Q3 2024 State Street Corp Earnings Call
Yeah.
Speaker Change: Good morning, and welcome to State Street Corporation's third quarter 2024 earnings conference call and webcast today.
Speaker Change: Today's discussion is being is being broadcasted live on state Street's website.
Speaker Change: That's just got state Street Dot com.
Speaker Change: This conference call is also being recorded for replay.
Speaker Change: State Street's conference call is copyrighted and all rights or was there.
Speaker Change: This call may not be recorded for rebroadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation.
Speaker Change: The only authorized broadcast of this call will be housed on the state Street website.
Speaker Change: Now I would like to introduce Elizabeth Lane Global head of Investor Relations at State Street.
Speaker Change: Yeah.
Elizabeth Lane: Good morning, and thank you all for joining us on our call today, our CEO, Ron Oh, Hannah Lee will speak first then Eric <unk>, our CFO will take you through our third quarter 2024 earnings presentation, which is available for download on the Investor Relations section of our website investors got State Street Dot.
Speaker Change: Uh huh.
Speaker Change: Afterward, we'll be happy to take questions before we get started I'd like to remind you that today's presentation will include results presented on a basis that excludes or just one or more items from GAAP reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix.
Speaker Change: Next to our presentation.
Speaker Change: In addition, today's call will include forward looking statements actual results may differ materially from those statements due to a variety of important factors such as those referenced in our discussion today and in the SEC filings, including the risk factors section of our Form 10-K, our forward looking statements speak only as of today.
Speaker Change: We disclaim any obligation to update them, even if our views change now let me turn it over to Ron.
Ron: Thank you Liz and good afternoon, everyone.
Ron: Our third quarter results, which we released earlier this morning demonstrate the accelerating financial performance and strong business momentum, we are achieving this year, which in turn positions State Street well for future growth.
Ron: We achieved robust fee and total revenue growth and generated positive fee and total operating leverage and three Q, which when combined with increased capital returned quarter on quarter drove strong earnings growth for our shareholders on both a year over year and sequential basis with quarterly EPS, reaching the highest on record.
Ron: In addition to strong <unk> results our year to date results also highlight the strength of our franchise and financial performance three quarters of the way through the year with solid fee and total revenue growth and good expense discipline driving better than expected positive fee and positive total operating leverage as well as strong earnings growth.
Ron: Relative to the same period in 2023 and excluding notable items.
Ron: The operating environment in the third quarter was dynamic while global equity and fixed income markets move, notably higher the world's investors faced a number of risk off events and three Q, including fears of a U S recession. The unwinding of the carry trade concerns over tech valuations and continued geopolitical tensions.
<unk>.
Ron: These events drove bouts of negative market sentiment and significant market volatility.
However, these market dislocations proved to be short lived with market's taken taking comfort from a host of subsequently dovish Central Bank pivots.
Ron: <unk> the first rate cut from the federal reserve in four years as well as improved economic data in the U S.
Ron: We supported clients and navigated well through this market backdrop, delivering strong business and financial performance. We remain laser focused on successfully executing against our key strategic priorities to drive better results, which I will now discuss.
Ron: Turning to slide two of our Investor presentation, our third quarter EPS was 226 as compared to 125 in the year ago period.
Excluding notable items, we delivered strong earnings growth of 17% year over year with record quarterly EPS, while <unk> Roy was a strong 12%.
Ron: Relative to the year ago quarter, and excluding notable items.
Ron: And total revenue growth was robust at 7% and 9%, respectively and in turn driving margin expansion.
Ron: All areas of our business contributed to this year over year revenue growth and I I was significantly higher.
Ron: Q3 servicing fees increased 3% year over year, and we are pleased by the sales momentum we continue to see within the investment services business as we execute well against the sharpened strategy that we outlined last year.
Ron: At the same time expenses remained well controlled despite increases in revenue related costs.
We continue to drive transformation and productivity savings, which are funding significant investments in our business. This year.
Ron: As a result, while <unk> expenses increased by 6% year over year on a year to date basis expenses increased by just 3%. Excluding notable items relative to the same period in 2023.
Ron: Turning to our business momentum, which you can see in the middle of the slide we achieved a great deal in the third quarter.
Ron: Our business performance indicators, including wins clearly illustrate the effectiveness of our strategy and positioning state Street to support our clients compete better and gain share.
Ron: Within investment services and <unk>, we generated strong AUC a wins of 466 billion with new servicing fee revenue wins of 84 million the highest quarter of this year.
Ron: <unk> provided another clear demonstration of the power of State Street, Alpha, which brings together the full depth and breadth of our servicing and software solutions.
Ron: Alpha is a clear competitive advantage, which strategically positions us to retain business at even higher levels, when new long term relationships and as evidenced this quarter deepening deepening existing relationships in a meaningful way.
Ron: We reported two new alpha mandates in <unk> with Alpha accounting for the vast majority of our AUC a wins this quarter as state Street was awarded a significant mandate by a premier large global asset manager.
Ron: This win illustrates the compelling value proposition of our front to back solution for clients with.
Ron: What started as a front office Charles River client will now extend to include a host of middle and back office services, including custody all underpinned by our Alpha data platform and data services.
Ron: We're also very pleased with the momentum at global advisors this quarter.
Ron: Our cash Etfs and institutional businesses, all had positive net flows including record quarterly flows in cash and strong ETF flows in.
Ron: In aggregate quarterly total net flows of 100 billion in quarter end assets under management of $4 seven trillion, both reached record levels in <unk>.
Ron: Importantly, we extend that we expanded our market share in a number of key product areas and geographies for.
Ron: For example, we improved our institutional money market fund ranked this quarter, while Spider also gained share in both U S low cost in commodities as well as in the EMEA region.
Ron: We also continued to innovate and strategically expand global advisors capabilities and client solutions.
Ron: For example, <unk>.
Ron: Advisors launched 20, new Etfs and <unk>, including three actively managed digital asset focused Etfs.
Ron: We also announced a new relationship with Apollo Global management that will aim to expand investor access to private market opportunities.
Ron: Turning to our markets businesses stronger client volumes in both FX trading services and Securities Finance helped to drive revenues higher both sequentially and year over year.
Ron: We're particularly pleased to see state Street named as a leader in the four categories by Euromoney magazine in its 2024 FX awards, including the worlds Best FX Bank for client service as well as research, which underscores the value clients place in our markets franchise.
Ron: Turning to our balance sheet, our year over year NII performance was strong as a number of targeted management actions over the last year have helped to support NII growth.
Ron: Our balance sheet is solid enabling over $670 million of capital return and <unk>, including $450 million of share repurchases.
Ron: As we look ahead, we remain committed to returning excess capital to our shareholders in the fourth quarter subject to market conditions and other factors.
Speaker Change: Before I turn it over to Eric We also announced this morning that Eric will be leaving state street to pursue a new opportunity outside of banking.
Speaker Change: We have commenced a formal search process to identify as replacement and Eric will stay on with us through mid February to support us through this transition.
Speaker Change: I and the team have been fortunate to work closely with Eric over the last eight years.
Personally I have enjoyed and valued our partnership and want to thank Eric for his leadership and wish him well in his new role.
Speaker Change: With that let me hand, the call over to Eric will take you through the quarter in more detail.
Eric: Thank you Ron.
Before I get into the numbers I want to say that it has been a privilege to have been here at state Street and <unk> works with you and the team I am proud of all that we've accomplished together over the past eight years and it's with mixed feelings that I'm moving on.
