State Street Corporation · NYSE:STT
State Street — UBS Global Financial Services Conference 2008
57 slides from State Street's conference presentation, May 13, 2008
Slide 1: Building a Strong Growth Company
BUILDING A STRONG GROWTH COMPANY Ronald E. Logue Chairman and Cheif Executive Officer UBS Global Financial Services Conference 13 May 2008
Slide 2: Agenda
1 Building a Strong Growth Company Achieving 2007 Goals Positioning for Future Growth Updating Financials Continuing the Momentum Agenda
Slide 3: Forward-looking statements
2 This presentation contains forward-looking statements as defined by United States securities laws, including statements about our financial goals and expectations, strategic objectives, financial and industry outlook and business environment, as well as about integration, cost savings and other re
Slide 4: Achieving 2007 Goals
ACHIEVING 2007 GOALS
Slide 5: Achieving 2007 Goals: EPS, ROE, Revenue
4 0.00 1.00 2.00 3.00 4.00 5.00 Earnings per Share (EPS) 0 2 4 6 8 10 12 14 16 18 Return on Equity (ROE) 0 3 6 9 Revenue 5-yr. CAGR* = 17.5% 5-yr. CAGR* = 17.3% $ % $ in billions ’02 ’03 ’04 ’05 ’06 ’07 ’02 ’03 ’04 ’05 ’06 ’07 ’02 ’03 ’04 ’05 ’06 ’07 Building a Strong Growth Company Information refl
Slide 6: Competitive Analysis (2007 vs. 2006)
5 20.4% 19.6% 24.8% 33.8% State Street (ex IFIN) 19.7% 16.5% 16.7% 22.0% Northern Trust 13.1% 13.4% 17.9% 28.0% The Bank of New York Mellon** 17.7% 27.0% 32.1% 32.1% State Street ROE Expense Growth Revenue Growth EPS Growth* Company* Building a Strong Growth Company *EPS growth based on First Call a
Slide 7: Positioning for Future Growth
POSITIONING FOR FUTURE GROWTH
Slide 8: Positioning for Future Growth
7 Building a Strong Growth Company New Revenue Streams Successful Integration Geographic Reach Core Business Strength Customer Growth GROWTH Positioning for Future Growth
Slide 9: Positioning for Future Growth
8 Building a Strong Growth Company New Revenue Streams Successful Integration Geographic Reach Core Business Strength Customer Growth GROWTH Positioning for Future Growth
Slide 10: Core Business Strength: Revenue Mix 2002 vs 2007
9 Management Fees Processing and Other Trading Services Securities Finance NIR Servicing Fees 1,454 3,388 1,021 226 432 1,152 237 405 1,141 1,788 681 172 0 1,500 3,000 4,500 6,000 7,500 9,000 2002 2007 21% 3% 8% 14% 14% 40% 61% $8,387 $3,710 Revenue in millions $ 67% Building a Strong Growth Company
Slide 11: Account Balances and Assets Under Custody
10 Building a Strong Growth Company 0 40 80 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 0 10 20 TOTAL NON-US INTEREST-BEARING TRANSACTION AND US NON-INTEREST-BEARING ACCOUNT BALANCES AND TOTAL ASSETS UNDER CUSTODY Total non-US interest-bearing transaction & US non-interest-bearing ac
Slide 12: Geographic Reach
11 Building a Strong Growth Company Core Business Strength New Revenue Streams Successful Integration Geographic Reach Customer Growth GROWTH Positioning for Future Growth Geographic Reach
Slide 13: Geographic Reach: Non-US Employees and Revenue
12 Building a Strong Growth Company Positioning for Future Growth Geographic Reach 35% 9,506 24% 4,546 Non-US Employees/ Employees 41% $3.4B 24% $1.1B Non-US Revenue 26% 11% 4% $2.2B $0.9B $0.3B 9% 7% 8% $0.4B $0.3B $0.4B – Europe – Asia Pacific – Other North America % Non-US % Non-US 12/31/07 12/31
