State Street Corp Q2 2025 Earnings Call Transcript

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

Question: Ken Usdin - Autonomous Research - Analyst : I just wanted to just ask on kind of like fees and fee operating leverage. Just kind of walking through the implied fee update. And what drives that? Is it mostly just the market's backdrop? Is it what we see in terms of the yet to convert? And anything in terms of like how the timing of these great new wins and still left to convert will come through?

Question: Ken Usdin - Autonomous Research - Analyst : Okay. Great. And can you talk about just the new ones you're putting on and put it in context with the client rescoping that occurred, like is that now kind of done in the past issue or is there anything else that we could see with regards to that type of thing going forward?

Question: Glenn Schorr - Evercore ISI - Analyst : Maybe we could step back and ask just a big picture question of NII that feels a little different for you guys. And you've been consistent in talking about something in the range of flat year on year after good '24. But feels like the NIM has moved lower more so than others and balances, your thought process on moderating is more so. Is there something maybe related to your client base that's a little bit different? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 15, 2025 / 4:00PM, STT.N - Q2 2025 State Street Corp Earnings Call I appreciate the full package of operating leverage and better margins and all that. I just want to focus on the NII for a second.

Question: Glenn Schorr - Evercore ISI - Analyst : That was awesome. I really appreciate all that. Ron, I got one quick one for you. I can't resist. You guys have been great acquirers in the past and integrators. You almost got BBH done, but through no fault of your own that one fell through. I'm curious if you share any thought process with us on what you thought when you saw the news, when we saw the news that maybe BK and Northern were doing the dance? I'm just curious what cross your mind and how we should think about that.

Question: Jim Mitchell - Seaport Global - Analyst : Maybe just talk a little bit about the asset management business, record net inflows in the institutional channel and long-term assets. That's a pretty big change from what we've seen in recent years. So can you just talk to, is there anything kind of lumpy in there that may be not to get too excited REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 15, 2025 / 4:00PM, STT.N - Q2 2025 State Street Corp Earnings Call about? Or do you feel like there's a real turn in sort of the organic growth in that space? And how do we think about the fee rates in the long-term institutional AUM space? Thanks.

Question: Jim Mitchell - Seaport Global - Analyst : Okay. That's helpful. And maybe just pivoting to regulation. It seems like some of your bigger peers benefit from the SLR being lowered. You guys already had some exemptions, so you're still somewhat constrained by the Tier 1 leverage ratio. Do you -- in your conversations with regulators, do you think there's any acknowledgment of the Tier 1 leverage constraint? And do you think that could also be lowered in the future? What's your sense?

Question: Alex Blostein - Goldman Sachs - Analyst : Ron, I want to go back to the sales momentum you highlighted in the institutional servicing business. And again, I appreciate the disclosure you guys put out there a couple of quarters ago, both on the fee backlog and the few wins that's obviously relevant. In the last several quarters, maybe REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 15, 2025 / 4:00PM, STT.N - Q2 2025 State Street Corp Earnings Call a year or so, the redemptions have been fairly elevated. Obviously, part of that is BlackRock. But are you, I guess, aware of anything notable on the redemption side that could sort of offset some of the strong wins you're having? And maybe a little bit more color on the sources of these wins and how investors should think about sustainability of this new business within servicing, potentially turning kind of the growth algo around in that part of the business?

Question: Alex Blostein - Goldman Sachs - Analyst : Got you. Great. That's very helpful. Mark, I wanted to follow-up with you on your answer to Glenn's question around NII and sort of how you guys are thinking about it on a forward basis. So obviously, no 2026 guidance just yet. But as you sort of pointed to being asset-sensitive bank, the forward curve is what it is. So help us maybe think about what are the things you guys could do and what are you working on to perhaps mitigate the effects of lower interest rates as you look out beyond this year. And importantly, is the interplay between NII and operating leverage, you guys have been focused correctly on both positive fee operating leverage and positive total operating leverage. Is that kind of total operating leverage dynamic still possible if NII sort of peaks and starts to go down from here?

Question: Mike Mayo - Wells Fargo - Analyst : I just wanted a clarification, just with all the discussion here. So did you benefit from heightened volatility and how you see that going down and NII is at a peak and now you see that going down? I guess, are you overearning the way you look at things or not?

Question: Mike Mayo - Wells Fargo - Analyst : On the other hand, I get the cyclical high point here that you come down for that volatility. On the other hand, it seems like some of the core businesses are doing better, like Charles River quarter over quarter, some kind of growth rate you've been up-tiering the sales force? Are you still upgrading? It seems like you have some core business momentum that you didn't have a few years ago? Am I looking at the right data, do you have anything to substantiate that?

Question: Betsy Graseck - Morgan Stanley - Analyst : I had a question on an announcement that was made on July 1 with University of California on building a super app for individuals. And it was interesting, I wanted to understand thought process behind investing in this. And is this a one-off? Or are you anticipating broadening this out to other participants, partners? And is there any way this would feed into other parts of State Street or is it a goodwill venture?

Question: Ebrahim Poonawala - Bank of America - Analyst : Just a couple of follow-ups. One, on capital, and I apologize if you clarified on this, but I think I heard you talk about 80% payout for the full year. Just give us a sense -- remind us in terms of from a capital perspective, what we are managing. Two, in terms of the ratio, it feels like you have a lot of flexibility there. And what stops you from leaning in and doing more in buybacks than the 80%.

Question: Ebrahim Poonawala - Bank of America - Analyst : Thanks, Mark. And just one quick. I think you talked about deposit balances elevated, but maybe drifting lower in the back half. Just give us a sense of when you think about noninterest-bearing or overall deposit balances, what gets them growing again? Is there a trough that we should look at from a cycle standpoint or just how you're thinking about it, yeah?

Question: Brian Bedell - Deutsche Bank - Analyst : Just one housekeeping one quickly and then a longer-term one. The housekeeping is just the -- your assumptions on market returns for the second half that underpin the 5% to 7% guide.

Question: Brian Bedell - Deutsche Bank - Analyst : Okay. Great. And then longer term one for Ron. On the concept of tokenization of equities and ETPs and other assets, how are you thinking about that longer term? And I guess just your view and whether you think that will evolve more slowly over time? Or do you think there's a stronger movement and maybe some of the pros and cons of that? And what does State Street doing to be a participant in any kind of trend?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Can you guys come back to the sensitivity of revenues to market moves? I think in your 10-K, you give us that 10% increase in equity -- global equity valuations generally leads to maybe a 3% increase in service fee revenues. When you look at your service fee revenue growth this quarter of 12% ex-notable items, how much was associated to market conditions moving higher?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : I see. And maybe, Ron, just a broader question. You've referenced in your opening comments about the rebranding of State Street investment management and how that reinforces One State Street strategy approach and how you're going to leverage the collaboration between different product offerings and deepening your relationships with your clients. How as outsiders, can we measure that success as you achieve those deeper relationships? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 15, 2025 / 4:00PM, STT.N - Q2 2025 State Street Corp Earnings Call