State Street Corporation

Good morning and welcome to State Street Corporation third quarter 2020 earnings conference call and webcast. Today's discussion is being broadcast live on State Street's website 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 immediately. in whole or in part without the expressed 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 Eileen Faisal Beeler, Global Head of Investor Relations at State Street.

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 third quarter of 2020 earnings slide presentation, which is available for download in the investor relations section of our website, investors.state.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 measures 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 and in our SEC filings, including the risk factors in our Form 10-K. 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.

Thank you, Eileen, and good morning, everyone. Earlier today, we released our third quarter and year-to-date financial results. Let me start by saying how proud I am of our team members worldwide who continue to put our clients first and deliver strong results for our shareholders in these extraordinary times. Turning to page three, our vision is clear and remains that of becoming the leading services and data insight provider to the owners and managers of the world's capital. Despite the challenges of the current operating environment, we continue our strategic pivot in investment services from being primarily a fund servicer to being an enterprise outsource provider, further enabled by our differentiated State Street Alpha platform. We are forging ahead with the implementation of our strategy, developing new business opportunities, and continuing to drive productivity improvements. As we successfully navigate the COVID-19 environment, we are operating against four priorities. One, delivering growth through deeper client engagement. Two, improving our product performance and innovating. Three, driving efficiencies through improved productivity and optimization. And four, supporting the financial system and planning ahead for our team members. I will provide you a short update on each of these areas before moving on to our results. First, our clients are at the center of everything we do. This year we have proven that as a result of our strong operational capabilities, we are able to effectively and efficiently onboard new clients and install new assets in even the most volatile of market environments. and we continue to see proof points of our operational excellence. For example, this quarter we successfully installed approximately $800 billion of investment servicing assets. This was accomplished while also driving sales and expanding the pipeline, as demonstrated by the strong level of new investment servicing wins this quarter, which amounted to $249 billion. Our front-to-back alpha platform drove approximately one-third of these wins. Of note, Included in these wins was a front-to-back CRD, middle office, and core custody mandate with a large European asset manager that was not a pre-existing client relationship. Also, despite the challenges, we continue to expand in critical growth markets with the opening of a new office in Saudi Arabia to support our growing opportunities in the Middle East. Lastly, we continue to win new business and maintain a strong pipeline at CRD where this quarter we more than doubled new bookings, both year over year and quarter over quarter. The institutional investor market is experiencing significant disruption. Our clients are facing increased pressures to effectively employ data to achieve better investment outcomes and drive efficiencies within their operating models. We are positioning ourselves strategically to meet our clients' needs and help them with their own strategic pivot. Second, Product differentiation and innovation are critical elements of how we are driving revenue growth across the franchise. Clients continue to turn to State Street for our comprehensive and differentiated servicing capabilities. For example, we recently launched our new NavInsights product for our hedge fund clients. Elsewhere, the open architecture and interoperability of our platform will enable us to expand our capabilities and attract new clients by partnering with other service providers. such as our recently announced partnership with Simcorp for the insurance segment in EMEA. At Global Advisors, where assets under management reach a record level of $3.1 trillion this quarter, we continue to expand our product offering, including expanding our range of fixed income ETFs. Third, we remain highly focused on driving productivity improvements and automation benefits as we strengthen our operating model and key cost efficiencies. even during this challenging period. Company-wide productivity and efficiency efforts in just the first nine months of 2020 have so far achieved gross savings of 5% of our 2019 year-to-date total expense base, excluding notable items, as we continue to gain efficiencies through IT optimization as well as other measures. The efficiencies we gain from the optimization of our business model to date are enabling both margin expansion and further investments to support our operations, client needs, and technology innovation, including our ongoing investments in CRD and our Alpha platform. Last, throughout this crisis, State Street has supported the financial markets and our employees. Our human capital is critically important to our success. We have safely reopened most of our office locations across the world and have brought back critical functions that operate more effectively full or part-time in office, though most of our workforce remains work from home. At the same time, we are planning for the post-pandemic workplace of the future. We believe that enabling better productivity, innovation, and fostering cultural attributes that set us apart are critical to our success. As many of you know, Global Advisors has long been a leader in its stewardship efforts and its focus on diversity and good governance with portfolio companies. We are also addressing racial and social injustice by improving the diversity and inclusion within our own organization and advocating for the same in our industry. This is critically important to our leadership team, and we are taking a number of concrete actions aimed at reducing these injustices, including 10 specific actions we have committed to executing. which I encourage you to review on our website. Turning to slide four, we present our third quarter and year-to-date financial performance highlights. You will see that as we continue to implement our strategy and improve our productivity, these actions are bearing fruit. First, looking at our third quarter results relative to the prior year period, total revenue decreased 4%, largely driven by the impact of interest rate headwinds on our NII results. However, fee revenue increased 2%, demonstrating the progress we are making as we work to reignite fee revenue growth, as well as the year-over-year contribution from CRD. Turning to expenses, here again I am pleased to report that as a result of our continued productivity improvements, we have reduced both third quarter and year-to-date expenses by 2%, excluding notable items. Productivity management is now a way of life for us, and we will continue to build on this strong culture of expense management we have successfully established. On a year-to-date basis, and excluding notable items, we have driven three percentage points of positive operating leverage, improved our pre-tax margin by 1.3 percentage points, and generated 19 percent of EPS growth relative to the year-ago period. We have achieved these improved results in a very challenging operating environment, particularly the low interest rate environment that I just mentioned. Lastly, reflective of our business model, our balance sheet and capital position are strong, and we continue to operate with capital levels well in excess of our regulatory requirements. As we await the outcome of the latest Federal Reserve stress test in the fourth quarter, given our strong capital levels and unique business model, we are considering a full range of capital return actions, in line with Federal Reserve instructions and market conditions. To conclude, despite the challenges of the current operating environment, we are navigating it well. We are implementing our differentiated front-to-back alpha strategy, developing new business opportunities, and continuing to improve our operating model, thereby driving productivity improvements. I am pleased that our third quarter and year-to-date performance demonstrate this and how we are making measurable progress in improving State Street's financial performance. And with that, let me turn it over to Eric to take you through the quarter in more detail.