State Street Corporation · NYSE:STT
State Street — Investor Day (February 2009)
59 slides from State Street's investor day presentation, Feb 5, 2009
Slide 1: Moving Forward: Investor and Analyst Forum
Slide: 0 MOVING FORWARD Chairman and Chief Ronald E. Logue Executive Officer STATE STREET Investor and Analyst Forum 5 February 2009
Slide 2: Today's Agenda
Slide: 1 Ronald E. Logue Chairman and Chief Executive Officer Edward J. Resch Executive Vice President and Chief Financial Officer Jay L. Hooley President and Chief Operating Officer Scott F. Powers President and Chief Executive Officer State Street Global TODAY’S AGENDA
Slide 3: Reminder
Slide: 2 Reminder This presentation contains forward-looking statements as defined by United States securities laws, including statements about State Street’s goals and expectations regarding its business, financial condition, results of operations and strategies, the financial and market outlook, g
Slide 4: Agenda
Slide: 3 Agenda Moving Forward Capital Overview TCE Improvement Plan Core Business Summary
Slide 5: Capital overview
Slide: 4 Capital overview
Slide 6: Capital Overview – Foundation for 2009
Slide: 5 Moving Forward Prudent risk-taking to achieve appropriate risk-adjusted returns Capital Overview – Foundation for 2009 Core Business Capital 2009
Slide 7: Capital Overview – Based on Consistent Financial Results
Slide: 6 Moving Forward Information reflects operating-basis financial information; refer to the description and reconciliation provided in the attached appendix. 2008: Consistent performance above the high end of ranges Capital Overview – Based on Consistent Financial Results Long-term Goal 2004 20
Slide 8: Capital Overview – Position as of 12/31/08
Slide: 7 Moving Forward Capital Overview – Position as of 12/31/08 All ratios exclude $51.7B of Federal Reserve and other central bank deposits in excess of required reserves and AMLF-related investment securities. *The estimated pro forma impact to State Street Corporation’s capital ratios assumes:
Slide 9: Capital Overview – Pro Forma
Slide: 8 Moving Forward Strategic actions to enhance TCE 1The estimated pro forma impact to State Street Corporation’s TCE assumes: All four State Street-sponsored unconsolidated conduits, with combined assets of approximately $23.9 billion at December 31, 2008 are consolidated onto the balance shee
Slide 10: Edward J. Resch, Chief Financial Officer
Slide: 9 Edward J. Resch Chief Financial Officer
Slide 11: Slide: 10 TCE Improvement Plan
Slide: 10 TCE Improvement Plan
Slide 12: Agenda
Slide: 11 Moving Forward AGENDA TCE Improvement Plan Key messages Capital AAA-rated Securities in the Investment Portfolio Assumptions for 2009
Slide 13: Key Messages
Slide: 12 Moving Forward State Street is actively building its capital base and strengthening its TCE ratio1 Organic growth and tactical steps are expected to rebuild pro forma TCE2 from 1.19% at 12/31/08 to almost 5% by year-end 2009 Nevertheless, the current pro forma TCE ratio is heavily distorte
Slide 14: Capital strength and regulatory ratios
Slide: 13 Moving Forward 1Tier-1 capital/adjusted average assets. 2Tier-1 capital/risk-weighted assets. 3TCE + TARP /adjusted tangible assets. 4TCE/adjusted tangible assets (excludes deferred tax liability of about $560 million). 5The estimated pro forma impact to State Street Corporation’s TCE at 1
Slide 15: Addressing Market Concerns – Capital: Actions to Rebuild TCE
Slide: 14 Moving Forward 1TCE/adjusted tangible assets (excludes deferred tax liability of about $560 million) 2The estimated pro forma impact to State Street Corporation’s TCE assumes: All four State Street-sponsored unconsolidated conduits, with combined assets of approximately $23.9 billion at De
Slide 16: Investment Portfolio
Slide: 15 Moving Forward Conservatively structured and well seasoned At 12/31/08, 89.3% of portfolio assets were rated AAA or AA and 94.2% were rated A or better Impairment of securities resulted in a pre-tax charge of $122 million in 2008 Portfolio constructed to perform well even with stresses in
Slide 17: Impact on Pro Forma TCE of AAA Securities Only
Slide: 16 Moving Forward Pro Forma TCE ratio* Dec 31, 2008 *The estimated pro forma impact to State Street Corporation’s TCE assumes: All four State Street-sponsored unconsolidated conduits, with combined assets of approximately $23.9 billion at December 31, 2008, are consolidated onto the balance s
