Q1 2025 State Street Corp Earnings Call
Speaker Change: The conference is now in presentation mode. Your line is muted. It's Street Corporation's first quarter 2025 earnings conference call and webcast. Today's call will be hosted by Elizabeth Lynn, Head of Investor Relations at State Street. The conference is now in presentation. The conference is now in presentation.
Speaker Change: We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session.
Speaker Change: Today's discussion is being broadcasted live on State Street's website at investors.statestreet.com.
This content call is also being recorded for replay.
Speaker Change: Street's conference call is copyrighted and all rights are reserved [inaudible]
Speaker Change: This call may not be recorded for re-broadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now would like to hand the call over to Elizabeth Lynn.
Speaker Change: Good morning, and thank you all for joining us. On our call today, our CEO , Ron O'Hanley, will speak first. Then Mark Keating, our interim CFO , will take you through our first quarter 2025 earnings presentation, which is available for download on the Investor Relations section of our website, investors.statestreet.com.
Afterwards, we'll be happy to take questions.
Speaker Change: One or more items from Gap. Reconciliation of these non-GAAP measures to the most directly comparable gap or regulatory measure are available in the appendix to our presentation.
Speaker Change: In addition, today's call will contain forward-looking statements, actual results may differ materially from those statements due to a variety of important factors, such as those reference in our discussion today, and in our SEC filings, including the risk factor section of our Form 10K.
Speaker Change: Our Forward Looking Statements speak only as up today, and we disclaim any obligation to update them even if our views should change. With that, let me turn it over to Ron.
Ron Ohanley: Thank you, Liz, and good morning, everyone. At present, investors are contending with notable uncertainty while much attention is focused on US trade policy. Uncertainty is also a reason around other topics such as taxes, geopolitics, interest rates, deficits, and deregulation.
Ron Ohanley: This wide range of uncertainties, some negative and others positive, is introduced significant volatility into global financial markets and investor sentiment.
During times such as these are purpose for us.
Ron Ohanley: To create better outcomes for the world's investors, and the people they serve is even more relevant. Our financial strength, combined with our deep investment services, markets, software, and asset management capabilities, uniquely positions us to serve as our client's essential partner.
Ron Ohanley: Throughout its 230-year-plus history, State Street has supported both clients and financial markets for many periods of uncertainty.
Ron Ohanley: By focusing on those things that we can control and preparing for those that we can't, State Street has developed a track record of financial and operational resilience and adaptability, which has enabled State Street and our clients to navigate through difficult periods.
Ron Ohanley: I believe as we progress through the current environment, we will strengthen our position with clients even further.
Ron Ohanley: Turning to slide two of our investor presentation, I will cover our first quarter highlights before Mark takes you through the quarter or more detail.
Ron Ohanley: During the turbulence experience and financial, despite the turbulence experience and financial markets in March, we delivered growth, solid financial performance and good business momentum in Q1.
Ron Ohanley: Year over year, V revenue increased by 6%, while total revenue rose by a healthy 5%.
Ron Ohanley: We achieve both positive V and total operating leverage, resulting in year-over-year margin expansion, excluding notable items, with State Street's pre-tax margin reaching 30% excluding seasonal expenses.
Ron Ohanley: supported by Capitol Return, EPS reached 204 as compared to 137 in Q1 last year, which included the impact of an FDIC special assessment.
Ron Ohanley: Excluding notable items, year-over-year earnings per share growth was a very strong 21%.
Ron Ohanley: Turning to business performance, we generated new asset servicing AUCA wins of $182 billion with an investment services in the first quarter.
Ron Ohanley: New servicing fee revenue wins total 55 million with the majority coming from back office mandates in line with our strategic gain. We recorded one new State Street Alpha mandate demonstrating continue to momentum in this unique value proposition.
Ron Ohanley: While the current environment presents some uncertainty, our existing pipeline and investment services is robust, and I am confident in our platform, any improvements we have made to our sales effectiveness.
Ron Ohanley: As a result, we are maintaining our goal of 350 to 400 million in new servicing p-revenue wins this year, while also being mindful of the potential for variability in the current environment.
Ron Ohanley: We continue to make significant strategic progress and growth in our investment management franchise, resulting from our focus on broadening global advisors' product and distribution capabilities.
This is better equipped GA to capitalize on growth opportunities.
Ron Ohanley: Management fees increased by 10% year-over-year. You once saw net outflows driven by an anticipated single-client event within the institutional business. At the same time, the quarter was marked by a number of significant accomplishments. For example,
Ron Ohanley: The importance of our strategic focus on low-cost ETFs is underscored by the fact that half of all ETF industry flows were directed towards the segment in Q1.
Ron Ohanley: Our spider, US low-cost ETF suite continue to expand its market share in this fast-growing segment, capturing new flows in Q1 at a rate more than twice our industry AUM market share.
Ron Ohanley: with our low-cost ETF AUM reaching a record $256 billion at quarter end.
Importantly, we expand the chair in the U.S. low-cost fixed income segment.
Ron Ohanley: Further, we saw strong ETF flows in Amia while the Commodities ETF segment gained market share benefiting from market volatility in our industry leading gold ETFs, which exceeded 100 billion of AUM for the
Ron Ohanley: G.A. has a history of employing strategic partnerships to open new avenues for future growth.
Ron Ohanley: In Q1, we completed several important strategic growth initiatives, including the launch of the innovative ETFs leveraging our partnerships with both Apollo Global Management and Bridgewater Associates.
Ron Ohanley: We also announce the expansion of our partnership with the Saudi Arabia Public Investment Fund through the launch of the first Saudi Arabia Fixed Income USIT's ETF in Europe .
