State Street Corporation

Good morning and welcome to State Street Corporation's fourth quarter and full year 2022 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 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 Fiesel-Biller, 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 2022 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, also available in the IR section of our website. 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. 2022 is an unpredictable year for many of the world's investors and the people they serve. Despite a market rebound in the fourth quarter, 2022 was the worst year for financial markets since the global financial crisis. Both fixed income and equity markets fell, impacted by the war in Ukraine, and several macroeconomic headwinds, including broken supply chains, price and wage inflation, dramatically higher global interest rates, U.S. dollar strength, and heightened fears of global economic recession, which remain today. The uncertainty created by these factors contributed to a meaningful year-over-year decline in global financial markets, as well as increased market volatility impacting flows. Despite these difficult macro conditions, State Street performed well. As a result, we continue to progress in 2022 towards achieving our medium-term targets. Our durable 4Q and full-year 2022 results were driven by a strategy underpinned by our relentless focus on innovation, the power of our distinct value proposition, and State Street's diversified products and services, all of which continue to resonate with clients as demonstrated by yet another year of strong, organic, net-new servicing wins. As we continue to execute against our strategic agenda, we achieved a great deal in 2022. Slide three of our investor presentation shows our full year highlights and the progress we made towards achieving our strategic goals in 2022. In a challenging operating environment and compared to what was a very strong year for our business in 2021, we again delivered positive total operating leverage, pre-tax margin expansion, and a higher return on equity, as you can see on the left of the slide. We drove continued business momentum, including $1.9 trillion of total new asset servicing wins, delivered total revenue growth, and demonstrated ongoing expense discipline in the face of inflationary pressures, and our continued investment in the resiliency and capabilities of our businesses, as you can see on the right-hand bottom of the slide. While weaker average market levels created fee revenue headwinds for our investment servicing and asset management businesses in 2022, our balance sheet businesses, combined with higher interest rates in our deposit strategy, produced materially higher net interest income as compared to 2021. In addition, our foreign exchange trading services and front office software and data businesses produced double-digit year-over-year fee growth manifesting the desired results of our investments in these businesses and demonstrating the revenue diversification of our business model. Turning to slide four of our presentation, I will review our fourth quarter highlights. Business momentum was solid in the fourth quarter, with new AUCA asset servicing wins amounting to $434 billion, driven by broad-based wins across client segments. We reported two new alpha mandates in the quarter, and expand to 12 existing alpha relationships, seven of which added additional back and middle office offerings. Helped by this sales performance, our AUCA installation backlog was 3.6 trillion at quarter end. At Global Advisors, quarter end assets under management totaled 3.5 trillion, supported by another good quarter of ETF inflows. Turning to our fourth quarter financial performance, Before Q22, EPS was 1.91 or 2.07, excluding notable items, up 7% year-over-year, or 4% higher year-over-year, excluding notable items. The year-over-year EPS growth in a challenging market environment was supported by the resumption of common share repurchases in the fourth quarter, as we focused on returning capital to our shareholders. Even in a year marked by economic and political disruptions, Total revenue for the fourth quarter was the highest on record, increasing 3% year-over-year, as lower total fee revenue was offset by very strong NII results, which increased 63% relative to the year-ago period, primarily driven by higher global interest rates, plus our balance sheet positioning and effective execution of our deposit management strategy. As we meaningfully invested in our people in business, we remained focused on expense discipline in the fourth quarter, with total expenses down 3% year-over-year, or flat year-over-year, excluding notable items, in part supported by the stronger U.S. dollar. This was achieved by our relentless and ongoing focus on operational productivity, simplification, and automation. Turning to our balance sheet and capital, our CET1 capital ratio increased to a strong 13.6% at year-end, Recognizing the importance of capital return to our shareholders and having already announced a 10 percent per share increase to our common stock dividend earlier in 2022, we resumed share repurchases in the fourth quarter, buying back a total of $1.5 billion of State Street's common stock. For 2023, it is our intention to return up to 200 percent of earnings in the form of common stock dividends and share repurchases, subject to market conditions and other factors. We expect our business mix, balance sheet strategy, and earnings momentum will enable us to do so while maintaining prudent capital ratios within our target range. Accordingly, as we announced this morning, our board of directors has authorized a new common stock purchase program of up to $4.5 billion through the end of 2023. To conclude my opening remarks, I am pleased to be reporting the third year in a row of pre-tax margin expansion and higher return on equity. which demonstrates the successful progress we have made towards achieving our financial goals. Now, let me hand the call over to Eric, who will take you through the quarter in more detail before I discuss our strategic priorities for 2023.