State Street Corp Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Glenn Schorr - Evercore ISI - Analyst : Question on Global Advisors. You had some institutional led outflows in the last two quarters despite the strong markets. I'm just curious how much of that is a function of rebalancing. And are we supposed to expect more going forward given the strong equity markets. And are you seeing similar trends in your custody base?

Question: Glenn Schorr - Evercore ISI - Analyst : Okay. Ron, while we have you, there has been several articles over the last year or so talking about a certain European bank potentially selling their servicing platform. You've been linked to it. As you said, you've been great in consolidating things in the past. So I'm not asking a comment on that, I am asking, as some shareholders just prefer buybacks, which you might think is near term, I'm curious on your thoughts conceptually on how you approach these things, if there were any lessons learned from the Brown Brothers Harriman saga and just conceptually how you're thinking about any consolidation opportunities in services.

Question: Glenn Schorr - Evercore ISI - Analyst : Thanks, Ron. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 16, 2024 / 3:00PM, STT.N - Q2 2024 State Street Corp Earnings Call

Question: Ken Usdin - Jefferies LLC - Analyst : So great result on the NII, and we heard the updated outlook for slightly up this year now. Eric, just wondering if that would still imply a lower second half versus this really strong second quarter? And I know there's a lot of uncertainty still out there in the environment. So can you just help us think through what are you contemplating in terms of how deposits track from here? And what caveats should we continue to think in mind if, in fact, there is still a second half that comes off of the second quarter real strength? Thanks.

Question: Ken Usdin - Jefferies LLC - Analyst : Okay. Got it. And then, Ron, one question. You mentioned that you think that the kind of core fees growth should get better from here. And I just wanted to ask you to deepen on that a little bit. I mean, I know that you mentioned the onboardings and such, but we still have that deconversion without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 16, 2024 / 3:00PM, STT.N - Q2 2024 State Street Corp Earnings Call working against, and you mentioned the episodic stuff and the ETF stuff. But like I think that's really people are looking for on the increment. So is that what drives that incrementally better fee guide for the second half is that we're finally going to see like that servicing and management fee line start to show a better rate of change?

Question: Ken Usdin - Jefferies LLC - Analyst : Great. Thanks a lot, Ron.

Question: Brennan Hawken - UBS Securities LLC - Analyst : I would like to start with euro deposits, the ECB cut rates this quarter. So I'm curious to hear, I know euro, I believe, is your second biggest currency in your deposit base. So curious about what impact that you saw from that cut. Where was the beta on that cut? And was it roughly equivalent to the betas you saw on the final increases? And based on that experience, how does that inform your expectation for when we see cuts in the Fed funds? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 16, 2024 / 3:00PM, STT.N - Q2 2024 State Street Corp Earnings Call

Question: Brennan Hawken - UBS Securities LLC - Analyst : Got it. Thanks for that. I appreciate it. And thinking about another factor that has been a bit more robust, recently repo has been pretty strong in recent quarters. Do you think based on what's been happening in the marketplace that, that strength is sustainable? And it seems as though the NII story is playing out better than you had originally anticipated, obviously, given you brought up guidance. But is that another X factor that could allow for the back half of the year to maybe see less of a pronounced step down, then your improved guidance seems to continue to embed?

Question: Brennan Hawken - UBS Securities LLC - Analyst : Thanks for taking my questions.

Question: Jim Mitchell - Seaport Global Securities LLC - Analyst : Eric, maybe just following up a little bit on the NII story. You talk about potentially an inflection coming. Can you discuss maybe the timing of that? And then when I look at your asset yields, the HTM book is still weighing that down. Can you talk about maybe the pace of maturity on that HTM book that's yielding a little over 2% and how long it takes to kind of get that back coming back in? Is that a big part of your inflection story next year?

Question: Jim Mitchell - Seaport Global Securities LLC - Analyst : Okay. That's really helpful. And maybe just to your point on deposit growth being a key driver. Now that we're looking at rate cuts, Q2 is less. Do you feel like rate cuts can be a catalyst for growth based on historical experience? How do you think about getting back to kind of more normal growth levels in deposits? What do we need to see?

Question: Jim Mitchell - Seaport Global Securities LLC - Analyst : All very helpful. Thanks.

