State Street Corporation

particularly in the second half of the year. Assets under custody and administration increased 4% quarter over quarter to a record $34.4 trillion. We saw a strong level of new wins during the quarter, totaling $294 billion, which took our total wins in 2019 to just over $1.8 trillion, within touching distance of our record amount of wins in 2018. Assets yet to be installed stood at $1.2 trillion at quarter end. At Global Advisors, assets under management increased 6% quarter-over-quarter to a record $3.1 trillion, supported by higher period and market levels and strong U.S. and European net flows to our SPDR range of ETFs. During 2019, Global Advisors recorded over $100 billion in total net inflows, driven by strong ETF institutional and cash net flows relative to 2018. Relative to the year-ago period, fourth quarter total revenue increased 1%, reflecting improved servicing and management fees driven by stronger equity markets, partially offset by lower NII and markets revenues. On a sequential and year-over-year basis, fourth quarter total fee revenue increased 5% and 2% respectively. Whole year 2019 total revenue decreased 3% year-over-year as a result of lower fee revenue and NII partially offset by the positive contribution of Charles River Development. We are pleased that we were able to begin to grow servicing fee revenue again with our focus on client service. Servicing fees increased 3% during the second half of 2019 relative to the first half of the year. During 2019, we implemented a number of client initiatives to drive better service quality and deepen relationships. This included the completion of our senior executive client coverage model for our largest clients. We also implemented a new client onboarding process that has enabled us to scale rapidly and take on large tranches of business, while also meeting client service requirements. Further, we implemented changes to better manage client pricing decisions through the establishment of an executive deal review committee. We know that there is more for us to do, and as we begin 2020, reigniting total revenue growth remains a core strategic priority for all of us. We believe that building out our front to back alpha platform strategy provides an attractive value proposition for our clients. During 2019, we undertook significant actions to improve our operational efficiency and reduce expenses. This time last year, we launched a comprehensive firm-wide expense savings program to aggressively manage down expenses, driven by new resource discipline, process reengineering, and automation efforts. Initially targeting $350 million of gross expense saves, we subsequently increased our expense savings target to $400 million, which we exceeded, finishing the year at $415 million in gross expense savings. Part of our efforts were aimed at tackling headcount growth, which had been too high for too many years. During 2019, we successfully reduced total headcount by 3% from year-end 2018, driven by automation and standardization as well as process reengineering, with high-cost location headcount down by over 3,400. As a result, we reduced our full-year 2019 expenses, excluding notable items in CRD, by almost 2%, thus exceeding our initial target of 1%. As we look to 2020, we remain focused on reducing our total expense base again. This past December, I outlined the outcome of the initial reassessment of our technology cost structure. In the coming year, we are targeting a change in the trajectory of our IT expenditure, aiming for it to be flat to down 2% during 2020, excluding notable items. For resource discipline and process re-engineering efforts, we are also targeting a reduction of total expenses company-wide, excluding notable items by approximately 1% during 2020. During 2019, we were also particularly focused on balance sheet management. As a result of a number of deposit initiatives, as well as improved client engagement, we have recorded a third straight quarter of total average deposit growth. In addition, as a result of an improvement of balance sheet under stress, following the 2019 CCAR stress test, we increased our quarterly common dividend by 11%, 52 cents per share. Further, we returned 2.3 billion to our shareholders during 2019, including 500 million of common share repurchases during the fourth quarter. To conclude, during my first year as CEO in 2019, we have faced a number of challenges But through our actions, we have made measurable progress towards our goals, particularly expense management and capital return. My focus for 2020 will continue to be on delivering a distinct value proposition and world-class service to our clients, enabling us to reignite revenue growth while generating further expense reductions and sustainable improvements in our operating model. We remain confident in the trajectory of our business. I expect that our global reach and expertise in servicing and data analytics, combined with our unique front-to-back alpha strategy, will enable us to realize our vision of becoming the leading asset servicer, asset manager, and data insight provider to the owners and managers of the world's capital. With that, let me turn it over to Eric to take you through the quarter in more detail.