Ron Ohanley: Finally, GA recently announced a strategic investment in partnership with Ethic, a leading technology provider that distinctively empowers well-advisors to build tailored client portfolios at scale.
Ron Ohanley: This partnership will enable investment advisors to access our model portfolios and spider ETFs through ethics platform reinforcing our commitment to expanding investor access to our investment capabilities and strengthening our intermediary franchise.
Turning to our markets franchise Schraight.
Ron Ohanley: As a leading provider of trading, research, and lending solutions, coupled with innovative platforms, financing, and portfolio solutions, our markets franchise is well equipped to support clients through this volatile period, with deep liquidity and trading expertise, while also providing important diversification to our revenue profile.
Ron Ohanley: Q1, FX Trading Services, and Securities Finance revenues both grew strongly year-over-year.
Ron Ohanley: supported by notably higher FX client volumes and average assets on loans.
Ron Ohanley: which increased 14% and 19% respectively, positioning us well for future growth.
Ron Ohanley: Our balance sheet position is robust, providing us with a strong foundation to whether the current market environment. Time and again, our resilient balance sheet has been a proven stabilizing force for our clients and markets during periods of stress, such as in 2020 and early 23.
Ron Ohanley: In the first quarter, our strong capital position enabled us to return 320 million to shareholders for common share repurchases and dividends, while we also built upon our already strong liquidity position.
Ron Ohanley: Looking forward, we will continue to support our clients with our balance sheet while also returning significant capital to our shareholders as planned, subject to market conditions and other influencing factors.
Ron Ohanley: Turning to expenses, we tightly manage costs in the first quarter. You're over a year. Expenses increased by just 3% exploiting notable items, contributing to the strong fee and total operating leverage we delivered in Q1.
Ron Ohanley: We have established a track record of consistent expense discipline in recent years.
Ron Ohanley: As outlined in January , we have a comprehensive book of work underway focused on delivering significant new recurring productivity saving this year.
Ron Ohanley: As you would expect, we are well prepared as we look ahead with a detailed plan for a broad range of scenarios.
Ron Ohanley: We are laser focused on controlling expenses tightly and calibrating them in line with the revenue environment, while also continuing to make client and capabilities investments consistent with our focus on our long-term strategic priorities.
Ron Ohanley: Finally, I would like to provide an update on our search for permanent CFO . The process is advanced and we expect to be in a position to make an announcement in the near term.
Ron Ohanley: To conclude my prepared remarks, we had a strong start to the year in Q1. However, the operating environment has changed dramatically since the end of the first quarter. As a result, the economy, financial markets and the world investors are navigating for a period of uncertainty.
Ron Ohanley: Despite the hurdles this environment may present, we have strong conviction in our strategy and in our ability to serve our clients well, underpinned by our distinctive value proposition
Ron Ohanley: We are focused on being agile in the current environment and I firmly believe that we have this right strategy to deliver solid financial returns in both the near and long term for our shareholders.
Ron Ohanley: With that, let me hand the call over to Mark who will take you through the quarter and more detail .
Thank you, Ron. Good morning, everyone.
Ron Ohanley: I'll begin my review of our first quarter financial results on slide three of the presentation.
Ron Ohanley: For the first quarter, we reported EPS of $2.04 with year-over-year EPS growth of 21 percent, excluding prior period notable items.
Ron Ohanley: Looking at results for the quarter, we demonstrated solid execution across the franchise and a strong start to the year, with broad-based fee revenue growth of 6% year over year.
Ron Ohanley: Our strong fee revenue performance combined with stable NII and well-controlled expense growth of 3% excluding nozzle items, enabled us to generate over 300 basis points of fee operating leverage and over 180 basis points of total operating leverage this quarter.
Ron Ohanley: While we've seen uncertainty weigh-on global equity markets in recent weeks.
Ron Ohanley: Our first quarter results demonstrate the strength of our business with a nearly two percentage point expansion of our pre-tax margin year over year, excluding notable items and an ROTC of over 16% for the quarter.
Turning now to slide four
Ron Ohanley: Period and AUCA and AUM increased 6% and 9% year-over-year respectively. The increases in both metrics reflect higher market levels as well as positive flows.
Ron Ohanley: Moving on to some of the key market indicators that impact our business
Ron Ohanley: Though we saw rising economic uncertainty in the latter part of the quarter, daily average global equity market levels were roughly flat, while daily average FX volatility declined slightly relative to the prior quarter.
Turning to Slide Spots
Ron Ohanley: Servicing fees increased 4% year-over-year, driven by higher average market levels, net new business, and improved high-end activity, partially offset by normal pricing headwinds.
Ron Ohanley: The previously disclosed client transition was a headwind of just under one percentage point to year-over-year growth in one view.
Ron Ohanley: Consistent execution against our growth objectives has been a key focus area for us, and we were pleased with the solid business momentum across investment services in the first quarter.
Ron Ohanley: As Ron mentioned earlier, we reported one Alpha Mandate win with nearly half of the AUCA wins driven by Alpha.
Ron Ohanley: New servicing winds were 55 million in one queue and nearly 370 million over the past four quarters.
Ron Ohanley: Importantly, the vast majority of these first quarter wins were in the back office, consistent with our goal of prioritizing our sales mix towards faster time-to-revenue products.
Ron Ohanley: I would also add that the pace of quarterly installations went as planned in one queue.
looking ahead to the second quarter. [inaudible]
Ron Ohanley: We are cognizant of the potential for variability that has been introduced into the operating environment.
Ron Ohanley: That said, our pipeline is healthy and we expect to see very good sales momentum in too cute as we continue to actively pursue opportunities in key regions as well as in strategically important growth areas such as private markets.
Ron Ohanley: And as Ron noted, we continue to target 350 to 400 million in new servicing fee revenue wins this year.