Eric: Now that the progress will continue in that state Street is well positioned with a strong financial foundation and strategy for success and I look forward to working with the team into 2025 during the transition.
Eric: Now, let me walk everyone through our results for the third quarter.
Eric: Starting on slide three we reported record EPS of $2 26 for the third quarter, which included notable revenue items that in aggregate were neutral to earnings and are detailed on the right side of the page.
Eric: You can see that we took the opportunity to do some additional repositioning of the investment portfolio this quarter, which I'll talk more about in a moment.
Eric: We delivered robust EPS growth of 17% year on year, excluding notable items, reflecting broad based fee growth higher NII and continued capital return, which increased on a sequential quarter basis.
Our third quarter performance builds upon our strong first half of the year is healthy fee and total revenue growth coupled with expense discipline delivered both positive fee and positive total operating leverage excluding notable items in the quarter and on a year to date basis.
Eric: The quarter clearly demonstrates good margins and returns with pre tax margin at almost 28, 5%.
Eric: And ROE of 12% and our return on tangible common equity of over 19%.
Eric: Turning now to slide four the third quarter period, and AUC and AUM again increased to record levels supported by both equity and bond market tailwind as well as strong client flows.
Eric: As you can see on the right panel of the slide after an eventful third quarter the various external indicators for our markets businesses were mixed.
Eric: That said, we were encouraged by the continued growth in client volumes and balances across our FX trading and securities finance businesses, which I'll discuss more in detail shortly.
Eric: Turning to slide five.
Eric: Third quarter servicing fees increased 3% year on year as higher average market levels and new business were partially offset by pricing headwinds previously disclosed client transition and lower client activity, including an asset mix shift.
Eric: The impact of the previously disclosed client transition with a headwind of approximately two percentage points to year on year growth, while lower client activity, including an asset mix shift into cash with a headwind of approximately one percentage point year on year growth, which seems to be abating somewhat.
Eric: We do feel we do feel good about servicing fee momentum going into the fourth quarter.
Encouragingly, we generated $84 million of revenue wins in the quarter. The majority of which were driven by back office mandates in line with our strategic focus.
Eric: Over the past four quarters, we've achieved nearly $330 million of servicing fee revenue wins.
Eric: Yes.
Eric: Yes.
Speaker Change: Moving to slide six third quarter management fees increased 10% year on year, primarily reflecting higher average market levels as well as record quarterly net flows with positive inflows across all three major product lines.
Speaker Change: We gained market share within our cash business due to strong investment performance and expanded distribution as well as in Etfs, where our strategic repricing initiative contributed to the strong flow performance and continued ETF market share gains.
Taken together, our investment management business demonstrated strong growth in the quarter, while also generating a healthy pre tax margin of approximately 30% up over two percentage points year on year.
Unknown Executive: Importantly, as Ron mentioned earlier, we continue to position global advisors for success by further expanding its capabilities in client solutions and meeting the evolving needs of investors and key growth areas such as digital assets, private markets, and innovative fixed income solutions. Now, turning to slide seven, as I noted, this quarter we're pleased to see continued growth in our market's businesses with higher volumes across nearly all of our FX venues relative to the year-ago period. FX trading revenue increased 15% year on year, excluding notable items driven by higher client volumes, with particular strength in emerging markets.
Speaker Change: Importantly, as Ron mentioned earlier, we continue to position global advisors for success by further expanding its capabilities and client solutions and meeting the evolving needs of investors in key growth areas, such as digital assets private markets and innovative fixed income solutions.
Speaker Change: Okay.
Speaker Change: Okay.
Now turning to slide seven as I noted this quarter. We were pleased to see continued growth in our markets businesses with higher volumes across nearly all of our FX venues relative to the year ago period.
Speaker Change: FX trading revenue increased 15% year on year, excluding notable items driven by higher client volumes with particular strength in emerging markets.
Unknown Executive: Security's finance revenues increased 13% year on year, reflecting higher agency lending balances and share gains with excellent performance in prime services as we put more balance sheet to work to support our clients. Moving on to software and processing fees, revenues were up 11% year on year, mainly driven by higher front office software and data revenue associated with CRD, which is described in greater detail on the following slides. Turning this slide eight, our third quarter front office software revenues increased 12% year on year, with our software enabled and professional services revenues up the strong 21%. We are pleased with the robust growth we've consistently delivered in our software business, with revenues up 10% year to date.
Speaker Change: Securities Finance revenues increased 13% year on year, reflecting higher agency lending balances and share gains with excellent performance in Prime services as we put more balance sheet to work to support our clients.
Speaker Change: Moving onto software and processing fees revenues were up 11% year on year, mainly driven by higher front office software and data revenue associated with CRD, which is described in greater detail on the following slide.
Speaker Change: Turning to slide eight our third quarter front office software revenues increased 12% year on year with our software enabled and professional services revenues up a strong 21%.
Speaker Change: We are pleased with the robust growth we've consistently delivered in our software business with revenues up 10% year to date.
Unknown Executive: This level of growth supports our belief that our software business is the potential to reach a billion dollars of revenue over the next five years. And as Ron noted, we reported two additional alpha mandate wins in the quarter, and we remain confident in achieving our goal of winning 68 six to eight new alpha clients this year. Moving this slide, nine third quarter NII increased 16% year on year to 723 million, as higher investment security yields in a higher loan growth more than offset continued deposit rotation. On a sequential basis, NII was 2% lower from early, driven by continued deposit rotation, as well as by the impact of lower short and rate stemming from central bank actions.
Speaker Change: This level of growth supports our belief that our software business has the potential to reach a $1 billion of revenue over the next five years.
Speaker Change: And as Ron noted, we reported two additional alpha mandate wins in the quarter and we remain confident in achieving our goal of winning 68 six to eight new alpha clients. This year.
Speaker Change: Okay.
Speaker Change: Moving to slide nine third quarter, NII increased 16% year on year to $723 million as higher investment security yields and higher loan growth more than offset continued deposit rotation.
Speaker Change: On a sequential basis NII was 2% lower primarily driven by continued deposit rotation as well as by the impact of lower short end rates stemming from central Bank actions.
Unknown Executive: This dynamic was partially offset by higher investment security yields as well as additional lending and sponsored repo activity. The market dynamics for the sponsored repo product were constructive in the quarter. As detailed on the right panel, this slide average investment portfolio balances increase both sequentially and year on year. We also opportunistically reposition this small portion of the book laid in the quarter, which has a payback of approximately five quarters, benefiting NII over the next two years. Average deposits increase 14% year on year and 2% quarter on quarter as we continue to realize the benefits of our client engagement efforts.
Speaker Change: This dynamic was partially offset by higher investment security yields as well as additional lending and sponsored repo activity.
Speaker Change: The market dynamics for the sponsored repo product, we're constructive in the quarter.
As detailed on the right panel of the slide average investment portfolio balances increase both sequentially and year on year.
Speaker Change: We also opportunistically reposition this small portion of the book late in the quarter, which has a payback of approximately five quarters benefiting NII over the next two years.
Speaker Change: Average deposits increased 14% year on year, and 2% quarter on quarter as we continued to realize the benefits of our client engagement efforts.