Thank you, Ron, and good morning, everyone. Before I begin my review of our fourth quarter and full year 2019 results, I'd like to take a moment on slide four to discuss several notable items. In 4Q19, we recognized $110 million of pre-tax repositioning costs consisting of severance and real estate, which sets us up to drive further process automation and organizational rationalization in 2020. We also had $29 million of acquisition and restructuring charges primarily related to Charles River, as expected, And in addition, we had a $44 million gain related to the tender of sub-debt in 4Q19 and a $22 million after-tax cost associated with the redemption of our Series E preferred securities. Taken together, we recognize notable items of $95 million pre-tax or $0.25 per share. You'll find a bit more detail in the appendix. Moving to slide five, on the top panel, we show our quarterly and full-year GAAP results. On the bottom panel, we show results ex-notable items for those of you who want to see some of the underlying trends. I would note that we were able to generate positive operating leverage in the fourth quarter on both the GAAP and ex-notables basis, helping to improve our 4Q19 pre-tax margin, both quarter-on-quarter and year-over-year. Turning to slide six, we saw end-of-period AUCA levels increase 9% year-on-year and 4% quarter-on-quarter. The year-on-year move was driven by higher-end-of-period market levels and client flows, partially offset by a previously announced client transition, which is now largely behind us. Quarter-on-quarter, the AUCA increase was mainly due to higher-end-of-period equity market levels, client flows, and net new business. AUM levels increased 24% year-on-year to a record $3.1 trillion. driven largely by higher end-of-period market levels and strong net inflows of approximately $100 billion, which were spread relatively evenly across our institutional, cash, and the SPDR range of ETFs. Amidst a challenging organic growth environment for asset managers, State Street Global Advisors realized AUM share gains during the year in both money market funds and across our low-cost ETF array. It's a reminder that our business is positioned to further scale its offerings and to improve margins in doing so. Moving to slide 7, servicing fees were up 1% year-on-year and 2% quarter-on-quarter. As Ron discussed, while industry pricing pressure persists, the pace of quarter-over-quarter servicing fee headwinds continued to moderate in 4Q19, with this quarter's results showing three consecutive quarters of stable to increasing servicing fees. primarily driven by higher average market levels and net new business. And while equity markets were supportive over the course of the year, we are confident that management actions taken since late last year, including the rollout of our new client coverage model and newly formed Executive Pricing Committee, have had and are continuing to have an impact. Nevertheless, there is much more to do, as Ron mentioned. Driving higher servicing fee growth will remain a strategic priority in 2020. And we continue to see significant interest in our front-to-back alpha platform. We now have four wins, all of which have expanded our scope of business with existing clients. On the bottom right panel of this page, we've again included some sales performance indicators to provide a little more texture. As you can see, AUCA wins totaled $294 billion in 4Q19 and approximately $1.8 trillion for the full year. The sizable wins this quarter and throughout the year again demonstrate the benefit of our scale and capabilities as we build new relationships and continue to grow existing client relationships by providing additional products and services. Turning to slide eight, let me discuss the other fee revenue lines. Beginning with management fees, 4Q19 revenues were up 6% year-on-year, primarily due to higher average equity market levels and inflows from ETF and cash, partially offset by mixed changes away from higher fee institutional products. Compared to 3Q19, management fees were up 4%, driven by higher average equity market levels and inflows from ETFs, partially offset by outflows from institutional. FX trading services were down 7% year-on-year and 4% quarter-on-quarter as the business was negatively impacted by low volatility levels, partially offset by higher volumes. Securities finance revenues were also down 8% year-on-year and 4% quarter-on-quarter due mainly to lower industry volumes and spreads. Finally, software and processing fees were up 18% year-on-year and 54% quarter-on-quarter, reflecting higher CRD revenue and positive market-related adjustments. Moving to slide 9, you'll see in the top left panel a five-quarter summary of CRD's standalone revenue and pre-tax income. For Q19, CRD generated $126 million of standalone revenue, which was up 4% year-on-year and 48% quarter-on-quarter. I would again remind this audience the lumpiness inherent in the ASC 606 Revenue Reporting Accounting Standard and not to read across any one-quarters results. On the upper right panel, we've also included a comparison of CRD's 2019 standalone revenue versus an estimate of 2018 revenue, pro forma for the ASC 606 reporting standard had we owned the business for the full year. As you can see, CRD generated $401 million of revenue in full year 2019, up 8% versus $372 million of estimated pro forma revenues in full year 2018. On the bottom right panel, we wanted to provide you with a bit more texture on the momentum we're seeing in the business and how we've enhanced it since our acquisition last year. We remain confident in the revenue and cost synergy goals announced at the time of the acquisition. Turning to slide 10, NAI was down 9% year-on-year and 1% quarter-on-quarter, with our NIM declining 19 and 6 basis points, respectively. The sequential decrease in NAI was primarily driven by the absence of episodic market-related benefits seen in 3Q19, partially offset by increased deposit balances. Excluding the episodic benefits seen in 3Q, NII would have been up 2% sequentially. Our deposit gathering initiatives continue to generate benefits. Average total deposits are up 3 straight quarters and up 3% year-on-year. Interest-bearing deposits are up 9% year-on-year. Non-interest-bearing deposits have been steady for the third straight quarter at approximately $29 billion. On the earning assets side, we targeted careful growth in client lending and a modestly larger investment portfolio, with both the average 4Q loans, X overdrafts, and the investment portfolio up 12% year-over-year. On slide 11, we're again providing a view of expenses this quarter, X notables, so that the underlying trends are readily apparent. Year-over-year, our 4Q expenses, excluding notable items, were down 2% and flat quarter-on-quarter. You can see consistent improvement in the comp and benefits, as well as several other lines. As you recall, we announced the 2019 expense program this time last year with an initial target of $350 million. And thanks to a significant company-wide effort, we achieved approximately $415 million in saves on the full year, exceeding our initial target by nearly $65 million. And so let me provide some color on a couple optimization initiatives that really helped us reduce costs last year. First, supplier negotiations and consolidation have been a big focus. We've made great strides in both telecom and tech infrastructure services while also consolidating the number of our IT vendors. Second, the organization has been focused on realizing greater productivity. Automation initiatives launched last year have now led to four consecutive quarters of total headcount declines resulting in high-cost location headcount reductions of about 3,400 this year, more than double our original target of 1,500. More to come in 2020 as we continue to work on every line of the P&L. Moving to slide 12, during the quarter, we returned a total of approximately $686 million of capital to shareholders, and for the full year 2019, we returned approximately $2.3 billion of capital representing 108% of net income available to common, as we executed our 2019 CCAR plan and delivered on our priority of increasing our capital return to shareholders. Moving to the right side of 12, you can see that both the standardized and advanced approaches set one ratio is at a healthy 11.9%, even with that level of capital return. We also consciously reduce our Tier 1 leverage and SLR ratios, primarily driven by the post-SECAR redemption of our Series E preferred stock, which is worth about $0.12 of EPS. We remain confident in our capital position and believe that we have incremental opportunities to continue to optimize our capital structure as changes to the capital rules are finalized. Turning now to slide 13, I'd like to cover our full-year 2020 outlook as well as provide some thoughts on the first quarter of 2020. Before I start, let me first share some of the assumptions underlying our current views for the full year. At a macro level, we are assuming slow global growth, interest rates based on the current forward curve, and a modest uplift from equity markets, as well as continued low market volatility, which impacts our trading businesses. So, beginning with revenues. We currently expect that fee revenue will be up 1 to 3% for 2020. This includes servicing fees growing modestly at the low to middle end of this range, management fees growing at the high end of this range, and CRD revenue should grow at low double digits. Regarding the first quarter of 2020, we would expect fee revenue to be down quarter over quarter by low single digits, perhaps 2 to 3%, given headwinds, such as the expected asset makeshift by a single client in asset management, as well as seasonally lower CRD revenue. Regarding NII, we expect it to be down 5% to 7% in 2020 versus 2019, driven by the carryover impact of lower market rates and some continued rotation in the deposit books. Starting first quarter of 2020, we expect NII to be down about 5% sequentially, driven by the full quarter impact of the October's Fed rate cut, lower day count, and the fourth quarter long-term debt issuance. On a positive note, we do expect that NII should largely stabilize in the second half of 2020, assuming, of course, that there isn't a significant change in the interest rate environment. Turning to expenses. As you can see in the walk, we will continue to be laser-focused on expenses and expect to achieve approximately 4 to 5 percent in savings, driven by our continued focus on resource discipline and process engineering, as well as our technology optimization plan. This will include a reduction in headcount of an additional 750 roles in high-cost locations in 2020, which is related to the repositioning charts I mentioned earlier. These expense days will be partially offset by approximately 3% to 4% of ongoing business building investments in areas like CRD, tech infrastructure, and the variable costs of new business growth. This should yield a net 1% reduction, excluding notable items, in 2020 total expenses. Regarding first quarter 2020, we expect expenses to be largely in line with this guide year over year and consistent with the seasonal expenses usually occurring in the first quarter. Taxes should be in the 17% to 19% range for the year, but we expect first quarter 2020 to be at the high end of that range. And finally, given our strong capital position and recent capital optimization, we expect to continue to actively return capital to common equity holders in the form of payouts and returns, subject, of course, to the Federal Reserve scenarios and associated approvals. So, moving to our summary of full year 2019 results on page 14. We were pleased to see fee revenue improve over the course of the recent quarters as management actions and moderating fee pressure helped drive total fee revenue up 2% in the second half of 2019 versus the first half. At the same time, we continue to navigate a challenging interest rate environment and enhance NII with deposit gathering initiatives with three straight quarters of total deposit growth. We also successfully executed our full year 2019 expense savings program. significantly exceeding our initial savings and headcount reduction target, and helping drive down expenses, ex-notable items, and CRD by 2% year-over-year, demonstrating our ability to bend the cost curve. We're committed to doing more in 2020. Finally, we continue to optimize our capital structure and deliver on our promise of increased capital return to shareholders. with approximately 2.3 billion in capital return in 2019 for a total payout of 108%. And with that, let me hand the call back to Ron.

