PM Images The SPDR S&P 500 ETF Trust (SPY) and individual sector ETFs such as The Energy Select Sector SPDR Fund ETF (XLE) have become staples throughout the investment community. While ETFs such as SPY and XLE are talked about regularly, their parent company, State Street Corporation (NYSE:STT) seems to fly well under the radar. Similar to BlackRock (BLK) and Vanguard, STT is a premier investment management and servicing company with $4.3 trillion in assets under management (AUM). Through SST and its s ...

Core Viewpoint - Analysts expect State Street Corporation (STT) to report quarterly earnings of $2.01 per share, reflecting a year-over-year decline of 7.4%, with revenues projected at $3.15 billion, an increase of 1.2% from the previous year [1] Earnings and Revenue Estimates - The consensus EPS estimate has been revised upward by 1% in the past 30 days, indicating a reassessment by covering analysts [1] - Total fee revenue is expected to reach $2.46 billion, compared to $2.42 billion reported in the same quarter last year [4] - Net Interest Income is projected at $694 million, slightly up from $691 million in the previous year [3][4] Key Financial Metrics - Analysts project 'Average balance - Total interest-earning assets' to be $250.50 billion, up from $231.99 billion a year ago [2] - The 'Basel III Advanced Approaches - Tier 1 Leverage Ratio' is expected to be 5.5%, down from 5.8% year-over-year [2] - The 'Basel III Standardized Approach - Tier 1 capital ratio' is estimated at 13.2%, compared to 13.6% last year [3] - 'Assets under Management (AUM)' are forecasted to reach $4,260.46 billion, up from $3,797 billion a year ago [3] - 'Assets under Custody and/or Administration (AUC/A)' are expected to be $37,329.47 billion, down from $39,589 billion in the same quarter last year [3] Fee Revenue Breakdown - 'Software and processing fees' are projected at $216.18 million, down from $221 million year-over-year [4] - 'Other fee revenue' is expected to be $44.27 million, compared to $58 million last year [4] - 'Management fees' are forecasted to reach $506.07 million, up from $461 million in the previous year [4] Stock Performance - State Street shares have returned +4.6% over the past month, compared to the Zacks S&P 500 composite's +5.1% change, with a Zacks Rank 3 (Hold) indicating expected performance in line with the overall market [6]

Core Viewpoint - Wall Street anticipates a year-over-year decline in earnings for State Street Corporation (STT) despite higher revenues, with the actual results being crucial for stock price movement [1] Earnings Expectations - State Street is expected to report quarterly earnings of $2.01 per share, reflecting a year-over-year decrease of 7.4% [2] - Revenues are projected to be $3.15 billion, which is an increase of 1.2% from the same quarter last year [2] Estimate Revisions - The consensus EPS estimate has been revised 0.88% higher in the last 30 days, indicating a positive reassessment by analysts [2] - The Most Accurate Estimate for State Street is higher than the Zacks Consensus Estimate, resulting in an Earnings ESP of +0.15% [5] Earnings Surprise Prediction - The Zacks Earnings ESP model suggests that a positive Earnings ESP reading indicates a likely earnings beat, especially when combined with a Zacks Rank of 1, 2, or 3 [4] - State Street's current Zacks Rank is 3, suggesting a moderate outlook for beating the consensus EPS estimate [5][6] Historical Performance - In the last reported quarter, State Street exceeded the expected earnings of $1.48 per share by delivering $1.69, resulting in a surprise of +14.19% [7] - The company has consistently beaten consensus EPS estimates in the last four quarters [7] Conclusion - State Street is positioned as a compelling candidate for an earnings beat, although other factors should also be considered before making investment decisions [8]

Company Overview - State Street Corporation (STT) is based in Boston and operates in the Finance sector, with shares experiencing a price change of -8.46% this year [2] - The company currently pays a dividend of $0.69 per share, resulting in a dividend yield of 3.89%, which is higher than the Banks - Major Regional industry's yield of 3.69% and the S&P 500's yield of 1.59% [2] Dividend Performance - State Street's annualized dividend of $2.76 has increased by 4.5% from the previous year [2] - Over the past five years, the company has raised its dividend four times, achieving an average annual increase of 7.73% [2] - The current payout ratio is 35%, indicating that the company distributes 35% of its trailing 12-month earnings per share as dividends [2] Earnings Growth - The Zacks Consensus Estimate for State Street's earnings per share for 2024 is $7.94, reflecting a year-over-year growth rate of 3.66% [3] Investment Considerations - Dividends are favored by investors for various reasons, including improving stock investing profits and providing tax advantages [4] - Established firms with secure profits are typically viewed as the best dividend options, while high-growth businesses and tech start-ups rarely offer dividends [4] - State Street is considered a compelling investment opportunity due to its strong dividend profile and a Zacks Rank of 3 (Hold) [4]