Moving to Slide 6
Ron Ohanley: Management fees increased 10% year-over-year, largely reflecting higher average market levels and the benefit of prior period net inflows.
Ron Ohanley: For the quarter, net inflows, net outflows totaled 13 billion and were primarily driven by an anticipated client transition within our institutional business.
Ron Ohanley: ETF inflows were muted in one queue, as market uncertainty led to outflows in our institutional oriented spy product. That said, global advisors continued to demonstrate solid underlying momentum within its ETF business.
Ron Ohanley: In 1Q, we launched two ETFs leveraging our strategic partnerships with Apollo Global Management and Bridgewater Associates, and we generated strong inflows and market share gains in key product segments such as our U.S. low cost offering.
Ron Ohanley: In addition, our global ETF surpassed 100 billion of AUM in the quarter, as investors contended with rising global uncertainty.
Ron Ohanley: Taken together, we were pleased with the strong performance of our investment management business in the quarter, which generated a pre-tax margin of approximately 28% including seasonal compensation expense.
Turning now to slide seven
Ron Ohanley: FX trading revenue increased 9% year-over-year as the evolving geopolitical climate drove FX volatility higher, resulting in increased client volumes across most of our trading platforms.
Ron Ohanley: Security's finance revenues increased 19% year-over-year, as continued client engagement resulted in higher balances and solid revenue performance in prime services.
Moving on to Slide 8
Ron Ohanley: Software and Processing Fees increased 9% year-over-year in the first quarter, primarily driven by Higher Front Office Software and Data Revenue, associated with Charles River.
Ron Ohanley: During the quarter, Front Office software continued to demonstrate solid growth, increasing 10% year-over-year to 158 million, with our software enabled and professional services revenues up 7%.
Ron Ohanley: The front office software market continues to represent an important growth area for State Street, strengthen inclined relationships and providing us with a valuable source of consistent
Ron Ohanley: In the first quarter, annual recurring revenue grew by approximately 15% year-over-year to 373 million, driven by over 25 staff client conversions and implementations.
Moving to slide nine
Ron Ohanley: NII was relatively flat compared to the year of Oak period at 714 million as higher investment security yields and continued robust loan growth were offset by lower short end rates and changes in deposit mix.
Ron Ohanley: In a sequential basis, NIID decreased 5%, primarily reflecting changes in deposit mix, lower short end rates, and lower day count with two fewer days in the quarter.
Ron Ohanley: These factors, along with higher deposit balances to support business growth and to further enhance our already strong liquidity levels, resulted in some net interest margin compression
Ron Ohanley: As detailed on the right of the slide, average total deposits were up 11% year-over-year and 3% sequentially, marking the sixth consecutive quarter of growth in balances.
Ron Ohanley: As expected, non-intersparing deposits moderated from the seasonally high levels observed in 4Q.
Ron Ohanley: As we look ahead, we remain dedicated to supporting our clients during times of macroeconomic uncertainty and our strong highly liquid balance sheet provides us with a solid foundation to meet their needs.
Ron Ohanley: Turning to slide 10, we remain cutely focused on continuing to manage our expense base, with year over year expense growth limited to 3% in the first quarter, excluding notable items.
Ron Ohanley: At the same time, we continue to make targeted investments in technology and infrastructure, bolstering resiliency and product capabilities to ensure that we can meet the evolving needs of our clients.
Ron Ohanley: Continually driving productivity and other savings is what enables us to fund these investments.
Ron Ohanley: For the quarter, we generated savings of roughly 90 million, and we continue to target 500 million of savings this year.
Ron Ohanley: Our ability to effectively manage our expense base has developed over a number of years and is ingrained in our culture. As a result, over time we have been able to drive meaningful and consistent productivity savings while self-funding investments in our business.
Ron Ohanley: In an uncertain operating environment such as the one today, we are intensely focused on calibrating our expense base to a range of scenarios. Importantly, as we look ahead, we have a number of different levers to achieve that goal.
Moving to Slide 11
Ron Ohanley: Our capital and liquidity levels remain strong and well in excess of regulatory minimums.
Ron Ohanley: As of quarter end, our standardized CET-1 ratio of 11% was up approximately 10 basis points
Ron Ohanley: RWA's increased roughly 4 billion sequentially in part driven by higher period and security finance RWA, along with increased loan balances.
Ron Ohanley: Our bank LCR was a robust 139% up from 134% in 4Q, as we prudently managed our liquidity levels in a dynamic market environment.
Ron Ohanley: In the quarter, we were pleased to return 320 million to shareholders consisting of 100 million of common share repurchases and 220 million in declared common stock dividends.
Ron Ohanley: We've previously commented that we expect a progressive cadence of capital return this year, and as we look to the second quarter, we anticipate a step up in repurchase activity.
Ron Ohanley: For 2025, we continue to expect to return around 80% of earnings to shareholders subject to market conditions.
Ron Ohanley: So, in summary, our first quarter performance demonstrates the continued strength of our franchise as we executed against our strategic priorities, supported our clients and delivered significant positive fee and total operating leverage and pre-tax margin expansion on a year-over-year basis.
Ron Ohanley: With that, let me touch on our full-year outlook, which I will remind you is on an ex-notables basis.
Ron Ohanley: In January , we provided guidance for 2025 that was supported by various assumptions and scenarios. As we stand here today, our outlook is unchanged.
Ron Ohanley: All be it with the understanding that the operating environment has evolved and also presents a higher degree of uncertainty.
Ron Ohanley: Assuming markets remain generally supported from recent levels, we continue to expect to deliver full-year fee revenue growth of 3 to 5 percent.
Ron Ohanley: Turning to NII, we continue to expect NII to be roughly flat for the full year.
Ron Ohanley: with a range of up low single digits to down by a similar amount in percentage terms.