Slide 18: Investment Portfolio – Quality of AAA Securities
Slide: 17 Moving Forward TCE Improvement Plan – Investment Portfolio Quality of AAA Securities TCE Impact AAA Student Loans ABS $8.8B FFELP collateral is 97%–98% government guaranteed; 2%–3% remainder is covered by additional credit enhancement thus risk of loss is essentially zero +74 bps AAA Credi
Slide 19: Investment Portfolio – Quality of AAA Securities
Slide: 18 Moving Forward TCE Improvement Plan – Investment Portfolio Quality of AAA Securities TCE Impact AAA Int’l MBS $5.2B Securities can withstand ~40% home price declines Selection of conservatively underwritten collateral and senior tranche positions mitigates State Street’s risk exposure +22
Slide 20: ABCP Conduits
Slide: 19 Moving Forward Program created to address customer demand; assets sourced from the market Committed to reducing size of program $28.8 billion of assets at 12/31/07 $23.9 billion of assets at 12/31//08 As of 12/31/08 78% of the conduit assets were rated A or higher with no sub-prime or SIV
Slide 21: Key Assumptions for 2009
Slide: 20 Moving Forward Worldwide interest-rates at or moving to historic lows Conservative investment plan in volatile markets to stabilize TCE No re-investment of paying down or maturing securities (excluding treasuries) in 1H 2009, run-off deposited with Central Banks Outlook for NIR to be reduc
Slide 22: Summary: Conclusions
Slide: 21 Moving Forward Conclusions Investment portfolio management and updated 2009 assumptions re S&P 500 are expected to affect our financial goals 1Assumes market prices remain at 1/30/09 levels. TCE Improvement Plan – Summary Implementing TCE improvement plan1 Expect to raise pro forma TCE to
Slide 23: Jay L. Hooley, President and Chief Operating Officer
Slide: 22 Jay L. Hooley President and Chief Operating Officer
Slide 24: Core Business – Investment Servicing: Strong Foundation
Slide: 23 Strong Foundation Core business aligned with secular growth trends Record year in 2008 for new business wins 75% of 2008 new revenue growth came from existing customers Continued revenue synergies from IBT acquisition Strong prospect pipeline in place Key Customer Drivers Flight to quality
Slide 25: Strong momentum in core business: asset servicing wins
Slide: 24 Moving Forward Strong momentum in core business $1.7 trillion $1.4 trillion $317 billion Core Business – Investment Servicing Strong Foundation (Gp:) Won in 2008 (Gp:) Installed through Q4 (Gp:) To be installed in 2009 ASSET SERVICING WINS
Slide 26: Investment Servicing – Key Drivers: Flight to Quality and Safety
Slide: 25 Moving Forward Core Business – Investment Servicing Key Drivers Flight to Quality and Safety State Street’s reputation as trusted partner As of 1/30/09, US DDA balances were $20 billion and $13 billion in excess deposits at Central Banks Fewer competitors in trading and lending businesses
Slide 27: Investment Servicing – Growth Opportunities
Slide: 26 Moving Forward Core Business – Investment Servicing Growth Opportunities *Morgan Stanley, Research Note, November 28, 2008 Growing Market Share Expansion opportunities in Asia, Sovereign Wealth Funds, Offshore Markets Leadership in foreign exchange and transition management as competitors
Slide 28: Investment Servicing – Securities Finance
Slide: 27 Moving Forward Core Business – Investment Servicing Program remains liquid in challenging market Securities Finance State Street acts as agent, not principal, in managing program Program managed conservatively, started building liquidity in 2007 As of 12/31/08, duration of 22 days No restr
Slide 29: Investment Servicing – Summary
Slide: 28 Moving Forward Core Business – Investment Servicing Trends and our position in market support performance in 2009 Summary Core business well positioned against long-term growth trends Globalization Retirement and savings needs Recent market disruption has increased demand for core services
Slide 30: Scott F. Powers, State Street Global Advisors
Slide: 29 Scott F. Powers President and Chief Executive Officer State Street Global Advisors
Slide 31: Core Business – Investment Management: Strong Foundation
Slide: 30 Moving Forward Core Business – Investment Management Strong Foundation World’s leading quantitative institutional asset manager Achieved $198 billion in gross new asset wins in 2008 75% of new business growth came from existing customers Strong pipeline of new business Key Client Drivers F