Core Viewpoint - State Street (STT) is positioned for growth due to business servicing wins, strategic buyouts, a global presence, and high interest rates, but faces challenges from elevated expenses and a tough operating environment that may hinder fee income growth [1][4]. Group 1: Financial Performance - State Street has experienced a compound annual growth rate (CAGR) of 7.8% in net interest revenues (NIR) over the past three years, with NIR projected to decline by 4.9% in both 2024 and 2025, before rebounding with a growth rate of 3.9% in 2026 [1]. - The net interest margin (NIM) increased to 1.20% in 2023 from 1.03% in 2022, with previous years showing 0.74% in 2021 and 0.97% in 2020 [1]. - Total fee revenues saw a four-year CAGR of 1% from 2019 to 2023, driven by increased client activity and market volatility, with expectations for a CAGR of 3.3% by 2026 [2]. Group 2: Strategic Initiatives - State Street is enhancing its scale through strategic acquisitions, including the acquisition of CF Global Trading, which will improve its outsourced trading capabilities [3]. - The company has taken full ownership of its two joint ventures in India as part of its operational consolidation, aiming for revenue and cost synergies from these initiatives [3]. - The servicing assets yet to be installed were valued at $2.3 trillion in 2023, indicating potential for future revenue growth [2]. Group 3: Expense Management - Total non-interest expenses have shown a three-year CAGR of 3.2% (ended 2023), with expectations for a CAGR of 1.3% by 2026, driven by higher information systems and communications expenses [4]. - The company's largest revenue source, fee income, constituted almost 77% of total revenues in the first quarter of 2024, indicating a concentration risk that could impact financial stability [4].

Economic Outlook - The economy is likely to enter a downturn if the Federal Reserve delays cutting interest rates, as warned by Marija Veitmane, head of equity research at State Street Global Markets [1][2] - Delaying interest rate cuts can lead to significant economic problems, with a predicted scenario of "no landing then a crash" [2][3] Interest Rates and Corporate Impact - Higher interest rates are already affecting economic strength, with AAA long-term corporate bond yields rising to 5.28% in April, leading to increased debt refinancing costs for companies [2][3] - Companies in consumer sectors, such as Starbucks, are reporting weak quarterly performances, indicating strain from elevated borrowing costs [3] Consumer Behavior - Higher borrowing costs are impacting consumers, with commercial bank rates on credit cards reaching 21.6% in February, the highest in at least 30 years [3] - Retail spending is declining as consumers are "pinching pennies," reflecting a shift in consumer behavior due to economic pressures [3] Market Expectations - Markets are anticipating the Federal Reserve to maintain current interest rates in the upcoming policy meeting, with investors now expecting only one or two rate cuts for the year, down from six at the beginning of the year [4]