Slide 14: Geographic Reach: Asia-Pacific
13 Building a Strong Growth Company Positioning for Future Growth Geographic Reach STATE STREET REVENUE GROWTH 2003–2007 CAGR: 29% Asia-Pacific Region COLLECTIVE, PENSION AND GOVERNMENT MARKET GROWTH 2003–2007 CAGR: 16% $8.2T 2003 $328M 2003 $14.8T 2007 $906M 2007 Sources: Allianz Global Investors,
Slide 15: Geographic Reach: Europe
14 Building a Strong Growth Company Europe Positioning for Future Growth Geographic Reach STATE STREET REVENUE GROWTH 2003–2007 4-YEAR CAGR: 28% COLLECTIVE, PENSION AND INSURANCE MARKET GROWTH 2003–2007 4-YEAR CAGR: 10% Sources: Cerulli, Allianz, DWS, CEA, and State Street estimates. Luxembourg asse
Slide 16: Successful Integration: Non-US Revenue Share
15 Building a Strong Growth Company 41% 43% 39% 24% 30% 37% 20 25 30 35 40 45 2002 2003 2004 2005 2006* 2007 *Pro forma for the acquisition of Investors Financial at December 31, 2006 = 39% > Grow non-US revenue to be 50% of total company % Deutsche Effect IFIN Effect *Proforma 39% Positioning for F
Slide 17: Successful Integration
16 Building a Strong Growth Company Positioning for Future Growth Successful Integration Core Business Strength Successful Integration Geographic Reach New Revenue Streams Customer Growth GROWTH
Slide 18: Acquisition Strategy and EPS Impact
17 Building a Strong Growth Company EPS impact and achievement excludes merger and integration costs in 2003 and 2007. Leadership in hedge fund servicing Strategy Slightly accretive Slightly dilutive 99% IFS 2002 EPS Achieved in Year One EPS Impact Targeted in Year One Revenue Retention Acquired Dat
Slide 19: Customer Growth
18 Building a Strong Growth Company Positioning for Future Growth Customer Growth Core Business Strength Successful Integration Geographic Reach Customer Growth New Revenue Streams GROWTH
Slide 20: Extending Market Leadership: Customer Growth
19 Building a Strong Growth Company > Added 60 new customers > Combined with IFIN, State Street services 85 private-equity customers with $87 billion in assets, as of 12/31/07 Palmeri > Added 50 new customers > Expanded relationships with 15 of State Street’s top 100 customers > In Q4 2007, $964 mil
Slide 21: New Revenue Streams
20 Building a Strong Growth Company Core Business Strength New Revenue Streams Successful Integration Geographic Reach Customer Growth Positioning for Future Growth New Revenue Streams GROWTH
Slide 22: New Revenue Streams: Our Strategy
21 Building a Strong Growth Company Positioning for Future Growth New Revenue Streams Kuwait Investment Authority Provide investment management and servicing for highly complex pools of assets Sovereign Wealth Funds Added 29 new customers since Currenex acquisition Provide rapidly streaming prices a
Slide 23: Reviewing Financials
22 Edward J. Resch Chief Financial Offer Reviewing Financials
Slide 24: Reviewing Financials Agenda
23 Building a Strong Growth Company Reviewing Financials Agenda Investment Portfolio Conduit Update Capital Structure Outlook for Net Interest Revenue and Net Interest Margin
Slide 25: Investment Portfolio
24 INVESTMENT PROTFOLIO
Slide 26: Investment Portfolio (Period End 3/31/08)
