State Street Corporation · NYSE:STT
State Street — Investor Day (February 2014)
56 slides from State Street's investor day presentation, Feb 27, 2014
Slide 1: The Way Ahead: Creating Long-Term Shareholder Value
The Way Ahead: Creating Long-Term Shareholder Value Investor and Analyst Forum February 27, 2014
Slide 2: Forward-looking statements
2 This presentation contains forward-looking statements as defined by United States securities laws, including statements relating to our goals and expectations regarding our business, financial and capital condition, results of operations, investment portfolio performance and strategies, the financ
Slide 3: Agenda
3 AGENDA 12:30 – 12:50 p.m. OUR ADVANTAGE – Jay Hooley Chairman, President and Chief Executive Officer 12:50 – 1:30 p.m. BUILDING ON OUR STRONG CORE – Mike Rogers Head of Global Markets and Global Services Americas – Scott Powers Head of State Street Global Advisors – Wai-Kwong Seck Head of Global M
Slide 4: Agenda
4 AGENDA 1:30 – 2:00 p.m. INVESTING IN OPPORTUNITIES FOR GROWTH – Christopher Perretta Chief Information Officer – Jack Klinck Head of Global Strategy and New Ventures – Martine Bond Head of Trading and Clearing – Question and Answer Session 2:00 – 2:25 p.m. FINANCIAL OVERVIEW – Mike Bell Chief Fina
Slide 5: Our Advantage
OUR ADVANTAGE Jay Hooley Chairman, President & Chief Executive Officer
Slide 6: Our Advantage: A Focused Strategy
6 1 Goals presented on an operating basis, a non-GAAP presentation. Refer to appendix included with this presentation for explanations of our non-GAAP measures OUR ADVANTAGE: A FOCUSED STRATEGY LONG-TERM SHAREHOLDER VALUE Operating-Basis1 Financial Goals: EPS Growth of 10-15%, Revenue Growth of 8-12
Slide 7: Our Advantage: Building on Our Strong Core
7 Data as of, or for the year ended December 31, 2013, as appropriate OUR ADVANTAGE: BUILDING ON OUR STRONG CORE Transitioning to a more integrated sales approach by sector Capturing full value of client relationships Developing innovative new products and services Leveraging technology leadership f
Slide 8: Our Advantage: Achieving a Digital Enterprise
8 OUR ADVANTAGE: ACHIEVING A DIGITAL ENTERPRISE Process Automation and Standardization Workforce Optimization: Centers of Excellence Leveraging Lower-Cost Locations Integrating Private Cloud Infrastructure Digital Enterprise ● Speed and Agility ● Data Services ● Increased Efficiency Industry-Leading
Slide 9: Our Advantage: Investing in Opportunities for Growth
9 1 McKinsey, (Sep. 2012); 2 Towers Watson, Global Pension Assets Study 2012, (Jan 2012) OUR ADVANTAGE: INVESTING IN OPPORTUNITIES FOR GROWTH TREND DRIVEN BY AREAS OF INVESTMENT Globalization ● Ongoing globalization of investment and distribution channels ● 40% of the growth in financial assets will
Slide 10: Our Advantage: Optimizing Capital
10 OUR ADVANTAGE: OPTIMIZING CAPITAL INVESTING IN GROWTH RETURNING CAPITAL TO SHAREHOLDERS ● Focus on strategic initiatives ● Enhance client service with new revenue producing capabilities ● Invest in new technology ● Pursue select small acquisitions to add capabilities, subject to regulatory approv
Slide 11: Building on Our Strong Core
BUILDING ON OUR STRONG CORE Mike Rogers Head of Global Markets and Global Services Americas Wai-Kwong Seck Head of Global Markets and Global Services, Asia-Pacific Scott Powers Head of State Street Global Advisors
Slide 12: Building on Our Strong Core
12 BUILDING ON OUR STRONG CORE LEADERSHIP ACROSS KEY CLIENT SEGMENTS AND MARKETS DRIVING ATTRACTIVE GROWTH IN OUR CORE BUSINESSES ENABLING FUTURE SUCCESS THROUGH INNOVATIVE PRODUCT EXPANSION FOCUSED VIEW ON INDUSTRY TRENDS AND BEING FIRST-MOVERS IN IMPORTANT GROWTH AREAS TARGETING OPPORTUNITIES IN S
