NET INTEREST INCOME OF $673 MILLION UP 5%
COMPARED TO 1Q18
CONTINUED STRONG PERFORMANCE FROM CHARLES
RIVER DEVELOPMENT
NEW EXPENSE PROGRAM REALIZED $78 MILLION IN
SAVINGS YEAR-TO-DATE; TOTAL EXPENSES WELL CONTROLLED
RETURNED APPROXIMATELY $480 MILLION OF
CAPITAL TO SHAREHOLDERS IN SHARE REPURCHASES AND DIVIDENDS
Ronald O’Hanley, President and Chief Executive
Officer:
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“Our performance this quarter reflects the continued challenging
conditions in the industry as well as lower client activity. We
have seen these conditions before and know that focusing on what we
can control, including better productivity, process re-engineering
and greater resource discipline, while also strengthening client
relationships, will deliver shareholder value and drive growth. The
expense program we initiated in the fourth quarter of 2018 is
already delivering benefits."
"Given the secular trends impacting our industry, we continue to
prioritize strong service quality and innovation and are working to
reignite servicing fee revenue growth through initiatives targeted
at specific client segments and markets.”
“Reflecting our priorities, we also resumed share repurchases
during the quarter, returning approximately $480 million of capital
to shareholders in share repurchases and dividends, and believe we
are well-positioned for the 2019 CCAR process.”
FINANCIAL HIGHLIGHTS
(Table presents summary
results, dollars in millions, except per share amounts, or where
otherwise noted)
1Q19 4Q18 1Q18 % QoQ
% YoY Total fee revenue $ 2,260 $ 2,326 $ 2,415 (2.8 )% (6.4
)% Net interest income 673 697 643
(3.4 ) 4.7 Total revenue
2,932 3,023 3,056 (3.0 ) (4.1 ) Provision for loan losses 4 8 — nm
nm Total expenses 2,293 2,486 2,268 (7.8 ) 1.1 Net income 508 437
659 16.2 (22.9 ) Net income available to common shareholders 452
396 603 14.1 (25.0 )
Earnings per common share:
Diluted earnings per share $ 1.18 $ 1.03 $ 1.62 14.6 % (27.2 )%
Financial ratios and other metrics: Return on average
common equity 8.7 % 7.5 % 12.8 % 120 bps (410 ) bps Pre-tax margin
21.7 17.5 25.8 420 (410 ) Effective tax rate 20.1 17.4 16.4 270 370
Average total assets $ 219,560 $ 221,350 $ 226,870 (0.8 )% (3.2 )%
Average total deposits 155,343 158,345
165,010 (1.9 ) (5.9 )
(a) See page 2 of this News Release for a
listing of notable items. Results excluding notable items are a
non-GAAP presentation. Please refer to the Addendum included with
this News Release for an explanation and reconciliation of non-GAAP
measures.
1Q19 HIGHLIGHTS(all comparisons are to 1Q18, unless
otherwise noted)
AUC/A and AUM
- Investment Servicing AUC/A as of
quarter-end decreased 2% primarily due to the impact of negative FX
translation and a previously announced client transition
- Investment Management AUM as of
quarter-end increased 3% driven by higher equity markets, growth
from institutional and ETF inflows, partially offset by year-end
cash outflows
New Business
- Investment Servicing mandates announced
in 1Q19 totaled approximately $120 billion with quarter-end
servicing assets remaining to be installed in future periods of
approximately $310 billion
- Investment Management inflows in 1Q19
of over $70 billion driven by institutional and cash inflows
- Charles River Development (CRD):
mandates in 1Q19 included annual contract value bookings of
approximately $6 million
Revenues
- Total revenue decreased 4%
- Fee revenue decreased 6% reflecting
lower servicing, management and markets revenues, partially offset
by CRD
- Continued strength in CRD with $99
million in revenues and $58 million in pre-tax income