25 Asset-backed securities Mortgage-backed securities Commercial mortgage-backed securities $25 billion $40 billion $10 billion Corporate bonds Municipals Treasuries Agency debentures Agency mortgages Small Business Administration loans Building a Strong Growth Company Investment Portfolio Governmen
Slide 27: Investment Portfolio Detail
26 Building a Strong Growth Company > 94%AAA / AA rated > Constructed to perform well through periods of economic weakness > Unrealized after-tax MTM = $(1.9)B at 3/31/08 > Assets selected using rigorous credit process > Diversified by asset class and geography > Minimal downgrades > Performing with
Slide 28: Investment Portfolio (End of Period)
27 Building a Strong Growth Company $0 $201M $1,076M $152M — — — Q1 Asset Value 459 11 16 18 5 Downgrades 0 8 13 $(684)M 88.5% AAA 6.5% AA $75.7B Q4 7 1 2 2 Credit watch 0 0 0 0 Defaults 15 5 7 2 Downgrades ex Munis $(1,940)M $(513)M $(392)M $(190)M Unrealized after-tax MTM gain/(loss) 86.7% AAA 7.6
Slide 29: Unrealized Gain/(Loss) by Asset Type
28 Building a Strong Growth Company Investment Portfolio (as of 3/31/08) UNREALIZED GAIN/(LOSS) BY ASSET TYPE 1,911 (364) 32.4 24.4 — — — 100% Mortgage-backed securities 9,166 (1,940) 100.0 75.4 2.2% 3.5% 7.6% 86.7% TOTAL PORTFOLIO 552 (134) 7.8 5.9 9% 1% 30% 60% Clipper tax-exempt bonds/other 5,203
Slide 30: Unrealized Gain/(Loss) in Asset-Backed Securities
29 Building a Strong Growth Company 28 (62) 2.9 0.8 7% — 6% 87% Other 36 (81) 5.2 1.4 — — 2% 98% CLOs 164 (449) 35.3 9.6 — 1% 9% 90% Student loans 82 (125) 13.6 3.7 4% 12% 4% 80% Credit cards AAA BBB A AA 1% 21% — — — 3% — — 2% 14% 12% — 30% 6% 13% 265 (574) 21.7 5.9 70% Sub-prime 27.2 0.3 4.6 0.9 B
Slide 31: ABS Collateralized by Sub-Prime First-Lien Mortgages
30 Building a Strong Growth Company $0 $9M $0 — — — — Q1 Asset Value 0 3 0 $(574)M 41.4% 70% AAA 30% AA $5.9B Q1 ’08 3 0 0 0 Credit watch 0 0 0 0 Defaults 0 0 0 0 Downgrades $(314)M $(149)M $2M $(1)M Unrealized MTM after-tax gain/(loss) 39.8% 37.6% 35.8% 33.5% Credit enhancement 71% AAA 29% AA 73% A
Slide 32: Stress Coverage: Asset-Backed Securities
31 Building a Strong Growth Company SFL: 1.1% (worst historic loss experience- UK 1989) Coverage: 9.9x HCL: 0.3% Avg. CE: 10.9% Foreign RMBS: $4.6B SFL: 7.5% (worst single month annualized-November 2005) Coverage: 2.7x HCL: 4.8% (= wgtd. avg. charge-offs) Avg. CE: 20.0% Credit cards $3.7B SFL: 7.1%
Slide 33: Unrealized Gains/(Losses) in Mortgage-Backed Securities
32 Building a Strong Growth Company Investment Portfolio (as of 3/31/08) UNREALIZED GAINS/(LOSSES) IN MORTGAGE-BACKED SECURITIES AAA AA .5% — — 28.7 4.3 9.0 15.4 Book Value ($B) 100% 99.5% 100% 100% Ratings 2,054 (457) 100.0 TOTAL MBS 143 (93) 15.0 CMBS 307 (425) 31.4 Non-Agency MBS 1,604 61 53.6 Ag
Slide 34: Stress Coverage: Mortgage-Backed Securities Portfolio
Building a Strong Growth Company SFL: 4.6% (2X S&P Alt-A curve) Coverage: 2.5X HCL: 0.10% Avg. CE: 11.6% Alt-A: $1.2B SFL: 4.4% (1999 Snyderman Study long-term avg.) Coverage: 5.4X SFL: 1.2% (20X the HCL) Coverage: 7.3X No losses expected HCL: 0.17% Avg. CE: 24.0% CMBS: $4.3B HCL: 0.06% Avg. CE: 8.8
Slide 35: Conduit Update
34 CONDUIT UPDATE
Slide 36: Conduit Update: Key Metrics
35 Building A Strong Growth Company Conduit Update * All data as of quarter-end KEY METRICS* Insurer Related Credit Related Insurer Related Credit Related $28.3B $28.8B $29.2B $28.8B $26.2B Total Conduit Assets Outstanding $292M $2M $730M $128M $271M State Street Balance Sheet ABCP holdings $2,675M
