State Street Corp Q4 2024 Earnings Call (Additional Q&A Session) Summary

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

Question: Jim Mitchell - Seaport Global Securities, LLC - Analyst : <_ALACRA_META_ABSTRACT>Oh, hey, good afternoon. Thanks for hosting the second round. Just maybe digging into the puts and takes on the NII guide, understand the asset sensitivity to non-US. I think 100 basis points downward shift in your queue is $260 million, but you had a $10 billion maturities in the HTM book and a pickup of 200-250 basis points there almost offsets that asset sensitivity. So outside of that - and you had deposit growth that was 15% heading into the year - so is it really just about the growth and mix of deposits and maybe a little bit of loan growth from here that will dictate up or down? Mark R. Keating - State Street Corp - Chief Financial Officer for Investment Services, State Street Corporation Hey Jim, it's, it's Mark Keating here. Thanks for the question. I'll start with that. I think it'd be good maybe just to take the NII topic from a few different angles. I want to try to give you a bit of a comprehensive overview of how we think about our NII guide. And there's really four items I want to cover pretty quickly. Two are headwinds which would be things like deposit mix and levels, and the rate environment, and a couple would be things we would consider tailwind you mentioned loan growth for example, the investment portfolio, rollovers. So I thought I would just cover those and give you some context for how we are thinking about the outlook. So first on the deposit levels and mix, as we've talked about on the call Friday, deposits did finish strong for the year in 2024 and a strong finish in Q4 specifically. Non-interest bearing was up in Q4, but that was after three quarters of sequential kind of decrease and we saw the same pattern in Q4 2023. So there was a seasonality to the end of the year. So we do expect to see some leveling off as we come out of Q4 into Q1 this year. Overall, we expect deposits to remain elevated in the $230-240 billion range with some ups and downs, for example, noninterest bearing, while up in Q4, year over year it was down about 12% or about $3 billion and we've talked before about expecting non-interest bearing to continue to trend a bit lower, and somewhere in the range of $20 billion to $25 billion is the range that we think of. Secondly, around the impact of rate cuts. As we've laid out our outlook was based on the rate curve at the end of the year which was two rate cuts in the US, five at the ECB, three at the Bank of England. And as rate curves have moved around, I would just note that so far the reduction in the number of cuts looks mostly to be backloaded at the end of this year. So we don't see much of a change there in our assumption. I'd also remind you that as you mentioned we are asset sensitive, particularly in non-US currencies. We're pretty neutral around US rate changes and we are more sensitive to non-US rates. And a cut in either Euro or Sterling is roughly $5 million to $10 million per cut per quarter for us. So that can be meaningful as well. \ Turning to kind of more of the tailwinds that we see, we do expect our loan growth to continue and it was about 14% in 2024. We have a similar expectation, it's something that we're doing really well with our clients on and supporting them specifically our private markets clients. So we continue to see that to be a growth area. And then lastly, finally, I would say on the portfolio rollovers, we have discussed in other forums that we see roughly $4 billion per quarter, but that can be lumpy depending on maturities. I'd keep in mind also that we have had a couple of portfolio repositionings as recently as last third quarter. I mean, currently the pickup from rollovers is roughly 100 basis points to 150 basis points. So hopefully, laying all that out and giving you a sense of how we balance out the puts and takes and the headwinds and tailwinds, gives you a sense of why we think that we have a realistic and appropriately conservative outlook. But those are the variables and we look forward to updating the group here as we move through the year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2025 / 5:00PM, STT.N - Q4 2024 State Street Corp Earnings Call (Additional Q&A Session)

Question: Jim Mitchell - Seaport Global Securities, LLC - Analyst : Okay, thanks.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Can you talk about what you view as your core organic revenue growth rate in the fee businesses. And I guess, I know we talked after your call, but you have 100 basis points headwinds from the BlackRock roll off, you have 100 basis points headwinds from the currency, so what do you see as a core growth rate ex-ing those factors out for '25 and what do you think the long-term growth rate is? And do you think that growth rate should keep up with the pace of growth in capital markets, which seem to have exceeded what you guys have done? Thanks.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Okay. And what do you think about a long-term growth rate for core fee growth? And where do you stand within that? And what do you think for the next four or five years?

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

Question: Glenn Schorr - Evercore ISI - Analyst : Hi. Thank you. Maybe a quick one first. In Prime Services, you just talked about $2 billion increase in RWA to support clients. I'm curious, the size and scope of what you do or don't do in prime services that might be redemption facilities or capital commitment lines for the private markets but just curious if you could expand on that?

Question: Glenn Schorr - Evercore ISI - Analyst : Okay. Cool. I appreciate that. Maybe one more in SSGA, I think your quote was "we continue to innovate and broaden our product suite and distribution capabilities." I mean your organic growth has definitely inflected the last handful of quarters. I wonder if you can talk about what's driving the rejuvenation at SSGA and how sustainable this better level of organic growth is?

Question: Glenn Schorr - Evercore ISI - Analyst : Thanks a lot.

