State Street Corporation

Good morning and welcome to State Streets Corporation's fourth quarter and full year 2021 earnings conference call and webcast. Today's discussion is being broadcasted live on State Streets website at investors.statestreets.com. This conference call is also being recorded for replay. State Streets conference call is copyrighted and all rights are reserved. This call may not be recorded or rebroadcast or for rebroadcast or distribution in whole or in part without the express written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now, I would like to introduce Eileen Fitzel-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 fourth quarter and full year 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 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 filing, 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 fourth quarter and full year 2021 financial results. Before I review our results, I would like to take a moment to acknowledge the dedication and strong performance of State Street employees during the past year. These team members remain central to the continued successful execution of our strategy as we hope to create better outcomes for the world's investors. Together, we accomplished a great deal in 2021, including higher fee and total revenue generation, successful execution against both sales effectiveness and client retention goals that is driving growth and business momentum, as well as announcing the proposed acquisition of Brown Brothers Harriman Investor Services. All of this would not have been possible without our employees' hard work, skill, and commitment. Slide three of our presentation highlights the progress we made during 2021. with both of our business segments performing strongly as we advanced towards achieving our medium-term financial targets. Within the investment servicing business, our enhanced core strategy, combined with our strategic pivot to an enterprise outsource solutions provider across the front, middle, and back office, manifested itself in stronger business momentum and revenue growth in 2021, which you can see along the top of the slide. As we successfully diversify and broaden our wins by region and client segment, we achieved record AUCA servicing wins of 3.5 trillion in 2021 and continue to deploy our enterprise outsourcing capabilities underpinned by our integrated front to back alpha platform. We announced nine additional alpha wins in 2021 with 10 alpha clients now live at year end. We also continued to enhance our product capabilities in 2021, launching Alpha for private markets, as well as our new State Street Digital division. At Global Advisors, we executed well against our long-term strategy, which contributed to a number of records for that business in 2021, including revenues, assets under management, and ETF inflows. Importantly, Global Advisors' full-year pre-tax margin expanded by over six percentage points in 2021 to a record 32%, deepening the value of our investment management franchise to State Street's results. Our SPDR business performed particularly well in 2021, gaining US ETF flow market share, including low cost and active, in addition to the record inflows I just mentioned. As I look back at 2021, I am particularly pleased with our client impact. Improvement in our sales effectiveness and heightened focus on client satisfaction, service quality and retention across our businesses, together with a favorable equity market backdrop, helped to drive a stronger revenue performance. Notably, full-year servicing and management fees each reached our highest level on record in 2021, with total fee revenue increasing by 5% year-on-year and exceeding $10 billion for the first time. While we delivered a strong revenue performance in 2021, expense management remained a key focus for us, with company-wide productivity and engineering efforts achieving approximately $330 million of gross expense savings. Because of our strong revenue and sales performance in 2021 and the healthy pipeline in front of us, these efficiency savings allowed us to fund investments in our talent, technology, and business in the fourth quarter to drive future growth. Even with this increased investment, total expenses were well-contained relative to revenue growth, helping to drive a significant improvement in a number of key financial metrics that you can see on the bottom of the slide. Despite record low interest rates and excluding notable items, we delivered meaningful full-year pre-tax margin expansion, positive fee and total operating leverage, and EPS growth in 2021, and we expect to do this again in 2022. Turning to slide four, I will briefly touch on our fourth quarter highlights before Eric takes you through the quarter in more detail. 4Q21 EPS increased 28% year-over-year, or 18% excluding notable items. This strong year-over-year earnings growth was driven by solid total fee revenue growth, which more than offset interest rate headwinds on NII, leading to a good fourth quarter total revenue performance. We delivered 130 basis points of total positive operating leverage in the fourth quarter, excluding notable items. Importantly, we again expanded State Street's pre-tax margin, which increased by more than a percentage point relative to the year-ago period to 28% in the fourth quarter, excluding notable items. The solid business momentum that we saw during 2021 continued into the fourth quarter, which you can see in the middle of the slide. AUCA increased to a record $43.7 trillion at quarter end, and new asset servicing wins amounted to $332 billion for the quarter. AUCA, one but yet to be installed, was $2.8 trillion at quarter end, while Charles River's annual recurring revenue in the fourth quarter increased 9% year-over-year to $244 million. At Global Advisors, assets under management totaled $4.1 trillion at quarter end, Management fees increased to a record $530 million in the fourth quarter, benefiting from higher year-on-year average equity market levels and record inflows to our ETF franchise. Turning to our balance sheet at the bottom of the slide, capital return remains a key part of our medium-term targets, and we recognize its importance to our shareholders. As you know, we suspended common share repurchases in Q3 in connection with our intended purchase of Brown Brothers Harriman Investor Services. We currently expect to reinstate common share repurchases during the second quarter of this year in line with our previous expectations. To conclude my opening remarks, I am pleased with the strategic, operational, and financial progress we demonstrated in 2021. We've meaningfully improved our full year financial performance across a number of key metrics, creating value for our shareholders and advancing us towards our medium term financial targets. Looking ahead, I have four core strategic objectives for 2022, which are aimed at helping us achieve our vision for the organization and position the business for future success. First is to continue to grow revenue by executing on a number of key strategic priorities this year, including completion of our pivot to an enterprise outsourcer underpinned by our alpha platform build-out, continuing to develop key product offerings and capabilities, particularly private markets, and further strengthening sales and client management capabilities and processes. Second, The successful integration of BBH Investor Services is a key priority. The proposed acquisition is a financially compelling use of capital, and once closed, it will strengthen our market leadership by creating the world's largest custodian, expand and deepen our international reach, further propel our alpha strategy, and add strong talent that will supplement our focus on client and service excellence and expertise. Third, as we did in 2021, we must continue to transform the way we work by driving increased productivity and efficiency throughout our organization. We are developing and implementing a simplified, scalable, configurable, end-to-end operating model. This more scalable model will allow us to deliver increased client quality, operational capacity, speed, and resilience. Fourth, we must continue to build an even higher performing organization. A performance culture and improved employee experience will enable us to sustain a more diverse, engaged, and empowered team with the experience, capabilities, and desired behaviors required for future growth. These four goals reflect our relentless focus on performance and achieving our medium-term financial targets. I have confidence that we will be able to meet our strategic and client goals while also delivering positive fee and total operating leverage and expanding our pre-tax margin each year through our medium-term horizon, aided by the strong momentum we are seeing across our businesses. And with that, let me turn it over to Eric to take you through the quarter in more detail.