Slide 32: World's Leading Quantitative Institutional Asset Manager
Slide: 31 Investment Center Milan Sydney Singapore Tokyo Hong Kong Paris Zurich London Montreal Boston Frankfurt Munich Atlanta Toronto Chicago Santiago San Francisco Brussels Amsterdam Bangalore Melbourne Dubai Marketing / Relationship Management Office Stamford New York Rye Brook Seoul Safety Harb
Slide 33: Growing Market Share in Active and Enhanced Strategies
Slide: 32 Moving Forward 2003 Assets (US$ millions): $1,106 Source: SSgA, as of December 31, 2008 Core Business – Investment Management Growing Market Share in Active and Enhanced Strategies 2008 Assets (US$ millions): $1,444 STRONG FOUNDATION IN PASSIVE STRATEGIES 2003 Assets (1.15$ $339 $10 $81 mi
Slide 34: Opportunities in Managing DC Plan Assets
Slide: 33 Moving Forward Opportunity to leverage relationships with DB plan and institutional asset owners to manage their DC plan assets Percentage of passive products1 in DC plans expected to grow to 15% of assets by 2011 ($869B)2 as cost transparency becomes more important 1Includes index, ETF, t
Slide 35: Growth Drivers: Cash Management
Slide: 34 Moving Forward Focus on distribution opportunities in corporate and global markets — untapped sources of assets Trend for Corporate Treasurers to outsource cash management and accounting / analytics Potential to offer full spectrum of cash management capabilities with flexibility in produc
Slide 36: Growth Drivers: ETFs
Slide: 35 Moving Forward SSgA viewed as original innovator in the ETF space Strong SPDR brand awareness Multi-channel distribution strategy with organization structure to allow for growth Asian market fragmentation creates additional opportunity Core Business – Investment Management Growth Drivers S
Slide 37: SSgA's Competitive Advantage
Slide: 36 Moving Forward Core Business – Investment Management *Source: Pensions & Investments, 12/31/07 **Source: SSgA data as of 12/3108 SSgA’S COMPETITIVE ADVANTAGE #2 Passive management* $576B** Cash management (as of 12/31/08) $468B** #6 in DC plan management* $207B** #2 in ETFs* $170B**
Slide 38: Core Business – Investment Management
Slide: 37 Moving Forward World-class quantitative skill Broad, global client-base and ability to deepen relationships Steps taken to put issues behind us Building on foundation to deliver innovative solutions Core Business – Investment Management
Slide 39: Summary
Slide: 38 Summary
Slide 40: Summary – Our 2009 Goals
Slide: 39 Moving Forward Summary – Our 2009 Goals Information reflects operating-basis financial information; refer to the description and reconciliation of 2008 and 2007 results provided in the attached appendix. Operating Revenue Growth 24.8% 8%-12% (8)%-(12)% Goal 2008 vs. 2007 Long-term Goals 20
Slide 41: Conservative balance sheet management to drive operating revenue
Slide: 40 Moving Forward Conservative balance sheet management to drive operating revenue Summary – Our 2009 Goals S & P 500 to average 900 Interest rates to remain low throughout the year Conservative investments through 1H 2009 or until market stabilizes Reduction in size of balance sheet Expect t
Slide 42: Outlook for operating earnings per share
Slide: 41 Moving Forward Outlook for operating earnings per share driven by conservative view of revenue Summary – Our 2009 Goals Information reflects operating-basis financial information; refer to the description and reconciliation of 2008 results provided in the attached appendix. Operating Reven
Slide 43: Cost Reductions to Support Slower Markets
Slide: 42 Moving Forward Summary – Our 2009 Goals Cost Reductions to Support Slower Markets $375M to $400 M (annualized, pre-tax) following a previously announced reduction-in-force of 6% scheduled to be completed by the end of Q1 Additional reduction of 2009 total compensation Technology expense is
Slide 44: Operating performance and 2009 goals
Slide: 43 Moving Forward Operating performance driven by core business and pro forma TCE improvement plan Summary – Our 2009 Goals Information reflects operating-basis financial information; refer to the description and reconciliation of 2008 results provided in the attached appendix. Operating Reve
Slide 45: Summary
Slide: 44 Moving Forward Summary We have a plan in place to improve the pro forma TCE ratio We continue to have confidence in the quality and performance of the investment portfolio and conduit securities We plan to invest conservatively until markets recover Our customers are looking to us for a br