- Net interest income (NII) up 5% due to
higher U.S. interest rates and disciplined deposit pricing,
partially offset by lower deposits
Expenses
- Total expenses increased approximately
1% primarily driven by the impact of the CRD acquisition, and
technology infrastructure spend, partially offset by savings from
new process re-engineering and resource discipline savings program
- Excluding notable items, seasonal and
CRD-related expenses, total expenses were down 2%
- New expense savings program achieved
$78 million total savings through resource discipline, process
re-engineering and automation benefits
- Total headcount decreased approximately
0.5% compared to 4Q18 driven by a reduction in high cost locations
headcount
Capital
- Returned approximately $480 million to
common shareholders in 1Q19, consisting of $300 million common
share repurchases and approximately $180 million in common
dividends
- Standardized Common Equity Tier 1
(CET1) of 11.5%, Tier 1 Leverage ratio of 7.4% and Supplementary
Leverage Ratio (SLR) of 6.6% at quarter-end
- Well-positioned for 2019 CCAR cycle
with strong capital levels and a rebalanced investment
portfolio
NOTABLE ITEMS
(Dollars in millions, except EPS
amounts)
1Q19 4Q18 1Q18 Acquisition and
restructuring costs (net) $ 9 $ 24 $ — Legal and related 14 50 —
Repositioning costs — 223 — Business exit — 24 —
Total notable items (pre-tax) $ 23 $ 321 $ — EPS impact
$ (0.06 ) $ (0.64 ) $ —
MARKET DATA, AUC/A AND AUM
The tables below provide a summary of selected financial
information, key ratios, AUC/A, AUM, market indices and foreign
exchange rates for the periods indicated as well as industry flow
data for the indicated time periods.
(Dollars in billions,
except market indices and foreign exchange rates)
1Q19
4Q18 1Q18 % QoQ % YoY Assets
under custody and administration (AUC/A)(1) (2) $ 32,643 $ 31,620 $
33,284 3.2 % (1.9 )% Assets under management (AUM)(2) 2,805 2,511
2,729 11.7 2.8
Market Indices(3)
: S&P 500
daily average 2,721 2,699 2,733 0.8 (0.4 ) S&P 500 EOP 2,834
2,507 2,641 13.0 7.3 MSCI EAFE daily average 1,833 1,809 2,072 1.3
(11.5 ) MSCI EAFE EOP 1,875 1,720 2,006 9.0 (6.5 ) MSCI Emerging
Markets daily average 1,033 978 1,204 5.6 (14.2 ) MSCI Emerging
Markets EOP 1,058 966 1,171 9.5 (9.6 ) Barclays Capital Global
Aggregate Bond Index EOP 489 479 491 2.1 (0.4 )
Foreign Exchange
Volatility Indices: JPM G7 Volatility Index daily average 7.4
7.9 7.8 (6.3 ) (5.1 ) JPM Emerging Market Volatility Index daily
average 8.8 10.0 8.1 (12.0 ) 8.6
Average Foreign Exchange
Rate: Euro vs. USD 1.136 1.141 1.229 (0.4 ) (7.6 ) GBP vs. USD
1.302 1.286 1.391
1.2 (6.4 ) (1) Includes assets
under custody of $24,569 billion, $23,248 billion, and $25,046
billion, as of 1Q19, 4Q18, and 1Q18, 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)
1Q19 4Q18 3Q18 2Q18 1Q18
North America - ICI Market Data:(1) Long Term Funds $ 47.3 $
(308.8 ) $ (50.4 ) $ (28.3 ) $ 38.0 Money Market 54.0 187.9 35.8
(51.7 ) (52.2 ) ETF 43.3 105.0 87.2 55.8 62.8 Total ICI Flows $
144.6 $ (15.9 ) $ 72.6 $ (24.2 ) $ 48.6
Europe -
Broadridge Market Data:(2) Long Term Funds $ (50.0 ) $ (171.4 )
$ (16.2 ) $ (24.9 ) $ 160.5 Money Market 19.8 62.4 (21.9 ) (17.8 )
(10.3 ) Total Broadridge Flows $ (30.2 ) $ (109.0 ) $ (38.1 ) $
(42.7 ) $ 150.2 (1) 1Q19 data is on a rolling 3 month
basis and includes January through March 2019 for North America
(Investment Company Institute). (2) 1Q19 data is on a rolling 3
month basis and includes December 2018, January and February 2019
for EMEA (Copyright 2018 Broadridge Financial Solutions, Inc.)
