State Street Corporation · NYSE:STT
State Street — Investor Day (February 2006)
48 slides from State Street's investor day presentation, Feb 7, 2006
Slide 1: Investor and Analyst Meeting, February 2006
INVESTOR AND ANALYST MEETING 07 February 2006 | STATE STREET.
Slide 2: Setting State Street Apart
Slide 3: Agenda
STATE STREET. AGENDA SETTING STATE STREET APART Performance Against 2005 Goals Building Success in 2006 Balance Sheet Management and Capital Strategies Investing in Future Growth Leveraging across the Company
Slide 4: Reminder
STATE STREET. REMINDER This presentation includes discussion of State Street Corporation's financial and business goals and strategies, which may be perceived as “forward-looking statements” as defined by federal securities laws. Actual results could differ materially, and there can be no assurance
Slide 5: Performance Against 2005 Goals
Slide 6: Performance Against 2005 Goals
STATE STREET. SETTING STATE STREET APART PERFORMANCE AGAINST 2005 GOALS Annual Goals 2005 Actual AConsistent Earner Operating EPS growth Operating EPS growth of 10%-15% from continuing operations of 14.2% ATop-line Revenue Operating revenue Operating revenue growth Generator growth of 8%-12% of 10.4
Slide 7: Performance Against 2005 Goals
STATE STREET. SETTING STATE STREET APART PERFORMANCE AGAINST 2005 GOALS Impact on Operating Operating 2005 EPS Growth* EPS Model Actual Operating revenue growth 8%-12% 10.4% Positive operating leverage 11% Capital management ~A% 1.9% Diluted operating EPS growth 10%-15% 14.2% "Operating results ae d
Slide 8: Performance Against 2005 Goals
STATE STREET. SETTING STATE STREET APART PERFORMANCE AGAINST 2005 GOALS Operating Revenue* Model Annual Goals 2005 Actual Market growth 1%-2% % New customers P%-3% 1% Additional sales to %-59 7 existing customers toni fo Acquisitions and large customer deals ne Ke = Revenue growth B%-12% 10% "Operat
Slide 9: Performance Against 2005 Goals
STATE STREET. SETTING STATE STREET APART PERFORMANCE AGAINST 2005 GOALS Operating ROE 14%-17% 2005 Actual: 15.3% Improve earnings growth Operating EPS growth of 14.2% Support a consistent dividend Dividend at year end program increased 12% Repurchase shares Repurchased 13M shares Maintain credit rat
Slide 10: Performance Against 2005 Goals
STATE STREET. SETTING STATE STREET APART PERFORMANCE AGAINST 2005 GOALS Executing Against Our Objectives 1: Generate positive operating leverage + Achieved revenue growth of 10.4% + Onan operating basis, generated 110 bps of leverage in 2005 * Transitioned 1300 job functions to Toronto, Kansas City,
Slide 11: Performance Against 2005 Goals
STATE STREET. SETTING STATE STREET APART PERFORMANCE AGAINST 2005 GOALS Executing Against Our Objectives 2: Grow non-U.S. revenue to 50% over time + In 2005 non-U.S. revenue = 39%, up from 37% in 2004 Revenue (in Billions) by Region 12/31/04 12/31/05 % Change North America $3.4 $3.6 6% Europe 1.2 14
Slide 12: Performance Against 2005 Goals
STATE STREET. SETTING STATE STREET APART PERFORMANCE AGAINST 2005 GOALS Executing Against Our Objectives 3: Actively manage the balance sheet * Centralized Treasury function, adding intellectual capital and installing state-of-the-art asset / liability management software + Executed balance sheet st
Slide 13: Performance Against 2005 Goals
STATE STREET. SETTING STATE STREET APART PERFORMANCE AGAINST 2005 GOALS Executing Against Our Objectives 4: Continue to penetrate existing and win new customers + Renewed major investment manager operations outsourcing mandate from Scottish Widows Investment Partnership + 80% of new revenue came fro
Slide 14: Building Success in 2006
Slide 15: Building Success in 2006
SETTING STATE STREET APART BUILDING SUCCESS IN 2006 Our Annual Financial Goals A Consistent Earner Operating EPS growth of 10%-15% A Top-line Revenue Generator Operating revenue growth of 8%-12% A Prudent Allocator of Capital Operating ROE of 14%-17% STATE STREET.