Slide 46: Appendix
Slide: 45 State Street Appendix
Slide 47: ABCP Conduits
Moving Forward > Program created to address customer requests; assets sourced from the market > Committed to reducing size of program – $28.8 billion of assets at 12/31/07 – $23.9 billion of assets at 12/31//08 > As of 12/31/08 – 78% of the conduit assets were rated A or higher with no sub-prime or
Slide 48: Investment Portfolio
Moving Forward > Conservatively structured and well seasoned > At 12/31/08, 89.3% of portfolio assets were rated AAA or AA and 94.2% were rated A or better > Impairment of securities resulted in a pre-tax charge of $122 million in 2008 > Portfolio constructed to perform well even with stresses in ma
Slide 49: 2008 Impairments and Impairment Testing
Slide: 2 Moving Forward Decline in commercial property values: 20%–30% peak to trough Decline in home prices: 35% peak to trough Subprime defaults: 45% with 60% severity Unemployment at 12%–13% Credit card charge offs at 12%–13% for our BBB securities Severe Economic Scenarios Total 2008 Impairments
Slide 50: Pro Forma TCE: Range of Possibilities
Slide: 3 TCE Improvement Plan – Pro forma TCE1 Impact of Depressed Market Values and Illiquidity on Investment Portfolio Moving Forward Pro Forma TCE1: Range of Possibilities 1The estimated pro forma impact to State Street Corporation’s capital ratios assumes: All four State Street-sponsored unconso
Slide 51: Student Loans
Slide: 4 Moving Forward TCE Improvement Plan – Investment Portfolio Average FFELP U S government guarantee is 98% of the underlying collateral, with the minimum at 97% Average FFELP enhancement is 5.5% with every deal having greater than the 2%–3% not covered by the government guarantee Every single
Slide 52: Credit Cards
Slide: 5 Moving Forward The market’s highest monthly annualized charge-off rate since 1992 is 7.5%. Industry consensus** is for charge-offs to be between 8% to 10% in 2009 Information on stress testing available in supplemental disclosure. *Source: Citigroup, “Thinking Ahead – 2009 Consumer ABS Outl
Slide 53: Non-Agency Prime MBS
Slide: 6 Moving Forward Information on stress testing available in supplemental disclosure. *Market is the J.P. Morgan MBS Credit Index NON-AGENCY PRIME MBS (as of 12/31/08) TCE Improvement Plan – Investment Portfolio 57% Super Senior 61% are 2005 vintage year or earlier Designed to withstand 2.9 ti
Slide 54: Other (as of 12/31/08)
Slide: 7 Moving Forward OTHER (as of 12/31/08) TCE Improvement Plan – Investment Portfolio Government/agency securities: $14.3 billion Corporate bonds: $2.6 billion Municipal bonds: $2.5 billion Tax-exempt bonds/other: $4.7 billion Information on stress testing available in supplemental disclosure.
Slide 55: CMBS
Slide: 8 Moving Forward *Source: Trepp LLC Note: State Street bought no CMBS assets in 2008. Information on stress testing available in supplemental disclosure. TCE Improvement Plan – Investment Portfolio Average credit enhancement is 24% 90% of the 2006 and 2007 vintages are super senior and senior
Slide 56: International MBS
Slide: 9 Moving Forward INTERNATIONAL MBS (as of 12/31/08) TCE Improvement Plan – Investment Portfolio Very highly rated portfolio, primarily consisting of prime UK, Dutch and Australian MBS Australia: 0% historic credit losses after insurance and very small losses before insurance UK: worst vintage
Slide 57: Other ABS
Slide: 10 Moving Forward OTHER ABS (as of 12/31/08) TCE Improvement Plan – Investment Portfolio Auto and equipment: $1.3B where 84% are rated AA or above CLOs: $1.4B where 90% are rated AA or above with 26% credit enhancement HELOCs: $0.25B Other: $0.6B Information on stress testing available in sup
Slide 58: Non-Agency Alt-A MBS
Slide: 11 Moving Forward *Market is the J.P. Morgan MBS Credit Index See stress tests in additional disclosure following appendix. TCE Improvement Plan – Investment Portfolio NON-AGENCY ALT-A MBS (as of 12/31/08) 40% Super Senior 56% of 2006–2007 vintages are Super Senior 0% Option ARMs Designed to
Slide 59: Sub-Prime ABS
Slide: 12 Moving Forward *2005 Vintage ABX is the ABX 2006-1,2006 Vintage ABX is the simple average of ABX 2006-2 and 2007-1, 2007 Vintage ABX is the ABX 2007-2 ** HCL: Historic Cumulative Loss Source: Intex; HCL: Historic cumulative loss; Information on stress testing available in supplemental disc