State Street Corporation

Good morning and welcome to State Street Corporation's first quarter 2021 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 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 Fizell-Buehler, Global Head of Investor Relations at State Street.

Thank you. Good morning, everyone, and thank you 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 2021 earnings slide presentation, which is available for download in the investor relations section of our website, investors.state street.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 just one or more items from GAP. 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 first quarter financial results. Before I review our results, I would like to briefly reflect on the environment we are operating in today as compared to this time last year, and then highlight some of the data that evidence the progress we are making towards enhancing and improving our operating model and innovating across our franchise, all the while being an essential partner for our clients. Relative to the first quarter of 2020, the first three months of 2021 could hardly be more different. Economic activity is sharply rebounding, unemployment is declining, and equity markets have recovered strongly from the crisis levels experienced in 2020. Although short-end rates remain at historically low levels, long-end U.S. bond yields are rebounding. While COVID-19 infection and death rates remain stubbornly high in many parts of the world, there is clearly light at the end of this pandemic tunnel. The owners and managers of the world capital are also looking to the future and to the next stage of growth. As the economy and financial markets continue to recover and investment inflows continue to grow, we remain focused on delivering for our clients across segments and regions. As demonstrated by our first quarter financial results, State Street continues to successfully navigate the improving operating environment. Although, as I noted, short-term interest rates, which compressed further during the first quarter, remain a critical headwind for our industry. While we cannot control interest rates, we are resolutely focused on implementing our strategy and pivoting our business to being more of an enterprise outsource solutions provider, underpinned by the ongoing development and delivery of our State Street Alpha front-to-back platform. And we look forward with confidence for a number of reasons. First, we further built upon our reputation for reliability during the crisis. and our clients know that services and market solutions they need in good times and in bad. Second, throughout the crisis, we continue to invest in further strengthening and distinguishing our global operating model, client service, and operational resiliency, which has been apparent to and noted by our clients. Third, many clients are reassessing their own operating models, and as a result, we have the opportunity to take on more of their operations and data activities. allowing them to focus on creating better investment outcomes for their clients. Fourth, our employees continue to perform at very high levels despite a year of largely remote work and disrupted routines. I am grateful for their extraordinary dedication and service. Last, both our alpha and non-alpha institutional servicing value propositions continue to resonate and enjoy take-up, as demonstrated by some recent announcements. For example, we reported an additional three State Street Alpha clients during the first quarter, and separately this morning, we announced a full front-to-back Alpha relationship with Invesco, adding front and middle office services to our existing back-office mandates. Through the open architecture nature of our operating platform, we have been able to rapidly increase functionality for a number of partnerships, unlocking new sources of revenue and strengthening the interoperability element of our alpha value proposition, which is appealing to clients. After quarter end, we announced that M&G has appointed us to provide outsourced middle office services in addition to our existing fund accounting and custody services. State Street will administer the middle office services on Aladdin, exemplifying how we offer clients the benefit of choice regarding their front-end and middle office systems. These deals highlight how we are uniquely positioned to win front-to-back mandates as well as to win new business as a result of the interoperable nature of our operating platform. While the Alpha platform remains an integral part of our strategy, we also continue to innovate across our franchise. For example, a growing demand exists for ESG solutions that will provide the necessary data, risk analytics, and reporting capabilities at scale. To that end, during the first quarter, we introduced enhancements to our ESG solutions and can now provide clients with the ability to address new global ESG regulatory requirements or a single platform. Global Advisors' new U.S. corporate ESG ETF launched in EMEA in late 2020 and grew to $5.4 billion of AUM by the end of the first quarter, making it the largest corporate bond ESG fund in the USIT space. We also continue to develop our digital asset strategy as we prepare to deploy our capabilities in servicing digital products. We recently announced our intention to service the VanEck Bitcoin Trust ETF Subject to regulatory approval, we will work with VanEck to provide services including ETF basket operations, custody of the ETF shares, fund accounting, order taking, and transfer agency in multiple jurisdictions. Next, I will review our first quarter highlights before handing the call over to Eric, who will take you through the quarter in more detail. Turning to slide three, first quarter EPS was 137, or 147, excluding notable items. Relative to the year-ago period, first quarter total revenue declined 4 percent, driven by the impact of interest rate headwinds on our NII results. However, total fee revenue increased 4% driven by servicing and management fee growth, which increased 7% and 6% year over year respectively, as well as an improved software and processing fee performance. Collectively, these more than offset the year over year headwind from FX trading as compared to the exceptionally strong first quarter of trading last year. While our FX trading revenues are down year over year, first quarter revenue remains well above the pandemic levels as a result of higher client volumes and the investment we have made in our platforms and talent in recent years. Even with rising total fee revenue, first quarter total expenses were essentially flat year over year, excluding notable items in currency translation as productivity improvements are paying off. Furthermore, we have successfully reduced high cost location headcount relative to the period one year ago As a result, we remain confident in our ability to control core operating expenses over the remainder of 2021. At the end of the first quarter, AUCA and AUM both increased to record levels supported by higher period end markets. AUCA increased to $40.3 trillion. New asset servicing wins were a solid $343 billion, while servicing assets remaining to be installed in future periods amounted to $463 billion at quarter end. Global advisors, AUM increased to $3.6 trillion, and also benefited from a very strong flow performance in ETFs and a solid performance in the cash business. At CRD, annual recurring revenue increased 14% to $225 million, and we remain pleased with how the business is performing while also enabling our alpha strategy. Overall, we had a strong start to the year and remain confident that we have a clear path for our medium-term targets as discussed in January. To conclude, we continue to successfully navigate and distinguish ourselves in a fluid and improving operating environment as demonstrated by our first quarter results. We remain focused on further developing and growing our alpha offering and are pleased with the recent client activity. Meanwhile, we also continue to innovate across and grow many areas of our franchise. During the first quarter, we returned $659 million of capital to our shareholders for a combination of common share repurchases and common dividends. For the second quarter of 2021, our Board has authorized up to $425 million of common stock repurchases, consistent with the limits set by the Fed. And with that, let me turn it over to Eric to take you through the quarter in more detail.