INVESTMENT SERVICING AUC/A
(Dollars in billions)
1Q19 4Q18 1Q18 % QoQ % YoY
Assets Under Custody and/or Administration By Product
Classification: Mutual funds $ 8,586 $ 7,912 $ 7,503 8.5 % 14.4 %
Collective funds, including ETFs 9,436 8,999 9,908 4.9 (4.8 )%
Pension products 6,513 6,489 6,802 0.4 (4.2 )% Insurance and other
products 8,108 8,220 9,071 (1.4 ) (10.6 )%
Total Assets Under
Custody and/or Administration $ 32,643 $ 31,620 $ 33,284 3.2
(1.9 )% By Financial Instrument(1): Equities $ 18,924 $ 18,041 $
19,198 4.9 (1.4 )% Fixed-income 9,831 9,758 10,186 0.7 (3.5 )%
Short-term and other investments 3,888 3,821 3,900 1.8 (0.3 )%
Total Assets Under Custody and/or Administration $ 32,643 $
31,620 $ 33,284 3.2 (1.9 )% (1) Certain previously
reported amounts have been reclassified to conform to current
period presentation.
INVESTMENT MANAGEMENT AUM
The following table presents 1Q19 activity in AUM by product
category.
(Dollars in
billions)
Equity Fixed- Income Cash
Multi-Asset Class Solutions
Alternative Investments(1)
Total Beginning balance
as of December 31, 2018 $ 1,544 $
422 $ 287 $ 132 $
126 $ 2,511 Long-term institutional
flows, net(2) 53 (9 ) 1 5 2 52 ETF flows, net (6 ) 4 (1 ) — — (3 )
Cash fund flows, net — — 24 — — 24 Total flows, net $ 47 $ (5 ) $
24 $ 5 $ 2 $ 73 Market appreciation/(depreciation) 191 13 3
10 6 223 Foreign exchange impact (1 ) (1 ) — — — (2 ) Total
market/foreign exchange impact $ 190 $ 12 $ 3 $ 10 $ 6 $ 221
Ending balance as of March 31, 2019 $ 1,781
$ 429 $ 314 $ 147
$ 134 $ 2,805 (1)
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. (2) Amounts represent long-term portfolios,
excluding ETFs.
REVENUE
(Dollars in millions)
1Q19 4Q18 1Q18 % QoQ % YoY
Servicing fees $ 1,251 $ 1,286 $ 1,421 (2.7 )% (12.0 )% Management
fees 420 440 472 (4.5 ) (11.0 ) Foreign exchange trading services
280 294 304 (4.8 ) (7.9 ) Securities finance revenue 118 120 141
(1.7 ) (16.3 ) Processing fees and other revenue 191 186 77 2.7 nm
Total fee revenue $ 2,260 $ 2,326 $ 2,415 (2.8 ) (6.4 ) Net
interest income 673 697 643 (3.4 ) 4.7 Gains (losses) related to
investment securities, net (1 ) — (2 ) nm nm
Total Revenue
$ 2,932 $ 3,023 $ 3,056
(3.0 ) (4.1 ) Net interest margin 1.54 %
1.55 % 1.40 % (1) bps 14 bps
Servicing fees decreased 12% compared to 1Q18 driven by
challenging industry conditions including fee concessions and lower
client activity and flows, weaker average equity market levels and
a previously announced client transition, partially offset by new
business. Servicing fees were down 3% compared to 4Q18 due to
challenging industry conditions, partially offset by higher average
equity market levels.
Management fees decreased 11% compared to 1Q18 reflecting
product mix and weaker average equity market levels. Management
fees were down 5% compared to 4Q18 driven by the impact of 4Q18
outflows and day count, partially offset by higher average equity
market levels.
Foreign exchange trading services decreased 8% compared
to 1Q18 due to lower client volumes and market volatility and 5%
compared to 4Q18 due to lower market volatility.