Slide 16: Building Success in 2006
STATE STREET. SETTING STATE STREET APART BUILDING SUCCESS IN 2006 Impact on Operating Operating EPS Growth* EPS Model Operating revenue growth 8% 12% Positive operating leverage Capital management ~A% Diluted EPS growth 10%-15% "Operating results as defined in State Stret Corporation SEC flings. EPS
Slide 17: Building Success in 2006
STATE STREET. SETTING STATE STREET APART BUILDING SUCCESS IN 2006 Operating Revenue Growth Model Market growth” 1%-2% New customers 2%-3% Additional sales to existing customers 5% 6% Acquisitions and large customer deals 0%-1% = Operating revenue growth 8%-12% "Assumes 7% average annual growth in gl
Slide 18: Building Success in 2006
STATE STREET. SETTING STATE STREET APART BUILDING SUCCESS IN 2006 Operating ROE: 14%-17% Continue earnings growth Support a consistent dividend program Repurchase shares Maintain credit rating Meet regulatory requirements, including Basel II
Slide 19: Balance Sheet Management and Capital Strategies
BALANCE SHEET- MANAGEMENT: AND CAPITAL STRATEGIES Edward J. Resch Executive Vice President and Chief Financial Officer
Slide 20: Balance Sheet Management
STATE STREET. SETTING STATE STREET APART BALANCE SHEET MANAGEMENT Objective: Continue to reposition balance sheet assets to more closely match liability behavior to create a more sustainable, consistent level of NIR and expanding NIM + Re-assessed client liabilities + Re-configured investment portfo
Slide 21: Balance Sheet Management
STATE STREET. SETTING STATE STREET APART BALANCE SHEET MANAGEMENT Customer liabilities drive composition of the balance sheet: + An integral part of Company's activities + Relatively stable source of funding and growing especially outside of U.S. * Customer liabilities are priced lower and are less
Slide 22: Balance Sheet Management
STATE STREET. SETTING STATE STREET APART BALANCE SHEET MANAGEMENT Customer-driven liab! of the balance sheet ies constitute an increasing share anh Corporation _ soso $049 go58 $968 076 $1001 $1010 $1003 Sine gany $875 60 68% pa ce 40 ” Driven 5 4003 1004 ©2004-3004 4004 «1005 | 2005 3005 4a05 Clien
Slide 23: Balance Sheet Management
BALANCE SHEET MANAGEMENT Period-End Balance Sheet ASSETS % of Tote! Placements 20% Securities purchased / Fed funds Investment portfolio AFS + HTM Loans (largely overdrafts) NonJinterest earning Total Assets LIABILITIES AND EQUITY Foreign deposits ‘Securities sold /Fed funds Savings / Time Long term
Slide 24: Balance Sheet Management
STATE STREET. SETTING STATE STREET APART BALANCE SHEET MANAGEMENT The value of customer liabilities is realized through the investment portfolio + Spread between portfolio asset yields and the rate paid to customers creates value + Duration of portfolio extended modestly to better match liability du
Slide 25: Balance Sheet Management
BALANCE SHEET MANAGEMENT Investment Portfolio Has Grown Significantly 42/31/03 US. Treasury $62 U.S. agency debentures 144 Asset-backed securities ABS Fixed 46 ABS Float 53 MBs 54 cms Corporate bonds Municipal bonds Foreign bonds Other debt & equity securities 12/31/04 $16 118 43 57 106 12/31/05, $3
Slide 26: Balance Sheet Management
STATE STREET. SETTING STATE STREET APART BALANCE SHEET MANAGEMENT Controlling Risk + Modest, well-controlled interest rate risk — Portfolio securities match characteristics of customer liabilities — Results in relatively stable NIM — Asset duration increased slightly and gap relatively constant + Cr