Slide 37: Unrealized Gain/(Loss) in the Conduit Assets
36 Building a Strong Growth Company *Includes Trade Receivables, CLOs, Business/Commercial loans and other instruments. No individual asset class represents more than 2% of total portfolio, except Trade Receivables at 3% Conduit Update (as of 3/31/08) UNREALIZED GAIN/(LOSS) IN THE CONDUIT ASSETS 11%
Slide 38: Unrealized Gain/(Loss) in Conduit Asset-Backed Securities
37 Building a Strong Growth Company Conduit Update (as of 3/31/08) UNREALIZED GAIN/(LOSS) IN THE ASSET-BACKED SECURITIES IN THE CONDUIT ASSETS 21% 1% 3% 52% Not Rated 2 0 2 0 Downgrades AAA BBB A AA 10% — 37% 4% 18% 3% 46% 15% 12% 22% 6% 6% 7,879 3,014 1,878 2,987 Book Value ($M) 39% 74% 8% 23% Rati
Slide 39: Stress Coverage: Conduit Asset-Backed Securities
38 Building a Growth Company Conduit Update (as of 3/31/08) STRESS COVERAGE: ASSET-BACKED SECURITIES IN THE CONDUIT ASSETS HCL = historic cumulative loss; Avg. CE = average credit enhancement; SFL = STT’s stressed future losses; Coverage = CE/SFL SFL: 12.0% (historic default rate with 0% recoveries)
Slide 40: Unrealized Gain/(Loss) in Conduit Mortgage-Backed Securities
39 Building a Strong Growth Company Conduit Update (as of 3/31/08) UNREALIZED GAIN/(LOSS) IN THE MORTGAGE-BACKED SECURITIES IN THE CONDUIT ASSETS 22 0 22 0 0 Downgrades AAA BBB A AA 6% 33% 7% — — 10% 29% 12% 6% 2% 23% 17% — 9% 59% 15,456 2,091 3,979 4,684 4,702 Book Value ($M) 61% 21% 81% 85% 39% Ra
Slide 41: Stress Coverage: Conduit Mortgage-Backed Securities
40 Building a Growth Company Conduit Update (as of 3/31/08) STRESS COVERAGE: MORTGAGE-BACKED SECURITIES IN CONDUIT ASSETS SFL: 1.5% (2x stress CDR; 5 year WAL; 50% LGD) Coverage 5.1x SFL: 1.5% (2x stress CDR; 5 year WAL; 50% LGD) Coverage: 3.7x SFL: 1.4% (stress of 2x industry avg. cumulative losses
Slide 42: Capital Structure
41 CAPITAL STRUCTURE
Slide 43: Capital Ratio Targets
42 Building a Strong Growth Company > Stated targets for State Street Corporation 2008 targets Maintain flexibility in challenging environment Tier-1 Leverage — at or above top end of range (~6.00%) – TCE — at or around lower end of range (~4.25%) Capital Structure 4.25%–4.75% Tangible Common Equity
Slide 44: Capital Ratios for State Street Corporation
43 > We expect to rebuild TCE by 40-50 basis points/quarter (net of dividend) > We do not intend to repurchase stock over the near–term > We are monitoring our capital position closely Building a Strong Growth Company 2.92% 13.79% 12.41% 6.09% 3/31/08 Actual N/A TCE 10.00% Total capital ratio 6.00%
Slide 45: SSgA Reserve
44 Building a Growth Company Capital Structure > SSgA’s pre-tax reserve of $625 million was established in January 2008 to address legal exposure and other costs associated with the performance of certain actively managed fixed-income strategies > The numbers cited in a recent Bloomberg article refe
Slide 46: Outlook for Net Interest Revenue and Net Interest Margin
45 OUTLOOK FOR NET INTEREST REVENUE AND NET INTEREST MARGIN
Slide 47: View of 2008
46 Building a Strong Growth Company > Prepared for possibility of continuing market uncertainty > Comfortable with position of investment portfolio and conduits > Remain conservative and build capital > Our 2008 outlook: Outlook for Net Interest Revenue and Net Interest Margin > Expect net interest
