The paragraph is an introduction to State Street Corporation's first quarter 2025 earnings conference call. The call is hosted by Elizabeth Lynn, Head of Investor Relations, and includes presentations by CEO Ron O'Hanley and interim CFO Mark Keating. The earnings presentation can be downloaded from the Investor Relations section of State Street's website. The call features a Q&A session after the formal presentations and emphasizes that it is being broadcast live on the company's website. It also contains a disclaimer about relying on non-GAAP measures and forward-looking statements, with a reminder to refer to SEC filings for risk factors.

The paragraph discusses the current uncertainty investors face due to various factors like US trade policy, taxes, geopolitics, and more, leading to market volatility. Despite this, State Street emphasizes its commitment to creating positive outcomes for investors, leveraging its financial strength and capabilities. The company highlights its historical resilience and adaptability during uncertain times, which positions it well to support clients. State Street expresses confidence in strengthening its client relationships and notes solid financial performance in the first quarter, with increases in fee and total revenue.

In the third paragraph, the article discusses State Street's financial performance and strategic progress in the first quarter. The company achieved a 30% pre-tax margin and a strong 21% year-over-year EPS growth, excluding notable items. State Street secured $182 billion in new asset servicing wins and $55 million in servicing fee revenue, aligning with their strategic focus on back-office mandates. Despite an uncertain environment, they aim for $350 to $400 million in new servicing fee revenue wins annually. Their investment management franchise has grown, with a 10% increase in management fees, although net outflows occurred due to an expected single client event. The strategic emphasis on low-cost ETFs was highlighted by significant industry flows toward this segment.

In Q1, GA's low-cost ETF suite significantly increased its market share, with assets under management reaching a record $256 billion. The company expanded in the US low-cost fixed income and EMEA markets, and their commodities ETFs, particularly gold, gained from market volatility. GA launched new ETFs via partnerships with Apollo Global Management and Bridgewater Associates, and expanded collaborations with Saudi Arabia's Public Investment Fund by introducing a fixed income UCITS ETF in Europe. A strategic investment with Ethic was also announced to enhance wealth advisors' access to tailored client portfolios using GA's SPDR ETFs. Additionally, GA's markets franchise, known for trading and research solutions, is poised to support clients amid market volatility while diversifying revenue.

In the first quarter, FX trading and securities finance revenues grew significantly due to higher client volumes and loan assets. The company maintains a robust balance sheet, which has proven stable during market stress and allowed for $320 million in shareholder returns. Despite a 3% rise in expenses, the company achieved strong operating leverage through disciplined expense management. They are focused on cost control and strategic investments while pursuing productivity savings. Additionally, the search for a permanent CFO is nearing completion, with an announcement expected soon.

In the prepared remarks, the speaker highlighted a strong start to the year in Q1, but acknowledged that the operating environment has become uncertain since then. Despite these challenges, there is confidence in their strategy and ability to serve clients well. The focus remains on agility to deliver solid financial returns. Mark then reviewed the first quarter financial results, noting a 21% year-over-year EPS growth, strong fee revenue growth of 6%, stable net interest income, and controlled expense growth. These factors led to significant operating leverage and a nearly two percentage point increase in pre-tax margin. Additionally, Assets Under Custody and Administration (AUCA) and Assets Under Management (AUM) increased by 6% and 9% respectively due to higher market levels and positive flows.

The paragraph discusses key market indicators impacting the business, noting that despite rising economic uncertainty, global equity market levels remained flat and FX volatility slightly declined. Servicing fees rose by 4% year-over-year, driven by higher market levels, new business, and improved client activity, but were slightly offset by pricing challenges and a client transition. The company reported strong business momentum, with significant wins in servicing fees and prioritization of back-office products for faster revenue. Looking ahead, the company expects good sales momentum in the second quarter and aims for $350 million to $400 million in new servicing fee revenue for the year. Management fees also increased by 10% due to higher market levels and prior net inflows.

