 Compensation
and employee benefits $ 198 Occupancy 25
Total
repositioning charges 223 0.43
Acquisition and
restructuring costs 24 0.04
Business exit: Channel
Islands 24 0.05
Legal and related 50 0.12
Total notable items $ 321 $ 0.64
Diluted
EPS, excluding notable items $ 1.68
Capital
- Ratios: Capital ratios were
relatively flat as compared to 4Q17
- Investment Portfolio
Repositioning: Completed investment portfolio re-balancing
during 4Q18 to better position the balance sheet for 2019 CCAR
process, increasing the percentage of high-quality liquid
assets
- Capital Return: Declared 4Q18
quarterly common stock dividend of $0.47 per share, an increase of
12% from the 4Q17 dividend. The Company intends to resume common
stock repurchases in January and intends to repurchase up to $600
million through June 30, 2019 under its previously announced
program
Financial Results
(Table presents summary results, dollars in millions, except per
share amounts, or where otherwise noted)
4Q18 3Q18 Increase
(Decrease) 4Q17 Increase
(Decrease) Total fee revenue(1)
$
2,289
$
2,280
0.4 %
$
2,230
2.6 % Net interest income
697 672 3.7 616 13.1 Total
revenue
2,986 2,951 1.2 2,846 4.9 Provision for loan losses
8 5 60.0 (2 ) (500.0 ) Total expenses(1)
2,474 2,079
19.0 2,131 16.1 Net income available to common shareholders
398 709 (43.9 ) 334 19.2
Earnings per common share:
Diluted earnings per share
1.04 1.87 (44.4 ) .89 16.9
Financial ratios and other metrics: Effective tax rate
12.7
%
11.8
%
90 bps 48.4
%
(3,570 ) bps Average total assets
$
221,350
$
221,313
—
$
216,348
2.3 Fee operating leverage(2) (18.61 )% (13.45 )% Operating
leverage(2) (17.81 ) (11.18 ) Return on average common equity
7.5 % 14.0 % (650 ) bps 6.9 % 60 bps Return on
tangible common equity(3)
20.5 19.4 110 16.7 380 Pre-tax
margin (GAAP-basis)
16.9 29.4 (1,250 ) 25.2 (830 )
(1)
Effects of the new revenue recognition
standard (ASU 2014-09): The newly effective revenue recognition
standard increased 4Q18 total fee revenue and total expenses by $67
million each relative to 4Q17. In 4Q18 relative to 4Q17, the
revenue impact was $50 million in management fees, $11 million in
trading services revenue, and $6 million in other line items. The
expense impact was $11 million in transaction processing, $48
million in other expenses, and $8 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)
4Q18 3Q18
Increase(Decrease)
4Q17
Increase(Decrease)
Assets under custody and administration(1)(2)
$
31,620 $ 33,996 (7.0 )% $ 33,119 (4.5 )% Assets under
management(2)
2,511 2,810 (10.6 ) 2,782 (9.7 ) Market
Indices(3): S&P 500® daily average
2,699 2,850 (5.3 )
2,603 3.7 MSCI EAFE® daily average
1,809 1,964 (7.9 ) 2,005
(9.8 ) MSCI® Emerging Markets daily average
978 1,054 (7.2 )
1,125 (13.1 ) HFRI Asset Weighted Composite® monthly average
1,389 1,413 (1.7 ) 1,387 0.1 Barclays Capital Global
Aggregate Bond Index® period-end
479 473 1.3 485 (1.2 )
Average Foreign Exchange Rate (Euro vs. USD)
1.141 1.163
(1.9 ) 1.178 (3.1 ) Average Foreign Exchange Rate (GBP vs. USD)
1.286 1.303 (1.3 ) 1.328 (3.2 )
(1)
Includes assets under custody of $23,248
billion, $25,300 billion, and $25,020 billion, as of 4Q18, 3Q18,
and 4Q17, respectively.
(2)
As of period-end.
(3)
The index names listed in the table are
service marks of their respective owners.