Unknown Executive: As we move into 4Q, we'd expect to generally operate around these levels, albeit with a bit of continued non-interest-bearing deposit rotation. During the slide, 10 year on year third quarter expense growth was 6%, primarily driven by higher performance based instead of compensation and revenue related costs, which were worth about half of the increase. As well as important investments in product technology and infrastructure. We remain acutely focused on managing our cost-based, as demonstrated by year-on-year expense growth of just 3% on a year-day basis, excluding notable items. As Ron mentioned in a third quarter, we continue to deliver productivity benefits through transformation of our operating model and other savings initiatives, achieving roughly 125 million of year-on-year savings through a variety of actions.
Speaker Change: As we move into <unk>.
Speaker Change: We would expect to generally operate around these levels, albeit with a bit of continued noninterest bearing deposit rotation.
Speaker Change: Turning to slide 10 year on year third quarter expense growth was 6%, primarily driven by higher performance based incentive compensation and revenue related costs, which were worth about half of the increase as well as important investments in products technology and infrastructure.
Speaker Change: <unk>.
Speaker Change: We remain acutely focused on managing our cost base as demonstrated by year on year expense growth of just 3% on a year to date basis, excluding notable items.
Speaker Change: As Ron mentioned in the third quarter, we continued to deliver productivity benefits through transformation of our operating model and other savings initiatives, achieving roughly $125 million a year on year savings through a variety of actions year to date, we delivered roughly $350 million of savings and we're on track to achieve our productivity savings target of $500 million this year.
Unknown Executive: Year-to-date, we delivered roughly 350 million of savings, and were on track to achieve a productivity savings target of 500 million this year. We're continuing to benefit from our ongoing organizational simplification, process improvements, and automation initiatives, which has enabled us to further improve service quality, while also lowering our headcount on our pro-forma basis, including the JB consolidation, by 4% year-on-year, as detail on the bottom left of the slide.
We're continuing to benefit from our ongoing organizational simplification process improvements and automation initiatives, which has enabled us to further improve service quality, while also lowering our head count on a pro forma basis, including the JV consolidations by 4% year on year as detailed on the bottom left of the slide.
Speaker Change: Okay.
Unknown Executive: Moving to slide 11, as you can see, our capital, leverage, and liquidity levels all remain very strong. As of quarter-rand, our standardized set 1 ratio of 11.6% increase from the prior quarter as capital generated from earnings, combined with the benefit of lower rates on a OCI, more than offset increased capital return, and RWA growth as we support our clients. As I just noted, we delivered on our goal to accelerate capital return in the third quarter, with common share repurchases of 450 million, up from 200 million in the prior quarter and 100 million in Q1. But following rate moves at the end of the quarter did create some unexpected excess capital.
Speaker Change: Moving to slide 11, as you can see our capital leverage and liquidity levels all remain very strong.
Speaker Change: As of quarter end, our standardized set one ratio of 11, 6% increase from the prior quarter as capital generated from earnings combined with the benefit of lower rates on OCI more than offset increased capital return and <unk> growth as we supported our clients.
Speaker Change: As I just noted we delivered on our goal to accelerate capital return in the third quarter with common share repurchases of $450 million up from $200 million in the prior quarter and $100 million in Q1.
Speaker Change: But falling rate moves at the end of the quarter did create some unexpected excess capital in total we returned over $670 million of capital to our shareholders. This quarter equivalent to a total payout ratio of almost 100%.
Unknown Executive: In total, we returned over 670 million of capital or shareholders this quarter, equivalent to a total payout ratio of almost 100%. As we look ahead, we are planning for another quarter of healthy capital return in Q4, which we would expect to be so much higher than this quarter, subject to market conditions and other factors. As such, we continue to expect the full-year payout ratio for 2024 to be comfortably in the 80 to 90% range, as we aim to strike the right balance between our capital return goals and supporting our clients with our balance sheets. In summary, we're pleased with both our third quarter and year-to-date results, which continue to demonstrate our ability to execute against our strategy to drive sustainable business momentum while delivering positive fee and total operating leverage, excluding low-bidens, along with a significant return of capital to shareholders.
Speaker Change: As we look ahead, we are planning for another quarter of healthy capital return in Q4, which we would expect to be somewhat higher than this quarter subject to market conditions and other factors.
As such we continue to expect the full year payout ratio for 2024 to be comfortably in the 80% to 90% range as we aim to strike the right balance between our capital return goals and supporting our clients with our balance sheet.
In summary, we're pleased with both our third quarter and year to date results, which continue to demonstrate our ability to execute against our strategy to drive sustainable business momentum, while delivering positive fee and total operating leverage excluding notable items, along with a significant return of capital to shareholders.
Unknown Executive: With that, let me cover our improved full-year outlook, which is all on a year-on-year basis in ex-notable basis. I would highlight that the outlook continues to have the potential for significant variability, given the economic and political environment we're operating in. In terms of our current macro assumptions, we're assuming global equity markets are flat to third quarter and for the remainder of the year. Our rate outlook broadly aligns with the current forward curve, and we expect that tax market volatility to remain relatively flat to third quarter average levels for the remainder of the year. Given our strong results here to date in higher average market levels, we now expect that total fee revenue will likely be at or slightly above the high end of our up 4 to 5% range, better than our prior expectation.
Speaker Change: With that let me cover our improved full year outlook, which is all on a year on year basis and ex notable basis.
I would highlight that the outlook continues to have the potential for significant variability given the economic and political environment. We're operating in.
Speaker Change: In terms of our current macro assumptions, we're assuming global equity markets are flat to third quarter and for the remainder of the year our rate outlook broadly aligns with the current forward curve and we expect FX market volatility to remain relatively flat to third quarter average levels for the remainder of the year.
Speaker Change: Given our strong results year to date and higher average market levels. We now expect that total fee revenue will likely be at or slightly above the high end of our up 4% to 5% range.
Speaker Change: <unk> than our prior expectations.
Speaker Change: Turning to NII, we now expect full year NII will be up in the 4% to 5% range, which is also better than our previous guide for NII to be up slightly on a full year basis.
Speaker Change: Finally, given these improved topline revenue expectations expenses are expected to be somewhat higher than our prior outlook and now up in the range of three 5% this year given higher revenue related costs.
Speaker Change: Portland, we continue to expect to deliver both positive fee and positive total operating leverage for the full year.
Speaker Change: And with that let me hand, the call back to Ron.
Thank you Eric to conclude I am pleased with how we have been able to deliver stronger financial performance. So far this year, we enter 2020 for expecting roughly 3% to 4% fee revenue growth together with positive fee operating leverage while NII was expected to be a headwind to our financial results on a full year basis.
Speaker Change: Yes.
Speaker Change: However, with successful execution against our strategic and client engagement priorities together with a more constructive operating environment and strong balance sheet management, we now expect to notably outperform our outlook relative to where we started the year with higher fee revenue growth in NII comfortably up year over year.
Speaker Change: <unk>.
Speaker Change: As a result, we expect to deliver both healthy positive fee and total operating leverage this year. Excluding notable items were.
We are positioned for a strong finish to 2024 and we are confident as we look into next year.
Speaker Change: Operator, we can now open the call for questions.
Speaker Change: Okay.
Speaker Change: At this time I would like to remind everyone.
Speaker Change: Question.
Speaker Change: Press Star then the number one.
Speaker Change: You bet.
Speaker Change: Participants will be allowed one question and one follow up question.
Speaker Change: Your first question comes from the line of.
Speaker Change: Sure.
Evercore.
Please go ahead.
Speaker Change: Thanks, very much I appreciate all that detail like the NII guide and what that I think implies for next year.
