EXPENSE SAVINGS PROGRAM EXPECTED TO ACHIEVE
$400 MILLION TARGET IN 2019 WITH $275 MILLION OF SAVINGS REALIZED
YEAR-TO-DATE
NEW INVESTMENT SERVICING WINS TOTAL $1
TRILLION DURING QUARTER AND CONTINUED STRONG FRONT-TO-BACK
PIPELINE
RETURNED APPROXIMATELY $690 MILLION OF
CAPITAL TO SHAREHOLDERS IN SHARE REPURCHASES AND DIVIDENDS
Ron O'Hanley, President and Chief Executive Officer : "We
are encouraged by the continued stabilization in servicing fees
seen in the third quarter and believe the actions we've taken to
date, including the upgrade of our client coverage program,
improved client service results, and strengthened pricing
discipline are having an impact. Despite an uncertain revenue
environment, we saw sequential fee revenue growth in FX trading
services in our Global Markets business and strong NII. Our strong
performance under the 2019 CCAR stress test allowed us to increase
our quarterly dividend by 11% from 2Q19 and boost our total capital
return to shareholders. While our pre-tax margin and return on
equity fell short of medium-term targets, we remain committed to
our 2019 expense program and the expected realization of $400
million in savings by year end and are laser-focused on improving
our financial performance by implementing additional ways to
reignite revenue growth and generate additional expense reductions
going forward."
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20191018005203/en/
FINANCIAL HIGHLIGHTS
(Table presents summary results, $
millions, except per share amounts, or where otherwise noted)
3Q19
2Q19
3Q18
% QoQ
% YoY
Income Statement:
Total fee revenue
$
2,259
$
2,260
$
2,318
—
%
(2.5
)%
Net interest income
644
613
672
5.1
(4.2
)
Total revenue
2,903
2,873
2,989
1.0
(2.9
)
Total expenses
2,180
2,154
2,091
1.2
4.3
Net income
583
587
764
(0.7
)
(23.7
)
Earnings per common share:
Diluted earnings per share
$
1.42
$
1.42
$
1.87
—
%
(24.1
)%
Financial ratios and other
metrics:
Return on average common equity
9.7
%
10.1
%
14.0
%
(40
)
bps
(430
)
bps
Pre-tax margin
24.8
25.0
29.9
(20
)
(510
)
Average total assets ($ billions)
$
223
$
222
$
221
0.8
%
0.9
%
Average total deposits ($ billions)
157
157
160
0.4
(1.5
)
AUC/A ($ billions)
32,899
32,754
33,996
0.4
(3.2
)
AUM ($ billions)
2,953
2,918
2,810
1.2
5.1
(a) See 3Q19 Highlights in 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.
3Q19 HIGHLIGHTS (all comparisons are to 3Q18, unless
otherwise noted)
AUC/A and AUM
• Investment Servicing AUC/A as of quarter-end decreased 3%
primarily due to a previously announced client transition,
partially offset by higher end of period fixed income market
levels.
• Investment Management AUM as of quarter-end increased 5% due
to higher end of period market levels and net inflows of $59
billion, driven by institutional, cash and ETF inflows.
New Business
• Investment Servicing mandates announced in 3Q19 totaled $1.0
trillion with quarter-end servicing assets remaining to be
installed in future periods of $1.2 trillion.
• Investment Management net inflows in 3Q19 of $13 billion
driven by cash and ETF inflows.
Revenues
• Fee revenue decreased 3% reflecting lower servicing and
management revenues, partially offset by CRD:
◦ Compared to 2Q19, fee revenue was flat
reflecting higher servicing fees up 2%, management fees up 1%, and
foreign exchange trading services revenues up 4%, offset by lower
processing fees and seasonally lower securities finance
revenue.
◦ On a standalone basis, CRD generated $85
million in 3Q19 fee revenues(b).
• Net interest income (NII) decreased 4% primarily due to lower
long-end rates and MBS premium amortization, as well as mix shift
away from non-interest bearing deposits.
• Compared to 2Q19, NII increased 5%
primarily driven by episodic market-related benefits, higher client
repo activity, and active deposit management, partially offset by
lower long-end rates.
Notable Items
(Dollars in millions, except EPS
amounts)
3Q19
2Q19
3Q18
Acquisition and restructuring costs
(net)
$
27
$
12
$
—
Legal and related costs
18
—
—
Total notable items
(pre-tax)
$
45
$
12
$
—
EPS impact
$
(0.09
)
$
(0.03
)
$
—
(b) See In This News Release for an explanation and
reconciliation of CRD standalone and consolidated revenues and
expenses.