In the quarter, State Street experienced net outflows of $13 billion due to a planned client transition in their ETF business, particularly affecting institutional-oriented SPY products. Despite this, global advisors showed strong momentum, launching two new ETFs with Apollo Global Management and Bridgewater Associates, resulting in inflows and market share gains in key segments like US low-cost offerings. Their global ETFs exceeded $100 billion in AUM. The investment management business performed well, with a pre-tax margin of 28% including seasonal compensation expenses. FX trading revenue rose 9% due to increased client volumes amid geopolitical events, while securities finance revenues grew 19% from increased client engagement. Software and processing fees increased 9%, driven by front office software and data revenue, particularly from Charles River, marking front office software as a critical growth area for the company.

In the first quarter, annual recurring revenue increased by 15% to $373 million, supported by SaaS client conversions and implementations. Net interest income (NII) remained flat at $714 million compared to the previous year, with growth in investment security yields and loans offset by changes in deposit mix and rates. Sequentially, NII fell 5% due to similar factors. Average total deposits increased by 11% year over year and 3% sequentially, marking continued growth over six quarters. The company remains committed to supporting clients amid economic uncertainties and maintaining a strong, liquid balance sheet. Despite expense growth of 3% year over year, the company is investing in technology and infrastructure while achieving savings of $90 million for the quarter, targeting $500 million for the year. Their focus on managing expenses effectively is a fundamental aspect of their culture.

The paragraph outlines the company's financial performance and strategic outlook. It highlights the company's productivity savings and self-funded investments despite the uncertain operating environment, emphasizing a focus on expense management. The company's capital and liquidity levels are strong, with a CET1 ratio of 11% and a bank LCR of 139%. The company returned $320 million to shareholders in the quarter through share repurchases and dividends, with plans to increase repurchase activity in the future. Looking to 2025, the company expects to return about 80% of earnings to shareholders, dependent on market conditions. The first-quarter results show strong franchise performance, with strategic priorities met and increased pre-tax margin. The paragraph concludes by referencing the company's full-year outlook for 2025, based on previous guidance and assumptions.

The paragraph discusses the company's financial outlook, noting that despite a more uncertain operating environment, the outlook remains unchanged. They expect full-year fee revenue growth of 3% to 5% and anticipate Net Interest Income (NII) to be roughly flat for the year, subject to global monetary policy and deposit factors. Expenses are expected to increase by 2% to 3%. The company has developed plans for different scenarios and is prepared to manage expenses as needed. They expect to achieve positive fee and total operating leverage as long as NII doesn't become a significant headwind. The call is then opened for questions, and Ken Usdin from Autonomous asks about capital return strategies amid uncertainty and deposit flows, referencing past practices.

In this discussion, Mark Keating and Ron O'Hanley address Ken Usdin's questions about the company's capital return plan and the business environment. They affirm that the company is on track with its plan to return 80% of earnings to shareholders, despite a wider range of scenarios due to the current economic environment. O'Hanley also notes that while clients are aware of economic conditions, there's no significant change in their behavior regarding new contracts or the onboarding process.

In the paragraph, Jim Mitchell is asking about the company's ability to manage expenses if revenues decline, and Ron O'Hanley explains that the company has been on a multiyear transformation journey, allowing them flexibility in adjusting expenses. They can pull forward actions, reprioritize investments, and focus on productivity-based technology investments without harming long-term goals. Jim also inquires about the current volatile environment and whether the company is experiencing increased deposit flows and advantageous conditions in foreign exchange, securities lending, and deposits.

In April, Mark Keating notes that they're observing increased deposit levels and trading activity due to market volatility, although it's early in the month. In a follow-up conversation, Alex Blostein from Goldman Sachs inquires about deposit trends, particularly the distinction between interest-bearing and non-interest-bearing deposits. Keating explains that non-interest-bearing deposits, which have declined by about a billion dollars or 5% in Q1, are primarily influenced by asset manager and asset owner clients, though there is some variability between segments.

The paragraph discusses the financial outlook and business strategy of a company. It indicates that despite a challenging environment, the company's fee guidance remains intact. This is due to several factors, including higher-than-expected deposit levels and successful management strategies. The company continues to focus on installing new business, aiming for a $350 to $400 million new business goal, supported by a strong pipeline and investments in platforms and relationship management. These efforts, including Salesforce enhancements, are helping to offset market pressures and maintain the company's financial targets.