Industry Flow Data
(Dollars in billions) Quarters
1Q18 2Q18 3Q18
Three MonthsEndedNovember 30,2018(4)
YTD2017
YTD2018(4)
North America - ICI Market Data(1)(2) Long Term Funds(5) $
38.0 $ (28.3 ) $ (50.4 ) $ (148.6 ) $ 66.8 $ (195.3 ) Money Market
(52.2 ) (51.7 ) 35.8 50.2 81.2 20.5 ETF 62.8 55.8
87.2
89.2
470.8 314.3
Total ICI Flows $
48.6 $ (24.2 ) $
72.6 $
(9.2
) $ 618.8 $ 139.5
Europe - Broadridge Market Data(1)(3) Long Term Funds(5) $
160.5 $ (24.9 ) $ (16.2 ) $
(126.9
) $ 713.5 $ 57.6 Money Market (10.3 ) (17.8 ) (21.9 ) 2.0
75.7 (39.5 )
Total Broadridge Flows $
150.2 $ (42.7 ) $
(38.1 ) $
(124.9
) $ 789.2 $ 18.1
(1)
Industry data is provided for illustrative
purposes only and is not intended to reflect the Company's or its
clients' activity.
(2)
Source: Investment Company
Institute.Investment Company Institute (ICI) data includes funds
not registered under the Investment Company Act of
1940. Mutual fund data represents estimates of net new
cash flow, which is new sales minus redemptions combined with net
exchanges, while exchange-traded fund (ETF) data represents net
issuance, which is gross issuance less gross redemptions. Data for
mutual funds that invest primarily in other mutual funds and ETFs
that invest primarily in other ETFs were excluded from the series.
ICI classifies mutual funds and ETFs based on language in the fund
prospectus.
(3)
Source: © Copyright 2018, Broadridge
Financial Solutions, Inc.Funds of funds have been excluded from
Broadridge data (to avoid double counting). Therefore, a market
total is the sum of all the investment categories excluding the
three funds of funds categories (in-house, ex-house and hedge).
ETFs are included in Broadridge’s database on mutual funds, but
this excludes exchange-traded commodity products that are not
mutual funds.
(4)
4Q18 data is through November 30, 2018 on
a rolling 3 month basis and includes September, October and
November 2018 market data. FY 2018 represents the rolling twelve
month period from December 2017 through November 2018, the last
date for which information is available. Flows for FY 2018 will not
equal the sum of the four quarters.
(5)
The long term fund flows reported by ICI
are composed of North America Market flows mainly in Equities,
Hybrids and Fixed Income Asset Classes. The long term fund flows
reported by Broadridge are composed of EMEA Market flows mainly in
Equities, Fixed Income, and Multi Asset Classes.
Assets Under Management
The following table presents 4Q18 activity in AUM by product
category.
(Dollars in billions)
Equity
Fixed-Income
Cash(2)
Multi-Asset-ClassSolutions
AlternativeInvestments(3)
Total Balance as of September 30, 2018
$ 1,789
$ 423 $ 317 $ 145
$ 136 $ 2,810 Long-term institutional
inflows(1)
94 37 — 29 2
162 Long-term institutional outflows(1)
(100 )
(41 ) — (31 ) (3
) (175 ) Long-term institutional flows, net
(6 ) (4 ) — (2 )
(1 ) (13 ) ETF flows, net
(5
) (1 ) 5 — 2 1
Cash fund flows, net
— — (35
) — — (35 ) Total
flows, net
(11 ) (5 ) (30
) (2 ) 1 (47 ) Market
appreciation / (depreciation)
(234 ) 4
1 (10 ) (9 ) (248
) Foreign exchange impact
— —
(1 ) (1 ) (2 ) (4
) Total market/foreign exchange impact
(234 )
4 — (11 ) (11
) (252 ) Balance as of December 31, 2018
$ 1,544 $ 422 $
287 $ 132 $ 126
$ 2,511
(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)
4Q18 3Q18
Increase(Decrease)
4Q17
Increase(Decrease)
Servicing fees
$ 1,286 $ 1,333 (3.5 )% $ 1,379 (6.7
)% Management fees
440 474 (7.2 ) 418 5.3 Foreign exchange
trading services
294 288 2.1 248 18.5 Securities finance
revenue
120 128 (6.3 ) 147 (18.4 ) Processing fees and other
revenue
149 57 161.4 38 292.1 Total fee
revenue(1)
2,289 2,280 0.4 2,230 2.6 Net interest
income
697 672 3.7 616 13.1 Gains (losses) related to
investment securities, net
— (1 )
nm
— nm
Total Revenue $ 2,986 $
2,951 1.2 $ 2,846 4.9 Net interest margin
1.55
% 1.48 % 7 bps 1.38 % 17 bps
(1)
The newly effective revenue recognition
standard increased 4Q18 total fee revenue by $67 million relative
to 4Q17. For 4Q18 relative to 4Q17, the fee revenue
impact was $50 million in management fees, $11 million in trading
services revenue, and $6 million in other line items.
