State Street Corporation · NYSE:STT
State Street — Investor Day (February 2013)
57 slides from State Street's investor day presentation, Feb 28, 2013
Slide 1: 2013 Investor & Analyst Forum: Positioned for Growth
2013 Investor & Analyst Forum February 28, 2013 Positioned for Growth
Slide 2: Agenda
LIMITED ACCESS Positioned for Growth Agenda 2 Succeeding in a Challenging Environment JOSEPH L. HOOLEY Chairman, President and Chief Executive Officer Driving New Revenue Growth JACK KLINCK Global Head of Corporate Development and Client Relationship Management GEORGE E. SULLIVAN Global Head of Alte
Slide 3: Forward-Looking Statements
LIMITED ACCESS Forward-Looking Statements 3 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 (including without limitation, our capita
Slide 4: Succeeding in a Challenging Environment
4 Succeeding in a Challenging Environment JOSEPH L. HOOLEY Chairman, President and Chief Executive Officer
Slide 5: We Have a Strong Foundation
LIMITED ACCESS We Have a Strong Foundation 5 Strong Global Footprint Long-Term Shareholder Value Among Highest Capital Ratios in Industry Focused Strategy Fueled by Macro Trends Strong Global Footprint No. 1 or No. 2 Position in High-Growth Markets
Slide 6: Our Actions Have Driven Positive Results
LIMITED ACCESS Our Actions Have Driven Positive Results 6 • Global economic pressures • Client de-risking behavior • Market-driven revenue weakness • Regulatory changes increase costs and capital pressures • Grew core businesses • Prudently controlled expenses • Continued to transform operating mode
Slide 7: In 2012, Clients Were De-Risking Their Investments
LIMITED ACCESS In 2012, Clients Were De-Risking Their Investments 7 ($BN) • Client investments shifted from equities to fixed-income • Client outflows from international and emerging market funds • Excess deposits at State Street averaged $16BN in 2012 compared to $10BN in 2011 Source: Investment Co
Slide 8: Challenging Markets Pressure Our Securities Finance and Foreign Exchange Revenues
LIMITED ACCESS Challenging Markets Pressure Our Securities Finance and Foreign Exchange Revenues … 8 Securities Finance Foreign Exchange Average Spread 3-Month Libor – Fed Funds 52 16 23 28 10 30 50 2009 2010 2011 2012 State Street Securities Finance Performance FX Volatility – Volumes State Street
Slide 9: Stagnant Interest Rates and Increased Regulation Add Further Pressure
LIMITED ACCESS 1.69% 1.68% 1.52% 1.46% 0.0% 0.5% 1.0% 1.5% 2009 2010 2011 2012 Stagnant Interest Rates and Increased Regulation Add Further Pressure 9 Regulatory Response to Financial Crisis • Increased regulation across the financial services industry • Dodd-Frank implemented in U.S. – Added stress
Slide 10: But, We've Built a Strong Foundation for Growth
LIMITED ACCESS But, We’ve Built a Strong Foundation for Growth … • Successfully grew our core business and continued to invest in high-growth markets • Continued implementing a multi-year Business Operations and IT Transformation program • Controlled costs, reducing headcount and compensation • Cons
Slide 11: … and Delivered Strong Results
LIMITED ACCESS … and Delivered Strong Results 11 Operating-Basis (Non-GAAP) EPS1 Growth from 2009 $3.32 $3.40 $3.73 $3.95 $2.00 $3.00 $4.00 2009 2010 2011 2012 1 Results presented on an operating basis, a non-GAAP presentation. See Appendix for explanations of our non-GAAP financial measures and for
Slide 12: Macro Trends Fuel Our Confidence for Future Growth
LIMITED ACCESS Macro Trends Fuel Our Confidence for Future Growth 12 Trend Driven by State Street Advantage Globalization • Ongoing globalization of investment and distribution channels • 40% of the growth in financial assets will come from emerging markets over the next decade1 • Strong global foot
Slide 13: We're Pursuing Key Strategies for Success
LIMITED ACCESS We’re Pursuing Key Strategies for Success 13 Priorities Strategy • Extending geographic reach – Deepen share in global asset management segment • Opening new vertical high-growth markets – Expand presence in alternative investment servicing market • Broadening our product set – Increa
Slide 14: We're Pursuing Key Strategies for Success