Slide 13: Strong Industry Leadership Positions for Future Growth
13 US MUTUAL FUNDS1 MIDDLE OFFICE2 US PENSION FUNDS3 Sources: 1 Mutual Funds - State Street Global Business Reporting, Investment Company Institute; 2 Middle Office - State Street December 2013, Scrip Issue Global Report; 3 Pension Funds - State Street Global Business Reporting, Money Market Directo
Slide 14: An Early Mover in Alternatives
14 Sources: 1 Hedge Fund Market - Hedge Fund Research, January 2014; Private Equity Market - Preqin, Jan 2014; Real Estate Market – Towers Watson, July 2013; PI Online (2005-2008). As of period end; 2 Acquisitions: 2007: Palmeri $35B, Investors Financial $170B, 2010: Mourant $170B, 2012: GSAS $200B;
Slide 15: A Substantial Market Opportunity Within Alternatives Remains Untapped
15 A SUBSTANTIAL MARKET OPPORTUNITY WITHIN ALTERNATIVES REMAINS UNTAPPED ● Single global front-to-back office platform ● Integration of GSAS largely complete; expansion of strong client base and retention of key talent ● Established presence in Shanghai; servicing Qualified Domestic Limited Partners
Slide 16: Areas of Strategic Focus for 2014 and Beyond
16 ● Expand market share and deepen relationships with new and existing clients ● Continue to invest in platforms and solutions aligned to long-term growth trends ● Drive growth through innovative product expansion AREAS OF STRATEGIC FOCUS FOR 2014 AND BEYOND State Street’s Success BUILDING ON OUR S
Slide 17: Asia-Pacific Growth Expected to Outpace Other Developed Markets
17 35% 27% 28% 24% 18% 16% 14% 23% 5% 10% 2010 2020 US Developed Europe Other Developed Other Emerging China $85T $174T Global Institutional AUM Sources: McKinsey Global Asset Management Growth Model; The Economist, AT Kearney; Bloomberg; BP; dotMobi; Fortune; IMF; UBS; UN; World Bank; World Steel A
Slide 18: More Than 30 Years of Success in Asia-Pacific
18 South Korea Taiwan Australia New Zealand Japan China Hong Kong Macau Brunei Malaysia Singapore Indonesia East Timor India Thailand Philippines 1 In some markets, State Street has multiple operations centers and/or client management offices 2 Refers to Investment Trust Management funds (a.k.a., th
Slide 19: Areas of Strategic Focus for 2014 and Beyond
19 ● Broaden Service Offerings to Core Client Base – Official Institutions, pensions, asset managers, alternatives and insurance ● Deepen Presence in Fast-Growing Market Segments – Australian Superannuation, Japanese Investment Trust Management funds (ITM), Asian collective funds, electronic trading
Slide 20: State Street Global Advisors Overview
20 All data as of December 31, 2013, unless otherwise noted 1 This AUM includes the assets of SPDR® Gold ETF (approx. $31B as of December 31, 2013), for which State Street Global Markets, LLC, an affiliate of SSgA, serves as the distribution agent; 2 Includes real estate investment trusts, currency
Slide 21: We Are a Leading Sponsor of Exchange-Traded Funds
21 $1.1T $1.4T $1.5T $1.9T $2.4T $0.5 $0.7 $0.9 $1.1 $1.3 $1.5 $1.7 $1.9 $2.1 $2.3 $2.5 2009 2010 2011 2012 2013 1 Source: BlackRock ETP Landscape, January 2014 WE ARE A LEADING SPONSOR OF EXCHANGE-TRADED FUNDS SPDR® ETF Revenue CAGR of 29% Outperformed Market Growth For the Five-Year Period Ending
Slide 22: Areas of Strategic Focus for 2014 and Beyond
22 1 Source: McKinsey’s 2013 Asset Management Report AREAS OF STRATEGIC FOCUS FOR 2014 AND BEYOND CONTINUED EXPANSION OF ETF PRODUCTS AND DISTRIBUTION CAPABILITIES ● Expanding geographic reach through broader distribution and product development with plans to introduce 30 to 50 new products through
Slide 23: Building on Our Strong Core