Operator, can we open the line to questions?

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Our first question comes from Brennan Hawkin with UBS. Your line is now open.

Good morning. Thanks for taking the question. Eric, you just ran through a bunch of color on expectations for the year in 1Q. One that I was hoping to dig a little in on is the fee revenue side. I think you said that the 1Q fee revenue growth down 2% to 3% sequentially, and you gave a couple factors. Does that guidance include what we've seen so far year-to-date in the equity markets, which has been pretty robust, or is that a potential offset if it proves to be durable through the quarter? Thanks.

Brennan, it's Eric. The guidance is effectively as a combination of the end of the year, and obviously if there's large dislocations between then and now, we factor it in. I think you'd say equity markets are up. Volatility still, though, in trading is still pretty light. We've not seen that big January uptick that I think we used to see four or five years ago. Interest rates have been, I'll call it, puttering around. So I don't think there's a lot that's really changed, and this is an outlook effectively based on what we see now. because I described you know there's some of this is just the usual seasonality like in Charles River which you know peaks in fourth quarter just because of the cycle sales that come through and then dip in first quarter you know we have some visibility into into servicing fees asset management fees I I noted you know well it's kind of a combination of that we're looking at.

That's all really fair. Thanks for that color. And then when we think about some of these robust equity markets that we've seen and you guys have clearly done a really good job of trying to get your hands around the elevated fee pressure that you were seeing over early 2019 and leading into that. In the past, we've seen some breakage in fee rate when equity markets rally really hard, really fast, because your servicing fees are not all just purely contractually, you know, percentage of AUCs, basis points on assets under custody. Some of them are, you know, inflation. Some of them are pegged to activity levels and the like. So can you help us think about Should we be prepared for, optically, the way we model State Street, some fee rate pressure here in the near term, just because of those mechanical factors, rather than thinking, I know some people think that when equity markets go up, okay, then the servicing fee is gonna go up with the fee rate being flat. And in the past, it hasn't worked out that way. So just trying to think about how to calibrate for that. Thanks.

Hi, Brennan, it's Ron. Let me begin on that. I mean, in the past, you're correct. There has been a cycle when you've seen sharp up equity markets that has been followed by a relook by the client base at what they're paying and a fee renegotiation. And that's still possible. I think what's different this time is, firstly, we have comprehensively been through the client base, either their bidding or at our bidding in some instances we've been the proactive ones wanting to control of a situation we've tended to get more term out of these things and in general the level of partnership that's between us and our clients now is is at a much higher level so I would suspect my my my expectation is would be that certainly there'll be some conversation, but I would not expect the same kind of effect that we've seen in the past.

Yeah, Brennan, I'd just add the kind of quantitative side to this is, remember, most of our fee schedules in the servicing business are based off of averages, you know, average for a quarter or, you know, multiple months within a quarter or what have you. And so it's worth just remembering that if you tick through the – depreciation in stock market indices, and I think there's a good table on the top right of page six in our slide deck. The S&P, and this is 4Q to 4Q, but if you think about it on a full year basis, which I think a number of you have, the S&P was up 29% end of period to end of period. That feels great, but the average was up only 6%. The AFA average point-to-point was up 18%. On average, it was actually down 4%. So it's really the averages that are factoring through, and I just encourage you to think about those as you think about modeling the servicing fee effects and, in addition, Those are what the – but what we focus on both from a – as we think about the calculation of servicing fees, but also what the clients think about as part of the billing process.

That's great, Culler. Thanks, and apologies for jumping in the weeds straight off the bat on you.

Quite all right. Thanks.

Our next question comes from Glenn Shore with Evercore. Your line is now open.

Hi, thanks. I'm curious if you could talk, and you might have touched on it a little bit, but if you could talk on your deposit optimization efforts, what's working, and where you are through the process you've been going through client by client. You know, 4% growth is good. Do you consider any of it a repo environment related and transient? Just curious to get the mark to market on that.

Sure, Glenn. It's Eric. Let me start. You know, deposit initiatives were something that we really began to focus on, you know, before the quarter of 18, I think I'd say. And then, you know, it's been an intense effort for, you know, four or five quarters now. And it really is in response to thinking about how do we serve our clients with our balance sheet. Now, as you say, sometimes it's deposits, sometimes it's, you know, cash money market sweeps into... Sometimes it's some of the sponsored repo that we do. So there's a series of different areas. I don't think it's particularly – the results of those initiatives, you know, on a year-on-year basis are – north of $10 billion of deposits tend to be more on the interest-bearing side because that's what's discretionary. It's come in probably three buckets. The largest of the buckets is working with our custody clients and how to serve them on their discretionary cash. Sometimes it's the asset managers. Sometimes it's insurers. Sometimes it's the pension funds. So that's probably been the biggest piece. We've also, I think, built up over time a book of corporate deposits because, remember, not only do we have partners and suppliers for our corporations, but because of our custody of the pension plans, right, we have often an introduction from the pension, those defined benefit pension plans or 401K plans, into the corporate treasurer. And so that creates a natural access. And then the third bucket is, you know, we always supplement with a little bit of CDs or broker deposits, but I think that's been probably the smallest of this. So those are the kind of initiatives we've taken. They've been, I think, material in terms of continuing to build our balance sheet, which then lets us, you know, provides enough oxygen and effect for us to build our loan book, our investment portfolio, our trading book. And so, you know, that's kind of part of how we think about running the bank And then specific to your question of would it have been better, different, lower, higher because of quantitative easing or not, I don't think the initiatives would have been particularly different. I do think there is more deposits in the system, in the banking system, and we've seen some of that probably starting in the second half of the third quarter when the Fed began to intervene. Fourth quarter, it's hard to dimension how much there is, but, you know, I both read the Fed H-8 reports, and that kind of gives you a little bit of an idea.

I appreciate that. And maybe one more on just the servicing wins, 294 in the quarter, 18 for the year. If you look at that, that's over 5% organic growth. Now, obviously, it's a gross number, not net. I don't know if you want to share just a ballpark range of where net is. But then the specific question is if you can help us with the composition of what's in the one but not yet funded pipe. I see some of the press releases. I see some ETF wins in there in the fourth quarter. But maybe just help us think through what's in there.

Yeah, Glenn. It's Ron. It's a mix of things that are in there. Some of it is true one-offs, meaning we've won something. It's in the queue to be installed. It'll be installed. More typically, just given the nature of our client base, which tends to be larger asset managers and asset owners, when we win something, we install in tranches. Sometimes it could be very conventional business, like we had a very large mutual fund win earlier in the year. But some of the funds are more complicated than others. Sometimes the client wants it done in a particular sequence around their fund boards. So there's some of that in there. You can probably draw the conclusion that the more complicated . The other thing that's in there, though, is increasingly the nature of our business is that we're not just winning a , but we're winning all or a portion of the front to back, meaning there's some middle office in there, there might be some Charles River in there. So oftentimes what you're seeing is an installation of another service for an existing client where we had an install earlier in the year. That's the way to think about it.