LIMITED ACCESS We’re Pursuing Key Strategies for Success 14 Priorities Strategy • Extending geographic reach – Deepen share in global asset management segment • Opening new vertical high-growth markets – Expand presence in alternative investment servicing market • Broadening our product set – Increa
Slide 15: Driving New Revenue Growth
15 Driving New Revenue Growth JACK KLINCK Global Head of Corporate Development and Client Relationship Management GEORGE E. SULLIVAN Global Head of Alternative Investment Solutions SCOTT F. POWERS Chief Executive Officer, State Street Global Advisors
Slide 16: Why Clients Choose Us
LIMITED ACCESS Why Clients Choose Us We Operate in More Than 100 Geographic Markets Worldwide Broad Set of Global Servicing Solutions Uniform Global Platform Leader in Middle Office Solutions-Based Asset Management Leader in Technology Transformation Our Powerful Global Franchise Sets Us Apart in Me
Slide 17: We Generate Strong Organic Growth as Our Key Clients Grow and Diversify
LIMITED ACCESS We Generate Strong Organic Growth as Our Key Clients Grow and Diversify 17 AUC/A • ~80 of our top 100 clients have had a relationship with State Street for at least 10 years • With solutions in nearly every domicile, State Street delivers deep expertise across asset classes and market
Slide 18: Our Core Client Base Includes Some of the Largest Institutions
LIMITED ACCESS Our Core Client Base Includes Some of the Largest and Most Complex Institutions Across the Globe 18
Slide 19: Our Alternative Investment Solutions Business Has Grown at More Than Twice the Market Rate
LIMITED ACCESS Our Alternative Investment Solutions Business Has Grown at More Than Twice the Rate of the Market1 19 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 2005 2006 2007 2008 2009 2010 2011 2012 $4.7T Alternative Investments Market $4.4T $5.2T $5.7T $6.5T $6.7T $0 $200 $400 $600
Slide 20: Substantial Market Opportunity Exists with Large Percentage Still Untapped
LIMITED ACCESS Substantial Market Opportunity Exists with a Large Percentage of the Business Still Untapped Alternatives Industry Trends: Moving Toward Outsourcing 20 Private Equity Hedge Fund Real Estate Source: HF Market – State Street Estimate; PE Market - Preqin, October 2012, Custody Risk Surve
Slide 21: We Lead the Industry in Alternative Asset Servicing Globally
LIMITED ACCESS $1,0452 $670 $563 $467 $411 $355 $246 $165 $0 $200 $400 $600 $800 $1,000 $1,200 STT CITCO BNY JPM C SS&C GlobeOp NTRS HSBC We Lead the Industry in Alternative Asset Servicing Globally 21 1 HFM Week AUA Survey Assets as of Nov 2012 (hedge funds) and Custody Risk Alternative Fund Admini
Slide 22: State Street Global Advisors is Well Positioned for Growth
LIMITED ACCESS State Street Global Advisors is Well Positioned for Growth in 2013 and Beyond 22 $2.1TN AUM1 1 As of December 31, 2012. 2 Operating leverage is defined as the rate of growth of total investment management revenue less the rate of growth of total investment management expenses. Broad C
Slide 23: Leading Sponsor of ETFs
LIMITED ACCESS 1 As of 12/31/12. 2 Source: Deutsche Bank Markets Research, January 11, 2013. Leading Sponsor of ETFs 23 $TN Global Market Size ETFs / Other Exchange-Traded Products2 ETFs, $337BN, 16%1 0.41 0.59 0.80 0.78 1.13 1.44 1.49 1.91 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2005 2006 2007
Slide 24: Our Investment Solutions Group Meets Growing Investor Demand
LIMITED ACCESS Our Investment Solutions Group Meets Growing Investor Demand 24 Growing Demand Example Strategies • Rapidly increasing market demand – Projected to represent one-quarter of flows and 15% of asset management profits by 20152 – More than 85% of asset managers consider Solutions one of t
Slide 25: Q&A
LIMITED ACCESS Q&A 25 Leader in Investment Solutions Leader in Alternative Asset Servicing Deep Global Client Relationships
Slide 26: Leveraging the Power of the Core Franchise
26 Leveraging the Power of the Core Franchise CHRISTOPHER PERRETTA Chief Information Officer GUNJAN KEDIA Head of Mutual Fund Services
Slide 27: Business Operations and IT Transformation Program on Track
LIMITED ACCESS Business Operations and IT Transformation Program on Track1 27 1 The full effect of the annual pre-tax, run-rate savings is not expected to be experienced until 2015. Data based on the approximate mid-point of the range of the estimated annual pre-tax, run-rate expense savings of $575
Slide 28: Foundation in Place to Reap Benefits
