State Street Corp at Morgan Stanley US Financials, Payments & CRE Conference Transcript

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

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Super. Okay. So I just wanted to kick off with a question on how you're thinking about the macroenvironment --

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Oh, disclosures.

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Oh, I have --

Question: Elizabeth Graseck - Morgan Stanley - Analyst : I have to go first actually. You're right. For important disclosures, please see Morgan Stanley research disclosure website at The taking of photographs and the use of recording devices here today in this room is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative.

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Thank you, Eric. So State Street is truly a global firm operating in more than 100 markets. And as a result, you do have a very comprehensive view of the world. So I'd just like to understand what you're seeing in the macroenvironment that's making you more excited, on the flip side what's adding to uncertainty as you look around the world? And how does this view on the macro backdrop inform your strategic priorities for '24 and beyond?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : And the $1 billion in private that you referenced, is that also over a five-year period?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Okay. From what level today?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Okay.

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Great. I do want to ask a little bit about the balance sheet, deposits, higher for longer implications for NII, the usual suspects.

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Let's get this out of the way, right. Okay. So turning to the balance sheet, State Street saw strong deposit balances in 1Q, and that did help to improve your full year NII guide relative to the January call. And I guess I'm wondering how are deposit balances trending this quarter? There's 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. JUNE 10, 2024 / 5:00PM, STT.N - State Street Corp at Morgan Stanley US Financials, Payments & CRE Conference only a few weeks left to go. And then how is it trending in non-interest bearing deposits? Should we expect that as a percentage of total to track down from where it is today at 12%?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : And that's being made up for by interest-bearing deposits.

Question: Elizabeth Graseck - Morgan Stanley - Analyst : And is QT having any impact on the deposit picture here? 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. JUNE 10, 2024 / 5:00PM, STT.N - State Street Corp at Morgan Stanley US Financials, Payments & CRE Conference

Question: Elizabeth Graseck - Morgan Stanley - Analyst : And then last on this point before we move to guidance question is just on the State Street sensitivity to higher for longer. Obviously, the forward curve has shifted a few times since January.

Question: Elizabeth Graseck - Morgan Stanley - Analyst :

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Okay. Now on NII, you did raise your guidance back in April for the full year 2024. And I was wondering how is net interest income shaping up this quarter? And is there any other guidance you'd like to share for the second quarter?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Okay, great. And tax rate stayed the same?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : 22%? Super. All right.

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Okay. So let's dig into some of the businesses and some of the drivers of that, just starting off with asset services business, clearly the major driver here. You have yet to be installed business, right, that had been running at something like $4 trillion or hit a peak there, and now it's running at around $2.6 trillion. At the same time, I think you've been talking about implementing a little bit more rapidly. So the yet-to-be installed business, should we be expecting that that will be implemented maybe at a faster pace than had been the case years ago? 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. JUNE 10, 2024 / 5:00PM, STT.N - State Street Corp at Morgan Stanley US Financials, Payments & CRE Conference

Question: Elizabeth Graseck - Morgan Stanley - Analyst : And is that $350 million to $400 million for 2024?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Right. So you expect some acceleration from here given that you believe 1Q was $67 million, is that right, of servicing fee wins?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Okay. You did mention that custody has healthy margins, which I'm sure some listeners might have had their ears perked with that because long debate for many decades on, hey, isn't custody margins under pressure. So maybe you could explain the healthy margin.

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Okay. That's very clear and also nice to have scale. That's also help you on that.

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Separately on fees, we already talked to quite a few of the drivers there. I'm wondering how is the implementation of T+1 settlement in the US equity market impacting your opportunities in your fee lines that are related to that?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Okay, great. I would also think there might be a little bit more outsourcing that clients choose to do with T+1. Is that part of the opportunity set?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Okay. Thank you for that. I'm going to turn to expenses now, two questions. Let's start with the first one is, I believe the expense guide for this year is 2.5%. It could be a little higher if revenues punch out, but that would be a good reason. Anyway, 2.5% is less than 3%, which was last year's 2023 expense growth year on year. And I realize that this improvement coming from productivity, savings, right, and I think you mentioned a 1.7 times increase in productivity savings. So could you help us understand what's driving those productivity savings? And is there any -- what's left to harvest?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Now here we are. 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. JUNE 10, 2024 / 5:00PM, STT.N - State Street Corp at Morgan Stanley US Financials, Payments & CRE Conference

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Can you remind us what your tech budget is today? I think last year was just north of $2 billion.

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Okay. And just turning to capital. I wanted to understand how you're thinking about just excess capital utilization and how that feeds into buyback outlook. And part of the reason -- I understand we don't have Basel 3 endgame and all that, so I'm not going to ask you what your excess capital dollars are at this stage. But you do have a targeted, what is it 100% payout ratio, and last year was a little higher at 200%. So as you sit here today and think about the CCAR that's coming up and the earnings generation rate that you've got, how should -- how would you suggest to investors how they should think about your buyback trajectory here over the course of the rest of this year?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : And when you say leaning positive, what are you referring to there?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : And then on CCAR that's coming up, it looks similar to last year, year on year. So does it make sense to expect a flat SCB, or are there things going on that we should be thinking SCB could creep up?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Okay, great. So last question. What do you see as the biggest fee opportunity outside of core custody?

Question: Elizabeth Graseck - Morgan Stanley - Analyst : As you described earlier.

Question: Elizabeth Graseck - Morgan Stanley - Analyst : Yes. Thank you so much, Eric, for joining us today.