Got it. Okay. That's interesting. I appreciate it. And is it in and around the range of the average service?

margin because I know going piece by piece would be impossible but just like the one but not yet funded is it coming in as at a at a higher level average level or below average low planet Eric it's a I think it's Ron said it's a mix it's you know it's a mix of fee rate mix of timing and you know as you could see the salt was a quarter ago, it's high again this quarter, and so sometimes this installs more quickly. I know it's hard to model. I just encourage you to put a big... Cool.

Well, your outlook comments help, so we'll take it at that. Thanks, guys.

Our next question comes from Ken Uston with Jefferies. Your line is now open.

Thanks. Good morning, guys. To follow up on the NII outlook, Eric, I was wondering when you talk about the expected decline next year, can you just give us a little bit more color on just the dynamics of how much and how the lower rates from last year still roll through on the NIM and also against your point about there being some excess deposits in the system? but you're still growing these deposits from your strategic initiatives. Can the balance sheet also expand to continue to expand from here? So I guess it's just a split dynamic of what happens on the NIM side versus what happens on the balance sheet. Thanks.

Yeah, Ken, it's Eric. You're right to ask. You're asking the volume question and the rate question. So maybe let me do that in that order. I think from a volume perspective, The two drivers that we see in this business are, firstly, the amount of wins that we have in custody and accounting because those typically come with individual deposits, the frictional deposits. Those will come based on the kind of the win rates that we have and some of the... I think the other one is the deposits in the system. And I think we've clearly seen a bit of an uptick, you know, quarter over quarter, you know, based on the bank-wide data as well as some of the, you know, our results and a couple of the other banks. But you've all seen that in the... I think the question is, what happens to deposits in the banking system over the next year? You know, did we just... Did the Fed, in effect, with its easing... process of the last, you know, four, five, six months, you know, get us to a new level, and then we just, you know, go back to the slow, you know, build off of that? Or is there going to be more or less Fed activity? And I'll leave that one to, you know, for you to think about. You know, I think that one's the answer. You know, we do expect some amount of modest deposit growth. I think that what we're careful on on deposits and we – still expect to see is some amount of continued rotation from non-interest-bearing into interest-bearing or, you know, interest-bearing into treasuries because you're seeing that in the underlying, you know, asset holdings of our clients and in the industry. If we think about the volume of deposits going forward, it's comforted that there have been, you know, three-quarters in a row of... of stable non-interest-bearing deposits, but I'll remind you third quarter and fourth quarter of 18 actually saw an uptick in non-interest-bearing deposits, and then it fell significantly in the first quarter of 19 from 4Q18. So we're hesitant to think that we've gotten to a sea change. I'd like to see a flattening of that line, but we're hesitant to call that a C-chain just yet, which is why we do think there will be some continued quarters and year. I think from a rate standpoint, it's everything you'd expect. Long rates still have a negative effect on a full-year basis against – well, long rates I guess I should say long rates have a negative effect as the tractor of the investment portfolio plays through. And, you know, unless long rates pop up, you know, 30, 40, 50 bips, you still have that playing through to a negative. You know, you have the short rates that are kind of have been reset, and so it's going to take, you know, three or four quarters to lap ourselves. You have that effect playing through. Then, you know, you have some – as an example you've got some transactional impacts right as we you know all those perhaps we replace them with long-term debt right because we have TLAC requirements so in effect I end up with higher net income but the you know I get it we get higher available to common but we also have a also have more interest expense because of how the – anyway, I'm hoping I covered most of what you said there.

Yep, and just one more balance sheet structure question to your point on the preferreds. You did that redemption. You said you were able – last quarter you were able to do that before getting even the final. Could you continue to do more in that ahead of getting the finalization of SCB, or does now SCB finalization – really lead any further decisions you make about the balance sheet structure and cap elections. Thanks.

Yeah, Ken, fair question, but obviously we're, you know, any kind of decision by us around CCAR or about, you know, interim, you know, capital actions that we just don't have an ability to telegraph beforehand or to... I just tell you, we always look at the full range of what we can do. We're always conscious that there are periods immediately after CCAR where one tends to have an opportunity. It gets a little more delicate in the first quarter. So let me just leave it at that. It's the kind of thing where I don't think timing matters a ton about when we take our capital actions. We are looking at, obviously, the change in the leverage rules. And then, importantly, we need to see how the SCB comes through. And, you know, that I think we'll know in the coming years. We'll have to gear up for the, you know, for our annual CCAR process.

Our next question comes from Alex with Goldman Sachs. Your line is now open.

Thanks. Hey, good morning, everybody. Eric, I was hoping to dig into NIR in the quarter around some of the deposit cost trends. If I look at the non-US side, it looks like it was a negative, you know, four biffs kind of number. I know there's some FX dynamics that are all through that that could create a little bit of noise, but can you help us understand just kind of where you guys are in terms of deposit costs, how you expect that to evolve from here, and if there's anything you want off this quarter that helps out?

Yeah, Alex, it's Eric. I think there are a couple probably elements here that are flowing through the deposit costs on the U.S. side and then the non-U.S. side. And the page for those of you on the phone that's probably best to look through is the financial addendum that we have. Page 7, there's a detailed sort of average balance sheet table of the last eight quarters. for everyone. On the U.S. side, you see our deposit cost came down, I think, a nice 19 basis points. Most of that is on the USD side. Obviously, this is domiciled view, not the currency view, but it's indicative. And that's really the effect of that October rate cut and the full quarter effect of that coming through. adjusted for, you know, our mix of pricing and so forth. And so I think you see the sort of betas in that kind of 50% range flowing through that line. The non-U.S. domicile is a little messier. Part of what you see there, and that one fell, that interest expense fell more than you would naturally expect. It actually went from a positive interest expense credit in effect. Part of that was, remember, the ECB moved, and we moved as well. We actually, our beta was on that ECB. National markets, as other banks are doing it now, given that it seems like it's going to be negative, not for a temporary period, but for a foreseeable future, and that, you know, what kind of NIMS should be earned on deposits because of the change. And then we also have less in the FX swap costs, and so we had less swap expense in that line of the footnotes, and that just bounced around a bit, the offset being on the

Got it. That's helpful. Thanks. And then a slightly bigger picture question to you guys on profitability. I guess when we take a step back, obviously very nice move on expenses this year, and you guys have more to do next year. I guess when you go back a year or so ago, you had a slide out talking about medium-term pre-tax targets, kind of shooting for two percentage point improvements in pre-tax margin. So that's still the case, but I'm curious what's the base and what's ultimately the destination here because in 2018 pre-tax margins were 28, 29. You guys are kind of 26-ish this year or so. I guess off of which base you would be thinking about the two percentage point improvement? Thanks.