Ron Ohanley: Consistent with our prior guide and subject to global monetary policy as well as deposit mix and levels.
Ron Ohanley: And we continue to expect expenses to be up approximately two to three percent.
Ron Ohanley: However, as noted earlier, we have developed plans for a range of scenarios given the uncertain environment and we are prepared to aggressively manage expenses as required.
Ron Ohanley: As such, we continue to expect to deliver both positive fee and total operating leverage, the ladder of which continues to assume that NII does not become a material year over year headwind. And with that operator, you can now open the call for questions.
Speaker Change: At this time, we will open the floor for questions. If you would like to ask a question, please press star 5 on your telephone keypad. You may remove yourself at any time by pressing star 5 again. Please note, you will be allowed one question and one follow-up question.
Ron Ohanley: Again, that is star five to ask a question, and we'll pause just a moment [inaudible]
Ron Ohanley: Our first question will come from the line of Ken Usdin with Autonomous. Your line is now open, please go ahead.
Great. Thanks. Good morning.
Speaker Change: The positive flows just potentially also change your view around how you might think about returning capital. I know the slow start is kind of how you started last year as well, but just in terms of thinking like how would you think about any adjustments to that expected pacing that you'd be reiterated. Thanks.
Yeah, hi Ken, it's Mark. I can take that.
Speaker Change: You know, I think right now, we would say that we're on track with our plan that we communicated back in January , which was to return capital at a progressive...
Speaker Change: Rate throughout the year. So consistent with that during the first quarter as I mentioned you know we we started with the hundred million of capital buyback of capital and share buybacks. So we anticipate a nice step up in Q2 as I mentioned and right now we're expecting to continue with our plan which overall again as I mentioned is to return about 80% of earnings back to shareholders so right now I would say we're on track with that. [inaudible]
Speaker Change: Kenneth's Ron, maybe let me just add to what Mark said. He noted and I noted, I mean we're...
Speaker Change: We've developed a range of scenarios as we think about the car environment so what you're hearing from us reflects that range of outcomes which is...
Speaker Change: Probably wider, the potential range is wider than it would be in a normal year, but given all that, we still feel confident what we're saying about Capitol return.
Okay, got it, and second question, just done.
Some of the big picture environment around the world.
New Contracts and just ...
Speaker Change: How people are reacting to the environment, especially on the servicing side. You know, you've done a great job putting on more new wins and but any changes to just how you sense the world that's feeling in terms of signing up new business and does anything then change also in terms of your ability to onboard like you were talking about in January . Thank you.
Speaker Change: So Kenneth Ron, I would say that certainly our clients are very aware of the operating environment, but we're not seeing any...
Speaker Change: Meaningful Change in Behavior, in terms of timing, in terms of doing the work that they need to do for this onboarding, or for that matter even pacing. So obviously that could change if...
Speaker Change: We see some kind of significant deterioration in the market, but we're not seeing that yet, which again goes back to why we've affirmed what we said earlier in the year about what we expect in terms of new business wins.
Okay, Betsy, here, thank you [inaudible]
Speaker Change: Our next question will come from the line of Jim Mitchell with Seaport Global. Your line is open, please go ahead.
Jim Mitchell: Hey, good morning. Maybe just Mark, you talked in, Ron, you've talked about recalculating expenses quite a bit in a lot of different scenarios. So how much flex do you have in the expense line if revenues are worse? Just be helpful to think about the range of outcomes there.
Um...
Mark Keating: What I would say, Jim, is that, remember, we've been on this.
Mark Keating: Journey for a while, and each year we build upon what we've done in the prior year, and sometimes it's multi-year kinds of transformation efforts that we have underway.
Mark Keating: So we have, I would say, some flexibility in terms of pulling forward.
Mark Keating: some kind of actions, reprioritizing investments, putting in more towards productivity-based technology and investment. So there's some flexibility there. Secondly, we've got a...
Mark Keating: Fairly significant investment book here, and we want to be very careful that we're not doing anything to harm or impair what we're doing in the long term, but we see some flexibility.
Mark Keating: and still be able to deliver what we need to do strategically for the long term. So the answer is just given the pace that we've been on in the multi-year nature of some of the transformation efforts that we have underway, we feel we have some flexibility here.
Speaker Change: Okay, great, that's helpful. And just maybe trying to think around the current environment in April , it's been very volatile, I think you guys...
Speaker Change: Talked a little bit about being there for your clients. Are you seeing elevated deposit flows and sort of, you know, there's some good volatility for you guys and effects and sec lending and deposit. So how are you seeing that play out so far in April ?
Speaker Change: We've seen more volatility in our trading organizations able to capture that volatility. Now, again, it's early, first couple of weeks of April , but we are seeing elevated deposit at levels and in additional trading coming from the volatility.
Okay, great, thanks [inaudible]
Speaker Change: Our next question will come from the line of Alex Blostean with Goldman Sachs. Your line is open, please go ahead.
Alex Blostein: Thank you. Thank you, good morning, guys. I was hoping to just dig in a little more into the current environment specifically when you look at the deposit trends. I was hoping you can bifurcate between interest bearing and not interest deposit trends. Obviously, the interest bearing side probably doesn't produce a whole lot of an eye still, but the not interest bearing piece could be quite meaningful. Thank you very much.
Speaker Change: If we look at where you are today, not interested in deposits, I think pretty low still near kind of record lows as a percentage of total. So what is that stand today and maybe remind us which client segments are the larger drivers of not interested in deposits so we can evaluate how the environment shakes out and what that could mean for those balances.
Speaker Change: Yeah, it's Mark, I can take that as well. Yeah, I guess I'd start by saying it's generally non-interest bearing deposits, so generally we see it through some of our asset manager clients, but also in asset owner space, so there's some variability between segments.