23 BUILDING ON OUR STRONG CORE LEADERSHIP ACROSS KEY CLIENT SEGMENTS AND MARKETS DRIVING ATTRACTIVE GROWTH IN OUR CORE BUSINESSES ENABLING FUTURE SUCCESS THROUGH INNOVATIVE PRODUCT EXPANSION FOCUSED VIEW ON INDUSTRY TRENDS AND BEING FIRST-MOVERS IN IMPORTANT GROWTH AREAS TARGETING OPPORTUNITIES IN S
Slide 24: Achieving a Digital Enterprise and Investing in Opportunities for Growth
ACHIEVING A DIGITAL ENTERPRISE AND INVESTING IN OPPORTUNITIES FOR GROWTH Christopher Perretta Chief Information Officer Jack Klinck Head of Global Strategy and New Ventures Martine Bond Head of Trading and Clearing
Slide 25: Investing to Provide Clients with Value-Added and Innovative Solutions
25 ACHIEVING A DIGITAL ENTERPRISE AND INVESTING IN OPPORTUNITIES FOR GROWTH INVESTING TO PROVIDE CLIENTS WITH VALUE-ADDED AND INNOVATIVE SOLUTIONS COMPLEX REGULATORY COMPLIANCE ENVIRONMENT GENERATES OPPORTUNITIES KEY AREAS OF INVESTMENT FOR CLIENTS INCLUDE: – A Digital Enterprise – Data and Analytic
Slide 26: Business Operations and IT Transformation Program Remains on Track
26 1 The full run-rate effect of the pre-tax expense savings is not expected to be achieved until 2015. Data is based on the approximate mid-point of the range of the estimated pre-tax, run-rate expense savings of $575MN-$625MN at the end of 2014, for full effect in 2015. Estimated pre-tax expense s
Slide 27: Beyond Transformation: A Vision of a Digital Enterprise
27 BEYOND TRANSFORMATION: A VISION OF A DIGITAL ENTERPRISE FUELED BY TRANSFORMATIVE TECHNOLOGY INVESTMENTS ● Non-stop operation for fully digitized processes Piloting now Cloud State Street Multi-Asset Class Servicing Framework Proprietary Data External Data Configurable Data Assets for: ● Analytics
Slide 28: Uniquely Positioned to Offer Differentiated Solutions
28 INVESTING IN OPPORTUNITIES FOR GROWTH WE ARE UNIQUELY POSITIONED TO OFFER DIFFERENTIATED SOLUTIONS ● We have deep relationships with the world’s largest asset managers ● We have the largest middle office market share with $10.8T in outsourced assets under administration ● We have a global footpri
Slide 29: Addressing Key Challenges for Our Clients
29 KEY INSTITUTIONAL INVESTOR PAIN POINTS OUR SOLUTIONS ● Derivatives capabilities to support new central clearing requirements and global interconnectivity End-to-end derivatives solutions that address new market structure ● Collateral management solutions to manage counterparty credit exposure on
Slide 30: Multi-Asset Class Risk Management Solution
30 MULTI-ASSET CLASS RISK MANAGEMENT SOLUTION WE ARE ADDRESSING KEY CHALLENGES FOR OUR CLIENTS: CASE STUDY CLIENT DESCRIPTION Large, public pension managing their state’s retirement system CLIENT OBJECTIVE Measure and report risk across all assets • Client struggled with data management, particularl
Slide 31: Investing to Provide Clients with Value-Added and Innovative Solutions
31 ACHIEVING A DIGITAL ENTERPRISE AND INVESTING IN OPPORTUNITIES FOR GROWTH INVESTING TO PROVIDE CLIENTS WITH VALUE-ADDED AND INNOVATIVE SOLUTIONS COMPLEX REGULATORY COMPLIANCE ENVIRONMENT GENERATES OPPORTUNITIES KEY AREAS OF INVESTMENT FOR CLIENTS INCLUDE: – A Digital Enterprise – Data and Analytic
Slide 32: Financial Overview
FINANCIAL OVERVIEW Michael W. Bell
Slide 33: Financial Overview
33 FINANCIAL OVERVIEW1 2013 RESULTS 2014 OUTLOOK AND UNDERLYING ASSUMPTIONS EVOLVING REGULATORY ENVIRONMENT AND CAPITAL STRUCTURE LONG-TERM FINANCIAL OBJECTIVES 1The information in this Financial Overview (slides 34-44), as well as other information in this presentation, contains statements that are
Slide 34: Delivered Strong Full-Year 2013 Operating-Basis Financial Results