Alex, it's Eric. Let me start on that because I think it's something that we've obviously been you know, thinking through the markets. You know, when we set those up, the markets were at a certain point. They worked against us both on the equity market side, which has, you know, largely bounced back. Now we need to kind of take a few more quarters to get to a place where we're pleased, and that was in our outlook. But it was also at a time when NII, right, was expected to go up, and NII has actually gone the other way. And I think I mentioned in one of the conferences late last year that that change in NII cost us effectively two points of margin. That said, that's just information. I think when we think about how we need to run this business, we still need to drive towards those targets and drive to those targets at pace. And I think we've been clear that, you know, at the time we set those, the pre-tax margin was in the 28% range. And I tell you, if we're at 26% now, you know, we need to, we've got plans to get to 27% and 28% and 29% and, you know, ultimately get that three handle or the 30 handle on margin because we think this is a business that should operate at that level. And I think if you work through some of our you know, guidance for this year. You see us making headway on margin, you know, driving revenues up and expenses down. And I think you'd continue to expect that kind of, you know, leverage, operating leverage and margin expansion is, you know, is kind of tantamount and kind of a fundamental part of our planning process. So, We're standing by those targets. We think they're important. They were well set, and that's where we're headed.

Great. Thanks so much for that.

Our next question comes from Brian Bedell with Deutsche Bank. Your line is now open.

Great. Thanks. Good morning, folks. come back to the pricing pressure concept and asset servicing and one detail I did miss if you could just clarify the fees down 2-3% in 1Q just the servicing asset servicing fee component of that for 1Q but the broader question is we've had that 4% pricing pressure I think that you identified Eric a while back and that had been moderating to that sort of 2% headwind and So just want to get your thought about that headwind coming into 2020 and clarify that that is separate from a mixed shift. And when I talk about that as the common mixed shift toward the ETFs and away from mutual funds, which I know are lower revenue capture, albeit they are just as – I believe they're just as profitable because of the lower cost of servicing them. So maybe if you could just talk about that dynamic in the – is how that shapes that 2021 to 2% up for servicing fees.

Why don't I begin this, Brian, because there's a lot in what you asked in terms of pricing and how we think about our outlook on pricing and pricing pressure. I mean, if you look back on this business for time immemorial, there's been this kind of enduring deflation in the business, which we've all come to know and live with. A combination of business growing, ability to scale, et cetera. And that's been historically at 2%. There's also been mix shift that's been underway since then, too. I mean, the mutual fund to ETF move is not new, it's certainly accelerated over the last few years, and we expect that next shift to continue. The other factor in here is there's increasing concentration amongst ETF providers. We have a very large market share amongst ETF providers, but obviously as those providers get larger, the nature of the fee rate typically is such that they're paying us less than the marginal asset. But this is the nature of the business, and that's what we have to deal with. So we do think and believe, and we've said that it's important. The pressure that we saw starting in 18 and continuing up to 19, we think that's abating. But this is a business that has lived and will continue to live in the face of ongoing fee pressure, which is why... focused on our operating model. How we build a business that not only meet that, but that can become more profitable in that kind of environment.

Brian, it's Eric. Let me add a little bit of a quantitative kind of estimations that we've been doing to kind of solve the problem. So on pricing, I think, as he said, you know, historically there's always been a two percentage point or so headwind on pricing. Two years ago, we saw that pick up to 4% of a headwind, 17 to 18. And then last year, if you think about 18 to 19, that was also 4%. I think we've described how we've been marching through a set of, you know, renegotiations and pricing over the time period. As we look into our book of business and think about this coming year, what's factored into our outlook, is approximately a 3% pricing headwind, so down from the 4%. And, you know, we've got some visibility, good visibility into first quarter and second quarter. And so that's factored into our outlook on servicing fees on a full year basis. To your point of where does mix come out, mix comes out in how we describe client flows and activity, and it's been relatively neutral. You know, activity is up a little bit with clients. Actional activities with flows you're right tend to work the other way around. So that's been a more neutral effect in aggregate relative to past history where it's been a positive. And then finally on first quarter you asked, I'll just remind you that what I guided to on fees for the quarter was down 2% to 3% in aggregate for fees. The downdrafts that I noted were in management fees. and in CRD, and so by omission, I didn't really cover servicing fees, because we expect those to be flattish, you know, and... Great.

That's great, Keller. Maybe then just on CRD, you know, you guys reiterated the revenue and cost synergy outline that you had from day one. I know that's mostly a 2021 impact in terms of where you want to be. Maybe just an update on sort of the timeline into that or how you're thinking about 2020 in terms of part of that $260 million to $280 million revenue goal for 2021. In other words, are you making material progress, do you think, in 2020 as it relates to your guidance there?

Brian, it's Ron. I would say we absolutely are making material progress and in terms of the synergies that we outlined, both revenue and cost, we expect those to play out virtually in the time frame that we discussed earlier. But the more important impact or the even greater impact of Charles River has been around how it's affecting core business and changing the nature of the conversation and the relationships that we're having with our clients. As we noted, we signed four so-called front-to-back deals at Alpha Platform in 2019, so in just over a year of ownership, which in essence means that we have a comprehensive and complete relationship with the client front-to-back. Pipeline there remains very strong, and even in those cases where the likely outcome is not full front to back, it's changed the nature of how we're dealing with our clients from a one-off product provider to a true business process outsourcing partner with these clients. That trend will carry on and in many ways fundamentally change the servicing business to the top.

And is it more of a linear progression through 2021 or more of a hockey stick into 21 as you sign these deals in terms of revenue?

I mean, I'd expect it'll be largely linear, but, you know, with a bit of an uptick as we continue to build out the platform. I mean, we announced over the year various platform partners that we'd added to Alpha. And, you know, these are These are providers that are plugging into our platform and typically where we get a share of those economics. And I think you'll see at an increasing rate over 20 and 21 the number of those kinds of providers on the platform. And you'll see then the increasing importance of platform economics. And that will be less linear and more. It's like how any platform grows, right? It starts out small, and then momentum builds as more and more become part of the platform.

Brian and Derek, to add to that, if you think about the revenue trajectory on the synergies, for example, part of what you'll see is some of the leading indicators, like bookings, have started to tick up. You saw those were up 28% on a year-on-year basis, and so that's what will begin to drive the Charles River kind of specific revenues this year and next year. I think in contrast to that, some of the revenue synergies were around connections with the State Street base of revenues. And in particular, the trading and sponsored repo kind of revenue activity that we've quickly tried to link into Charles River tends to actually happen earlier in the three-year cycle than later just because of the speed at which we can either make the client kind of connections or the, you know, order management system connections. So there'll be a mix, and I think sometime this year we'll probably do maybe a more fulsome kind of where are we, you know, as we're, you know, a year and a half, two years into this deal and try to share more information. It sounds like that would be helpful.

