State Street Corporation

Good morning and welcome to State Streets Corporation's first quarter 2023 earnings conference call and webcast. Today's discussion is being broadcast 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 for rebroadcast or distribution in whole or in part, without expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. I would now like to introduce Eileen Fissel-Buehler, Global Head of Investor Relations at State Street.

Thank you. 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 first quarter 2023 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. Earlier today, we released our first quarter financial results. Before I review our financial highlights, I would like to briefly reflect on the eventful operating environment in the first quarter. Investors had to contend with significant market movements and volatility driven by persistent inflation, continued central bank interest rate increases, and the recent disruption to certain segments of the banking industry. First quarter global financial market performance was choppy. January produced a very strong start to the year with gains across most asset classes, including equities recording the strongest start to a year since 2019. However, investors remain cautious about the prospect of enduring inflation and a potential recession in the United States. February saw that encouraging start recede as strong U.S. employment data led to growing concerns about the persistence of inflation, which in turn saw market expectations for central bank rate hikes increase, fixed income and equity markets decline, and the U.S. dollar strengthen. March saw continued rising central bank rates, which in turn drove shocks to both the US regional and international banking sectors and the need to resolve a number of banks. All this drove negative market sentiment, contributing to large inflows into money market funds and a reversal of a number of the macro trends from the prior month. Both current interest rates and rate expectations decreased and the US dollar weakened, although relative calm returned to markets by the end of the quarter. Notwithstanding these events, all told, global financial markets performed relatively well in the first quarter compared to the fourth quarter of last year, with broad-based gains recorded across global equities, while U.S. Treasuries experienced their best quarter since the first quarter of 2020. However, daily average equity and bond market levels both remained significantly below the year-ago period, with average equity markets down approximately 10 percent, which created headwinds for our fee-driven businesses, impacting our year-over-year financial results, which I will discuss shortly. Before I discuss our financial highlights, I would like to briefly comment on the recent events in parts of the banking sector. As a globally systemically important financial institution, State Street plays a critical role in the world's financial system. Our strong capital and liquidity positions, size, scale, and sophisticated risk management allow us to help safeguard investors and assist in providing market stability during uncertain times. We demonstrated this ability at the start of COVID three years ago when we helped establish the Money Market Mutual Fund liquidity facility and the Main Street lending program. During the first quarter, in concert with 10 other large U.S. banks, State Street once again used its financial strength to help assist in stabilizing the financial system through the provision of liquidity to a financial institution in the U.S., reflecting our confidence in the American banking system. We stand ready to support the world's investors and the people they serve during this time of uncertainty for our investment servicing and asset management products, which offer clients opportunities, insights, and liquidity. Turning to slide three of our investor presentation, I will review our first quarter highlights before Eric takes you through the quarter in more detail. Relative to the year-ago period, first quarter EPS was 152, down 3%, as the positive year-over-year benefit resulting from our continued common share repurchases, as well as significantly stronger NII growth, were offset by lower servicing and management fee revenues, which were impacted by weaker average market levels, continued business and personal investments to support growth, and a loan loss provision related to State Street's support of the U.S. banking system, which I just mentioned. Turning to our business momentum, we remain highly focused on continuing to advance our enterprise outsource solution strategy across our clients' front, middle, and back office activities. For example, in March we announced our agreement to acquire CF Global Trading. This transaction will further expand State Street's current outsource trading capabilities giving our firm the ability to provide these services to new clients and markets. Importantly, the acquisition will allow State Street to expand its liquidity-providing capabilities and offer a complete global trading solution as part of our alpha front-to-back platform. The transaction is expected to be completed by the end of 2023, subject to customary closing conditions. AUCA amounted to $37.6 trillion at quarter end, and we recorded asset servicing wins of $112 billion in the first quarter, about half of which were higher fee rate alternative mandates consistent with our strategy. Encouragingly, this was our second best quarterly sales performance by projected revenue within the alternative segments over the last six years. We also reported an additional alpha mandate during the first quarter, as this strategy continues to resonate with clients. Our AUCA installation backlog amounted to $3.6 trillion at quarter end. At State Street Global Advisors, quarter end assets under management totaled $3.6 trillion. While flows across our asset management businesses were negatively impacted by the various market factors in the first quarter, we continue to see a number of bright spots where we are focusing our efforts. For example, in the U.S., our SPDR ETF franchise gained market share in both low-cost equity and low-cost fixed income, while we also had strong inflows into our gold ETFs amidst investor demand for safe haven assets. While aggregate flows to cash were slightly negative for the quarter, this largely resulted from seasonal outflow activity in January. However, global advisors gathered strong money market inflows of over $24 billion in the latter part of March amidst the market volatility. Turning to our financial condition, State Street's balance sheet liquidity and capital positions remain strong. Our CET1 ratio was a high 12.1% at quarter end, well above State Street's regulatory minimum. This balance sheet strength enabled us to continue to return capital to our shareholders in the first quarter while simultaneously supporting our clients and the U.S. banking system. We return 1.5 billion of capital to our shareholders in Q1, including buying back 1.25 billion of our common shares and declaring over 200 million of common stock dividends. As we look ahead in this uncertain environment, we remain highly focused on maintaining a strong balance sheet position while continuing to generate and return capital as part of our previously announced common stock repurchase program of up to $4.5 billion for 2023, subject to market conditions and other factors. To conclude, the first quarter included a number of significant events in global financial markets and with the broader banking industry. While market conditions were volatile, many asset classes saw sequential quarter gains, although asset prices remained depressed relative to the year-ago period, which created year-over-year headwinds for our fee-driven businesses in the first quarter. While our year-over-year revenue performance was durable, supported by significantly higher net interest income growth, our results this quarter were below our expectations. We need to do better, and I believe we are equipped and on track to do so by focusing on areas within our control and effectively executing our strategy. In keeping with the strategic priorities I outlined in January, we are driving forward with a number of actions. For example, our AUCA to be installed is strong, and by strengthening our implementation capabilities, we have line of sight into a meaningful amount of client onboarding, beginning in 2Q. Within our software and data business, we expect to convert a meaningful number of CRD on-premises clients to more recurring SAS revenue in the second quarter. Last, Given the revenue and inflationary environments, we will continue to selectively reprice some services, proactively manage our costs, execute on our productivity efforts, and stand ready to utilize additional expense levers at our disposal. With a focus on accountability and execution of our strategy, I continue to firmly believe in the ability of our diversified franchise to successfully meet the needs of the world's investors and the people they serve, while delivering value for and capital return to our shareholders. Now, let me hand the call over to Eric, who will take you through the quarter in more detail.