nm
Not meaningful
Servicing fees decreased from 4Q17, reflecting weaker
equity markets and challenging industry conditions, a previously
announced client transition, and the unfavorable impact of currency
translation, partially offset by new business wins. Compared to
3Q18, servicing fees decreased, primarily due to lower equity
market levels and challenging industry conditions, as well as the
unfavorable impact of currency translation, partially offset by
higher client activity.
Management fees increased from 4Q17, due to $50 million
related to the new revenue recognition standard, partially offset
by lower equity market levels. Management fees decreased from 3Q18,
primarily due to lower equity market levels and net outflows.
FX Trading Services revenue(2) increased from
4Q17, reflecting higher FX client volumes and volatility. The new
revenue recognition standard contributed $11 million to 4Q18
trading services relative to 4Q17. Compared to 3Q18, trading
services revenue increased, reflecting higher FX volatility.
Securities finance revenue decreased from 4Q17,
reflecting balance sheet optimization efforts. Compared to 3Q18,
securities finance revenue decreased due to lower assets on loan
and lower spreads.
Processing fees and other revenue increased from 4Q17 and
3Q18. The increase over both periods is primarily due to the
contribution of the recently acquired CRD.
Net interest income increased from 4Q17, driven by higher
market interest rates in the U.S. and disciplined liability
pricing, partially offset by a mix shift to HQLA. Compared to 3Q18,
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 17 and 7 basis points,
respectively, compared to 4Q17 and 3Q18, driven by higher U.S.
interest rates, disciplined liability pricing and a smaller
interest earning balance sheet.
(2) FX trading services includes brokerage and other.
Expenses
(Dollars in millions)
4Q18 3Q18
Increase(Decrease)
4Q17
Increase(Decrease)
Compensation and employee benefits
$ 1,303 $ 1,103
18.1 % $ 1,067 22.1 % Information systems and communications
356 332 7.2 301 18.3 Transaction processing services
214 236 (9.3 ) 219 (2.3 ) Occupancy
146 110 32.7 117
24.8 Acquisition and restructuring costs
24 — — 133 (82.0 )
Amortization of other intangible assets
81 47 72.3 54 50.0
Other
350 251 39.4 240 45.8
Total
Expenses(1) $ 2,474 $
2,079 19.0 $ 2,131 16.1
(1)
The newly effective revenue recognition
standard increased 4Q18 total expenses by $67 million relative to
4Q17. For 4Q18 relative to 4Q17, the expense impact was $11 million
in transaction processing, $48 million in other expenses, and $8
million across other expense line items.
nm
Not meaningful
Compensation and employee benefits expenses increased
from 4Q17, primarily reflecting a repositioning charge of $198
million, CRD related compensation and employee benefit expenses of
$28 million, higher investments to support new business and annual
merit increases, partially offset by net Beacon savings and lower
performance based incentive compensation. Compared to 3Q18,
compensation and employee benefits expenses increased primarily due
to the repositioning charge, the contribution from CRD, and one
additional payroll day in 4Q18, partially offset by net Beacon
savings and lower performance based incentive compensation.