Question: Brian Bedell - Deutsche Bank - Analyst : Great. Thanks, good afternoon folks. Maybe just circling back on NII. Just to back into the deposit side, I guess what is the interest of doing any sort of more aggressive deposit raising? How do you think about that? And I guess that would be through pricing or other initiatives with the servicing client base to expand that base of deposits. So I guess what's the chance we could see upside from that mid-230s number.

Question: Brian Bedell - Deutsche Bank - Analyst : Okay. Okay. Great. And then my follow-up question is on asset management. It's a 2-parter. One is just the fourth quarter beat our expectations, and I think the fee rate was higher, just not sure if there was any one-offs in that? And is that a good jumping off point for I think what you said is double-digit, your expectation of double-digit fee growth in SSGA? And then a longer-term question attached to that - Ron, you've had a really long history of experience in the asset management industry, What's your view of 401(k) plans, potentially adopting alternative products? Would you be positioned to offer those? Obviously, it's something that's been very REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2025 / 5:00PM, STT.N - Q4 2024 State Street Corp Earnings Call (Additional Q&A Session) compelling, but there's a lot of sort of roadblocks in terms of litigation and things. And I guess, what's your perspective of that changing?

Question: Brian Bedell - Deutsche Bank - Analyst : Yeah, that's great perspective. Thank you.

Question: Brennan Hawken - UBS - Analyst : Thanks. Thanks for taking the question. I'd like to drill down to the loan growth that you said embedded in your outlook, 14% last year, similar rate here in 2025. It's a rather punchy level of loan growth. So could you speak to the types of loans that you are adding, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2025 / 5:00PM, STT.N - Q4 2024 State Street Corp Earnings Call (Additional Q&A Session) the efforts involved. You said it was about expanding the client relationship. So maybe pulling back and thinking about how these loans are connected to expanding relationships and how you go through the risk parameters around adding new loans at this pace?

Question: Brennan Hawken - UBS - Analyst : Great. And we touched on this last week, but I don't think it was broadly broadcast. So I wanted to circle back to it. The deposit betas here recently, so the Euro and the sterling, the pound sterling looked a little bit lower than what you guys normally talk about in your expectations. Could you speak to what might have caused that? And then how should we think about the betas by currency going forward?

Question: Brennan Hawken - UBS - Analyst : Got it. Thanks for the color.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Thank you. Good afternoon, folks. Ron, in your comments the other day when you guys went over the results, you mentioned that you have invested in technology to improve your service quality, can you share with us how has AI, artificial intelligence, played a role in this improvement? And then just overall, can you share with us your thoughts about how important it is for you guys to be embracing AI? And then second to that, when will we, as outsiders, really be able to measure the companies that are having real success with AI.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Very good, very thoughtful Thank you for the response. And just as a follow-up, possibly to Eric, coming back to the loan portfolio, and certainly, it's not very large relative to the total assets, we all understand that, how large are you guys willing to allow the portfolio to grow to it relative to either capital or assets? And then at what point do you think giving investors better detail in the portfolio in your public disclosures would be helpful?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Great. Thank you, Eric. Good luck in your new position

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Thank you, Ron.

Question: Vivek Juneja - JP Morgan Securities LLC - Analyst : Thank you. Thanks for taking my question. I want to ask about buybacks. Given that your Tier-1 leverage ratio was actually a smidgen below the low end of your range, and your comments about wanting to grow loan -- that need to grow that sharply. Can you talk a little bit about what impact that might -- what should be the outlook for buybacks and how long are you willing to stay at the low end of the Tier-1 leverage ratio? Especially given that the ten-year has actually gone up since year-end so that would put a little bit more pressure on the OCI. So what's your thinking there?

Question: Vivek Juneja - JP Morgan Securities LLC - Analyst : A completely different question, if I may. You talked about in the presentation deck about winning a large business from an APAC lender. Could you talk a little bit about the fee rate on that kind of business. Is it more akin to US type? Is it lower than what you've REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2025 / 5:00PM, STT.N - Q4 2024 State Street Corp Earnings Call (Additional Q&A Session) seen historically in the Asian when we look at your fees on the business wins and the AUC/A on the business wins. It seems to imply that. Any color on that?

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

Question: David Smith - Truist Financial Corporation - Analyst : Hi, good afternoon. Alpha was responsible for about half of the AUC/A wins this year. Can you share how much of the overall total business on the platform right now is on Alpha? And if there's any range or target you think will be on Alpha in the medium term? And how would you compare the benefits of getting clients on Alpha? Is it more in terms of increased retention, stronger pricing power, like how do you weigh those different impacts?

Question: David Smith - Truist Financial Corporation - Analyst : Thank you. And then separately on deposits. You talked about 60%-ish in the fourth quarter for US deposits being pretty representative, can you help us unpack what's underlying there and why it might be lower than the 75%, 80% beta you saw in the US on the way up?

Question: David Smith - Truist Financial Corporation - Analyst : All right. Thank you.