Slide 48: Assumptions
47 Building a Strong Growth Company > Balance sheet size to be about the same as Q4 2007 average > Favorable mix of liabilities continues > Yield curve remains positively shaped > Credit spreads to narrow as markets stabilize > Moderation in growth of non-US transaction deposits > Potential compress
Slide 49: Risks and Opportunities
48 Building a Strong Growth Company > Risks – Deposit flow declines significantly – US interest rates increase by 50–100 BPS in a quarter – Non-US rates decline ahead of forecast > Opportunities – Transaction deposits grow faster than forecast – Non-US rates remain stable or increase – Increase in f
Slide 50: 2008 Future Expectations Summary
49 Building a Strong Growth Company > Balance Sheet – Size of balance sheet to be about the same as the 4Q 2007 average – Duration gap of 2 to 4 months appropriate – Liquidity managed downward when market conditions improve – Rate of growth of non-US deposits to moderate and spreads to compress > Co
Slide 51: Continuing the Momentum
CONTINUING THE MOMENTUM
Slide 52: Performance Q1 2008
51 14%–17% 10%–15% 14%–17% 2008 Goals % Change 3/31/07 3/31/08 For the Three Months Ended +810 BPS OPERATING LEVERAGE +49.5% $0.93 $1.39 Operating earnings per share 17.4% 19.4% Operating return on equity +44.1% 1,213 1,748 Operating expenses +52.2% $1,708 $2,600 Operating revenue Building a Strong
Slide 53: Expanding Globally in 2008
52 > Established presence in Krakow, Poland and Beijing, China > In Q1 added $600B in assets to be serviced – 67% from US – 33% from non-US locations > In Q1 added $69B in new business at SSgA – 34% from US – 66% from non-US locations Building a Strong Growth Company Continuing the Momentum Expandin
Slide 54: Investor Financial Update
53 Building a Strong Growth Company $ in millions, except per share $26 million $0.00 $190 million* 91% Progress as of 3/31/08 Progress as of 12/31/07 Target 2/05/07 $198 million $250–$270 million Merger and Integration Costs $(0.06) $0.00+ Operating EPS accretion/(dilution) $170 million* $345–$365
Slide 55: Competitive Analysis (Q1 2008 vs. Q1 2007)
54 24.9% 31.1% 38.6% 49.5% State Street (ex IFIN) 33.6% 16.3% 18.7% 22.6% Northern Trust 12.3% 9.2% 16.0% 16.1% The Bank of New York Mellon** 19.4% 44.1% 52.2% 49.5% State Street ROE Expense Growth Revenue Growth EPS Growth* Company* Building a Strong Growth Company *EPS growth based on First Call a
Slide 56: Continuing the Momentum: Summary
55 Building a Strong Growth Company > Delivered corporate-record Q1 revenue and operating earnings per share > Core business continues to be strong – Investment servicing adding significant new customers – SSgA moving ahead > Current size of unrealized losses in investment portfolio primarily reflec
Slide 57: Reconciliation of Reported Results to Operating-Basis Results
STATE STREET STATE STREET CORPORATION RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS State Street presents supplemental financial information on an “operating” basis in order to provide financial information that is comparable from period to period, and to present comparable financial
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