Speaker Change: I'd say, you know, just to get to the, you know, non-interest bearing levels right now, you know, we did see an IB deposits decline, roughly a billion, that's about five percent in Q1. Now again, that was expected as we talked about in January , it was about, you know, we had had a seasonally high.
Speaker Change: Fourth Quarter. So right now we're still expecting that there's some room long term.
Speaker Change: to 240 billion range when we gave our original guide. I think the high end of that range.
Speaker Change: Right now is probably a better estimate. So, you know, we still expect it to be some, you know, decrease in non-interest bearing, but right now we're seeing it hold up pretty well. Again, it's early in the quarter, and we'll see how things play out from here.
Speaker Change: I gotcha, and then one for maybe both of you guys, but definitely encouraging to see the fee guide staying intact, despite what obviously has been a much tougher environment, just mechanically flowing through the market dynamics would put some pressure, I guess, on the outlook. So just curious what's holding up better in the business to fill the gap, I guess, from the market impact on fees in 2025 to keep your guidance relatively intact.
So that's one, and we see a clear path to...
to Meaningful Installations throughout the year. Secondly, the...
You know, we talked about a $350 to $400M. It's a $2M million.
Speaker Change: and a new business goal. We see that. We see the pipeline developing and it's a combination of ...
Speaker Change: We've invested very heavily in our various platforms and so that investment is paying off plus, as you know, back a couple of years ago.
Speaker Change: We started focusing on overall relationship management and sales force effectiveness and those investments are paying off. So it's not that we're immune to the market but that given those kinds of things we feel pretty confident and our ability to deliver within that range.
I feel pretty confident.
Speaker Change: I mean, maybe I could just add, I'm sorry, go ahead.
Speaker Change: and then I'll close out the webinar. We'll see you in a couple weeks. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.
Ron Ohanley: Yeah, I guess a lot has changed in terms of how we're looking at the macro environment, but I guess I think what Ron is getting at is what has not changed.
Ron Ohanley: is the core business momentum that we brought from 2024 into 2025, and I would...
Ron Ohanley: You know, I mentioned the $370 million of servicing fee sales over the last four quarters.
and also I would note that the 356 million of...
Ron Ohanley: to be installed. Revenue is the highest number that we have reported since we've started that disclosure. So there's a lot of revenue to be coming on to the P&L. And then obviously you can see the growth that we've had in our management fees.
Ron Ohanley: A lot of good core momentum that hasn't changed even though markets have been in the overall macro environment has been quite uncertain.
Speaker Change: Great, perfect. And it's just the clarification for me, it's just on this front. You guys are assuming market levels are flat from kind of current levels for the rest of the year underwriting this guide?
Thank you.
Speaker Change: Yeah, if we do that, we wouldn't be on this call with you. Nobody knows, but I got it. Yeah, I mean there's our scenarios obviously include a range of market levels Alex is you'd expect. I guess what we're trying to say is that
Speaker Change: Given where we are, given the momentum we have, and given the fact that we have a quarter and now half of a month under our belts in the second quarter, the guy that we've given, we feel pretty good about.
Speaker Change: Great. All right. That was great to see. Thank you, guys.
Speaker Change: Our next question will come from the line of Mike Mayo with Wells Fargo Securities. Your line is open, please go ahead.
Speaker Change: Mike, your line is open. Feel free to ask your question.
Speaker Change: All right, we'll go to the next one and we will try Mike again. Our next question will come from Glenn Schorr with Evercore. Glenn, your line is open. Please go ahead.
Thanks very much.
Glenn Shore: Just tacking on to your good sales momentum and revenue momentum comments on keeping the growth, which is great. I'm curious, you made that shift towards back office as the fest or time to implement on revenue.
Glenn Shore: You also just commented about managing and focusing on the overall relationship. So I'm curious, does the 350 to 400 billion, does that leave you in a position to take share? We can't see the net, we only see the gross.
Glenn Shore: And then most importantly, what do you do once you get the back office in the door to expand the relationship? What are some of those likely areas and what kind of successes have you had with that given the focus? Thanks.
Glenn, just to clarify, so what we've been saying now for...
Glenn Shore: this year and certainly most not all of last year as we develop our pipeline but also as we
Glenn Shore: as we work with clients, even in an alpha kinds of situation where we've got, it could be front middle and back, it could be middle and back, it could be data and everything. What we work very hard to do is front load the back office installation.
Glenn Shore: It requires less engineering. It's pretty easy to move it over. And that continues to be the approach that we take as much as possible. We try and front load that.
Um...
Glenn Shore: I mean, typically through the sales process, that would include, if it's a global portfolio, it would include some kind of FX relationship, it typically, not always, but typically would include a securities finance relationship.
Glenn Shore: and it also typically would include some of these services like Fund Accounting, Performance Measurement, and all that.
Glenn Shore: So that's kind of a routine part of the process and just going back to big picture and Mark will correct me if I get this wrong, but we've been trending that about half of our new business has been associated with Alpha.
Glenn Shore: and so, and we foresee that trend continuing. So in terms of your question about back office share, it's awfully hard to calculate that, but we believe that we continue to gain share.
Speaker Change: OK, I appreciate all that. One quick follow-up on the deposits that are coming in the door and we're at the high end. Given this uncertainty, should we assume your reinvestment stays super short? What are you thinking about on the reinvestment side, Mark? [inaudible]
Mark Keating: Yeah, I think that's a good assumption that we'll be staying short in the environment that we're in.
So that impacts the name for the time being.
Mark Keating: It's possible. Yeah, it's possible you'll see the nymph float down a little bit, you know, in the current environment.
Okay, cool. Thank you for all that.