Expenses
• Total expenses were up 4%, primarily reflecting the impact of
CRD expenses and 3Q19 notable items:
◦ Excluding CRD expenses and notable items,
total expenses were down 1% compared to 3Q18.
◦ Expense savings program announced in
January 2019 achieved $275 million total savings year-to-date
through resource discipline, process re-engineering and automation
benefits.
◦ Savings from expense programs exceeded
business investments in technology infrastructure.
• Total headcount increased 1%, driven by the impact of CRD, or
down 2% excluding CRD, compared to 3Q18, primarily driven by
productivity savings.
◦ 3Q19 saw the third sequential decline in
total headcount, while strengthening client service through quality
initiatives and automation.
◦ Year-to-date higher-cost location headcount
reductions totaled over 2,700, exceeding the original target of
1,500 for FY 2019.
Capital
• Returned approximately $690 million(c) to shareholders in
3Q19, consisting of $500 million in common share repurchases and
approximately $190 million in common share dividends.
◦ Declared 3Q19 quarterly common share
dividend of $0.52 per share, an increase of 11% from the 2Q19
dividend.
• Estimated standardized Common Equity Tier 1 (CET1) of 11.3%,
Tier 1 Leverage ratio of 7.4% and Supplementary Leverage Ratio
(SLR) of 6.6% at quarter-end.
(c) Based on a capital return of $690 million and net income
available to common shareholders for the quarter ended September
30, 2019, of $528 million, our total payout ratio was 131%.
MARKET DATA, AUC/A AND AUM
The tables below provide a summary of selected financial
information, 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)
3Q19
2Q19
3Q18
% QoQ
% YoY
Assets under Custody and/or Administration
(AUC/A)(1) (2)
$
32,899
$
32,754
$
33,996
0.4
%
(3.2
)%
Assets under Management (AUM)(2)
2,953
2,918
$
2,810
1.2
5.1
Market Indices:(3)
S&P 500 daily average
2,958
2,882
2,850
2.6
3.8
S&P 500 EOP
2,977
2,942
2,914
1.2
2.2
MSCI EAFE daily average
1,882
1,888
1,964
(0.3
)
(4.2
)
MSCI EAFE EOP
1,889
1,922
1,974
(1.7
)
(4.3
)
MSCI Emerging Markets daily average
1,014
1,045
1,054
(3.0
)
(3.8
)
MSCI Emerging Markets EOP
1,001
1,055
1,048
(5.1
)
(4.5
)
Barclays Capital Global Aggregate Bond
Index EOP
509
506
473
0.6
7.6
Foreign Exchange Volatility
Indices:(3)
JPM G7 Volatility Index daily average
6.9
6.1
7.5
13.1
(8.0
)
JPM Emerging Market Volatility Index daily
average
8.1
8.4
11.2
(3.6
)
(27.7
)
Average Foreign Exchange Rate:
Euro vs. USD
1.112
1.123
1.163
(1.0
)
(4.4
)
GBP vs. USD
1.233
1.285
1.303
(4.0
)
(5.4
)
(1) Includes assets under custody of $25,078 billion, $24,771
billion and $25,300 billion, as of 3Q19, 2Q19, and 3Q18,
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)
3Q19
2Q19
1Q19
4Q18
3Q18
2Q18
1Q18
North America - ICI Market
Data:(1)
Long Term Funds
$
(52.2
)
$
(39.7
)
$
41.7
$
(308.8
)
$
(50.4
)
$
(28.3
)
$
38.0
Money Market
224.5
137.0
54.0
187.9
35.8
(51.7
)
(52.2
)
ETF
90.6
65.4
45.8
105.0
87.2
55.8
62.8
Total ICI Flows
$
262.9
$
162.7
$
141.5
$
(15.9
)
$
72.6
$
(24.2
)
$
48.6
Europe - Broadridge Market
Data:(2)
Long Term Funds
$
53.6
$
27.5
$
5.7
$
(171.4
)
$
(16.2
)
$
(24.9
)
$
160.5
Money Market
78.1
1.6
(9.0
)
62.4
(21.9
)
(17.8
)
(10.3
)
Total Broadridge Flows
$
131.7
$
29.1
$
(3.3
)
$
(109.0
)
$
(38.1
)
$
(42.7
)
$
150.2
(1) Industry data is provided for illustrative purposes only and
is not intended to reflect the Company's or its clients'
activity.
(2) 3Q19 data is on a rolling 3 month basis and includes June
through August 2019 for EMEA (Copyright 2019 Broadridge Financial
Solutions, Inc.)