Slide 27: Balance Sheet Management
STATE STREET. BALANCE SHEET MANAGEMENT Credit Quality of Investment Portfolio $inbilions Investment Portfolio, Market Value usT Agency ABS. MBS cMBS Corporates Municipals Foreign/Mutual FdsiOther DECEMBER 31, 2005, ‘SEPTEMBER 30, 2005 JUNE 30, 2005 MARCH 31, 2005 DECEMBER 31, 2004
Slide 28: Balance Sheet Management
STATE STREET. SETTING STATE STREET APART BALANCE SHEET MANAGEMENT Effective Repositioning Results in a Stable NIM in the Face of Rising Rates Average Fed State Street NIM vs. Average Fed Funds NRO? Funds Rate : Margin 400 420 eee 4.00 80 200 060 oe 040 0.00 + 3) 4004" 2004 " 3004" 4a04 1005 © «2005
Slide 29: Balance Sheet Management
STATE STREET. SETTING STATE STREET APART BALANCE SHEET MANAGEMENT Outlook + Assumptions — Rates stabilize at 5% by mid-2006 - Slightly steeper yield curve in second half of the year — Modest balance sheet growth, in line with customer liabilities + Expectations — 2006 NIR to be in the range of $1.02
Slide 30: Capital Strategies
STATE STREET. CAPITAL STRATEGIES Objectives Shareholders Maximize return within acceptable risk limits Debt holders Depositors Rating agencies Regulators Maintain AA rating Comply with Basel II Maintain well-capitalized status Maintain balance sheet and capital flexibility to service customers effec
Slide 31: Capital Strategies
STATE STREET. CAPITAL STRATEGIES Targets Tangible ratio 4.25%-4.75% Capital Rati ap HUNAN’ Leverage ratio 5.25%-5.75% Target payout ratio of 25% Will evaluate opportunistically Expect to offset employee compensation plan dilution Will evaluate potential M & A opportunities and balance sheet growth,
Slide 32: Summary
STATE STREET. SETTING STATE STREET APART SUMMARY In 2005: * Consolidated the Treasury function + Balance sheet strategy developed and execution begun + Progress made — nearly 75% complete In 2006: + Expect continued improvement in NIR and NIM, based on our assumptions + Maintain conservative interes
Slide 33: Balancing Current Returns and Future Growth
Slide 34: Balancing Current Returns and Future Growth
STATE STREET. SETTING STATE STREET APART BALANCING CURRENT RETURNS AND FUTURE GROWTH Directional Roadmap ~ Consolidation Tnvestment Manager Operations Outsourcing iectronte Markets Hedge Fund Management Hedge Fund Servicing Pension Reform 3 Globalization 6 cing Rapid Product <_\ Introduction Alterna
Slide 35: Leveraging across the Company
Jay L. Hooley Global Head of Investor Services William W. Hunt Chief Executive Officer, SSgA x \ \\ m Y cso ACROSS THE COMPANY ¢
Slide 36: Leveraging across the Company
STATE STREET. LEVERAGING ACROSS THE COMPANY Strategic Initiatives * Hedge Funds + Exchange Traded State Street Investor Services Funds Global Advisors $10.1T AUC + Investment Manager $1.4T AUM Operations Outsourcing
Slide 37: Hedge Fund Market
STATE STREET. SETTING STATE STREET APART LEVERAGING ACROSS THE COMPANY Hedge Fund Market + $1.2T assets in Hedge Fund assets worldwide + Yeat-over-year growth is expected to continue at a rate of 15-20% + Pension funds expected to allocate 9%-10% of investments to hedge funds by 2010 + Absolute retu
Slide 38: Hedge Fund Servicing and Trading
STATE STREET. SETTING STATE STREET APART LEVERAGING ACROSS THE COMPANY Hedge Fund Servicing and Trading + Premier Hedge Fund service provider worldwide — Best Hedge Fund Administrator by /nstitutional Investors’ Alpha magazine - ‘Top Rating’ in Global Custodian’s Hedge Fund Administration Survey + S