Information systems and communications expenses increased
from 4Q17 and 3Q18. The increase from both periods reflects
technology infrastructure enhancements.
Transaction processing services expenses decreased from
both 4Q17 and 3Q18, reflecting lower market data and sub-custody
costs. The 4Q18 transaction processing services expenses includes
$11 million related to the new revenue recognition standard.
Occupancy expenses increased from 4Q17, primarily due to
$25 million related to the 4Q18 repositioning charge. Compared to
3Q18, occupancy expenses increased, primarily due to the 4Q18
repositioning charge and the optimization of our global footprint
strategy.
Other expenses and intangible asset amortization
increased from 4Q17, primarily due to $48 million related to the
new revenue recognition standard, higher legal and related expenses
of $42 million, CRD related intangible asset amortization of $18
million, and business exit costs. Compared to 3Q18, other expenses
increased primarily due to higher legal and related expenses,
higher professional fees, CRD related intangible asset
amortization, and business exit costs.
The 4Q18 effective tax rate was 12.7% compared to 48.4%
in 4Q17 and 11.8% in 3Q18. The 4Q18 tax rate includes the impact of
the notable adjustments referenced earlier in this announcement.
The 4Q17 tax rate included a one-time estimated net tax cost of
$270 million as a result of the enactment of the Tax Cuts and Jobs
Act ("TCJA"), while the 3Q18 tax rate included a reduction related
to the 2017 tax legislation changes.
Capital
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. Lower quarter-end capital ratios
versus 3Q18 reflect the closing of the Charles River Development
acquisition on October 1, 2018, partially offset by lower balance
sheet levels and a reduction of risk weighted assets.
December 31, 2018(1)
Basel
IIIAdvancedApproaches(Estimated)Pro-Forma(2)(3)
Basel
IIIStandardizedApproach(Estimated)Pro-Forma(3)
FullyPhasedin SLR
Common equity tier 1 ratio
12.1 % 11.5
% Tier 1 capital ratio
16.0 15.1 Total capital
ratio
16.8 16.0 Tier 1 leverage ratio
7.2
7.2 Supplementary Leverage Ratio
6.3 %
September 30, 2018 Common equity tier 1 ratio 14.1 % 13.0 % Tier 1
capital ratio 17.9 16.4 Total capital ratio 18.7 17.2 Tier 1
leverage ratio 8.1 8.1 Supplementary Leverage Ratio 7.1 %
(1)
December 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, 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, January 18, 2019, at 10:00 a.m. EST, available at
http://investors.statestreet.com/. The
conference call will also be available via telephone, at +1
877-423-4013 inside the U.S. or at +1 706-679-5594 outside of the
U.S. The Conference ID is # 9476965.
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 # 9476965.
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 4Q18, State Street expects to publish its updates
during the period beginning today and ending on or about
February 14, 2019.
State Street Corporation (NYSE: STT) is the world's leading
provider of financial services to institutional investors including
investment servicing, investment management and investment research
and trading. With $31,620 billion in assets under custody and
administration and $2,511 billion* in assets under management as of
December 31, 2018, State Street operates globally in more than 100
geographic markets and employs over 40,000 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 $32
billion as of December 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.
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 may 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 December 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.
- 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
January 18, 2019.
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 or to which
our clients have such 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
UCITS, the Money Market Fund Regulation and MiFID II / MiFIR);
among other consequences, these regulatory changes impact the
levels of regulatory capital, long term debt 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 heightened
standards and 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 or expectations 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 or actual or
potential changes in trade policy, such as tariffs or 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,
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; and 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 duties;
- 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,
inadvertent data disclosures 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 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, our 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 software solutions with our middle and
back office capabilities to develop a front-to-middle-to-back
office platform 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/20190118005174/en/
Investor Contact: Ilene Fiszel Bieler+1 617/664-3477
Media Contact: Marc Hazelton+1 617/513-9439
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