In the paragraph, the speakers discuss their confidence in delivering within their fee guide despite uncertainties in the market. Mark Keating notes that while the macro environment has changed, the core business momentum from 2024 into 2025 remains strong, highlighted by significant servicing fee sales and high to-be-installed revenue. Alex Blostein seeks clarification on market assumptions, and Ron O'Hanley responds that while they foresee a range of scenarios for market levels, predicting specific future conditions is uncertain. Overall, they emphasize their robust business position amidst market fluctuations.

The paragraph is part of a discussion about a company's strategic approach to maintaining growth and expanding relationships with clients. The company has observed strong sales and revenue momentum and has shifted focus towards back-office services, which are quicker to implement and allow for an easier expansion of client relationships. By front-loading back-office installations—requiring less engineering and being relatively easy to transition—they aim to take market share and enhance their client engagement by initially establishing back-office services and potentially expanding to other areas like the front and middle offices or data services. This strategy is part of their approach to pipeline development and client relationship management.

The paragraph provides an update on financial and business activities, including the company's back-office relationships and growth in Alpha-related new business. Mark Keating indicates a strategy of staying short on reinvestment due to current uncertainty, which might slightly decrease the Net Interest Margin (NIM). The CFO search is reportedly progressing well, with an announcement expected soon. Additionally, the company reaffirms its fee guidance and notes positive trends in April deposits and trading activities.

The paragraph discusses the potential challenges State Street may face due to global uncertainties such as trade wars, deficits, taxes, geopolitics, and deregulation, as highlighted by the stock market and Chairman Powell's speech. State Street's CEO, Ron O'Hanley, explains that the company is preparing for a range of scenarios by enhancing expense management and adjusting investment strategies. Despite the uncertainty, he remains confident in the company's ability to adapt by managing unit costs and business-as-usual expenses. O'Hanley notes that while they may not completely offset catastrophic market situations, they are well-positioned to handle various scenarios. Additionally, Mike Mayo recalls that State Street has reduced its fixed costs significantly over the years.

In the conversation, Mark Keating and Ron O'Hanley discuss the variability of expenses in their organization over the next one to two years. Mark suggests that about two-thirds of expenses are variable, but he's cautious about pinpointing an exact figure. He emphasizes the organization's improved ability to adjust expenses due to ongoing transformation efforts and product automation. Ron highlights the role of new technology and global delivery simplification in substituting technology for labor, which provides flexibility while maintaining high service quality. They are careful in implementing these changes to ensure continued service quality and successful sales outcomes.

In the paragraph, Betsy Graseck from Morgan Stanley asks about the net interest income (NII) outlook and the scenarios impacting its growth. Mark Keating responds by providing context, noting that the company has experienced two years of record NII growth, with a 6% increase in 2024. The company's guidance for the coming year is to maintain a flat NII with potential variations of low single digits. Keating outlines four key factors influencing this outlook: two potential tailwinds (loan growth and investment portfolio rollovers) and two potential headwinds (interest rate environment and deposit mix). He also mentions that these factors could become tailwinds depending on macroeconomic developments and notes that deposit levels were seasonally high at the end of Q4.

The paragraph discusses the financial outlook, focusing on client deposits and their impact on net interest income (NII). It notes a seasonal dip in deposits early in the quarter, but they rebounded later. The current rate environment affects non-interest-bearing deposits, with each billion-dollar decline translating to a $10 million quarterly impact. Favorable deposit mixes could support NII, even as market rates fluctuate. The paragraph also covers the effects of interest rate changes by the ECB and Bank of England on their non-US business, with each rate cut adding roughly $5 to $10 million quarterly. The potential influence of long-term rates on NII and the goal of solid loan growth is also highlighted, with an investment portfolio rollover target of $4 billion per quarter being part of their financial strategy.