Slide 39: Hedge Fund Management
STATE STREET. SETTING STATE STREET APART LEVERAGING ACROSS THE COMPANY Hedge Fund Management « Pension funds turning toward institutional sponsorship — Leverage strength and scale of STT’s institutional presence + Enterprise breadth accelerates new product introduction + $4.0B in AUM; strong product
Slide 40: Exchange Traded Funds Market
STATE STREET. SETTING STATE STREET APART LEVERAGING ACROSS THE COMPANY Exchange Traded Funds Market + $412B in assets worldwide + Expected to grow at 30% per year through 2008 + Financial intermediaries are transitioning from commission to fee-based programs, including ETFs + Hedge funds and other i
Slide 41: Exchange Traded Funds Management
STATE STREET. SETTING STATE STREET APART LEVERAGING ACROSS THE COMPANY Exchange Traded Funds Management + Aglobal leader + Manage 56 ETFs with $94.4B assets * History of innovation - 1998, first ETF - SPDR: $58.4B - 1998, first Sectors - Sector SPDRs: $12.7B — 2004, first Commodity — GLD: $4.3B - 20
Slide 42: Exchange Traded Funds Servicing
STATE STREET. SETTING STATE STREET APART LEVERAGING ACROSS THE COMPANY Exchange Traded Funds Servicing + Leading ETF service provider worldwide + Currently service 60 ETFs with $98.8B assets + Services provided globally in: = Custody and Accounting + Services include: - Fund aminist atl eee 2 Vio St
Slide 43: Investment Manager Operations Outsourcing Market
STATE STREET. SETTING STATE STREET APART LEVERAGING ACROSS THE COMPANY Investment Manager Operations Outsourcing Market * The top 500 investment managers worldwide manage $48.8T in assets, over $38T concentrated with the top 100 managers” + Demand in Europe is for servicing solutions covering the ba
Slide 44: Investment Manager Operations Outsourcing
STATE STREET. SETTING STATE STREET APART LEVERAGING ACROSS THE COMPANY Investment Manager Operations Outsourcing + Largest provider servicing $2.8T assets + The only fully global service provider + Building scale: servicing 10 customers in 14 countries * Delivering global middle and back office serv
Slide 45: Investment Manager Operations Outsourcing for State Street Global Advisors
STATE STREET. SETTING STATE STREET APART LEVERAGING ACROSS THE COMPANY Investment Manager Operations Outsourcing for State Street Global Advisors + Utilizing custody, accounting and fund administration services on our pooled fund offerings worldwide + Leveraging from an ongoing investment in an inte
Slide 46: Leveraging across the Company: Summary
LEVERAGING ACROSS THE COMPANY Summary Strategic Value + Hedge Funds + Exchange Traded Investor Services $10.17 AUC Funds + Investment Manager Operations Outsourcing STATE STREET. State Street Global Advisors $1.4T AUM
Slide 47: Building on Success
STATE STREET. SETTING STATE STREET APART BUILDING ON SUCCESS Success Comes From 1. Leveraging an integrated product set Balancing revenue growth carefully with expense control Managing the balance sheet actively without undue risk Setting high standards in corporate governance Investing in high-grow
Slide 48: Searchable text section of graphics
Searchable text section of graphics shown above I NVESTOR AND ANALYST MEETING February 2006 [LOGO] [ G RAPHIC] SETTING STATE STREET APART Ronald E. Logue Chairman and Chief Executive Officer [LOGO] [ L OGO] AGENDA SETTING STATE STREET APART Performance Against 2005 Goals Building Success in 2006 Bal