Speaker Change: Can you talk about the management actions taken you mentioned the five year five quarter payback I Wanna be belongs and say does that mean youll make at least the $81 million of debt cost.
Speaker Change: Over the next five quarters, and then maybe a little more color on what within the book you actually restructure and offload it. Thank you.
Speaker Change: Glenn it's Eric you've interpret that exactly correctly.
Speaker Change: The.
Speaker Change: The $80 million loss that was booked in the quarter will reverse out in the next within the next five quarters and then we will have summit.
Speaker Change: And it'll be a positive for the company.
Speaker Change: As we continue to manage the investment portfolio, we have north of $100 billion of assets. They range from treasuries that MBS securities to Super Nationals and foreign sovereigns.
Speaker Change: There were some securities that we felt were.
We're lower coupon that that could be.
Speaker Change: <unk> restructured our repositioned through.
Speaker Change: Through a sale we bought back some additional securities.
Speaker Change: In this particular set of actions it was mostly in the Treasury and international sovereign and Super space. It was four or $5 billion of securities on a $100 billion book, So relatively modest and it also allows us to.
Speaker Change: To just adjust the position of the book across the curve.
Speaker Change: Slightly which was also beneficial so.
Speaker Change: As I think you'd expect but this will be helpful going forward and part of the management actions that we've been talking about as we manage NII. Some of those are around the investment portfolio. Some of those are around lending growth and some of those are around our engagement with clients on deposits I believe as we've talked about in the past.
Speaker Change: That's a nice part in <unk>. Thank you.
Speaker Change: Maybe one quick one.
Speaker Change: You mentioned in the SBA conversation about the hybrid products with Apollo I'm curious if you could give us any bits of detail of how it will work and why you chose Mike maybe 15% going to private credit is that enough to drive differentiated performance.
<unk> ability is this just like a toe in the waters to see how this is going to be received.
Ron: Yes, Glenn it's Ron.
Speaker Change: We're in a quiet period now with the FCC. So were really constrained about what we can say about this.
Ron: But what I will say is.
Speaker Change: We have been.
Speaker Change: Much of our innovation in the past has been about how do you democratize access to more sophisticated clients and put them in structures that are broadly available.
Speaker Change: And what we're talking about here is consistent with that we will have a lot more to say about it.
Speaker Change: After the SEC has completed its process.
Speaker Change: Yeah.
Speaker Change: Okay cool. Thank you I appreciate it.
Speaker Change: Your next question comes from the line of Hawkins.
Speaker Change: UBS financial.
Speaker Change: Please go ahead.
Speaker Change: Good morning, Thanks for taking my question.
Speaker Change: And Eric Congrats on the new role.
Speaker Change: Big Big change in the multiples hope that doesn't create issues give you the bands or something when you go.
Speaker Change: So curious about.
Speaker Change: Eric Percher kind of brings this session to mind.
Speaker Change: So Ron could you maybe update us on the latest on that front and what you can tell us about the board's plan.
Speaker Change: Are you referring to my succession Brennan.
Speaker Change: That's right yeah overall.
Speaker Change: So as you would expect success.
Speaker Change: Succession is something that well managed and well overseeing companies talk about all the time.
Speaker Change: And there is near.
New York constant discussion about this at the board.
Speaker Change: And there is a plan in place for when that time comes.
Speaker Change: Okay great.
Speaker Change: And then.
Speaker Change: Repo has been pretty solid clearly.
Speaker Change: You guys see some continued strength.
Speaker Change: Hence the updated NII outlook for the year, but could you tell us about how repo comes into play there into your expectations and what we should think about the recent strength there.
Eric Percher: Glenn It's Eric.
Eric Percher: Repo product is one of many that we offer for clients right. We offer them cash on deposit in various forums money market money markets. We repo is a collateralized activity. So in a way to think of it as a broad rate one of the broad range of elements that we offer.
Eric Percher: What we found is that.
Eric Percher: Fed has trended down its reverse repo operation Theres been more repo activity in the market and we've obviously wanted to be there to to help our clients that said.
Eric Percher: The repo activity the sponsored repo activity that we do.
Eric Percher: Is 10, 11% 12% of.
Eric Percher: Of our NII typically bounce around by a percentage point or two this quarter I called it out because it.
Eric Percher: Think we added about a percentage point of NII due to the increase in repo activity and what Youre working through it is sometimes balances are up a bit sometimes margins are up a bit and we've just found more activity in the market. There is more cash out there as you've as you've seen.
Eric Percher: And they're also more borrowers who are looking for for our cash and have collateral to pulse then those are markets, where we're happy to serve our clients on both sides of that transaction.
Eric Percher: And step stepped in and stepped up for them.
Great Thanks for that color.
Eric Percher: Okay.
Speaker Change: The next question comes from the line of pilots blows team with Goldman Sachs.
Speaker Change: Please go ahead.
Speaker Change: Hey, good afternoon, everyone. Thanks, Eric and congrats to you as well.
Speaker Change: I guess in that vein and the question for both of you guys State Street's made some pretty meaningful progress improving profitability recently.
Speaker Change: But with the new CFO search underway, how durable do you think these profitability improvements are likely to be sort of like in other words, how much of this is already in motion and sort of on the rails. They can more seamlessly perhaps transition to whoever comes next.
And what are your ultimate sort of aspirations for pre tax margins for the firm as a whole over time.
Yes, Alex I'll start on that.
Speaker Change: I mean, we've been fairly transparent about what we've been doing.
Speaker Change: Across the board at the firm both revenues and expenses, so starting with our investment services business, we've talked a lot about what we've done too.
Speaker Change: Two.
Speaker Change: Restore and regain and really distinguish ourselves and service quality.
Speaker Change: Which in turn has enabled us to.
Speaker Change: Actually grow and restore the growth that we've had in the past.
Speaker Change: We talked a lot about some of the new sales and.
Speaker Change: Client service kinds of actions we have in place. That's all in motion is there more to do for sure but as the plan clear yes. It is but we would expect to see.
Speaker Change: Continued benefits being derived from that.
Speaker Change: In Georgia.
Speaker Change: Got it.
Speaker Change: We've got a broad based strategy and they're really.
Speaker Change: Aimed at how do we actually broaden the appeal and broaden the franchise beyond its traditional institutional core we've talked a lot about what we've done in the <unk>.
Speaker Change: In the in the retail area with the low priced Etfs.
Speaker Change: Product innovation.
Yes.
Speaker Change: Occurring at a really breakthrough clip there we launched 20, new ETF this year.
Speaker Change: Talked about some of the new partnerships that we've had which.
Speaker Change: Assuming we get through all the regulatory.
Speaker Change: Hurdles there, we're very optimistic about.
Speaker Change: And so.
Speaker Change: We feel like we've got that slide covering a pretty clear path.
Speaker Change: In the markets business.
Speaker Change: The markets client franchise, largely overlaps with our investment services for one choice, but thats not enough right you have to be able to distinguish yourself from there and I think the progress that you are seeing.
Speaker Change: Over the past couple of quarters reflects.
Some of the work that we've done there with more to come I mean, this is a franchise thats based on innovation and then finally.
Speaker Change: In terms of productivity.
Speaker Change: We've been talking to you about productivity and transformation since 2019.
Speaker Change: And every year.
Speaker Change: We go at it in a different way typically a more sophisticated way each year the early years for boat.
Speaker Change: Yes, we'd all describe as low hanging fruit.