Question: Betsy Graseck - Morgan Stanley & Co. LLC - Analyst : I did just want to key off of the last comment around the sales. And to your point, $350 million to $400 million is the goal for this year. Obviously, on page 5, you show us what the rev wins are for 1Q and 2Q, $67 million and $72 million. So that leaves us with an expectation that you're going to be able to bump that up pretty aggressively towards the 105 level for each of 3Q and 4Q. And so it gets to my question of, what gives you the confidence in that? Is that a function of these are already sales that are in contract and it's just the installation of the new wins that hits this page, and so that gives you a lot of confidence that you can generate that 105 level in each of the next two quarters?

Question: Betsy Graseck - Morgan Stanley & Co. LLC - Analyst : Got it. Perfect. Yes. And I can see in last year, the second half was 3x to 2Q. So history, yes, obviously, shows that that should happen. So that's great. Okay. So then a follow-up -- without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 16, 2024 / 3:00PM, STT.N - Q2 2024 State Street Corp Earnings Call

Question: Betsy Graseck - Morgan Stanley & Co. LLC - Analyst : Okay. Appreciate it. Thank you. And then the follow-up just on the buyback, I understand you've got the opportunity for increasing buybacks. And I'm expecting that you're going to be flexing that versus your SLR constraint? Is that fair? And with SLR at 6.3% and the minimum is 5%, that feels like you've got a lot of room. So I just want to understand how you're thinking about what level of SLR you want to hold? Regulatory minimum is 5%. What kind of buffer should we expect that you're anticipating holding on top of that, just as we're working through our models on how much buybacks we estimate for you? Thank you.

Question: Betsy Graseck - Morgan Stanley & Co. LLC - Analyst : Right. Okay. That's great. And then when we're thinking about the pace accelerating from here, is that total dollars? Or is that the pace of up $100

Question: Betsy Graseck - Morgan Stanley & Co. LLC - Analyst : Thank you so much. I really appreciate it. I really appreciate it and appreciate the conceptual chart. Thanks so much.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : I just want to make sure I understand what you're saying and not read too much into it. But I think what you're saying is, over the next two quarters, you should be pretty much done with the NII declines, you should be pretty much done with the noninterest-bearing deposit declines, and you should be pretty much done with the decommission of the major client. Am I reading too much on that, or did I hear that correctly?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : And you also mentioned continuing pricing pressure, which we've talked about for about 30 years, which is nothing new, but you did highlight pricing pressure. So in what context are you referring to? I imagine like your new win in APAC, I assume spreads are better in Asia and outside the US and in the US. So when you talk about pricing pressure, where are you seeing it?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : And then one last one to follow up on that. I mean, I guess, maybe as goes your clients, as goes any company or as goes State Street, and with the record high stock markets and historically such a strong position with the mutual funds, which you just mentioned, are you seeing that uptick? Or is it still a slog for your big long-only asset managers that are your legacy strength?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Okay. Thank you.

Question: Vivek Juneja - JP Morgan Securities LLC - Analyst : Eric, I just have a quick follow-up, trying to understand your NII guidance. If I look at your US interest-bearing deposit costs linked quarter, they actually declined. Did you actually start cutting rates? Or was there something else that drove that? Can you give some color on that? And is that likely to continue?

Question: Vivek Juneja - JP Morgan Securities LLC - Analyst : Thank you.

Question: Gerard Cassidy - RBC Capital Markets LLC - Analyst : Ron, you mentioned in one of your answers about the servicing and management fees that foreign exchange activity, the volatility was actually quite low relative to history. Can you share with us what drove that? And then second, what macro factors should we keep an eye on to see to drive that volatility higher as we go forward, especially in view of the geopolitical environment we're all living in?

Question: Gerard Cassidy - RBC Capital Markets LLC - Analyst : Very good. Thank you for that color. And circling back, you both touched on onboarding was slower than expected in the first half of the year, but you expect it to pick up as we go forward. What caused the slower-than-expected onboarding in the earlier part of this year? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 16, 2024 / 3:00PM, STT.N - Q2 2024 State Street Corp Earnings Call

Question: Gerard Cassidy - RBC Capital Markets LLC - Analyst : Great. Thank you.