34 1 Results presented on an operating basis, a non-GAAP presentation. Refer to appendix included with this presentation for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information 2 Estimated pre-tax expense savings relate only to the Bus
Slide 35: 2014 Outlook and Underlying Assumptions
35 ● Full-year 2014 operating-basis revenue growth of 3-5% compared to 2013, under the following assumptions: – Strong execution of our top priorities – Modest improvement in market interest rates later in 2014 – Equity markets to remain close to year-end 2013 levels for full-year 2014 – Improvement
Slide 36: 2014 Outlook: Revenue Growth Scenarios
36 EXPECTATION: 3-5% revenue growth compared to 2013 BASE ASSUMPTION: Average equity markets for full-year 2014 close to 2013 year-end levels 2014 OUTLOOK: REVENUE GROWTH SCENARIOS DEPENDENT UPON ENVIRONMENTAL FACTORS1 Investor Risk-taking 3% 5% Static Conservative No Increase in Volatility or Volum
Slide 37: 2014 Outlook: Investing in Our Business for Future Growth
37 ● Continue to invest in long-term growth initiatives to maintain our market leadership position, including: – ETFs and intermediary distribution expansion – Advanced data and analytics – Electronic trading platforms and risk management tools – Derivatives clearing ● Expect return on these investm
Slide 38: Regulatory Complexity Continues to Impact Expenses
38 REGULATORY COMPLEXITY CONTINUES TO IMPACT EXPENSES ● Increased regulatory compliance and reporting impacting all of our businesses as new and complex regulations emerge ● Demands to keep pace with the evolving regulatory environment increasing – working toward compliance with new requirements, in
Slide 39: 2014 Outlook: Net Interest Revenue / Net Interest Margin Scenario Analysis
39 FINANCIAL OVERVIEW 1 Results and expectations presented on an operating basis, a non-GAAP presentation. Refer to appendix included with this presentation for explanations of our non-GAAP financial measures 2 2013 adjusted operating-basis NIR assumption of $2,289M excludes $19M of NIR associated w
Slide 40: Evolving Regulatory Capital Requirements Present Industry Challenges
40 1, 2, 3 Footnotes provided on slide 50 4 G-SIB buffer is not yet proposed in the U.S.; currently assume a 1% buffer based on Financial Stability Board’s November 2013 assessment of G-SIBs, bringing total assumed minimum ratio, including buffer, to 8% EVOLVING REGULATORY CAPITAL REQUIREMENTS PRESE
Slide 41: Evolving Capital Structure Creates Need for Additional Preferred Equity
41 ● Basel III capital rules allow for non-common tier 1 equity (preferred equity) – Basel III risk-based capital: 1.5% of RWA • Currently, would equate to approximately $1.8B in preferred equity1 – SLR also benefits from the inclusion of preferred equity ● Lower-Cost Capital – Estimated 6-7% after-
Slide 42: Confirming Long-Term Operating-Basis ROE Goal of 12-15%
42 FINANCIAL OVERVIEW KEY DEPENDENCIES ● Reasonable outcome for regulatory capital rules ● Strong execution of our top priorities ● Successful completion of Business Operations and Information Technology Transformation program ● Normalization of market interest rates (3% Fed Funds rate and 5% ten-ye
Slide 43: Confirming Long-Term Revenue and Earnings Per Share Goals
43 FINANCIAL OVERVIEW 1 Goals are presented on an operating basis, a non-GAAP presentation. Refer to appendix included with this presentation for explanations of our non-GAAP financial measures 2 Operating leverage is defined as the rate of growth of total revenue less the rate of growth of total ex
Slide 44: Financial Overview Summary
44 ● In 2013, State Street grew operating-basis1 EPS by 15% and generated 171 basis points of positive operating leverage2 compared to 2012 ● We continued to control expense growth and delivered $220M in incremental pre-tax expense savings3 in 2013 from our Business Operations and IT Transformation