Speaker Change: These later years later years have been about fundamental operating model transformation, including a much more sophisticated application of technology.
Speaker Change: That's where a lot of our investment is going but we see much more to do there. So I wouldn't anticipate a new CFO signaling any kind of change in strategy.
Speaker Change: It's not to say that it is a vitally important role and we're going to the search process is literally commencing today.
Speaker Change: <unk> already engaged a firm to help us, we'll look both inside and outside but.
Speaker Change: But we're very confident coupled with the plan we have in place.
Speaker Change: Four months of transition that we have with Eric.
Speaker Change: And just the overall performance of affirm that we're going to be in good shape through this transition.
Speaker Change: Alex I'd also add our medium term targets.
Speaker Change: <unk> targets <unk>.
Speaker Change: And as stated.
Speaker Change: We are deeply embedded in our culture and our senior.
Speaker Change: The executive and management teams and with our board and so.
4% to 5% revenue growth rate pre.
Speaker Change: Pre tax margin target of 30%. Those are those are those are there for the medium term purposely.
Speaker Change: And.
Speaker Change: Topics in areas that we continue to strive for and deliver on yes.
Alex I'm.
Speaker Change: Im glad Erik mentioned also it's part of our long term incentives.
Speaker Change: Achievement realization of those targets.
All makes sense just wanted to clarify that.
Speaker Change: So for my follow up maybe quickly on NII, obviously, very nice update update for the fourth quarter.
Probably too early to talk about 25% with a lot of specificity, but as you sort of think about how the balance sheet is positioned especially on the back of the recent securities repositioning you've talked about earlier today.
Speaker Change: How should we think about the sustainability and durability of this kind of NII run rate over the next over the next couple of quarters I think in the past you talked about being a little more asset sensitive in Europe still maybe a little bit more neutral and in the U S. But maybe you can help us with some broader framework of how to think about 25.
Speaker Change: Yeah.
Speaker Change: Yes, Alex.
Eric Percher: Eric as you say, it's still early.
Eric Percher: We're we're operating through deposit level of interest bearing noninterest bearing.
Eric Percher: Our portfolio composition.
Eric Percher: Quarter by quarter by quarter and so we.
Eric Percher: We don't.
Eric Percher: We don't have a.
Eric Percher: We don't have additional.
Eric Percher: Information really sure regarding next year other than what we've said before we've said that we continue for this.
Eric Percher: This past quarter.
Eric Percher: And into the fourth quarter I expect some.
Eric Percher: Some modest or slight amount of deposit rotation.
Eric Percher: That's a headwind we've got the investment portfolio rolling through but some quarters you get a bigger smaller benefit just depending on the exact bonds and then you've got the lending activity and then you've got repo as we talked about earlier on the call are bouncing up and down we've said that.
Eric Percher: It's really in the next few quarters.
Eric Percher: <unk> that language purposely that we expect to see the stabilization of NII and then some some growth from.
Eric Percher: From a from that level, but it's it's hard to pin exactly which quarter.
Eric Percher: But I think what you can do is if you open up the lens.
Over a one year three year five year period, you can see where we've come from you can see the zone that where.
Eric Percher: We're operating in and I'll define the zone not as one percentage point difference, but the kind of.
Eric Percher: Zone as you'd expected in a colloquial sense, but we're I think we're in a.
Eric Percher: <unk> zone generally its helpful for our margin.
Eric Percher: While the next few quarters, we will see.
Eric Percher: Some some movement we.
Eric Percher: We also see some.
Eric Percher: Stability and some growth.
Thereafter.
Speaker Change: Got you alright, well I think we'll get you for one more quarter after that so I am sure that will be another topic yet again.
Eric Percher: Yes.
Eric Percher: Yes.
Speaker Change: The next question.
Comes from the line of Betsy <unk> Morgan Stanley.
Speaker Change: Please go ahead hi.
Speaker Change: Hi, good afternoon.
Speaker Change: Hi, Betsy.
Betsy: Eric I'll Miss you sorry to see you go good luck in the next role and.
Betsy: I guess my final question is just around <unk>.
How we should be thinking about.
Betsy: Trajectory here.
Betsy: NII and in an environment, where maybe we get slower pace of cuts is that better for state Street.
Speaker Change: Thank you Betsy for the for the question.
Betsy: And for the thoughts.
Speaker Change: Yes, I think directionally, our balance sheet is relatively neutral we have a slight.
Speaker Change: Asset sensitivity and so as rates come down.
Speaker Change: That that has a slight impact to NII on a quarterly basis, but it's not dramatic.
Speaker Change: But given that direction that will position.
Speaker Change: Yes.
Speaker Change: Sure.
We would have.
Speaker Change: Slightly.
Speaker Change: Better NII if rates didn't fall as quickly.
Speaker Change: Our collective view here as rates will come down, but we've seen the market overshoot on the rate reductions our economists think that the terminal rate is likely to be.
Speaker Change: Subsequently higher than what it's been in the past and so.
Speaker Change: I think we're reasonably well positioned and.
Sure.
Speaker Change: We'll absorb some of the.
Speaker Change: Some of the Central Bank actions and as we do that we will continue to build out our client lending activity repo activity.
Speaker Change: Deposit engagement activity and so forth.
Speaker Change: Those will all contribute to a stabilization of NII here around the sell in and then.
Speaker Change: Growth from there alright.
Speaker Change: Alright, thanks, so much and then Ron one for you on.
Speaker Change: I think recently I saw a headline about state street leaning into Mexico.
Speaker Change: And wanted to understand.
Speaker Change: Is this a new effort or this is an expansion of existing business and maybe just put it into context.
Speaker Change: Around.
<unk> growth strategy and are there other countries that you are looking to lean into.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: So we have a we certainly have a presence in Latin America.
Speaker Change: <unk>.
Speaker Change: Smaller.
Speaker Change: EMEA and APAC for us but.
Speaker Change: As you would expect we tend to and this is on the servicing a little bit in the markets there, but it's all in the sort of it really rise on our services.
Speaker Change: And as countries develop and has investment markets develop.
Speaker Change: That's the opportunity for us.
Speaker Change: And so we.
Speaker Change: We are building out at a I would say moderate pace.
Speaker Change: Our capabilities and activity in Latin America, and what you saw there really reflected that.
Speaker Change: Our core markets.
Speaker Change: Could imagine remained.
Speaker Change: The U S EMEA and APAC, but.
Speaker Change: As you've seen from our growth over the past couple of years.
It's.
Speaker Change: We've had lots of growth in EMEA and APAC more recently, we've gotten the growth rate.
Speaker Change: In the U S kind of back on what it had been traditionally.
Speaker Change: But as these markets grow.
Speaker Change: They start to need the same kind of capabilities that we've got in those developed markets and also in many cases, you have so called emerging or developing markets that are really skipping over some of the.
Speaker Change: Of the milestones that developed markets.
Speaker Change: Had done in there.
Speaker Change: And their development. So again, it's an opportunity to bring some advanced technology in those kinds of things but.
It's a modest investment and we would expect over the short term modest growth, but it's important to get the foothold there.
Thank you.
Speaker Change: Okay.
Speaker Change: The next question comes from the line of Brian Bedell with Deutsche Bank.
Speaker Change: Please go ahead.
Brian Bedell: Good afternoon, and congrats, Eric, also. Maybe just take on a comment that you mentioned, Eric, about putting more of your balance sheets to work to support clients. Can you just go into a little bit more detail in terms of which areas I see me mean on the asset side and lending.