The paragraph features a discussion during a call involving Betsy Graseck, Mark Keating, and David Smith. Mark Keating talks about portfolio repositionings, resulting in a pickup of 100 to 150 basis points, believing their guidance for the year remains reasonable. David Smith from Truist asks about the revenue impact of Alpha clients relative to other clients. He wonders if it's straightforward to calculate the impact by dividing the servicing fee by the number of mandate wins. Mark Keating responds that it's not that simple, citing the complexity and variability in asset size and basis points of Alpha wins. He suggests that while considering sales numbers and backlogs, the comparison isn't as direct as David's math implies.

In the paragraph, David Smith inquires about the impact of accelerating Alpha penetration on revenue rates and asset servicing. Mark Keating responds by noting the importance of broad-based sales, not just Alpha mandates, in achieving revenue targets of $350 to $400 million. Ron O'Hanley adds that Alpha is indeed accelerating sales, aided by the expansion of the platform with components like Alpha for privates and the Alpha data platform. He emphasizes that sales acceleration can't be attributed to a simple formula due to factors like existing infrastructure and the shift from on-premises to SaaS. After this discussion, Vivek Juneja from JPMorgan asks about the mix of US versus non-US servicing fee revenues.

In this discussion, Mark Keating and Ron O'Hanley provide insights into their company's business distribution between the US and non-US markets. Keating notes that approximately 45% of their existing servicing business is non-US, operating across Europe, APAC, Canada, and Latin America. They emphasize their significant presence and deep-rooted operations in these markets. Sales progress is described as broad-based, with recent deals in Europe and APAC contributing to their sales targets. O'Hanley adds that historically, the percentage of business outside the US has been slightly higher, though variable over time. In their asset management division (SSGA), business is split roughly two-thirds in the US and one-third non-US. Vivek Juneja inquires about potential shifts due to current geopolitical events, hinting at a possible local focus from clients.

The paragraph features a conversation primarily involving Ron O'Hanley and Vivek Juneja, discussing potential concerns about global perceptions of the US and how these could affect their business operations. Despite political uncertainties, Ron highlights the importance of their geographic footprint, noting that they are deeply integrated into local markets, where they often hold top positions. This localization strategy is critical for maintaining client relationships, which requires significant travel and time investment from the executive team. The focus then shifts to Gerard Cassidy from RBC, who asks about the company's loan growth and specifically inquiries about loans to non-depository financial institutions, highlighting that most of these loans fall into the business credit intermediary category.

In the paragraph, Mark Keating discusses the growth of their loan business, highlighting opportunities in areas such as capital call lines, subscription lines, BDC lending, and middle market CLOs. Although Q1 growth was slightly below recent rates, they anticipate continued growth, especially with private market clients, where they see substantial opportunities. The lending in private markets is closely tied to their servicing business, which has grown by 15% year-over-year this quarter, supporting the expansion of the loan business. Ron O'Hanley adds that their approach to lending focuses on supporting their fee-based business, and confirms the loan growth is primarily direct, not through joint participation with other firms.

The paragraph discusses potential changes in regulatory capital requirements, including the Basel III endgame changes and the possibility of excluding government securities from supplementary leverage ratios (SLR). Ron O'Hanley agrees with the idea that the regulatory environment will see thoughtful improvements, especially given the focus on recalibrating these regulations 17 years after the global financial crisis. There's an expectation of progress on capital rules, with significant input from Treasury Secretary Besen coordinating with bank regulators. Although changes to the SLR could offer limited relief to trust banks, they are expected to benefit the treasury market by potentially increasing liquidity.

In the paragraph, there is a discussion about the potential positive impacts on the industry if there were adjustments in capital, liquidity, and regulatory practices. The speaker suggests that tier one leverage could receive attention, which would be beneficial. Furthermore, a long-term examination of the interaction between the regulatory and supervisory environments is mentioned. The scenario proposed involves moderating capital, adjusting liquidity, and stabilizing regulation, which could create favorable conditions for the industry. Following this discussion, Gerard Cassidy expresses his gratitude, and Ron O'Hanley thanks everyone for participating in the call as the session concludes without further questions.

This summary was generated with AI and may contain some inaccuracies.