INVESTMENT SERVICING AUC/A
The following table presents AUC/A information by product and
financial instrument.
(Dollars in billions)
3Q19
2Q19
3Q18
% QoQ
% YoY
Assets Under Custody and/or
Administration
By Product Classification:
Mutual funds
$
8,687
$
8,645
$
8,717
0.5
%
(0.3
)%
Collective funds, including ETFs
9,224
9,272
9,646
(0.5
)
(4.4
)
Pension products
6,817
6,542
6,807
4.2
0.1
Insurance and other products
8,171
8,295
8,826
(1.5
)
(7.4
)
Total Assets Under Custody and/or
Administration
$
32,899
$
32,754
$
33,996
0.4
(3.2
)
By Financial Instrument:
Equities
$
18,243
$
18,504
$
20,070
(1.4
)
(9.1
)
Fixed-income
10,413
10,089
10,018
3.2
3.9
Short-term and other investments
4,243
4,161
3,908
2.0
8.6
Total Assets Under Custody and/or
Administration
$
32,899
$
32,754
$
33,996
0.4
(3.2
)
INVESTMENT MANAGEMENT AUM
The following table presents 3Q19 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 June 30,
2019(2)
$
1,841
$
450
$
319
$
155
$
153
$
2,918
Long-term institutional flows, net(3)
(13
)
(5
)
2
—
2
(14
)
ETF flows, net
3
3
(1
)
—
7
12
Cash fund flows, net
—
—
15
—
—
15
Total flows, net
$
(10
)
$
(2
)
$
16
$
—
$
9
$
13
Market appreciation/(depreciation)
11
14
2
3
10
40
Foreign exchange impact
(11
)
(3
)
(1
)
(1
)
(2
)
(18
)
Total market/foreign exchange impact
$
—
$
11
$
1
$
2
$
8
$
22
Ending balance as of September 30,
2019
$
1,831
$
459
$
336
$
157
$
170
$
2,953
(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) 2Q19 has been revised to reflect a reclassification of $14
billion in assets from Passive equity to Passive alternative
assets.
(3) Amounts represent long-term portfolios, excluding ETFs.
REVENUE
(Dollars in millions)
3Q19
2Q19
3Q18
% QoQ
% YoY
Servicing fees
$
1,272
$
1,252
$
1,333
1.6
%
(4.6
)%
Management fees
445
441
474
0.9
(6.1
)
Foreign exchange trading services
284
273
288
4.0
(1.4
)
Securities finance revenue
116
126
128
(7.9
)
(9.4
)
Processing fees and other revenue
142
168
95
(15.5
)
nm
Total fee revenue
$
2,259
$
2,260
$
2,318
—
(2.5
)
Net interest income
644
613
672
5.1
(4.2
)
Gains (losses) related to investment
securities, net
—
—
(1
)
nm
nm
Total Revenue
$
2,903
$
2,873
$
2,989
1.0
(2.9
)
Net interest margin (FTE)(d)
1.42
%
1.38
%
1.48
%
4
bps
(6
)
bps
Servicing fees decreased 5% compared to 3Q18 driven by
the impact of challenging industry conditions including fee
pressure. Servicing fees were up 2% compared to 2Q19 primarily due
to higher average market levels and net new business.
Management fees decreased 6% compared to 3Q18 primarily
reflecting the run rate impact of late 2018 outflows and mix
changes away from higher fee products, partially offset by higher
average U.S. equity market levels. Management fees increased 1%
compared to 2Q19 primarily driven by higher average U.S. equity
market levels, day count and inflows.
Foreign exchange trading services decreased 1% compared
to 3Q18 due to lower market volatility, and increased 4% compared
to 2Q19 primarily due to higher market volatility and FX
volumes.
Securities finance decreased 9% compared to 3Q18 largely
reflecting the 2H18 balance sheet optimization efforts and 8%
compared to 2Q19 primarily due to the absence of 2Q19 seasonal
activity.
Processing fees and other increased compared to 3Q18
largely reflecting CRD revenue contribution, which was acquired in
4Q18. Processing fees were down 15% compared to 2Q19 primarily
driven by market-related adjustments and lower CRD revenue due to
timing of new business and renewals. In 3Q19, CRD contributed $77
million of revenue(b).
Net interest income (NII) decreased 4% compared to 3Q18
primarily due to lower long-end rates and MBS premium amortization,
as well as mix shift away from non-interest bearing deposits. NII
increased 5% compared to 2Q19 primarily due to the episodic
market-related benefits, higher client repo activity, and active
deposit management, partially offset by lower long-end rates. Net
interest margin (NIM)(d) decreased 6 basis points compared to 3Q18
due to lower NII, partially offset by a decrease in
interest-earning assets. Compared to 2Q19, NIM increased 4 basis
points driven by higher NII and a larger investment portfolio,
partially offset by balance sheet growth.