Yep, perfect. That's great, Collin. Thanks so much.

Our next question comes from Betsy Crasick with Morgan Stanley. Your line is open.

Hi, good morning.

Hi, Betsy.

Eric, I wanted to just dig in a little bit on some of the comments around the expenses. I think during the prepared remarks you mentioned, you know, that there's more to come. And I would expect that. I'm just wondering, should we anticipate that the pace of change, the rate of change of expense reductions is something you think you can continue for the next few years? Or is this, you know, 2020, we get the 1% down and then, you know, it's more hold it steady or continue to grow? So, well, I should say continue, but, you know, grow in line with just, you know, core expense pressure. So just wanted to get your understanding of that. the duration of your expectations around, the more to come. Thanks.

Betsy, let me begin on that. And while we're not giving guidance beyond 2020 at this point, I would say that our ambition is to continue to manage expenses down, offset by the necessary investments that we need to make. We believe that there's more room for productivity improvement. Our automation efforts are underway, but we have much more in front of us than what we've accomplished. So we see a path to continued and ongoing expense management, certainly through 2020 and likely beyond, is the way I would think about it. And part of that is, If you're going to win in this industry, that's what you need to do, right? We've talked about the servicing fee pressure. We've talked about the pressure that's on our clients. But it's also just about being able to scale at the level that we need to. I mean, if you think about the amount of new business that we've brought in, those – assets could only have been brought in if there was confidence on the part of the client base that we would be able to scale that. And I just think that to be the leader in this business, we have to continue productivity improvement, driven by automation, driven by process redesign, take on business like that. If we get... Go ahead, Betsy.

I was just going to say, if we get a you know, slightly different rate environment where, you know, rates come down again. Do you feel like you have the flexibility to ramp up that expense reduction?

That's you, Tarek. That was probably where I was going to go. I think we're quite conscious that in a slower, you know, top-line growth environment, you know, we're signaling 1% to 3% on fees this year. You know, that's a year where you want to hold expenses – actually bring them down, right, because we need to create some real operating leverage and margin expansion. And so I think part of the answer to your question is if revenue growth is in that low single digits, then expenses coming down is the right answer. I think to your point and precise question that If revenues take a downtick, whether it's interest rate driven or something else on the equity markets or something, then we would go deeper into expenses and we'd ration our reinvestment and just do it perhaps at a different pace. We'd find ways to accelerate some of our other optimization efforts. You've seen what we're doing in IT, for example, that we described in December. We'd go deeper there and just think about where we were in January of 2019. We announced 1% down and felt like through the middle of the year, the environment hadn't gotten appreciably better. And so we ended up with 2% down. I think that's the kind of incremental action we would find a way to deliver if the environment were not favorable.

Okay. Thank you. Appreciate it.

Our next question comes from Jim Mitchell with Buckingham Research. Your line is now open.

Hey, good morning. Maybe first question, just on the C2-1 ratio, standardized, it jumped 60 basis points, looked like a $5 billion reduction in RWAs. What drove that, and is there more to do there?

Jim, it's Eric. I think you're on the capital ratio pages where we've shown this quarter both standardized and advanced, and we did that because you know, our binding constraints now is effectively both. They're almost right on top of one another. And I think you need to be a scientist to really understand the trend in each of those capital ratios. So let me try, and we'll do a follow-up if necessary. So standardized, you remember, is more volume-driven with some very relatively simplistic factors. And so the standardized ratio actually improved because standardized RWA fell sequentially, and that occurred in particular in the standardized RWA of our FX activities and our securities, I'm sorry, our SEC lending activities, and that's kind of related to the lower levels of volatility in the market and lower action. So that was the biggest downward driver of standardized. If you take out your PhD and want to think about advanced RWA, advanced RWA went up, which is why the advanced ratio came down sequentially. And the advanced RWA increased because of loan growth and investment portfolio growth and a little bit of ops risk primarily. So those were It's a little bit apples and oranges, but that was the driver, I think, from our perspective. It's a good reminder that we live in a world of both, and we obviously will manage to both. I think what I found comforting is notwithstanding all our capital actions that we've taken and our higher payout, we actually are at real healthy capital levels, and that obviously gives us You know, flexibility going forward, it sets us up well for this cycle of CCAR, and, you know, we can take things from there. Absolutely.

Standardized is what matters for CCAR, and that going up is certainly a nice positive. But maybe just the second question, following up on your guidance of kind of fee revenue growth of 1% to 3%, Just maybe to push back a little bit on it, if I look at 4Q fees and normalize for seasonality and processing fees and then just annualize 4Q, I get to almost 2% growth in 2020. So it doesn't feel like a very ambitious target when you think about the S&P is now currently 8% above 4Q average levels. So you have a pretty big tailwind in the markets. You have about 3.5% of growth from AUCA that's yet to be installed, the $1.1 or $2 trillion is equivalent to 3.5% growth. You have a market tailwind, and you only have about 2% fee income growth. Is there something we're missing? I know you talked about the 3% reduction in the fee rate, but it seems like there could be a little better than that. And just feel free to talk me down from that.

Jim, it's Eric. You know, I'm trying to come up with a realistic forecast because, to be honest, we'd actually like to be realistic of what we're seeing. And we also want to, maybe back to one of the earlier questions, if we're realistic on revenue, we'll do the right thing on expenses. And so both matter in this business. But I think this is a realistic forecast. And obviously, you know, if something, you know, changes dramatically, you know, we'll up or down, that could have an effect. But let me just go through the pieces so that you have a sense. So on servicing fees, we said to the lower middle end of the 1% to 3% range. So I think that's pretty clear. I think if you think about it, the equity markets in the U.S. on average, and the averages matter here, will probably be up in the high single digits. So that'll provide a couple percentage points tailwind in fees. There may be a little bit of, there'll be obviously some amount of net new business, but there's also the fee headwind still, that 3% that comes the other way that we need to overcome. And so that's why we get to the lower to middle end of the 1% or 3% range And remember, there are some businesses that are in servicing fees that are driving very quickly. We've noted, for example, EMEA sometimes or some of the asset management space. But there are others like our hedge fund clients are actually tending to be relatively stable or even in downdraft in some cases, and so that works in different directions. So there are some puts and takes within the portfolio that we're always conscious of. I think on management fees, we said the upper end of that range, and I think you can square that with the lower step-off in first quarter of 2020 that I mentioned in my prepared remarks. Trading, I think trading is trading right now. I think you've seen it kind of trend downwards over the last year. I think volatility doesn't feel like it's – It's moving up fast. It's not moving up fast, right? It's stable at best, leverage from hedge funds or from those who borrow or lend in the SEC finance business. If you look at the industry, data is actually down year on year, and I don't see a quick turnaround for that. And so I don't want to gear a business model to – an automatic recovery in trading volatility and opportunities to find wider margins and so forth. And then there's our software and processing fee other line, and I think we've given good, clear guidance on Charles River. And like you say, you just have to be careful about the annualization and the processing fees and other. I think just this quarter, processing fees and other were up about $25 higher than would have naturally been expected than a year ago, quarter over quarter. And if you look at the full year, I think there's that or even a little more in full year 19 than in full year 18. So you may want to think about annualizing either both 18 and 19 or even look back to 18 just because there's a range of possibilities there.

