State Street Corporation

Good morning and welcome to State Street Corporation's third quarter 2023 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 Fizzle Beeler, Global Head of Investors Relation at State Street. Please go ahead.

Good morning, and thank you all for joining us. 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 third quarter 2023 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, 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 third quarter financial results. As we issue these results, the world has witnessed a surprise and unconscionable terrorist attack on innocent Israeli citizens and the resulting enormous human toll in Israel and Gaza. These terrible events have shocked the world and created further global geopolitical uncertainty. State Street stands with the people of Israel, and we are united with all those impacted. Now turning to the third quarter, global financial market performance was mixed as a positive start for equity markets in July turned decisively negative as the quarter progressed. Against the backdrop of softening economic data, market sentiment was negatively impacted by continued global central bank rate hikes and investor concerns of a higher for longer interest rate environment and an economic hard landing. As a result, equities fell while global bond yields continued climbing around the world, reaching levels not seen for many years, with the U.S. 10-year yield reaching its highest level since 2007. Despite these factors, the third quarter continued to be characterized by relatively low currency market volatility. Turning to slide three of our investor presentation, I will review our third quarter highlights before Eric takes you through the quarter in more detail. Beginning with our financial performance, third quarter earnings per share was 125 or 193, excluding a loss on sale from an investment portfolio repositioning, which was a notable item in 3Q. EPS growth year over year, excluding notable items, was driven by our significant common share repurchases during the period, coupled with a 3% increase in total fee revenue. This fee revenue growth reflects higher servicing and management fees, better front office software and data fees, and an increase in other fee revenue. Taken together, the benefit of share repurchases and the improvement in fee revenue more than offset lower NII market headwinds within trading businesses, as well as the impact of year-over-year expense growth. That said, we are pleased with our ongoing transformation and productivity initiatives, which help us to contain that expense growth while allowing us to continue to invest in our businesses. Turning to our business momentum, within investment services, total AUCA increased to $40 trillion at quarter end, and we recorded $149 billion of new asset servicing wins during the third quarter, largely driven by wins in official institutions and private markets. The estimated annual new servicing fee revenue to be recognized in future periods associated with 3Q asset servicing wins amounted to $91 million. which is the highest level of quarterly new servicing fees in over two years, demonstrating our ability to achieve our ambition of driving stronger sales performance. Encouragingly, Alpha's momentum continued in 3Q. We deepened relationships with existing mandates and recorded two new Alpha mandate wins, including our first Alpha for private markets mandate for one of the world's most influential investors. During the third quarter, we outlined a number of strategic focus areas for our investment services franchise as we aim to drive opportunities across key regions and product areas and realize the full potential of our State Street Alpha value proposition. Importantly, we are taking actions aimed at gaining market share and reinvigorating revenue growth. We are executing against our plan to improve core back office custody sales performance as it is our largest revenue pool, installs quickly, has significant scale, and drives high margin ancillary revenues. As an illustration of our custody sales momentum and the power of alpha, in the third quarter, State Street in Vontobel, a premier global asset manager headquartered in Switzerland, entered into an agreement to expand our existing front and middle office relationship by providing back office services subject to the necessary approvals. State Street had no relationship with Vontobel until discussions began in 2020 around Alpha, resulting in the adoption of our front, middle, and now back office services. Key client wins, such as Vontobel, demonstrate how Alpha can establish, broaden, and deepen client relationships, further positioning State Street as our client's essential partner. It illustrates the value of the Alpha proposition and confirms our strategic rationale of how alpha can grow and tie together the full breadth and depth of State Street's capabilities in a true one State Street solution for our clients, from front to back. Accelerating the alpha sales cycle and implementation timeline, particularly back office services, remains important strategic priorities to drive even more fee revenue growth. Turning to our front office software and data businesses, Paul Hebert, CRT continues to perform well and has a strong pipeline by the end of the third quarter in a recurring revenue for our front office software and data business increased by 12% year over year to 299 million. Paul Hebert, At global advisors assets under management reached 3.7 trillion a quarter and supported by a record 41 billion of net cash inflows and three Q. Importantly, our cash business gained market share in an expanding market, driven by strong investment performance coupled with the higher yield environment. In aggregate, global advisors gathered $10 billion of total net inflows in 3Q. Record quarterly flow performance in cash was partially offset by outflows in the institutional business, coupled with the impact of risk-off market sentiment in our ETF business in 3Q. While our ETF franchise saw modest net outflows in aggregate in 3Q, our U.S. low-cost SPDR ETF franchise continued to be a bright spot, generating $7 billion of net inflows, gaining further market share. To drive continued growth, in 3Q we reduced the price on 10 low-cost SPDR portfolio ETFs, demonstrating our commitment to delivering institutional quality investment solutions at competitive price points. Lastly, on business momentum, I am proud to highlight that State Street's foreign exchange business has once again been recognized as the industry leader. After being ranked number one FX provider to asset managers by Euromoney magazine in 2022, this year Euromoney magazine has 2023 FX awards, named State Street as the winner across four categories. including best FX bank for real money clients, best FX bank for research, best FX venue for real money clients, and best FX bank sales. Turning to our financial condition, State Street's balance sheet liquidity and capital positions remain strong. Our CET1 ratio was a strong 11% at quarter end, well above our regulatory minimum. This strength has enabled us to deliver against our goal of capital return to our shareholders. In 3Q, we return $1.2 billion of capital, buying back $1 billion of our common shares, and declaring over $200 million of common stock dividends. This means that cumulatively, over the last four quarters to the end of September, we have returned approximately $5.6 billion of capital to our shareholders. through a combination of share repurchases and common stock dividends. As we look ahead, in the fourth quarter, it remains our intention to continue common share repurchases under our existing authorization of up to $4.5 billion for 2023, subject to market conditions and other factors. To conclude, amidst the challenges of the market environment in 3Q, we remain dedicated to driving stronger business momentum and improving fee growth. To that end, in the third quarter, we outlined our sharpened execution plan for the investment services business, underpinned by a number of actions aimed at accelerating sales and revenue growth, while simultaneously improving the discipline and accountability for this execution. Our laser focus on expense discipline also remains high. We have a well-established track record of reengineering our processes and transforming our operations to improve our efficiency. and realized productivity growth. In the third quarter, we reduced expenses quarter over quarter and announced another step in our multi-year productivity efforts aimed at improving our operating model while enabling even greater investment in our business. As part of our ongoing transformation and productivity initiatives, we are streamlining our operations in India and have now assumed full ownership of one of our joint ventures in the country. This consolidation will continue the transformation of State Street's global operations and enable us to achieve productivity savings as part of our plans to deliver positive fee operating leverage in 2024. Now, let me hand the call over to Eric, who will take you through the quarter in more detail.