(b) See In This News Release for an explanation and
reconciliation of CRD standalone and consolidated revenues and
expenses.
(d) NIM is presented on a fully taxable-equivalent (FTE) basis.
Refer to the Addendum for reconciliations of our FTE-basis
presentation.
EXPENSES
(Dollars in millions)
3Q19
2Q19
3Q18
% QoQ
% YoY
Compensation and employee benefits
$
1,083
$
1,084
$
1,103
(0.1
)%
(1.8
)%
Information systems and communications
376
365
332
3.0
13.3
Transaction processing services
254
245
248
3.7
2.4
Occupancy
113
115
110
(1.7
)
2.7
Acquisition and restructuring costs
27
12
—
125.0
nm
Amortization of other intangible
assets
59
59
47
—
25.5
Other
268
274
251
(2.2
)
6.8
Total Expenses
$
2,180
$
2,154
$
2,091
1.2
4.3
Effective tax rate
19.2
%
18.1
%
14.5
%
110
bps
470
bps
Total expenses were up 4% from 3Q18 primarily reflecting
notable items and CRD expenses. Total expenses increased 1%
compared to 2Q19 driven by notable items and technology
infrastructure investments. Excluding notable items and CRD
expenses, total expenses were down 1% compared to 3Q18 and
2Q19.
Compensation and employee benefits decreased 2% compared
to 3Q18 driven by savings from resource discipline and process
re-engineering initiatives, partially offset by the impact of CRD.
Compensation and employee benefits were flat compared to 2Q19.
Information systems and communications increased 13%
compared to 3Q18 and 3% compared to 2Q19 largely reflecting
technology infrastructure investments.
Transaction processing services increased 2% compared to
3Q18 and 4% compared to 2Q19 both primarily due to higher business
volumes.
Occupancy increased 3% compared to 3Q18 primarily
reflecting the expansion of lower-cost locations in 4Q18 and CRD.
Occupancy expense was down 2% compared to 2Q19.
Amortization of other intangible assets increased 26%
compared to 3Q18 primarily due to the CRD acquisition. Amortization
of other intangible assets was flat compared to 2Q19.
Other expenses increased 7% compared to 3Q18 primarily
reflecting higher notable legal and related expenses, partially
offset by lower professional fees. Compared to 2Q19, other expenses
decreased 2% due to lower professional services costs, partially
offset by the higher legal and related expenses.
The effective tax rate in 3Q19 was 19.2% compared to
14.5% in 3Q18 and 18.1% in 2Q19. Compared to 3Q18, the effective
tax rate increased primarily due to the absence of a 3Q18
adjustment to the estimated impact of 2017 tax legislation changes
originally estimated in 4Q17. Compared to 2Q19, the effective tax
rate increased due to the lesser impact of tax advantaged
investments.
CAPITAL AND LIQUIDITY
The following table presents preliminary estimates of regulatory
capital ratios for State Street Corporation.
September 30, 2019
3Q19
2Q19
3Q18
Basel III Standardized
Estimated:
Common Equity Tier 1 ratio
11.3
%
11.5
%
13.0
%
Tier 1 capital ratio
14.7
14.9
16.4
Total capital ratio
15.3
15.5
17.2
Tier 1 leverage ratio
7.4
7.6
8.1
Supplementary leverage ratio
6.6
6.7
7.1
Standardized CET1, Tier 1 and Total Capital ratios as well as
Tier 1 Leverage ratio and SLR were down compared to 3Q18 as a
result of the timing of the CRD acquisition, and largely flat as
compared to 2Q19.
Returned approximately $690 million to shareholders in
3Q19 consisting of $500 million in common share repurchases and
approximately $190 million in common share dividends. Repurchased
9.4 million common shares in 3Q19 and declared 3Q19 quarterly
common share dividend of $0.52 per share, an increase of 11% from
the 2Q19 dividend.
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,
Friday, October 18th, 2019, at 10:00 a.m. EST, available at
http://investors.statestreet.com/. The conference call will also be
available via telephone, at (866) 211-3118 inside the U.S. or at
(647) 689-6605 outside of the U.S. The Conference ID# is
8237248.
Recorded replays of the conference call will be available on the
website and by telephone at (800) 585-8367 or (416) 621-4642
beginning approximately two hours after the call's completion. The
Conference ID# is 8237248.