Slide 45: Closing Remarks
CLOSING REMARKS Jay Hooley Chairman, President & Chief Executive Officer
Slide 46: Peer Comparison
46 1 (i) Data for each of State Street Corporation (STT), The Bank of New York Mellon Corporation (BK) and Northern Trust Corporation (NTRS) is derived from the relevant company’s public filings, earnings announcements or related materials (individually or collectively, “publicly disclosed informati
Slide 47: We Are Delivering Shareholder Value
47 Source: Bloomberg market data WE ARE DELIVERING SHAREHOLDER VALUE 1/11 4/11 7/11 10/11 1/12 4/12 7/12 10/12 1/13 4/13 7/13 10/13 1/14 -60% -40% -20% 0% 20% 40% 60% 80% STT 56% BK 11% NTRS 20% S&P FINL 42% Bank of New York Mellon Corp. Northern Trust Corp. S&P 500 / Financials State Street Corp. T
Slide 48: We Have a Focused Strategy
48 1 Goals presented on an operating basis, a non-GAAP presentation. Refer to appendix included with this presentation for explanations of our non-GAAP measures WE HAVE A FOCUSED STRATEGY LONG-TERM SHAREHOLDER VALUE Operating-Basis1 Financial Goals: EPS Growth of 10-15%, Revenue Growth of 8-12% and
Slide 49: Appendix
APPENDIX Et) STATE STREET.
Slide 50: Appendix: Footnotes
50 APPENDIX: FOOTNOTES TO SLIDE 40 1 Unless otherwise specified, all capital ratios referenced in this presentation refer to State Street and not State Street Bank and Trust Company, or State Street Bank. Refer to the appendix linked to this presentation for a further description of these ratios, an
Slide 51: Non-GAAP Financial Measures
51 The foregoing presentation includes financial information presented on a GAAP basis as well as on a non-GAAP, or “operating basis,” in addition to other measures not presented in conformity with GAAP and used in the calculation of identified capital ratios. Management measures and compares certai
Slide 52: Operating-Basis Reconciliation: Revenue
52 2013 vs. (Dollars in millions, except per share amounts) 2012 Total Revenue: Total revenue, GAAP basis $ 9,884 $ 9,649 $ 9,594 $ 8,953 2.4 % Tax-equivalent adjustment associated with tax-exempt investment securities 142 124 128 129 Tax-equivalent adjustment associated with tax-advantaged investme
Slide 53: Operating-Basis Reconciliation: Income and EPS
53 2013 vs. (Dollars in millions, except per share amounts) 2012 Income Before Income Tax Expense: Income before income tax expense, GAAP basis $ 2,686 $ 2,766 $ 2,536 $ 2,086 Net pre-tax effect of non-operating adjustments to revenue and expenses 343 62 239 471 Income before income tax expense, ope
Slide 54: Operating-Basis Reconciliation: Segment
54 2013 vs. (Dollars in millions, except per share amounts) 2012 Total Revenue: Total revenue, GAAP basis $ 1,297 $ 1,214 Adjustment to GAAP-basis revenue - none - - Total revenue, operating basis (1) $ 1,297 $ 1,214 6.84 % Expenses: Total expenses, GAAP basis $ 836 $ 864 Credits related to gains an
Slide 55: Net Interest Revenue and Margin Reconciliation
55 (Dollars in millions, except per share amounts) Net Interest Revenue: Net interest revenue, GAAP basis $ 585 Tax-equivalent adjustment associated with tax-exempt investment securities 42 Discount accretion related to former conduit securities (31) Net interest revenue, operating basis $ 596 Previ
Slide 56: Reconciliations of Tier 1 Common Ratios
56 As of December 31, 2013 (Dollars in millions) Tier 1 risk-based capital 13,895$ 13,216$ 13,216$ Less: Trust preferred securities 950 475 475 Preferred stock 491 491 491 Plus: Other - 87 87 Tier 1 common capital 12,454 A 12,337 12,337 Total risk-weighted assets 80,126 B 121,562 104,919 Tier 1 comm