LIMITED ACCESS 2012 Accomplishments 2013 Milestones • Created new global Centers of Excellence • Achieved 20% targeted automation benefits • Targeted to achieve ~ 56% of automation benefits across the business • Established two new low-cost locations to balance our global footprint • Transitioned ma
Slide 29: Building Blocks for Success are in Place
LIMITED ACCESS Building Blocks for Success are in Place 29 Program Progress To-Date Technology foundation Transition to vendor partners Organizational realignment Tracking to planned costs and benefits Technical Operational Beyond Transformation: The Digital Enterprise + _ Certainty Organiza
Slide 30: Program Improves the Client Experience
LIMITED ACCESS Business Operations and IT Transformation Program Improves the Client Experience 30 Uniform Global Platform • Effective use of time-zone differences across global centers, leading to a 16% improvement in portfolios handled per person over last 24 months • Technology enhances Global Op
Slide 31: Q&A
LIMITED ACCESS Q&A 31 Transforming Operations Improving Client Experience
Slide 32: Delivering Shareholder Value
32 Delivering Shareholder Value EDWARD J. RESCH Chief Financial Officer
Slide 33: Delivering Shareholder Value
LIMITED ACCESS Delivering Shareholder Value • Solid Performance in 2012 • Outlook for 2013 – Economic and market assumptions – Revenue and expense drivers – Balance sheet – Operating-basis net interest margin (NIM) • Summary Agenda 33
Slide 34: Solid Performance in 2012: Growth Drivers
LIMITED ACCESS Solid Performance in 2012: Growth Drivers 34 Revenue • Solid new asset servicing wins of $1.2TN • Net new business of $81BN at State Street Global Advisors • Excess client deposits slightly increased net interest revenue (NIR), but reduced net interest margin • Clients de-risked inves
Slide 35: Summary of 2012 Operating-Basis Financial Results
LIMITED ACCESS Solid Performance in 2012: Summary of 2012 Operating- Basis (Non-GAAP) Financial Results1 35 $ in millions, except per share data 2012 2011 % Change Revenue $9,730 $9,564 1.74% Expenses 6,905 6,789 1.71% Earnings per share (EPS) $3.95 $3.73 5.9% Return on equity (ROE) 9.7% 9.9% (20) b
Slide 36: Improvement in Operating-Basis Pre-Tax Margin: 2010–2012
LIMITED ACCESS Solid Performance in 2012: Improvement in Operating- Basis1 (Non-GAAP) Pre-Tax Margin: 2010 – 2012 36 Basis for Business Operations and IT Transformation program Margin improvement of 160 bps 1 See Appendix for explanations of our non-GAAP financial measures and for reconciliations of
Slide 37: Business Operations and IT Transformation Program savings
LIMITED ACCESS Solid Performance in 2012: Business Operations and Information Technology Transformation Program1 37 $ in millions 2011 2012 2013E 2014E 2015E Business Operations Transformation $158 $280 $400 $440 $448 Information Technology Transformation 6 36 109 148 157 Net Benefits Before Non-Rec
Slide 38: Balance Sheet Highlights
LIMITED ACCESS Solid Performance in 2012: Balance Sheet Highlights 38 Average Balance Sheet • Grew ~$19BN year over year, driven primarily by higher levels of client deposits Investment Portfolio • Grew ~$11BN on average year over year • Mark-to-market gain: $698MN (after-tax) at 12/31/12 Investment
Slide 39: Management of Capital
LIMITED ACCESS Solid Performance in 2012: Management of Capital 39 Returned Capital to Shareholders Through Common Stock Purchases and Dividends • Purchased 33.4MN shares of common stock at an average cost of $43.11 per share for an aggregated cost of approximately $1.44BN; as of 12/31/12, $360MN re
Slide 40: Our Long-Term Operating-Basis Financial Goals
LIMITED ACCESS A CONSISTENT EARNER Operating-basis EPS Growth of 10% – 15% Our Long-Term Operating-Basis Financial Goals 40 A TOP-LINE REVENUE GENERATOR Operating-basis Revenue Growth of 8% – 12% A PRUDENT ALLOCATOR OF CAPITAL Operating-basis ROE of 12% – 15%
Slide 41: Outlook for 2013: Economic and Market Assumptions
LIMITED ACCESS Outlook for 2013: Economic and Market Assumptions • U.S. and Eurozone GDP growth to be about 2% and 0.7%, respectively • U.S. fiscal debate to be resolved • Worldwide administered rates to remain low • S&P 500 to increase on average 5% to 1448 and MSCI EAFE® to increase on average 2%
Slide 42: Outlook for 2013: Revenue Drivers
