[January 18, 2019] |
|
State Street Reports Fourth-Quarter 2018 EPS of $1.04; EPS $1.68 Excluding Notable Items(a)
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:
https://www.businesswire.com/news/home/20190118005174/en/
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 Months Ended November 30, 2018(4)
|
|
|
YTD 2017
|
|
|
YTD 2018(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- Class Solutions
|
|
|
Alternative Investments(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.
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|
|
|
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 III Advanced Approaches (Estimated) Pro-Forma(2)(3)
|
|
|
Basel III Standardized Approach (Estimated) Pro-Forma(3)
|
|
|
Fully Phased in 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/
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