Brian Bedell: Great. Thanks, Good afternoon, and congrats Eric also.
Brian Bedell: Maybe maybe just.
Brian Bedell: <unk>.
Brian Bedell: Taking on a comment that you mentioned, Eric about putting more of your balance sheet to work to support clients can you just go into a little bit more detail in terms of which areas I assume you mean on the on the asset side and lending.
Brian Bedell: And then, in conjunction with that, maybe if you can talk about, you know, deposit pricing strategies with your asset servicing clients in terms of the see their deposit data or we're also supporting your clients in terms of the revenue model.
Brian Bedell: Then.
Brian Bedell: Conjunction with that.
Brian Bedell: Maybe if you could talk about.
Brian Bedell: Deposit pricing strategies.
With your asset servicing clients in terms of either deposit beta or.
Brian Bedell: We're also supporting your clients in terms of the revenue model.
Eric Aboaf: Brian, sure, let me, let me cover those in, you know, one by one. On the, on the asset side of the balance sheet, you know, got a $300 billion dollar balance sheet, we've got about $120 billion of risk-weighted assets, and, and as we think about capital deployment, it continues to be in three areas that we've historically supported our clients and we want to continue to expand. And so the first one is lending, as you mentioned, and, you know, we do everything from capital call financing to BDC lending, really an ecosystem of lending that we do for our private markets clients or asset management clients and so forth.
Speaker Change: Ryan Sure let me, let me let me cover those.
Brian Bedell: In <unk>.
Brian Bedell: One by one on the on the asset side of the balance sheet.
Brian Bedell: We've got a $300 billion balance sheet, we've got about 120 billion of risk weighted assets and.
Brian Bedell: As we think about capital deployment. It continues to be in three areas that we've historically support of our clients and we want to continue to expand so the first one is lending as you mentioned and we do everything from capital call financing to BDC lending.
Brian Bedell: Really an ecosystem of lending that we do for our private markets clients, our asset management clients and so forth and there is real growth there for us there's growth there for them and what we find constructive is that with many of those clients. If you support them with your balance sheet there that much more.
Eric Aboaf: And there's real growth there for us, there's growth there for them, and what we find constructive is that, you know, with many of those clients, if you support them with your balance sheet, they're that much more encouraged and likely to come to you for servicing activities, for asset management activities, and that's a very constructive and kind of virtuous circle of relationship that we and they benefit towards. So lending is a very important part of what we do.
Brian Bedell: Encouraged unlikely too.
Brian Bedell: To come to you for servicing activities for asset management activities and that's a very.
Brian Bedell: Constructive and kind of virtuous.
Brian Bedell: Circle for relationship that we.
Brian Bedell: And they benefit towards so lending its a very important part of what we do.
Eric Aboaf: Secondly, our trading activities in FX require a balance sheet. If we do more than just, you know, one, two, three months forward and swaps, if we do options of support our clients, those require a balance sheet, and we're again, we're happy to do that for our clients, especially for our. business, which has both an agency lending component, where we're, you know, lending out of the box, but that requires some. Some capital under the Basel III rules, and then the prime services business, right, where we're. Lending out to those who are borrowers in the capital markets, and that's been an area of growth as well.
Brian Bedell: Secondly, our trading activities in FX require our balance sheet.
Brian Bedell: If we do more than just.
Brian Bedell: 123 months forwards and swaps, if we to options to support our clients those require balance sheet and we're again, we're happy to do that for our clients, especially for our.
Brian Bedell: A substantial clients that we have large relationships with and we will do that around the world. So that's a good part and then.
Brian Bedell: Thirdly, it's really around the.
Brian Bedell: The securities financing business, which has both an agency lending component, where we're lending out of the box, but that requires some.
Brian Bedell: Some capital under the Basel III rules.
Brian Bedell: And then the prime services business right.
Brian Bedell: Lending out.
Brian Bedell: To those who are who are borrowers in the capital markets and that's been an area of growth as well. So those are the areas what.
Eric Aboaf: So those are the areas. What, the way we think about it is that we think of ourselves, and we. And we really act as relationship letters, right? We lend not for itself, but we lend because it's to support our clients. It comes at good returns, but it comes as a way to deepen and broaden and expand the relationships that we have. So that's we, that's what we've been doing. We'd like to continue to do that, and the more we, we lend and support them across those different areas that I described, those three areas. The, the more growth we'll see both N and I and in the, the fee line.
Brian Bedell: That's the way we think about it is that we think of ourselves and we.
Brian Bedell: <unk>.
Brian Bedell: And we really are.
Brian Bedell: Act is relationship lenders, probably learned not for itself, but we learned because it's to support our clients.
Brian Bedell: It comes at good returns, but it comes as a way to deepen and broaden and expand the relationships that we have so that's.
Brian Bedell: That's what we've been doing and we'd like to continue to do that and the more we learned and support them across those different areas that I described those three areas.
Brian Bedell: The more growth, we'll we'll see both NII and in the fee line.
Eric Aboaf: On the question of, is that, yeah, perfect, actually I can kind the back of that question with the second one, and that's just on the revenue, on the fee revenue side of your new wind, particularly the Alpha Products, I know the Alpha Platform rather, and I know the private market initiatives as well. Should we be thinking of those as fee rate or creative, or are you also flexible on pricing some of those with deposits as well, you know, on compensating balances? I say it's a little bit of both to be honest, we have, for example, in the servicing fee area, you know, we both $33 million of winds on a trailing 12 month basis. We continue to target $150 to $400 million of fees, but, you know, it's obviously lumpy and a mandate, you know, sometimes pull forward from a quarter, sometimes moves out a quarter. You know, we'll see exactly where we land, but we are continuing to hone in on delivering substantial amounts of fee winds this year, and have that target clearly, clearly in sight.
Brian Bedell: On the question of is.
Brian Bedell: Is that.
Yes.
Brian Bedell: Yes.
Perfect you actually I can try and.
Brian Bedell: Back half of that question with the second one and Thats just on the revenue on the fee revenue side of your new wins, particularly the Alfa products I know.
Brian Bedell: The alpha platform, rather and I know the private market.
Brian Bedell: She lives as well.
Brian Bedell: Should we be thinking of those as.
Brian Bedell: Fee rate accretive.
Brian Bedell: R R.
Brian Bedell: You also are flexible on pricing some of those deposits as well.
Brian Bedell: <unk> balances.
Brian Bedell: Okay.
Speaker Change: I would say.
Speaker Change: I'd say its a little bit of both to be honest. We have for example in the servicing fee area, we both $330 million of wins on a trailing 12 month basis, we continue to target $350 million to $400 million of fees.
Speaker Change: Yes, its obviously lumpy in our mandate, sometimes pull forward from a quarter, sometimes it moves out of quarter, we'll see exactly where we land, but we are continuing to.
Speaker Change: Two to hone in on delivering substantial amounts of.
Speaker Change: Fee wins this this.
Speaker Change: This year and have that that target clearly clearly in sight.
Eric Aboaf: As we do that, you know, deposits are a part of the relationship, but more and more clients think of it both ways. They understand that there's a balance of trade; they understand that if they are pushing too much on one lever, then the other levers have to move in the opposite direction.
Speaker Change: As we do that deposits are a part of the relationship.
Speaker Change: But more and more our clients think of it both ways. They understand that there is a balance of trade they understand that if.