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 3Q19,
State Street expects to publish its updates during the period
beginning today and ending on or about November 15, 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 $32.90 trillion in assets under custody and
administration and $2.95 trillion* in assets under management as of
September 30, 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 $44
billion as of September 30, 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:
- Expenses are sometimes presented excluding notable items,
seasonal and CRD expenses. This is a non-GAAP presentation. See the
Addendum to this News Release for an explanation and
reconciliations of our non-GAAP measures and CRD expenses. The 2019
expense savings program is stated on a gross basis.
- For 3Q19, CRD standalone results include revenue of $85
million, operating expenses of $56 million and pre-tax income of
$29 million, which includes $4 million of revenue associated with
affiliates, including SSGA. On a consolidated basis, CRD
contributed $81 million, including $77 million in Processing fees
and other revenue and $4 million in FX trading services. CRD annual
contract value bookings represent signed annual recurring revenue
contract value. CRD annual contract value bookings of $5 million
includes $0 million of bookings with affiliates, including
SSGA.
- New asset servicing mandates, including announced front-to-back
investment servicing clients, may be subject to completion of
definitive agreements, approval of applicable boards and
shareholders and customary regulatory approvals. 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 September 30, 2019. Generally, our servicing fee revenues are
affected by several factors including changes in market valuations,
client activity and asset flows, net new business and the manner in
which we price our services. We provide a range of services to our
clients, including core custody services, accounting, reporting and
administration and middle office services, and the nature and mix
of services provided affects our servicing fees. The basis for fees
will differ across regions and clients. The industry in which we
operate has historically faced pricing pressure, and our servicing
fee revenues are also affected by such pressures today.
Consequently, no assumption should be drawn as to future revenue
run rate from announced servicing wins, as the amount of revenue
associated with AUC/A can vary materially. The $1 trillion of
investment servicing new business mandates announced for 3Q19 was
driven by an accounting mandate for an existing large asset manager
client. Management fees generally are affected by our level of AUM
and differ based upon the nature, type and investment strategy of
the investment product. Management fee revenue is more sensitive to
market valuations than servicing fee revenue, as a higher
proportion of the underlying services provided, and the associated
management fees earned, are dependent on equity and fixed-income
security valuations. Additional factors, such as the relative mix
of assets managed, may have a significant effect on our management
fee revenue. While certain management fees are directly determined
by the values of AUM and the investment strategies employed,
management fees may reflect other factors, including performance
fee arrangements, as well as our relationship pricing for
clients.
- State Street’s common stock and other stock dividends,
including the declaration, timing and amount, remain subject to
consideration and approval by State Street’s Board of Directors at
the relevant times. State Street's $2 billion common stock
repurchase authorization was effective beginning July 1, 2019 and
covers the period ending June 30, 2020. Stock purchases may be made
using various types of transactions, including open-market
purchases, accelerated share repurchases or other transactions off
the market, and may be made under Rule 10b5-1 trading programs. The
timing of stock purchases, type of transaction and number of shares
purchased will depend on several factors, including market
conditions and State Street’s capital position, its financial
performance, the amount of common stock issued as part of employee
compensation programs and investment opportunities. The common
stock purchase program does not have specific price targets and may
be suspended at any time.
- 2019 expense program savings stated on a gross basis. 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 moves to common
platforms/retiring legacy applications. 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.
- 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.
- 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. Refer to the Form 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. Effective January 1, 2018, the applicable
final rules are in effect and the ratios presented are calculated
based on fully phased-in basis.
- 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.
- Return on tangible equity is determined by dividing annualized,
year-to-date net income available to common equity by total
tangible common equity. Refer to the 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.
- "AUC/A" denotes Assets Under Custody and/or Administration;
"AUC" denotes "Assets Under Custody"; "AUM" denotes Assets Under
Management; "nm" denotes not meaningful; "EOP" denotes end of
period.
- "FTE" denotes fully taxable-equivalent basis; NIM is presented
on an FTE-basis. Refer to the Addendum for reconciliations of our
FTE-basis presentation.
- Industry data is provided for illustrative purposes only and is
not intended to reflect State Street'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 2019, 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, expense reduction
programs, new client business, 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 to 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, volatility and uncertainty of interest rates; the
expected discontinuation of Interbank Offered Rates (IBORs)
including LIBOR; the valuation of the U.S. dollar relative to other
currencies in which we record revenue or accrue expenses; 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/20191018005203/en/
Investor Contact: Ilene Fiszel Bieler +1 617/664-3477
Media Contact: Marc Hazelton +1 617/513-9439
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