Financial Performance - Total fee revenue for Q1 2024 was $2,422 million, a 4% increase from $2,335 million in Q1 2023[32]. - Net interest income decreased by 7% to $716 million in Q1 2024 from $766 million in Q1 2023[32]. - Total revenue increased by 1% to $3,138 million in Q1 2024 compared to $3,101 million in Q1 2023[32]. - Net income available to common shareholders decreased by 20% to $418 million in Q1 2024 from $525 million in Q1 2023[32]. - Earnings per share (EPS) for Q1 2024 was $1.37, a 10% decrease from $1.54 in Q1 2023[34]. - Total expenses increased by 6% to $2,513 million in Q1 2024, with approximately 5% of the increase attributed to the FDIC special assessment[34]. - Provision for credit losses was $27 million in Q1 2024, down from $44 million in Q1 2023[36]. - Return on average common equity was 7.7% in Q1 2024, down from 9.3% in Q1 2023[34]. - The company returned approximately $308 million to shareholders through common share repurchases and dividends in Q1 2024[34]. Assets and Management - As of March 31, 2024, State Street Corporation reported total assets of $338.00 billion and total deposits of $251.88 billion[11]. - The company has $43.91 trillion in assets under custody/administration (AUC/A) and $4.34 trillion in assets under management (AUM) as of March 31, 2024[10]. - Consolidated total shareholders' equity stood at $24.43 billion, with approximately 46,000 employees[11]. - Total assets under custody and/or administration (AUC/A) reached $43.912 billion as of March 31, 2024, up from $41.810 billion at the end of 2023 and $37.635 billion a year earlier[68]. - As of March 31, 2024, total assets under management (AUM) were $4.336 billion, an increase from $4.128 billion at the end of 2023 and $3.618 billion a year earlier[81]. - Assets under management (AUM) increased by 20% to $4.3 trillion as of March 31, 2024, driven by higher market levels and net inflows[45]. - The geographic distribution of AUC/A as of March 31, 2024, was $31.610 billion in the Americas, $9.207 billion in Europe/Middle East/Africa, and $3.095 billion in Asia/Pacific[70]. Revenue Sources - Management fee revenue rose by 12% in Q1 2024 to $510 million, driven by higher average market levels[45]. - Software and processing fees revenue surged by 25% in Q1 2024 to $207 million, primarily due to higher front office software and data revenue[45]. - Servicing fees rose by 1% to $1,228 million in Q1 2024, influenced by higher average market levels, despite pricing headwinds and lower client activity[150][151]. - Total revenue for Investment Management grew by 9% to $551 million in Q1 2024, compared to $505 million in Q1 2023[154]. - Total revenue for Investment Servicing was stable at $2,587 million in Q1 2024, slightly down from $2,596 million in Q1 2023[150]. Competition and Risks - State Street faces intense competition and pricing pressure, which could negatively impact profitability and financial results[25]. - The company is subject to various strategic risks, including the integration and retention of benefits from acquisitions and joint ventures[25]. - Management's forward-looking statements indicate expectations regarding business growth and market conditions, which are subject to various risks and uncertainties[23]. Regulatory and Compliance - The company emphasizes the importance of regulatory capital and conducts annual stress tests under the Dodd-Frank Act[19]. - State Street's financial statements are prepared in conformity with U.S. GAAP, with certain non-GAAP measures used for internal evaluation[17]. - The standardized CET1 capital ratio decreased to 11.1% as of March 31, 2024, from 11.6% at the end of 2023[46]. Employee and Operational Metrics - Total headcount increased by 7% to 45,871 employees as of March 31, 2024, reflecting the consolidation of operations in India[135]. - Operating leverage was negative 4.9% in Q1 2024, primarily due to the increase in the FDIC special assessment[34]. Investment Securities and Loans - The total carrying value of available-for-sale securities increased to $48.64 billion from $44.53 billion as of December 31, 2023, representing an increase of approximately 9.5%[163]. - The total fair value of held-to-maturity securities decreased to $52.91 billion as of March 31, 2024, down from $57.12 billion as of December 31, 2023, a decline of about 7.7%[163]. - As of March 31, 2024, total loans increased to $38.635 billion from $36.631 billion as of December 31, 2023, representing a growth of approximately 5.5%[176]. - Domestic loans rose to $23.527 billion, up from $23.065 billion, driven by increases in fund finance loans, leveraged loans, and overdrafts[176]. - Foreign loans increased to $15.108 billion from $13.566 billion, primarily due to growth in fund finance loans, overdrafts, and collateralized loan obligations[176].