All fair points. I appreciate the color.

Our next question comes from Brian Kleinhansel of KBW. Your line is now open.

Great. Thanks. A quick question on the guidance. You did mention that there was changes in the leverage ratio coming forward. SEB could also be coming through. Has any of that been that factor into the guidance, or if those came through positively, that would all be incremental to the guidance you gave?

Brian, it's Eric. Oh, that's a hard question because if I answer it, I'm going to show all my cards. And I can't show all my cards because I don't know what the CCAR cards are going to be like. And so that's a tough one. I think what we do now is we know the amount of capital returns last year. We have some amount of view on this coming year, but we're still guessing. And so it's, you know, I think what you should probably do from a modeling perspective and what we would expect you to do is think about the capital return levels that we've been at last year, you know, as at least a starting point. I'll let you, you know, take a swag if you wanted to add a little more or not at that. But at least start with last year's. I think that gives some some earnings accretion to the EPS line because of the retirement of shares, and that should factor into your estimates, and that does factor into your estimates, presumably, in our guidance.

okay thanks and then separately when you mentioned the pricing headwinds in 2020 of three percent is three percent the new normal or do you still expect that to go back towards the two percent level um of a headwind that has been historically ryan it's eric that's that's that's a hard question to answer now i think we'll have a better sense of that you know later this year in 2020 because

What we'll get to is where are we with clients with whom we need to adjust pricing in 17 and 18 or 16. Some of those, they tend to be three, five, seven-year contracts. There'll be some that start to come through. I think there'll be some balance of trade discussions with those clients. There'll be some different types of deals we do in 2020 and 21. Think about the front-to-back deals. have kind of a different patina to them, whether they come with more middle office or sometimes with a broader array of services, may not factor in differently. So I think it's just early to tell. I will certainly, I'm sure at this point next year, give some kind of indication for 2021. I think we'd like it to come back down to 2%. But we don't want to build a business model to that right now, which is probably why we've been so emphatic about, notwithstanding the fee growth that we're expecting this year, that we continue to want to reduce expenses in this plan.

Great. Thanks.

Our next question comes from Michael Carrier with Bank of America. Your line is now open.

Thanks. Just a quick one for me. You mentioned in the quarter some market-related adjustments in software fees. Curious just what that was in a material. And then in the 1Q fee outlook, what was the client mix item that you highlighted?

Sure. It's Eric. Mike, let me take the first part of that. On the market-related items in software, in the software and processing fees. There are several. The larger ones are tied around the asset management business where there are kind of two underlying activities. There's an activity where we seed funds with our own capital, and obviously if those funds do well or if there's an equity market uptake, you tend to have a positive mark to market because they're effectively on our balance sheet. The second one is we've got some COMPENSATION PROGRAMS THAT ARE TIED TO DIFFERENT INVESTMENT VEHICLES, AND BECAUSE OF HOW THE ACCOUNTING WORKS, THOSE, AND AGAIN, TIED, I THINK IT'S RELATIVELY TYPICAL IN ASSET MANAGEMENT, THE WAY THE ACCOUNTING WORKS IS YOU TEND TO HAVE A MARK-TO-MARKET EFFECT AND AN ACCRUAL EFFECT, BUT THEY TEND TO BE IN DIFFERENT TIME PERIODS. AND SO IN APPRECIATING MARKETS AS WE HAD THIS YEAR, THEY TEND TO BE POSITIVE. In falling markets, like we had at the very end of fourth quarter of 18, they were negative, and that's why we have a big swing. Those are the – there are a couple other smaller ones, but those are the lumpy items that we just effectively need to live with.

Mike, it's Ron. I'll pick up the second part of your question there. We have a very large client where we do – We have a comprehensive asset management relationship with them. And like lots of other, it's a large corporate. As it's de-risking, it moves from risk-on type of assets, which have a higher fee, to fixed income and liability-driven kinds of investments, which have a lower fee. And this client happens to be large enough that it will be meaningful. I mean, it takes place as we expect sometime in early 2020.

All right. Thanks a lot.

Our next question comes from Mike Mayo with Wells Fargo Securities. Your line is now open.

Hi. I have one question that addresses the headwind and one for the solution. So first, in terms of the problem pricing pressure, which you addressed, you said it's gone from 4% headwind to 3% headwind, maybe not 2%, but a little bit better. I guess isn't some of that improvement due to the runoff of low margin BlackRock? And if you have assets to be installed equal to 3.5% of AUC, is that why you are conservatively guiding from 1% to 3% fee growth? And if pricing pressure is really abating on a core level, why is that?

Mike, it's Eric. I think there are a couple different pieces there on the pricing pressure. I think we try to be real distinct in our certainly internal analysis, but also our disclosure around pricing pressure relative to other drivers of the fee, the servicing fee line. So the other drivers are net new business, which would include a client transition or added business. There is, we talked about flows and activity, which has been relatively modest. And then we talk about markets. So we talk about the different buckets consciously because it helps us better manage. And I think if you go through some of the description that I gave, the fee headwind, we do expect to be lighter from 4% this past year over year. In 2020, we expect it to be closer to 3%. I think we do expect some market uplift in 2020. That's in contrast to effectively no market uplift in 2019 if you look at the averages and you look at the averages around the world and average those. And then on net new business, which would include some of that either added clients or the occasional transition out, we do expect that that would be a bit positive in 2020 based on some of the last year of significant winds. And in 2019, to your point, it was actually flat in effect, and that was because of that client transition. So that's a little bit of compare and contrast.

Mike, on your question on, you know, fee pressure itself, maybe the better way to describe it is we see the effects of fee pressure abating. At some level, clients, of course, want to have the best fee proposition that they can. We've gotten better at managing that and we've gotten better through the addition of additional services like Charles River and the Alpha platform of being able to respond to a fee reduction with either a consolidation of business, offsetting new business, a deeper and broader share of the wallet. So maybe the way to think about it is there's always ongoing fee pressure, and at times that's higher or lower, but it's always there. In the meantime, we've gotten better at managing it, both in terms of how we actually go about managing, but also in terms of the additional services that we can now bring to bear.

And then part of the solution to that, as you've mentioned, is getting more efficient, reduced headcount four quarters in a row, and really technology. So I know you just hired a new chief technology officer, but if you could just give some sense of your technology priorities. Last year, tech spending, I guess, went up 4% to $2.1 billion. Where do you expect the tech spend to go? and I know I've asked this, I asked this at the annual meeting last year, but you ended the decade with a 26% pre-tax margin and it was 29% when you first converted to the cloud. And this predates you, Ron, predates you, Eric, but when you look back at that and you say, okay, what are you going to do different the next few years that you maybe should have done or State Street should have done earlier last decade?