Speaker Change: For our next question, we'll return to the line of Mike Mayo. Mike, please go ahead.
Hi, sorry about that. In terms of...
Speaker Change: First, the CFO search. I guess you can stay the course right now if you want to. When will we know to the next CFO is?
Speaker Change: As I mentioned, Mike, it's advancing well and we anticipate to be able to come to you in the near term.
Speaker Change: Okay, and then just more generally, I know this is the big quick picture question and you're affirming a few guys, so, and you mentioned April , Deposits, and...
Speaker Change: some of the trading is still going well, so I guess that's all good, but you know there's this scenario here that's reflected in the stock market and
Speaker Change: Chairman Powell's speech yesterday that it might not end so well, and you're in so many countries who's been so much money.
Hill, how do you?
put your arms around.
Speaker Change: I wouldn't even call it a tail risk, it could be kind of almost a base case, the stock market as a whole. How can State Street survive an environment where there's a global trade war? Thank you.
Mike, there is a, there's certainly heightened uncertainty.
Speaker Change: As I mentioned at the beginning of my remarks, not just about trade, but about other things like deficits, taxes, geopolitics, et cetera, deregulation, so we are very vigilant at this point and that's why
Speaker Change: One, we're doing what we're doing in terms of developing this range of scenarios and then building and it built out plans to accommodate the range and as you'd expect.
Speaker Change: That would include a fair amount and accelerated expense management, which we think that we're capable of doing. We also have the investment.
Speaker Change: Book that we, and I'm talking now about the investment in the business.
We wanna be careful on that. Um.
Speaker Change: Managed Down Unit Costs and BAU Expenses. We've been doing that now every year. And we believe we've gotten good enough at it, that we've got a pretty big, ambitious...
It's a set of work for 2025, but if we...
Speaker Change: V2, we're looking at ways where we can accelerate and pull forward some things that we had planned to do in the 2026 time frame. So it's in kind of...
Speaker Change: and a catastrophic market situation. Could we offset all that, of course not, but do we feel that we're very well positioned to manage through a broad range of scenarios, yes we are.
Speaker Change: One short follow, just remember a couple of decades ago, I thought it was like 80% of your expenses for fixed costs, right? And I think that's changed. We've been reduced over the years. Do you have a sense for how much of your expenses are variable over the one to two year period? I know, and the long term all expenses are variable, right? But in the next one to two year, is it like...
I know, what's the percentage? [inaudible]
Mark Keating: Mike Hyatt's Mark. It's a good question. I wouldn't want to necessarily put a pin on it, a number on it. I mean, we're...
Speaker Change: You know, if you think about how our organization is structured with, you know, people, you know, headcount, occupancy, I mean, I think, you know, your number...
Speaker Change: You know, somewhere around, you know, two-thirds, something like that, but I wouldn't want to put a specific number on it. I guess what I would say is we've gotten...
Speaker Change: Better at being able, as Ron said, to flex our expense base with the transformation we've been doing, driving productivity, automation, so we've been driving more flexibility on our cost base so that we can flex it with different revenue scenarios.
Speaker Change: and Mike, there's also technology here in the pace at which we're continuing to introduce new technology here.
Speaker Change: We've talked a lot about global delivery simplification, which has delivered a lot over the past couple of years, but they're just getting started.
Speaker Change: In terms of some of the operating model changes and introduction of even more advanced technology. So, it's a substitution of technology for
Speaker Change: for labor in some cases, but again, it's not like we're approaching this problem as a clean sheet of paper for the first time. I mean, we're well underway and we do see opportunities to.
Speaker Change: Accelerate that. Now again you want to be careful because you want to do this recognizing that you the most important thing for us to do is deliver service quality. When our service quality is high, we have sales results like we're seeing now. So we don't want to put that at risk and this is why we time these kinds of...
Re-engineering changes out, but there is some flux in that.
All right, thank you [inaudible]
Speaker Change: Our next question will come from the line of Betsy Graseck with Morgan Stanley . Your line is now open, please go ahead.
Hi, good morning.
Hi, Betsy.
Speaker Change: Hi, I did just want to understand a little bit about the NII Outlook and what the scenario is that it's based on I know you mentioned flat year on year.
Blutter minus, Low Single, Digit either side.
Speaker Change: I'm assuming you're using the forward curve in the various countries but if there's any difference to that let me know and then I also wanted to understand what is a what is the scenario that would drive. Bye bye.
Speaker Change: Plus, slow single digits here and here, and what are the scenarios that drive below? You know, less than
Speaker Change: Yeah, hey, Betsy, it's Mark. I can take that. So thanks for the question. I guess, you know, first I, you know, I'm thinking of our NII guide. I just...
Maybe as background reminds folks that we're coming off [inaudible]
Speaker Change: Two consecutive years of record NII growth, including last year, you know, in 2024 we grew NII by 6%.
Year over year. So it's a pretty high stepping off point.
Speaker Change: and our outlook is to be basically flat to a record year plus or minus a low single digit. So that's kind of the frame. You know, maybe I'll go back to how I framed it in January and give you a sense of the roughly four buckets.
Speaker Change: around how we think about our NII guide, and there are two potential tailwinds around loan growth and investment portfolio rollovers.
and then there's two potential headwinds. [inaudible]
Speaker Change: You know, the rate environment and deposit mix and, you know, use potential because some of those can become tailwinds as well, depending on, you know, macroeconomic kind of development so...
Speaker Change: You know, first on the positive level, so let's take the headwinds, and I mentioned this a little bit around non-interest bearing, but...
