Release Date: October 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- State Street Corp (STT, Financial) achieved record quarterly EPS of $2.26, reflecting a 17% year-over-year growth, excluding notable items.
- The company reported strong fee and total revenue growth, with servicing fees increasing by 3% year-over-year.
- State Street Corp (STT) generated $84 million in new servicing fee revenue wins, the highest quarter this year.
- The company expanded its market share in key product areas and geographies, with record quarterly net flows in cash and strong ETF flows.
- State Street Corp (STT) returned over $670 million of capital to shareholders in the third quarter, including $450 million in share repurchases.
Negative Points
- The operating environment was dynamic, with fears of a US recession and geopolitical tensions affecting market sentiment.
- Expenses increased by 6% year-over-year in the third quarter, driven by higher performance-based compensation and revenue-related costs.
- The company faced pricing headwinds and lower client activity, including an asset mix shift into cash, impacting servicing fee growth.
- There was a notable client transition that posed a headwind of approximately 2 percentage points to year-on-year servicing fee growth.
- Eric Aboaf, the CFO, announced his departure, which may lead to transitional challenges as the company searches for his replacement.
Q & A Highlights
Q: Can you provide more details on the management actions taken regarding the investment portfolio restructuring and its impact on NII?
A: Eric Aboaf, CFO, explained that the $80 million loss booked in the quarter will reverse within the next five quarters, benefiting the company. The restructuring involved selling lower coupon securities and buying back others, mainly in the treasury and international sovereign space. This action, involving $4-5 billion of securities, is part of ongoing management actions to optimize NII.
Q: With Eric Aboaf's departure, how durable are the recent profitability improvements, and what are the aspirations for pretax margins?
A: Ronald O'Hanley, CEO, stated that the improvements are durable and part of a clear, ongoing strategy. The firm aims for a 4-5% revenue growth rate and a 30% pretax margin target. These goals are embedded in the company's culture and long-term incentives, ensuring continuity despite the CFO transition.
Q: How does the recent securities repositioning affect the sustainability of the current NII run rate?
A: Eric Aboaf noted that while it's early to provide specifics for 2025, the company expects some stabilization and growth in NII over the next few quarters. The balance sheet is positioned to handle modest deposit rotation and benefit from lending and repo activities.
Q: Can you discuss the strategy behind State Street's expansion into Mexico and other emerging markets?
A: Ronald O'Hanley explained that the expansion is part of a moderate-paced strategy to build capabilities in developing markets as they grow. The focus is on servicing and markets areas, leveraging advanced technology to meet the needs of emerging investment markets.
Q: What is State Street's current appetite for acquisitions, given the recent organic growth and capital usage?
A: Ronald O'Hanley emphasized that M&A is not a strategy but a means to accelerate or efficiently implement the existing strategy. While the company remains open to opportunities, the focus is on organic growth and building on past acquisitions like Charles River, which have proven strategically valuable.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