Securities finance decreased 16% compared to 1Q18
reflecting balance sheet repositioning initiative in 3Q18 and 4Q18,
and 2% compared to 4Q18 primarily due to the realized impact of
4Q18 client de-leveraging.
Processing fees and other increased compared to 1Q18
reflecting CRD revenue contribution, which we acquired in 4Q18, and
a tax-advantaged lease sale. Processing fees and other were up 3%
compared to 4Q18, largely driven by market-related adjustments on
employee long-term incentive plans, partially offset by lower CRD
revenue due to seasonality of renewals.
- In 1Q19, CRD contributed $95 million of
revenue
Net interest income increased 5% compared to 1Q18
primarily due to higher U.S. interest rates and disciplined deposit
pricing, partially offset by lower average deposit balances. Net
interest income declined 3% compared to 4Q18 due to lower deposits
and day count, partially offset by the December 2018 Federal
Reserve rate hike and an increase in the investment portfolio. Net
interest margin (NIM) on a fully taxable-equivalent basis increased
14 basis points compared to 1Q18 due to higher U.S. interest rates,
disciplined deposit pricing and lower interest-earning assets.
Compared to 4Q18, NIM declined 1 basis point primarily due to lower
non-interest bearing deposit levels.
EXPENSES
(Dollars in billions)
1Q19 4Q18 1Q18 % QoQ % YoY
Compensation and employee benefits $ 1,229 $ 1,303 $ 1,249 (5.7 )%
(1.6 )% Information systems and communications 362 356 315 1.7 14.9
Transaction processing services 242 226 254 7.1 (4.7 ) Occupancy
116 146 120 (20.5 ) (3.3 ) Acquisition and restructuring costs 9 24
— (62.5 ) nm Amortization of other intangible assets 60 81 50 (25.9
) 20.0 Other 275 350 280 (21.4 ) (1.8 )
Total Expenses
$ 2,293 $ 2,486 $ 2,268
(7.8 ) 1.1
Total expenses increased 1% compared to 1Q18, primarily
driven by the impact of the CRD acquisition. Total expenses
decreased 8% compared to 4Q18 driven by the lesser impact of
notable items in 1Q19 compared to 4Q18, partially offset by
seasonal expenses. Adjusted for notable items, seasonal expenses,
and CRD, total expenses were down 2% compared to 1Q18(b).
Compensation and employee benefits decreased 2% compared
to 1Q18 driven by savings from the new process re-engineering and
resource discipline savings program as well as lower contract
services costs, partially offset by annual merit increases.
Compensation and employee benefits decreased 6% compared to 4Q18
due to the lesser impact of notable items in 1Q19 as well as lower
headcount and fewer payroll days.
Information systems and communications increased 15%
compared to 1Q18 largely reflecting technology infrastructure
enhancements and investments to support business growth. Compared
to 4Q18, information systems and communications increased 2%
largely reflecting technology infrastructure enhancements.
Transaction processing services decreased 5% compared to
1Q18 due to lower sub-custodian costs and increased 7% versus 4Q18
due to the absence of prior quarter recoveries.
Occupancy decreased 3% compared to 1Q18 primarily driven
by the advancement of the Company’s global footprint strategy.
Occupancy expense decreased 21% compared to 4Q18 primarily due to
the $25 million repositioning charge incurred in 4Q18.
Amortization of other intangible assets increased 20%
compared to 1Q18 primarily due to the CRD acquisition. Amortization
of other intangible assets decreased 26% compared to 4Q18 primarily
due to the absence of accelerated amortization associated with a
business exit in 4Q18.
Other expenses decreased 2% compared to 1Q18 primarily
reflecting lower travel and insurance costs. Other expenses
decreased 21% compared to 4Q18 primarily due to lower professional
fees and travel costs.
The effective tax rate in 1Q19 was 20.1% compared to
16.4% in 1Q18 and 17.4% in 4Q18. Compared to 1Q18 and 4Q18, the
effective tax rate increased due to reductions in benefits
attributable to excess stock-based compensation, tax-exempt income
and foreign tax credits.