Speaker Change: Deposits were seasonally high, coming out of Q4. They did moderate as expected in January , so we did see that kind of usual seasonally to it, but they did bounce again late in the quarter and you're seeing that. I mentioned that 240 is probably better range. [inaudible]
Speaker Change: If you think about our client deposits, it's still early, but I mentioned that we've seen pretty strong deposit levels so far while we did see non-interest bearing decline in the quarter. At a current rate environment, a billion of non-interest bearing is worth about 10 million.
A quarter to us, so if-
You know, if the non-interest bearing...
Speaker Change: Declined, you know, flattened out, or we see a favorable deposit mix that would certainly be supportive of NII. You know, on the rates side, you're correct, we're using, you know, market forwards and those are certainly moving around and including, I'm sure, from the news yesterday. So we're basing us right now, we're basing it on our market forwards and if inflation accelerates.
and Central Bank start to pause.
Speaker Change: You know, that would be incrementally positive for NII, you know, particularly as I've talked about in non-US.
We're pretty neutral around U.S. rates.
Speaker Change: Changes, and maybe I'll just reiterate again that for both ECB and Bank of England, that's worth roughly five to ten million.
Speaker Change: Per Cut, Per Quarter, you know, in our non-US business. So, you know, and finally, if long rates hold up, you know, and we've seen those move around, if those stay elevated, that would also be supportive of NII, you know, and vice versa.
Speaker Change: And then we talk about loan growth, you know, tailwind, so we remain focused on delivering solid loan growth as we've talked about.
That's embedded in our outlook.
and then investment portfolio rollovers would be the final bucket.
Speaker Change: In terms of how we think about our guide and we've talked about roughly four billion a quarter can be lumpy but roughly four billion a quarter and you know given we've done a couple of portfolio repositionings and the pickup there is roughly a hundred
to 150 basis points.
Speaker Change: You know, hopefully that gives you a sense of the, you know, various component parts where we can see, you know, potential to get up, you know, on the plus side and also things that could move us a little bit to why we're saying, you know, plus or minus, low single digits. So hopefully that's, that's helpful. And we still think our guide is reasonable and achievable for the year and we'll see how things develop. Let's go on.
Speaker Change: Okay, Grace, higher for longer is a positive, thank you. Yep, good summary.
Speaker Change: Our next question will come from David Smith with Truist. Your line is now open, please go ahead.
Speaker Change: Hi, so you mentioned that about half of your new business over the past year I think came from Alpha.
Speaker Change: You know, is it as simple as just, you know, taking the, you know, servicing fee win number, dividing it by two, and dividing it by the seven mandate wins for alpha you had to get a sense of, you know, the
Speaker Change: Relative Impact of like an alpha client versus another client, or is there anything else that we should be thinking about in terms of the revenue rate of when's attached to alpha versus other assets?
Speaker Change: Yeah, thanks, David. I mean, I don't think it's that straightforward. I mean, if you think about, you know, alpha wins.
Speaker Change: You know, in terms of basis points, in terms of asset sizes, in terms of complexity. I don't think you can just take the, you know, the number of mandates and divide it, you know, and use that, you know.
Speaker Change: Based off of the, because again, we're talking about a backlog or we're talking about overall sales servicing sales number which can be annualized as well. I don't think it's as simple as the math you're talking about, but maybe you could unpack it a little bit more for me.
Speaker Change: Um, no, just trying to get a sense of like, you know, see, if your alpha penetration accelerates, what that could mean for the, for the revenue rate and asset servicing.
Speaker Change: Yeah, man, I think that overall, I mean, again, it's-
Speaker Change: You know, adding more mandates and, you know, definitely helps. And but what I guess what Ron was getting at earlier is what's really important to us is that we've got a broad-based...
Speaker Change: Sales, and that's what's really has turned the corner on achieving the $3.50 to $400 million, so it's not just alpha mandates that we're leading with, it's about core fund accounting custody back office.
Speaker Change: Yeah, and David, what I would add is to Mark's points are that as we said before, alpha is accelerating ourselves, that is actually what's happened, and as we continue to build out the platform.
Speaker Change: and we've now got alpha for privates. We also have the alpha data platform which is AVE.
A data element that's additive to the original alpha platform that we launched back.
of 2018-2019, so there's no question that this is accelerating sales.
Mark Keating: I think what Mark is pointing out though is that this is why we give you both our new business wins and our new business revenue.
Speaker Change: Right, because there's not a simple formula that every alpha comes in like this. I mean, some of it depends on, for example,
enabling us to accelerate ourselves, absolutely.
Thank you.
Speaker Change: Our next question will come from the line of Vivek Shinesha with JP Morgan. Your line is open, please go ahead.
Thanks.
Ron, a question for you, maybe, or Mark.
Speaker Change: When I look at your servicing fee revenues, what's the mix?
Speaker Change: In terms of US versus non-US, and if you look at your servicing new business wins over the past year, not concerned about quarter to quarter, what percentage came from non-US versus US?
Speaker Change: and a similar kind of a breakdown for asset management.
Speaker Change: So I can hit Mark, I'll be back, I can start. I guess the first piece of framing I give you is for our existing business. Roughly 45% or so of our servicing business is non-US.
in terms of, and again that spread across, [inaudible]
Europe , APAC, Canada, Latin America, so that would be non-US.
Speaker Change: We're very deep in these markets, right? We have in 32 countries we are not just a plate on a name plate on a building but we have significant operations, client service.
We're very much entrenched in those markets. And it's so, it's...
Speaker Change: About 45% of the existing business. In terms of the splits between regions and sales, I don't have those numbers in front of me in terms of historically. I would say that, and if you look back at the different announcements that we've made, it's pretty broad-based.
Speaker Change: We've recently announced some deals in Europe and APAC, so I would say in general it's been a very broad-based type of progress that we're making on this sales target of $3.50 to $400.