Speaker Change: They are pushing too much.
On one lever than the other levers have to move in the opposite direction on the other hand, there is real opportunity to work with clients to see how we can serve more and more of their needs and what we've found that as we've got that as we have those discussions we end up doing more work with our clients and more support of our clients.
Eric Aboaf: On the other hand, there is real opportunity to work with clients to see how we can serve more and more their needs, and what we found that as we've got that, as we have those discussions, we end up doing more work with our clients and more support of our clients and more areas, and so they tend to build and feed on each other as opposed to being offsetting.
Speaker Change: In more areas and so they tend to build in feed on each other as opposed to being offsetting.
Brian Bedell: You know, that's, that's great, Claire. I appreciate your detailed answers as always. Eric, thanks very much.
Elizabeth Lane: That's great color I appreciate your detailed answers as always Eric Thanks very much.
Speaker Change: Sure.
Jim Mitchell: Next question comes from the line of Jim Mitchell that supports global securities. Please go ahead.
Speaker Change: Your next question comes from the line of Jim Mitchell with C.
Speaker Change: Seaport Global Securities. Please go ahead.
Jim Mitchell: Hey, good afternoon. Hey, Eric, just on deposit behavior after the rate cut, had, you know, how to mix and volume growth look and pricing and he thoughts on the initial reaction to the rate cut. That's in the opposite side.
Speaker Change: Hey, good afternoon.
Jim Mitchell: Hey, Eric just on that.
Speaker Change: Posit behavior after the rate cut.
How does mix.
Speaker Change: And in volume growth look at pricing any thoughts on the initial reaction to the rate cuts.
Speaker Change: And the deposit side.
Eric Aboaf: Jim, it's Eric. We, we really just saw more of what we've been seeing over the last few months. I don't think we saw any discernible change. You know, deposits in the system are generally, generally been trending up, you know, a point or a point a half a quarter. That's across the banking system. You see our, our results are, our little more of that. And we didn't really see a lot of changes. We continue just to see a market environment where there's a fair amount of cash in the system. Part of that is positioning, part of that is, I think, carefulness on our investors that our investors have given the political and economic, you know, uncertainty.
Speaker Change: Jim It's Eric we really just saw more of what we've been seeing over the last few months I don't think we saw any discernible change.
Speaker Change: Deposits in the system are generally.
Generally been trending up.
Speaker Change: A point or a point and a half a quarter that's across the banking system you've seen our our results are a little more of that and we didn't really see a lot of changes we continue just to see.
Speaker Change: Market environment, where there is a fair amount of cash in the system.
Speaker Change: Part of that is positioning part of that is I think carefulness on our investors.
Speaker Change: With that our investors have given the political and economic.
Speaker Change: Uncertainty.
Eric Aboaf: And so it, the cuts didn't have a discernible impact on the, on the positive levels and in general, we think we're going to operate, you know, in and around this, this level for the, you know, for the time. and Bing.
Speaker Change: And so it.
Speaker Change: Cuts didn't have a discernible impact on on deposit levels.
Speaker Change: In General we think we're going to operate at or around this level for the <unk>.
Speaker Change: Time being.
Jim Mitchell: Okay, that's helpful. It may be just pivoting to servicing fees, still a significant backlog, yet to be installed business in asset servicing.
Speaker Change: Okay. That's helpful and maybe just pivoting to servicing fees.
Speaker Change: Still a significant backlog are yet to be installed business in asset servicing so.
Eric Aboaf: So can you discuss how quickly you expect that new business to be onboarded and how you're thinking about the quarterly trajectory from here? Yeah, the servicing backlog; we've enjoyed continuing to build. We obviously want to build it and deploy it, right? Both are important to our business system.
Can you discuss how your how quickly do you expect that business to be on boarded and how youre thinking about the quarterly trajectory from here.
Yes.
The servicing backlog.
Enjoyed continuing to build we obviously want to build it and deploy it right. Both both both are important to our our.
Speaker Change: Our business system, and I think over time it will.
Eric Aboaf: I think over time it'll continue to trend up some lot and then get to a steady state level. Right now, as we look forward, we think about the installation of that backlog in two ways. On an AUCA basis, we think about the installation coming in the next two years with somewhere between half to three quarters of that coming through in the next year, and in terms of the servicing feedback log itself, we roughly expect about half of that to come through over the course of the fourth quarter and all the next year if you want to kind of rough it out and just think about the pace of installation.
Speaker Change: It will continue to trend trend up somewhat and then get to a steady state level.
Now as we look forward.
Speaker Change: We think about the installation of that.
Speaker Change: Backlog in two ways on an AUC a basis, we think about the installation.
Speaker Change: Coming in the next two years with.
Speaker Change: Somewhere between half to three quarters of that coming through in the next year.
Speaker Change: In terms of the servicing fee backlog itself, we roughly expect.
Speaker Change: About half of that to come through.
Speaker Change: Over the course of the fourth quarter and all of next year, if you want to kind of kind of rough it out.
Speaker Change: And just think about the pace of installation.
Eric Aboaf: You know what that means is that we're always installing revenues from our backlog onto the balance sheet, right, or onto the PNL, I should say. And then at the same time, our coverage and relationship forces out there winning new business, and there's business that then installs within three months, six months, nine months, and 12 months. And so, over the, you know, every year, you'll see a mix; you'll see business that comes from a backlog that had a longer installation time period, and then you'll have business that comes from, you know, within that fiscal year itself.
Speaker Change: That means is that we're always installing revenues from our backlog onto the balance sheet right are onto the into the into the P&L I should say.
Speaker Change: And then it's and at the same time.
Speaker Change: Our coverage in relationship forces out there winning new business and there is business that then installs within three months six months nine months 12 months and so over the every year Youll see a mix youll see business that comes from our backlog that had a longer installation time period, and then youll have business that comes from.
Speaker Change: Within that that fiscal year itself.
Jim Mitchell: Okay, appreciate the help.
Okay I appreciate the help thanks.
Jim Mitchell: Thanks.
Gerard Sean Cassidy: Next question comes from the line of Gerard Cassidy with RBC. Please go ahead.
Speaker Change: Your next question comes from the line of Gerard Cassidy with RBC.
Speaker Change: Please go ahead.
Gerard Sean Cassidy: Hi, Ron. Hi, Eric.
Gerard Cassidy: Hi, Ron Hi, Eric Congrats.
Gerard Cassidy: Congratulations, Eric. On the new position.
Gerard Cassidy: Congratulations on the new position.
Gerard Cassidy: Yeah.
Ronald OHanley: Ron, you mentioned about the new business wins in the quarter. And I think you said 466 billion in assets under custody/administration. Can you share with us how much of that came from existing clients, where you grabbed the bigger wallet share from those clients versus new customers. And second, were the wins primarily in the U.S., or were they outside the United States, Europe, or Asia?
Gerard Cassidy: Ron you mentioned about the new business wins in the quarter.
Speaker Change: And I think you said 466 billion in assets under custody Slash administration can you share with us how much of that came from existing clients, where you grab the bigger wallet share from those clients versus new customers in the second word wins, primarily in the U S or whether the outside the United States Europe or Asia.
Gerard Cassidy: <unk>.
Ronald OHanley: Yeah. Thanks, the question, Gerard. So for this quarter, there was, we had two alpha wins in the two alpha wins dominate that that AUSCA. It's just, it's about 380 of the 460 billion is Alpha. And that's divided between U.S. and non U.S. with a very, very significant global player in there that has a lot of U.S. presence. And what's interesting about both of them, both these winters, they were existing. But in one case, we had a very, very modest service footprint with this institution. We were Charles River only with them.