(b) See In this New Release for further details.
CAPITAL AND LIQUIDITY
The following table presents regulatory capital ratios for State
Street Corporation.
March 31, 2019(1)(2)
1Q19
4Q18 1Q18 Basel III Standardized Estimated Fully
Phased-In: Common Equity Tier 1 ratio 11.5 % 11.7 % 10.8 % Tier
1 capital ratio 15.0 15.5 13.7 Total capital ratio 15.9 16.3 14.6
Tier 1 leverage ratio 7.4 7.2 6.9 Supplementary
leverage ratio 6.6 6.3
6.0 (1) March 31, 2019 capital ratios are
preliminary estimates. (2) Estimated pro-forma fully phased-in
ratios as of March 31, 2019 reflect capital and total risk-weighted
assets calculated under the Basel III final rule.
Standardized CET1, Tier 1 and Total Capital ratios
declined slightly compared to 4Q18 due to an increase in
risk-weighted assets, partially offset by favorable mark-to-market
adjustments.
Tier 1 Leverage ratio and SLR increased compared to 4Q18
due to favorable mark-to-market adjustments and a decline in
adjusted average assets and SLR total assets, respectively.
Returned approximately $480 million to common
shareholders in 1Q19 consisting of $300 million common share
repurchases and approximately $180 million in dividends.
Repurchased 4.2 million common shares at quarter-end and declared
1Q19 quarterly common dividend of $0.47 per share.
Preliminary estimated average liquidity coverage ratio
(LCR) for State Street Corporation of approximately 110% at
quarter-end.
INVESTOR CONFERENCE CALL AND QUARTERLY WEBSITE
DISCLOSURE
State Street will webcast an investor conference call today,
Tuesday, April 23rd, 2019, at 8:30 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
8389972.
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
8389972.
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 1Q19,
State Street expects to publish its updates during the period
beginning today and ending on or about May 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 $32,643 billion in assets under custody and
administration and $2,805 billion* in assets under management as of
March 31, 2019, State Street operates globally in more than 100
geographic markets and employs approximately 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 $33
billion as of March 31, 2019), 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:
- In this News Release expenses are
sometimes presented excluding notable items and seasonal expenses
(i.e., seasonal deferred incentive compensation expenses for
retirement-eligible employees and payroll taxes). This is a
non-GAAP presentation. A reconciliation of this non-GAAP
presentation of expenses to GAAP-Basis expenses follows. GAAP-basis
total expenses for 1Q18, 4Q18 and 1Q19 were $2,268M, $2,486M and
$2,293M, respectively. Expenses for those periods excluding notable
items and seasonal expenses are calculated as follows: (a) for
1Q18, $2,268M minus $0M of notable items and $148M of seasonal
expenses, resulting in a non-GAAP expenses measure of $2,120M; (b)
for 4Q18, $2,486M minus $313M of notable items (consisting of $223M
of repositioning charges, $24M of acquisition and restructuring
charges, $24M of expenses related to a business exit, and $42M of
legal and related expenses) and seasonal expenses of $0M, resulting
in a non-GAAP expense measure of $2,173M; and (c) for 1Q19, $2,293M
minus $23M of notable items (consisting of $9M of acquisition and
restructuring charges, $14M of legal and related expenses) and
seasonal expenses of $137M, resulting in a non-GAAP expense measure
of $2,133M. In comparisons to 1Q18, we sometimes further exclude
from our 1Q19 non-GAAP expense measure CRD-related expenses
(consisting of CRD operating expense and CRD-related intangible
asset amortization), as we acquired CRD in October 2018. This 1Q19
presentation of expenses also is a non-GAAP measure. It is
calculated as follows: $2,133M (representing the above-calculated
first 1Q19 non-GAAP expense measure representing GAAP minus
notables minus seasonal expenses) minus $56M of CRD-related
expenses (consisting of $41M of operating expenses and $15M of
intangible asset amortization), resulting in a second 1Q19 non-GAAP
expense measure of $2,077M. See the Addendum to this News Release
for an explanation of our non-GAAP measures.