So There's a lot in your question, Mike, and let me try and answer it efficiently. The focus last year was on, firstly, being ruthless in our prioritization of what was important and tying it much more closely to the needs of the business, firstly, our clients, secondly, what we needed to do for our operating model, and thirdly, what we needed to do for improving ongoing operational resiliency. We're very careful about the incremental investments we make, but we need to make incremental investments. That has set us up, if you will, the actions we took in 2019 have set us up now to be focused on what we think are the right priorities. We've let go of some personnel that we felt just weren't consistent with the priorities that we'd set. And now what we need to do is just get better at executing those priorities. We feel we've got a plan in place to do that. So what we told you is that you've seen our historic growth. Our intention is to bend that expense growth just like we've bent overall expense growth. We'll do that through a combination of continuing to reprioritize. The gross impact of that will be reasonably high, but it'll be offset by the investments that we need to make to continue to be positioned the way we want to be with our clients. That result of that will be a resting of the growth, but will probably still be slightly up for the year, the way I would think about it.

Okay. So total tech spend should increase, what, like 1%, 2%? Any numbers, or just a little bit higher?

No, let me just clarify. We were very clear in December that our tech spend this past year, 18 to 19, has been up, right, and up way too high in the high single digits at the 8% to 9% range. And our plan this year, which is factored into the outlook, is to have tech be flat to down 2%.

Yeah, and that would be done, which I think is important to understand, through just like we manage overall expenses, there will be some gross reduction in tech spending offset by a lower amount of tech investments to get us to a flat to slightly down kind of spending.

Got it. All right, thank you.

Our next question comes from Rob Wildhack with Autonomous Research. Your line is now open.

Good morning, guys. Ron, in December you highlighted some hiring to target growth in the asset owner space. Can you talk about the competitive dynamics in that business and any differences from the asset manager side? Is that something you're emphasizing as a real strategic priority in the near and medium term?

Yeah, Rob, we are emphasizing that as a priority for a couple of reasons. Firstly, lots of the capabilities that we have are increasingly relevant to that space. The asset owner space in the distant past was much more of a custody only, maybe a little bit of accounting. And increasingly, asset owners of typical large and medium asset owner Firstly, it's some form of an asset allocator, and in many cases, they have their own investment activities alongside what they're doing with third parties. So it lends itself to the array of services that we have. The cycle time on them tends to be a little bit quicker. So it's a different selling cycle. If it involves Publix, it's a very prescribed selling cycle. So it's something that we believe we can leverage a lot of the capabilities that we have. And it's not like we're not present in that business already, but we believe there's opportunity to grow share as that segment needs more and more of the distinct capabilities.

Got it. And then on the asset management side, there's obviously been some consolidation in the e-broker space, and I believe there was some speculation that this could have an impact on distribution of State Street products. Do you think that's the case? And maybe more generally, can you discuss how you're thinking about your distribution strategy as that landscape keeps evolving?

That's a good question. And I think that we're still in early stages in that. I mean, at one level, it leveled the playing field for distribution. for those that were in some way sharing revenues or paying to be on platforms when it goes to zero you know you don't write checks anymore for that so it's in some cases for us and others we're not the only ones it's reduced our expenses but it's also it's harder to get it's harder to pay for now a distinctive positioning but we do think it will cause is with, if you will, transaction fees no longer the primary criterion by many investors. We believe that it's going to, that it should enable us to point investors to what they should be focused on, which is liquidity of the product, the true cost of moving in and out of the product. And we've got, in the SPDR range, we've got some of the most actively traded products out there. very liquid, in some cases deeper and more liquid than the underlying assets. So we think this is an opportunity for us to actually focus on the liquidity side, the importance of that for our investors. But early, early days in this.

Great. Thank you.

Our next question comes from Gerard Cassidy with RBC. Your line is now open.

Thank you. Good morning, Ron and Eric. Thank you. Ron, can you share with us – you talked earlier about business wins, and there's been a whole mix of different products that you've succeeded with this past year. Can you talk to the front-to-back business wins, which is new because of Charles River? Sure. What types of customers are you seeing grab onto that type of full array of products? Is it a completely new customer, or is it no existing customers that are now willing to give you that opportunity to go front to back?

Here, Gerard, the pipeline is, you know, what we're pleased about the pipeline is that it's a true mix of clients. We would have expected that our existing clients or a client where we had a large position already, and therefore in daily conversations with them, would be interested in this. And that certainly has played out. And in most of the instances defined in 2019, there was some existing relationship. But what's been particularly gratifying is that we have in the pipeline and working very much through them towards what we would expect to see mandates signed in 2020 or early 21. Clients where we had no relationship or just a very, very minor relationship where they see the advantage of being able to have a platform, and it might be all State Street products or it might not, but a platform that integrates it all there. and gives them the ability to re-engineer their own business model. It's led to, as I said earlier, just an entirely different set of conversations with clients. It's not about, you know, we'll do custody for you at a fraction of a point lower than the other guy. And it's much more about, What are you trying to achieve in your business? Interestingly, as you'd expect, some of the clients in the pipeline are those that are challenged by the environment. Others are those that are already winning in the environment and are trying to figure out how they're going to be able to scale for the next five or ten years. So it's a rich mix of clients and we think has just a very, very large potential for us as we go forward.

Very good. And then maybe, Eric, I know there's been a lot of talk on the call about the pricing pressure that you guys have seen. It went up to 4% now. It seems to be coming in a little bit. And you talked about the mix of your business repricing, which may be contributing to the reduction. Can you talk to the pricing competition, though? Are you finding that your competitors are less price competitive? competitive than maybe two or three years ago, or has it really remained unabated?

Gerard, it's Eric. I think it's actually a mix of competitors in some cases and clients in others that actually drive the pricing headwinds. And so if you think about it, we are the largest of the providers to the asset manager segment in the U.S. and around the world as a custodian and fund accountant. And I think it's those clients, the asset manager clients in particular, that have actually borne the brunt of some of the challenges in the investments industry. And so in some ways, you know, we're near to the bullseye of where there's disruption in the investments industry, and that's been why I think we've been disproportionately impacted. It's kind of the effect of having that larger share position. I think we've always seen competitors, you know, come in and out of our industry, and certainly those in the other segments are envious of our position in asset managers. But I don't think it's as much a competition-driven change. There's always some of that, but I don't think it's as much of that. And I tell you, for every large competitor that's in the ascent, there's a large competitor who's beginning to fade and focus on other areas or Sometimes there's a small disruptor coming in. There are other small players deciding that there are other areas to refocus. So I think a little more client-driven than otherwise.

Well, thank you, and I appreciate the time that you spent on the call. Thank you.

Thank you.

There are no further questions at this time. I will turn the call over to Ron O'Hanley for closing comments.

Thanks very much, everybody, for your participation and your interest.

This concludes today's conference call. You may now disconnect.