Financial Data and Key Metrics - Q1 2024 EPS was $1.37, or $1.69 excluding a notable item related to the FDIC special assessment [11] - Total fee revenue growth was achieved, with underlying expenses increasing just 1% year-over-year, excluding notable items [11] - Total capital return amounted to $308 million in Q1, consisting of common share dividends and share repurchases [17] - NII decreased 7% year-over-year but increased 6% sequentially to $716 million [28] - CET1 ratio was 11.1% at quarter-end, down 50 basis points quarter-on-quarter [33] Business Line Performance - Asset servicing AUC/A increased to a record $43.9 trillion, with $474 billion in AUC/A wins in Q1 [12] - FX trading services revenue was down 3% year-over-year but up 8% sequentially [25] - Securities finance revenues were down 12% year-over-year, mainly due to lower agency balances and spreads [26] - Front office software and data revenue increased 32% year-over-year, driven by SAS implementations [27] - Global Advisors management fees reached $510 million, the highest since Q1 2022 [14] Market Performance - Global equity markets performed strongly in Q1, with many indices setting records [10] - ETF AUM reached a record $1.4 trillion at quarter-end, with continued net inflows and market share gains in U.S. low-cost ETFs [15] - FX client volumes increased both sequentially and year-over-year, despite low FX volatility [14] Strategic Priorities and Industry Competition - The company's 2024 strategic priorities include growing fee revenue, extending leadership in markets and financing, optimizing the operating model, and differentiating through innovative client solutions [9] - The company is focusing on productivity improvements, including consolidating operations in India to unlock savings [16][31] - The company is leveraging its State Street Alpha platform to gain competitive advantage, with two new Alpha mandate wins in Q1 [13] Management Commentary on Operating Environment and Future Outlook - The company expects total fee revenue for the full year to be at the higher end of the prior guide of up 3% to 4% year-on-year [35] - Full-year NII is expected to be down approximately 5% year-on-year, better than the previous guide of down 11% [36] - The company expects full-year expenses, excluding notable items, to be up about 2.5% [36] - The company anticipates delivering additional positive fee operating leverage for the full year, excluding notable items [36] Other Important Information - The company completed the consolidation of its second operations joint venture in India on April 1, which is expected to drive productivity savings [16][31] - The company expects to return approximately 100% of earnings in 2024 in the form of common share dividends and share repurchases [17] Q&A Session Summary Question: NII Performance and Outlook - The strong NII performance in Q1 was driven by higher-than-expected deposit balances, particularly in March [81] - The company revised its full-year NII guidance to down 5% from the previous expectation of down 10%, due to higher deposit levels and fewer expected rate cuts [81] Question: Expense Management and Productivity - The consolidation of operations in India is expected to unlock significant productivity savings and improve operational efficiency [58][59] - The company is focusing on technology investments to replace repetitive tasks with AI and machine learning, reducing labor costs [60] Question: Servicing Fee Growth - The company expects servicing fee growth to improve as headwinds from client transitions and activity levels abate, and as new sales are installed [94][95] - The pipeline for new business remains strong, with a significant increase in sales targets for 2024 [98] Question: Capital Return and Tax Rate - The company reaffirmed its commitment to return approximately 100% of earnings to shareholders in 2024, with buyback activity expected to increase in the coming quarters [74] - The tax rate for the full year is expected to be in the range of 21% to 22% [76] Question: Pricing Environment for Servicing Business - The company has seen pricing headwinds of around 2% in the servicing business over the last four years, with no significant impact from inflation [89] - Fee schedules are negotiated as a package, with asset-based fees accounting for about half of the total [90]

Key Insights - State Street reported first-quarter revenue of $3.14 billion, a 1.2% increase, exceeding forecasts [1] - Fee revenue rose by 3.7% to $2.42 billion, contributing to the overall revenue growth [1] - Earnings per share (EPS) was $1.37, slightly below expectations [1] Asset Management Performance - Assets under custody/administration (AUC/A) increased by 16.7% to $43.9 trillion, setting a record high [1] - Assets under management (AUM) rose by 19.8% to $4.3 trillion, also a record high [1] Fee Revenue Breakdown - Fee revenues increased for servicing (+1%), management (+12%), and software and processing (+25%) [2] - Fee revenues declined for currency trading (-3%) and securities finance (-12%) [2] Management Commentary - CEO Ron O'Hanley noted that fee revenue growth was driven by strong performance in Global Advisors and Front office solutions, offsetting lower trading revenues [2] - The company aims to continue focusing on positive fee operating leverage through fee revenue growth [2] Stock Performance - State Street shares rose by 2.4% to $75.64 during intraday trading but are nearly 3% lower year-to-date in 2024 [2]

Core Insights - State Street Corporation (STT) reported $3.14 billion in revenue for Q1 2024, a year-over-year increase of 1.2% [1] - The EPS for the same period was $1.69, compared to $1.52 a year ago, reflecting a significant increase [1] - The revenue exceeded the Zacks Consensus Estimate by 2.54%, while the EPS surprised by 14.19% [1] Financial Performance Metrics - Net interest margin (FTE) was 1.1%, slightly below the estimated 1.2% [2] - Average balance of total interest-earning assets reached $254.33 billion, surpassing the estimated $232.96 billion [2] - Basel III Advanced Approaches - Tier 1 Leverage Ratio stood at 5.4%, matching the average estimate [2] - Basel III Standardized Approach - Tier 1 capital ratio was 13.8%, exceeding the estimated 12.8% [2] - Assets under Management (AUM) totaled $4,336 billion, above the estimated $4,267.34 billion [2] - Basel III Standardized Approach - Total capital ratio was 14.9%, higher than the estimated 13.9% [2] - Assets under Custody and/or Administration (AUC/A) reached $43,912 billion, significantly above the estimated $36,298.53 billion [2] - Net Interest Income was $716 million, exceeding the estimated $667.49 million [2] - Total fee revenue was $2.42 billion, slightly below the estimated $2.45 billion [2] - Net Interest Income on a fully taxable-equivalent basis was $717 million, above the estimated $668.54 million [2] - Software and processing fees were $207 million, slightly above the estimated $205.62 million [2] - Other fee revenue reached $50 million, exceeding the estimated $37.81 million [2] Stock Performance - Shares of State Street have returned +2.9% over the past month, outperforming the Zacks S&P 500 composite's +1.6% change [2] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market [2]