- Process re-engineering and automation
savings, as presented in this News Release, can include high-cost
location workforce reductions, reducing manual/bespoke activities,
reducing redundant activities, streamlining operational centers and
move to common platforms/retiring legacy applications, and;
resource discipline benefits, as presented in this News Release,
can include reducing senior management headcount, rigorous
performance management, vendor management and optimization of real
estate.
- CRD revenue of $99M includes $95M in
processing fees and other revenue and $4M in FX trading services.
CRD revenue of $95M in processing fees and other revenue includes
project-related fees associated with State Street Global Advisors
of approximately $3M.
- During the first quarter of 2019, we
voluntarily changed our accounting method under the Financial
Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) 323, Investments - Equity Method and Joint Ventures, for
investments in low income housing tax credit from the equity method
of accounting to the proportional amortization method of
accounting. This change in accounting method has been applied
retrospectively to all prior periods. Reference the 8-K filed on
March 5, 2019 for further details.
- Standardized CET1, Tier 1 and Total
capital ratios were binding for the period. See Addendum included
with this News Release for additional information.
- Refer to the Addendum included with
this News Release for reconciliations of 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.
- 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. 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 AUC/A 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
AUC/A and AUM as of March 31, 2019. 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.
- All earnings per share amounts
represent fully diluted earnings per common share.
- CRD annual contract value bookings
represent signed annual recurring revenue contract value.
- 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.
- Return on tangible equity is determined
by dividing annualized net income available to common equity by
total tangible common equity. Refer to Addendum included with this
News Release for details.
- Quarter-over-quarter (QoQ) is a
sequential quarter comparison. Year-on-year (YoY) is the current
period compared to the same period a year ago.
- "nm" denotes not meaningful.
- "EOP" denotes end of period.
- Industry data is provided for
illustrative purposes only and is not intended to reflect the
Company's or its clients' activity.
- 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.
- Broadridge flows data © 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.
- 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.
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,”
“guidance,” “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 time
subsequent t the time this News Release is first issued.
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,
including as an asset manager or securities lending agent;
- 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 volatility of servicing fee,
management fee, trading fee and securities finance revenues due to,
among other factors, the value of equity and fixed-income markets,
market interest and foreign exchange rates, the volume of client
transaction activity, competitive pressures in the investment
servicing and asset management industries, and the timing of
revenue recognition with respect to processing fees and other
revenues;
- 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 non-U.S. 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 V, 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 and compliance programs, as well as 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 repurchases, 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, without
limitation, 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 exit from the European Union or actual or potential
changes in trade policy, such as tariffs or bilateral and
multilateral trade agreements;
- 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, reputational 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 or penalties imposed by governmental
authorities;
- our ability to expand our use of
technology to enhance the efficiency, accuracy and reliability of
our operations and our dependencies on information technology; to
replace and consolidate systems, particularly those relying upon
older technology, and to adequately incorporate resiliency and
business continuity into our systems management; to implement
robust management processes into our technology development and
maintenance programs; and to control risks related to use of
technology, including cyber-crime and inadvertent data
disclosures;
- our ability to address threats to our
information technology infrastructure and systems (including those
of our third-party service providers), the effectiveness of our and
our third party service providers' efforts to manage the resiliency
of the systems on which we rely, controls regarding the access to,
and integrity of, our and our clients' data, and complexities and
costs of protecting the security of such systems and data;
- 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 AUC/A 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 revenue in the event a
client re-balances or changes its investment approach, re-directs
assets to lower- or higher-fee asset classes or changes the mix of
products or services that it receives from us;
- 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;
- 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
us 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;
- changes or potential changes to the
competitive environment, due to, among other things, regulatory and
technological changes, the effects of industry consolidation and
perceptions of us, as a suitable service provider or
counterparty;
- our ability to complete acquisitions,
joint ventures and divestitures, including, without limitation, 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, without limitation, 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, generates revenues in line
with our expectations 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 2018 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/20190423005370/en/
Investor Contact: Ilene Fiszel Bieler +1 617/664-3477
Media Contact: Marc Hazelton +1 617/513-9439
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