State Street(STT)2024-04-12 17:50Financial 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]