Gerard Cassidy: Yes.
Gerard Cassidy: Thanks for the question Gerard so for this quarter.
Gerard Cassidy: There was we had two alpha wins in the two alpha wins dominate that.
Gerard Cassidy: At AUC.
Gerard Cassidy: Just spoke 380 of the 460.
Gerard Cassidy: 1 billion is alpha.
Gerard Cassidy: And that's divided between U S and non U S with a very very significant global player.
Gerard Cassidy: And there that has a law.
U S presence.
Gerard Cassidy: And what's interesting about both of them.
Gerard Cassidy: Both these wins.
Gerard Cassidy: They were existing but in one case, we had a very very well.
Gerard Cassidy: Modest service footprint with this institution.
Gerard Cassidy: We were Charles River only.
With them.
Gerard Cassidy: <unk>.
Ronald OHanley: And as a result of this alpha wins, we'll have a true front-to-back relationship with them, including, importantly, to move the asset servicing from a competitor to us. And with the asset, excuse me, I'm sorry, moving the custody from a competitor to us, and with custody comes lots of opportunities to do things like deposits and foreign exchange and things like that. So, and I think for years now, as we've talked about this strategy and why this has been, why we think it's important and why we think it gives us a competitive advantage. One of the reasons is just that.
Gerard Cassidy: As a result of this alpha wins that will have a true front to back relationship with them, including importantly.
Gerard Cassidy: To move the asset servicing from a competitor to us.
Gerard Cassidy: And with excuse me Im sorry, moving their custody from a competitor to us.
Gerard Cassidy: With custody comes lots of opportunities to do things like deposits in foreign exchange and things like that.
So.
And I think for years now as we've talked about the strategy and why the system.
Gerard Cassidy: Why we think it's important and why we think gives us a competitive advantage.
Gerard Cassidy: One of one of the reasons, it's just that it's.
Ronald OHanley: It's the opportunity to deepen relationships. And the other reason why it's so important is the flip side of taking long to install is that the business tends to be quite sticky. Because this is really, it's much more analogous to enterprise outsourcing, where the institution is actually making a choice of either, in most cases, moving from an in-source model to an outsource model. In some cases, moving from one outsource or to another, but that doesn't happen quite as frequently.
Gerard Cassidy: The opportunity to deepen relationships.
Gerard Cassidy: The other reason why it's so important is.
Gerard Cassidy: The flipside of taking longer to install.
Gerard Cassidy: Business tends to be quite sticky.
Gerard Cassidy: Because.
This is really it's.
Gerard Cassidy: It's much more analogous to enterprise outsourcing.
Gerard Cassidy: Where the institution is actually making a choice of either in most cases moving from an in sourced model to an outsourced model in some cases moving from one outsourcer to another but.
It doesn't happen quite as frequently and as a result, because of the work that both parties are doing.
Ronald OHanley: And as a result, because of the work that both parties are doing, we insist upon a longer contract period, and the client itself understands these are very sophisticated buyers, understand that they're making a generational decision here, and so they want to get it right.
Gerard Cassidy: We insist upon a longer contract period and.
The client itself understands these are very sophisticated buyers understand that theyre, making a generational decisions here and so they want to they want to get it right.
Gerard Cassidy: Very good. Thank you for that color.
Speaker Change: Very good.
Speaker Change: Thank you for that color and then as a follow up question. Obviously, you guys are well capitalized.
Gerard Cassidy: And then, as a follow-up question, obviously you guys are well-capitalized. You've been using your capital to support organic growth, as Eric pointed out, with lending, and you're paying obviously dividends and increasing them and buying back your stock. Alternatively, obviously, capital can be used for acquisitions.
Speaker Change: <unk> been using your capital to support organic growth as Eric pointed out.
With lending and Youre, paying obviously dividends and increasing them in buying back your stock. Alternatively, obviously capital can be used for acquisitions can you give us an update on your appetite for acquisitions recognizing of course to Brown brothers transaction did not work out the way you intended but can you share with us your thoughts there as well.
Ronald OHanley: Can you give us an update on your appetite for acquisitions? Recognizing, of course, the Brown Brothers transaction didn't work out the way you intended, but can you share with us your thoughts there as well?
Speaker Change: Okay.
Ronald OHanley: What Gerard, we think about M&A not as a strategy, but as a way to implement our strategy either more rapidly or more efficiently. So we'll always be paying attention to opportunities like that, but we see a lot of promise in the organic growth. The organic plans that we have developed and are now seeing the fruits of. So, you know, our last significant acquisition, as you know, was Charles River. That was done for important strategic reasons to enable the creation of the Alpha front-to-back platform. It was a dilutive acquisition. We knew that at the time, but we felt it was a very important long-term investment, and it's proven to be, but it's also costly and oftentimes disappointing to shareholders.
Speaker Change: Gerard.
Think about M&A, not as a strategy, but as a way to <unk>.
Speaker Change: Implement our strategy either more rapidly.
Speaker Change: Or more efficiently.
Speaker Change: No.
Speaker Change: We'll always be paying attention to opportunities like that but we see a lot of promise in.
And the organic plans that we have developed and are now seeing the fruits of.
Speaker Change: So.
Our last significant acquisition.
Speaker Change: As you know was Charles River that was done for important strategic reasons to enable.
Speaker Change: The creation of the Alpha front to back platform.
Speaker Change: It was.
Speaker Change: It was a dilutive acquisition, we knew that at the time, but we felt it was a very important long term.
Speaker Change: Long term investment and it's proven to be but it's also costly.
Speaker Change: And oftentimes disappointing to shareholders so well.
Ronald OHanley: So we take our stewardship of capital responsibility very seriously, and we like what we're able to do on an organic basis or building on what we've done. So not to say we'll never do these things, but it's a high bar, and it's got to be about, as I said at the beginning of the sensor, it's got to be really about accelerating the strategy. And or realizing the strategy more efficiently than we could organically. Very good.
Speaker Change: We take our stewardship of capital.
Speaker Change: Sponsor ability very seriously and we like what we're able to do on an organic basis or building on what we've done so.
Speaker Change: Not to say, we will never do these things, but it's a high bar.
And it's got to be about.
Speaker Change: As I said at the beginning of this answer it's got to be really about accelerating the strategy.
Speaker Change: <unk> are realizing the strategy more efficiently than we could organically.
Speaker Change: Organically.
Speaker Change: Very good thank you.
Ronald OHanley: Thank you.
Speaker Change: Yes.
Ronald OHanley: I'll now turn the call back over to Ron O'Hanel, the closing remarks. He's glad. Thanks to all for joining us on the call, and just to emphasize, you get one more quarter of Eric. So he'll be with us for the fourth quarter report in February and basically with us through mid February and January and basically with us through mid February. So thank you all.
Speaker Change: I will now turn the call back over to Ron or Hanley for closing remarks.
Speaker Change: Please go ahead.
Speaker Change: Thanks to all for joining us on the call and just to emphasize you get one more quarter of Eric So he'll be with us for the year.
Speaker Change: For the fourth.
Speaker Change: Fourth quarter report in February.
Speaker Change: Basically with us through mid February January and basically with us through mid February so thank you all.
Speaker Change: Alright.
Unknown Executive: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Thank you all for joining us on the call.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
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