Speaker Change: But the fact that what I would add is, over time, the percentage outside the US has been slightly higher, I believe, over time. But again, lumpy.
Speaker Change: Yeah, I agree with that. Right. Right. That's my, that would have been my guess. And is it similar in SSG8?
Speaker Change: In GA, it's roughly two-thirds U.S. and about a third non-U.S. So it's a little more balanced right now in our servicing.
Speaker Change: and I guess given what's going on in geopolitics right now, do you see there could be some shift in this now if there's a desire to go more local for some of your clients?
Speaker Change: It may be too early because it's all just happened and yours are very long contracts with very long timelines, but you know do you see that starting to you know potentially shifting and what does that mean then for you? [inaudible]
Speaker Change: Yeah, Vivek, it's something that we worry about in the past when the world has been upset with the US.
Speaker Change: that actually hasn't played out, but there is the potential that it could this time.
Now...
Speaker Change: which is why Mark's point about our geographic footprint is actually very important.
Speaker Change: because in most of these markets we affect our local and in many of the markets we're not only local but we're the number one or number two player in the market so the fact that we have people in place
Speaker Change: They are local. We're very much part of the local ecosystem. We think helps us, but it's something we're very focused on and it's driving a lot of how I'm spending my time and how my executive committee colleagues are spending their time. I mean, we already spend a lot of time.
Speaker Change: on the road with our clients, and we're spending even more so it's something that weighs on us but we think relative to others were quite well positioned in terms of our footprint and our deployment of people.
Thanks, Ron.
Speaker Change: Our final question will come from the line of Gerard Cassidy with RBC. Your line is up and please go ahead.
Thank you. Good morning, guys.
Gerard Cassidy: Can you guys, you talked on the call about growing your obviously net interest income and you talked about the robust loan growth?
No Shady with it.
Yes, sure. I can start, Gerard, Mark.
Gerard Cassidy: So yeah, I guess overall, in terms of overall loan growth, and I can talk a little bit about the non-depository financial institution question. So yeah, I mean overall we've been very pleased with the growth overall of the loan business who continue to see opportunities across
Gerard Cassidy: Cap Call, subscription lines, BDC lending, middle market COO, so in terms of growth.
Gerard Cassidy: You know, while, you know, Q1 was slightly below, you know, kind of our recent run rates, we see a lot of opportunities to continue to grow that over the course of...
of 2025.
You know, a lot with our private markets clients, as we've mentioned, and, you know, I think, you've asked about the, you know, the...
Gerard Cassidy: and the FIs. So a large part of our client base around private markets in the area that we see tremendous growth opportunities.
Gerard Cassidy: Lending in that area is very connected to our servicing business. So again, you know, we see that as a real opportunity to continue to drive. I mean, as a sidebar, our private markets business was up about 15%.
Gerard Cassidy: this quarter, year over year. So, you know, that growth that we see in the servicing side, it's really good driver as well for how we continue to expand our loan business.
Speaker Change: What I would just add is, I think Mark's points reflect the fact that, as you know, our
Speaker Change: We are not a big lender period, and when we do deploy our balance sheet, we try and deploy it in a way that supports our fee-based business.
Speaker Change: Very good, and I assume most of this long growth is direct and it's not participation with other firms, is that fair?
That's correct.
Speaker Change: Okay, and then Ron, just a bigger picture question for you. Obviously there's a lot of potential change coming on the regulatory front with different capitol ratios, possibly the Basel-Free Endgame changes with the new nominee for the vice chair of safety and soundness at the Fed. He's even talked now of excluding government securities possibly from the supplementary leverage ratios. When you guys look at it, and if these changes take place,
Speaker Change: Can you share with us how it would impact you folks? And number two, how it might impact your actual business in terms of more liquidity and let's say the Treasury's market, if that's what happens with the exclusion of the US Treasury's and the SLR. .
Speaker Change: Yeah, so Gerard, you're the premise of your question we would agree with, which we think this is an environment where there's actually going to be...
Speaker Change: Real work and thought applied to the regulatory environment and how we think about it, particularly, you know, we're...
and Jerry Conlin from CIFH Services.
Speaker Change: 17 years on from the global financial crisis and how does this get calibrated properly and I think that you'll see progress in the areas of capital. So, I'll let you know, I'll let you know.
Speaker Change: Administration has already talked about it, that this was started, by the way.
Speaker Change: under the prior administration, but I think that it's gotten a lot more focused. You've heard Treasury Secretary doesn't talk about...
Speaker Change: This a lot and it seems that he's going to play a central almost coordinating role here across the bank regulators. So we would expect to see
Speaker Change: Fund Movement on Capital. Like you know, there's I think a sense that some of the liquidity rules need to be uh...
Need to be rethought.
Now, for us, [inaudible]
Speaker Change: We think that's good for the system. You'll recall there was a legislative amendment made back several years ago.
on the supplementary leverage ratio that basically... [inaudible]
Speaker Change: in terms of providing some of that relief. So, the incremental relief that the trust banks would get under a change to SLR is limited, but it would be very good for the marketplace, particularly as you know, to run the Treasury market.
Speaker Change: and we also would urge, and we think, tier one leverage will actually get some attention on this, too, which will help all that.
Speaker Change: The secondary though is really around, and this will probably take longer, but really thinking about the interaction of the regulatory environment and the supervision environment.
Speaker Change: and I think there's going to be a look at that and we'll see where that comes out, but I think it's a reasonable scenario to say that if there were situation where Capitol was...
Speaker Change: moderated slightly, liquidity was tuned and regulation became a situation where not more was being added, that would I think turn quite favorable and be quite favorable for the industry overall.
Some great, appreciate the colors. Thank you.
Speaker Change: There are no further questions. I will turn the call over to management for closing remarks.
The host has placed his conference on hold.