LIMITED ACCESS Outlook for 2013: Revenue Drivers 42 Revenue • $551BN in 2012 wins scheduled to be installed in 2013 • Early signs of re-risking by investors, if continued, is expected to benefit servicing and asset management fee revenues • Decline expected in NIR, with an operating-basis1 NIM of 13
Slide 43: Outlook for 2013: Expense Drivers
LIMITED ACCESS Outlook for 2013: Expense Drivers 43 Expenses • Expect to achieve incremental pre-tax expense savings from Business Operations and IT program of $220MN1 • Expect information systems and communications expenses to increase modestly from Q4 run rate as Business Operations and IT Transfo
Slide 44: Outlook for 2013: Balance Sheet Strategy
LIMITED ACCESS Outlook for 2013: Balance Sheet 44 Strategy Invest in High-Quality Assets • Invest through the cycle • Solid credit profile: ~90% AAA/AA-rated • Diversified by asset class and geography Manage Investment Portfolio Within Risk Appetite • Portfolio duration: ~1.5 years • Fixed-rate secu
Slide 45: Outlook for 2013: Operating-Basis NIM
LIMITED ACCESS Outlook for 2013: Operating-Basis1 (Non-GAAP) NIM 45 Interest-Rate Assumptions • Worldwide administered rates remain unchanged through 2013 • Yield curves retain current shapes Investment Portfolio • To be managed in line with our balance sheet strategy Reinvestment Strategy • Expect
Slide 46: Summary: 2013 Expectations
LIMITED ACCESS Summary: 2013 Expectations • Grow servicing and management fee revenue • Assume continued softness in market-driven revenue • Work through low interest-rate environment • Continue to execute Business Operations and IT Transformation program and manage expenses diligently • Achieve pos
Slide 47: Core Confidence
47 Core Confidence
Slide 48: In 2012 We Performed Well
LIMITED ACCESS In 2012 We Performed Well1 … 48 1 Results presented on an operating basis, a non-GAAP presentation. See Appendix for explanations of our non-GAAP financial measures and for reconciliations of our operating- basis financial information. 9.7 6 8 10 STT (%) 1.46 0.5 1 1.5 STT (%) Net Int
Slide 49: … and Outperformed Our Primary Peers
LIMITED ACCESS … and Outperformed Our Primary Peers1 49 Well Positioned to Maintain Our Lead 9.7 8.8 9.3 6 8 10 STT BK NTRS (%) 1.46 1.21 1.22 0.5 1 1.5 STT BK NTRS (%) Net Interest Margin Return on Equity 29.1 22.9 26.2 20 25 30 STT BK NTRS (%) Pre-Tax Margin 1 As described in the appendix: (i) dat
Slide 50: Heading in the Right Direction
LIMITED ACCESS Heading in the Right Direction 50 Managing Through the Short Term Delivering Value Today and for the Future Well Positioned for the Long Term
Slide 51: LIMITED ACCESS 51
LIMITED ACCESS 51
Slide 52: Appendix
52 Appendix
Slide 53: Appendix
LIMITED ACCESS Appendix 53 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 accordance with GAAP and used in the calculation of identified capital ratios. Management meas
Slide 54: Non-GAAP Reconciliation: Revenue
LIMITED ACCESS 54 2012 YTD 2011 YTD 2010 YTD vs. vs. vs. (Dollars in millions, except per share amounts) 2011 YTD 2010 YTD 2009 YTD Total Revenue: Total revenue, GAAP basis $ 9,649 $ 9,594 $ 8,953 $ 8,640 0.57 % 7.2 % 3.6 % Tax-equivalent adjustment associated with tax-exempt investment securities 1
Slide 55: Non-GAAP Reconciliation: Diluted Earnings per Share
LIMITED ACCESS 55 2012 YTD 2011 YTD 2010 YTD vs. vs. vs. 2011 YTD 2010 YTD 2009 YTD Diluted Earnings per Common Share: Diluted earnings per common share, GAAP basis $ 4.20 $ 3.79 $ 3.09 $ 3.46 10.8 22.7 (10.7) Loss from sale of Greek investment securities .06 - - - Provisions for litigation exposure
Slide 56: Tangible Common Equity and Tier 1 Common Ratio
LIMITED ACCESS 56 As of December 31, 2012 (Dollars in millions) Consolidated Total Assets 222,582$ Less: Goodwill 5,977 Other intangible assets 2,539 Excess reserves held at central banks 41,112 Adjusted assets 172,954 Plus deferred tax liabilities 699 Total tangible assets A 173,653$ Consolidated T
Slide 57: Basel III Tier 1 Common Ratio Estimates
LIMITED ACCESS 57 As of December 31, 2012 (Dollars in Millions) Currently Applicable Regulatory Requirements (1) Basel III NPRs with Impact of SSFA (2) Basel III NPRs with SSFA and Run- Off/Reinvestment (3) Tier 1 risk-based capital 13,760$ 13,252$ 13,252$ Less: Trust preferred securities 950 713 71