State Street Corporation

Good morning and welcome to State Street Corporation's fourth quarter 2020 earnings conference call and webcast. Today's discussion is being broadcasted 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 in whole or in part without 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 Eileen Faisal-Buehler, 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 fourth quarter 2020 earnings slide presentation, which is available for download in the investor relations section of our website, investors.statestreet.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 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 this morning, we released our fourth quarter and full year 2020 financial results. Before I review our results, I would like to reflect on how State Street successfully adapted to the unique operating environment of 2020 and supporting our clients, communities, and the financial system, all while advancing and positioning the business for future success. 2020 was a year like no other in recent memory. As we entered the year, few could have predicted how volatile the operating environment would be as the health crisis precipitated by the COVID-19 pandemic resulted in a global economic recession, which the world is still dealing with. Against that backdrop, governments, central banks, and financial institutions like State Street needed to act quickly to assist in limiting the impact of this crisis on the financial markets and the global economy. 2020 also highlighted a number of racial and social injustices that we must act to address. When faced with these economic and social challenges, I'm proud of how State Street team members around the world lived our values of being stronger together and a trusted and essential partner to our clients and communities, all while generating solid earnings growth for our shareholders in 2020. As the pandemic worsened last year, Our global operating capabilities allowed us to adapt quickly and deliver products, services, and results for our clients when they needed us most. In addition to the client-focused product and service enhancements we made in 2020, we continue to transform our operating model by simplifying our operations, increasing automation, and driving productivity and efficiencies while continuing to invest in our business. State Street has been on a journey to transform its operating model for the last two years, and we expect that we'll be able to deliver further improvements during 2021 to drive costs lower, self-fund investments for the future, and transform how we compete and operate in the years ahead. At the same time, the volatility in markets demonstrated the strength of our global FX franchise, where we retained the number one market share position with asset managers and achieved an approximately 30% uptick in revenue. We continued our intense efforts to innovate throughout 2020 with the further development and delivery of the State Street Alpha front-to-back platform, which has gained traction with clients. Through the open architecture nature of the platform, we have been able to rapidly increase functionality through a number of partnerships with leading data and analytics providers, unlocking new sources of revenue. We signed six Alpha clients in 2020, where early adoption has helped us accelerate our development. the alpha pipeline remains strong. While the alpha platform remains an integral part of our future strategy, We also remained laser-focused on improving the financial performance within investment servicing, which is the core engine of our business. We recently enhanced our institutional services client-facing strategy, and during 2021, we will leverage improvements in client coverage, segments, and regions to broaden and drive investment servicing revenue growth over time. As a result, our strategic moves, the strength of our capabilities and operating model, and the commitment of our team members enabled successful navigation of 2020 and improved year-over-year financial performance, which I will now discuss further. Turning to slide three, fourth quarter EPS was 139 or 169, excluding notable items. Relative to the year-ago period, fourth quarter total revenue declined 4%, largely driven by the impact of interest rate headwinds on our NII results. However, fee revenue increased 2%. reversing recent trends and demonstrating an improved servicing and management fee performance, as well as strong FX trading results. Despite an increase in transaction processing, total expenses were flat year over year, excluding notable items. At the end of the fourth quarter, AUCA and AUM both increased to record levels, supported by higher period end markets. At Global Advisors, we had another strong performance in ETFs and cash. These results in both businesses provide good step-off points for 2021. Turning to our full-year 2020 results, we made solid financial progress relative to 2019 as we worked to drive fee revenue growth higher and total expenses lower. Full-year EPS was 632. or 670 excluding notable items. EPS results were up 17% and 9% excluding notable items, despite the dramatic lower rate environment. Supported by year-over-year improvements in servicing and management fees, very strong FX trading results, and a higher revenue contribution from CRD, which continues to perform well, total fee revenue increased 4%. However, total revenue is roughly flat year-over-year as a result of the impact of interest rate headwinds on NII. Our team drove total expenses down 1.5% year-over-year, excluding notable items. We continued to build on the strong culture of expense reduction that we successfully established in 2019. Operating leverage was positive, and margin was up in one of the most challenging years in history. To conclude my opening remarks, State Street faced a number of unprecedented challenges during 2020. As a result of our operational capabilities and innovation, we were able to successfully navigate those challenges all the while acting as a trusted and essential partner to our clients and communities and generating solid year-over-year earnings growth for our shareholders. As we look ahead for the first quarter of 2021, our board has authorized up to $475 million of common stock repurchases, which is, in effect, the limit set by the Fed. We are well positioned for and looking forward to returning significantly more capital to shareholders in the future. In addition, the Board has also authorized the partial redemption of our Series F preferred stock, which will further benefit our common shareholders following its partial redemption in the first quarter. And with that, let me turn it over to Eric to take you through the quarter in more detail, and then I will return to update you on our medium-term targets.