State Street Corporation

Good morning and welcome to the State Street Corporation's first quarter of 2019 earnings conference call and webcast. Today's discussion is being broadcasted live on State Street's webcast at investors.statestreet.com. This conference call is also being recorded for replay. State Street's conference call is copyrighted and all rights are reserved. This call may not be recorded for rebroadcast or distribution in whole or in part without the express written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now I would like to introduce Ms. Eileen Vassell-Beaver, Global Head of Investor Relations at State Street.

Eileen Vassell- Good morning and thank you all for joining us. On our call today, our CEO Ron O'Hanley will speak first. Then Eric Abloff, our CFO, will take you through our first quarter 2019 earnings slide presentation, which is available for download in the investor relations section of our website, investors.spacestreet.com. Afterwards, we'll be happy to take questions. During the Q&A, please limit yourself to two questions and then re-queue. Before we get started, I would like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our slide presentation. In addition, today's presentation will contain forward-looking statements. Actual results may differ materially from those statements due to a variety of important factors, such as those factors referenced in our discussion today. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them, even if our views change. Now let me turn it over to Ron.

Thanks, Eileen, and good morning, everyone. Turning to slide three, you will have seen we announced our first quarter financial results this morning. Our results reflect challenging industry conditions, including lower average equity market levels relative to 1Q18, continued pricing pressure, and lower global industry flows that were somewhat improved from 4Q18, but muted compared to the last few years. In light of the current environment, we are driving a culture of execution and productivity, as evidenced by the early accomplishments of our expense management program, which I will discuss further shortly. Assets under custody and administration increased 3% relative to the end of fourth quarter of 2018 to $32.6 trillion, with new wins in the quarter of $120 billion and assets yet to be installed of $309 billion. At Global Advisors, assets under management increased by 12% relative to the end of the fourth quarter of 2018 to $2.8 trillion, supported by higher period end equity market values and net new inflows of over $70 billion. Turning to slide four and before diving a bit deeper on the quarter, I would remind you that our vision is to be the leading asset servicer, asset manager, and data insight provider to the owners and managers of the world capital. Let me provide a check-in on the progress against the strategic execution priorities underlying this vision, which you have heard me outline previously. These priorities are, first, to reignite our servicing fee growth. Second, to innovate and grow diversified revenue streams. Third, to deploy the industry's leading front-to-back asset servicing platform. as a technology-driven scale provider. Fourth, to generate substantial expense saves. And fifth, to foster a high performing and leaner organization focused on execution and productivity. We recognize that industry servicing fee revenue remains under pressure. However, we are taking a multi-pronged approach to reigniting servicing fee growth and are confident in our ability to grow revenue. which we expect to see in a few quarters. Let me mention some of the actions we have underway. First, we are significantly upgrading our client coverage model. Our new client executive program is approximately two-thirds of the way complete, led by a combination of new talent and accountable executives. It will deliver a cohesive one-state street experience to our most important clients, which account for more than 50% of our revenue. Second, we have established a new Executive Deal Review Committee. This group is evaluating client pricing and business acceptance decisions that have firm-wide applications. And third, we are strategically aligning the company with the most attractive client segments in the market, our fastest-growing large clients, which include global asset managers, asset owners, and insurance firms. We are changing the way we interact with clients, renewing our focus on delivering industry-leading client service and innovative new offerings while driving efficiencies for State Street. In keeping with this proactive approach, I personally have been working with our client service teams to review client account plans and have met with close to 40 client CEOs in my first 90 days as CEO of State Street. Beyond our largest clients, we are capitalizing on our learnings and have plans in place to implement new segment strategies over the next few quarters, beginning with the insurance and asset owner segments, with the aim of increasing market and wallet share and further diversifying our revenue stream. Next, I would like to concentrate on our priority to deploy the industry's leading front-to-back asset servicing platform. We are already making measurable progress. At the end of the first quarter, we had approximately 110 opportunities being actively pursued by our sales teams. Notably, we anticipate announcing a number of client adoptions of the front-to-back platform during 2019 as clients see the strong value proposition enabled by the Charles River State Street combination. We are pleased with the momentum of Charles River's front-end offering as evidenced by its strong new bookings. and remain confident in achieving our revenue and cost synergy projections announced when we acquired the business last year. Moving on, I'd like to discuss our current expense management initiatives. We remain committed to generating expense saves over the medium term while continuing to invest prudently in our business. Given the challenging operating environment, This past January, we announced an even more ambitious $350 million cost program for 2019, targeting 4% productivity savings driven by resource discipline, as well as process reengineering and automation, before investing a portion of that in technology, including resilience and growth initiatives. To date, we have already achieved more than 20% of the targeted savings. Disciplined expense management continues to be one of my top priorities. The firm-wide hiring freeze for all non-critical roles outside of CRD that I implemented remains in place. We are now reducing our workforce while structurally compressing the senior management pyramid. These measures have contributed to an overall reduction in underlying expenses by 2% relative to the fourth quarter of 2018. Finally, becoming a higher performing organization is the cornerstone to executing on our vision and successfully achieving our strategic priorities. I am deeply focused on simplifying the organization and ensuring we have the right leadership in order to drive our strategy and achieve results across State Street. To that end, I have made a number of changes to our senior management team. Since last December, we have in place a new chief operating officer, a new head of global delivery, a new head of our global clients divisions, as well as a new head of global markets. We also have announced that Francisco Aristegueda will join State Street and become the CEO of our international business. Francisco is a highly experienced and talented individual who will lead all of our international business activities. These new leaders will drive the change we desire and ensure we have a high probability of executing on our strategic priorities. but that will take some time. I'd like to conclude my remarks by highlighting our focus on capital return to our shareholders. During the first quarter, we returned approximately $480 million to shareholders through share repurchases and dividends. As we look ahead, we feel that the current repositioning of our balance sheet during 2018 positions us well for CCAR 2019. we remain optimistic that we can achieve a total payout that is substantially better than 80% for the CCAR cycle. And with that, let me turn it over to Eric to take you through the quarter in more detail.