State Street Corporation

Good morning and welcome to State Street Corporation's first quarter 2024 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 or rebroadcast or distributed 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 Fussell-Behler, Global Head of Investor Relations at State Street.

Please go ahead. 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 2024 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 first quarter financial results. We had a strong start to the year with our results demonstrating the breadth of our client franchise, the efficacy of our strategy, and our focus on execution. We reported both fee and total revenue growth, all while continuing to invest meaningfully in our business and controlling underlying expenses. Excluding notable items, we delivered both positive fee and total operating leverage, as well as solid EPS growth in Q1 relative to the year-ago period. The first quarter was an important milestone. We have detailed our strategic priorities for 2024, including the growth initiatives we are undertaking across each of our business areas, as we continue to both invest in our capabilities and also target further productivity gains. Guided by our purpose to help create better outcomes for the world's investors and the people they serve, our four strategic priorities are aimed at continuing to extend our competitive advantage while delivering positive fee operating leverage excluding notable items in 2024. These 2024 priorities are growing fee revenue, extending our leadership in our markets and financing and global advisors franchises, enhancing and optimizing our operating model, and continuing to differentiate our business through innovative client solutions and technology-led capabilities to support business growth. We remain intensely focused on executing against these strategic priorities, particularly in a dynamic operating environment in which financial market expectations continue to change significantly. For example, As inflation remains elevated and economic data continued to be robust, investors pushed back their expectation for the timing of central bank rate cuts and treasury yields increased during the first quarter. Despite this, global equity markets performed strongly and volatility remained muted, with many indices setting records as fears of a hard economic landing receded and optimism surrounding the potential economic benefit from artificial intelligence continued in Q1. 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. Beginning with our financial performance, 2024 started strongly. Year over year, we produced both positive fee and total operating leverage, as well as good EPS growth, excluding notable items. First quarter EPS was 137, or 169, excluding a notable item related to the increase to the FDIC special assessment. Underlying year-over-year EPS growth was supported by total fee revenue growth and continued common share repurchases, which more than offset the impact of lower NII on total revenue. Underlying expenses continued to be well controlled, supported by our ongoing productivity efforts, with first quarter expenses increasing just 1% year-over-year, excluding notable items, even as we have increased the level of investments in our business. Turning to our business momentum, which you can see on the middle of the slide, we continue to make progress across our client franchise in generating better fee revenue growth. Within asset services, AUCA increased to a record $43.9 trillion. We generated asset servicing AUCA wins of $474 billion in Q1, supported by key wins in both North America and Europe. Servicing fee revenue wins totaled $67 million. After hitting our full year sales target of $300 million in 2023, we remain confident in our ability to achieve our increased servicing fee revenue sales goal of $350 to $400 million in 2024. Our priority to grow fee revenue this year is underpinned by a strategy of leading with service excellence and driving stronger back office sales, differentiating with our State Street Alpha and private markets platforms. Our two new alpha mandate wins this quarter demonstrate our ability to execute on this strategy while also showcasing the clear competitive advantage and differentiation that alpha creates for our business. For example, both alpha mandate wins this quarter include back office services, which can install quickly, allowing us to realize revenue faster. Further, one mandate is our second alpha for private markets win, a key growth area for us. Encouragingly, both of these alpha wins were takeaways from a key competitor, with one of the wins having no existing services with State Street prior to becoming an alpha client, and the other a shared client that will now consolidate back office with State Street. Within markets and financing, even as low FX volatility created a headwind for the industry in the first quarter, we attracted higher FX client volumes, both sequentially and year over year, supported by our market-leading and wide-ranging FX trading solutions. In FX, we were pleased to see higher client volumes and the 8% Q over Q fee revenue growth. We also expanded our markets franchise. Within outsourced trading, we continued to expand our product capabilities and geographical reach, completing the acquisition of CF Global Trading in Q1. Global advisors perform well. Buoyed by higher equity markets, the strategic actions we have taken to position our asset management business for growth, and the benefits of the strong finish and step-off point at year-end 2023. One Q2024 management fees of $510 million are the highest since the first quarter of 2022. While GA experienced total aggregate outflows in Q1, this was driven by the impact of a large but expected single client redemption within the institutional business. We saw continued momentum in the defined contribution business, driven by our target date franchise. Encouragingly, we saw cash net inflows of $9 billion in the quarter, the fourth consecutive quarter of positive net inflows of our cash business. ETF AUM reached a record $1.4 trillion at quarter end, with GA continuing to gather net inflows and expand market share within U.S. low-cost ETFs. Now let me spend a moment on our continuing productivity efforts. We have a detailed set of initiatives across our business aimed at creating cost efficiencies and lasting productivity improvements. Regarding our ongoing operating model transformation, which forms an important part of these productivity initiatives, as you know, we are streamlining our operating model in India, and last quarter we consolidated our first operations joint venture in the country. I am pleased to note that the consolidation of our second operations joint venture in India closed on April 1. Combined, these two consolidations will propel the continued end-to-end transformation of our global operations and enable State-to-state to unlock productivity savings in the years ahead as we simplify our operating model. Before I conclude my opening remarks, I would like to touch on our continuing balance sheet strength. Total capital return amounted to $308 million in the first quarter. consisting of common share dividends and share repurchases. I would highlight that we have returned a substantial amount of capital to our shareholders in recent quarters, with total capital return over the last six quarters equivalent to almost 30 percent of State Street's total market cap at quarter end. As we pivot to a more normalized level of capital return this year, as we have outlined previously, it remains our intention to return approximately 100 percent of earnings in 2024 in the form of common share dividends and share repurchases, subject to market conditions and other factors. To conclude, we have delivered a strong start to the year as demonstrated by both sequential and year-over-year total fee revenue growth, encouraging business wins, strong underlying expense discipline, and continued capital return. As we look ahead, we remain highly focused on the execution of a set of clear strategic priorities for 2024. These strategic priorities are backed by detailed action plans aimed at driving growth across each of our business areas. Underpinning this execution is a set of business investments paired with a comprehensive set of productivity initiatives aimed at driving longer-term improvements in our operating model efficiency and effectiveness and generating 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.