State Street Corp at UBS Financial Services Conference Summary

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

Question: Brennan Hawken - UBS Group AG - Analyst : <_ALACRA_META_ABSTRACT>Thanks for coming. Really appreciate it. Chairman and CEO of State Street, of course. Ron, when I was prepping up for this, I was going through the financials. And last year was really a pretty awesome year for State. 6% core revenue growth, operating margin leverage that was pretty substantial, 200 bps, a bunch of new Alpha wins. It was really quite good. Now the market was conducive but you guys capitalized on it. So I know you've got your outlook out there. This isn't about your outlook. But when you think about 2025 and the next few years, what are the strategic imperatives that are most in focus you? Ronald O'Hanley - State Street Corp - Chairman of the Board, President, Chief Executive Officer Maybe I'll come back to 2024 because when you think about 2025, that foundation and groundwork was laid in '24, and before '24 the foundation was laid in '23. And I talked a little bit about that this time last year. But as you noted, 6% revenue growth, and that was really across the board. I mean, it was fee and NII. The components were good and broad, which reflected our strategic initiatives. So asset management revenue was up, servicing revenue was up, software revenue was up 10%, privates was up 11%. And most importantly, we really focused on two things. One is service quality, and we had a retention rate of 97%, which was our target. And second, we focused on sales and asset management. $146 billion of net asset flow. And in servicing fees, $380 million. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 11, 2025 / 3:30PM, STT.N - State Street Corp at UBS Financial Services Conference And as you know, that number has purposely gone up over the years, we've set increasingly higher targets. At the same time, we were very strategic about the way we thought about when opportunities came along to lock in longer-term kinds of contracts, we did that. So our pricing, Pricing eroded a little bit from 2% to 2.5%, but that was quite intentional. So we were able to secure these longer kinds of mandates as we said in our guide, that will go up to 2%. That will be 2% for next year. So what does it all mean for '25 and beyond? We're really focused on three things: One is to continue to sustain revenue growth. And how are we going to do that? Again, across the board, like we've talked about before, the biggest piece of this is servicing fees. So everything we think about is how do we keep that number. And what we said on servicing fees is we're talking about a 3% to 5% number for 2025. A couple of headwinds in there. So that's a net number. Some of those headwinds will die down after next year. But as importantly, we're focused on these broader set of activities, which we think one represents the future. Privates, for example, front office software, which is a revenue stream that we have and our competitors don't have. We still are projecting a 10% growth rate there. So first is fee revenue growth. Second is, how do we think about our operating model. And we think about our operating model and you immediately go to expenses there, and that's important, and that will enable us to continue to have the kind of moderate expense growth that we see. But as importantly, it's about the service quality we're delivering, faster, lower error rates, high client satisfaction that results in retention and also an inclination for clients to grow more for us. And finally, continuing to reshape the culture. And we talk about this a lot. There's a lot of people that are new or new to their roles. We've talked about some of them. Some of them are very visible leaders such as Mostapha Tahiri, Joerg Ambrosius, Yie-Hsin Hung. But even more broadly, as we think about it, I just had my entire SVP and up group. That's what we call the operating group. That's 500 people. So think of it as the top 1%. 24% of them are new or new to their roles since last year. So we continue to drive that kind of change into the organization. So when you put it all together, what we've said to our shareholders is that you can count on us for this kind of sustained revenue growth. And I know we've talked about this for a long time. We've had a lot we needed to do. It took us time to get Alpha in place and to get that revenue growth engine going. We feel quite confident as we look forward.

Question: Brennan Hawken - UBS Group AG - Analyst : Yeah, it's inclusive of that. So CRD, Alpha as it's been renamed. So it's become a really significant strategic imperative for you all and a differentiator, as you said. You've really proven the doubters wrong, present company included, right? But are six to eight mandate wins sort of the right pace, I believe that's your target. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 11, 2025 / 3:30PM, STT.N - State Street Corp at UBS Financial Services Conference Do the six to eight mandate wins translate to the low double-digit sort of revenue side? And then what's the right way to think about the TAM for that business? Because it's -- from what I understand, it's not -- it's an expensive -- it's a big project, right? So it does carry a decent expense. So there's probably a certain size threshold you have, right?

Question: Brennan Hawken - UBS Group AG - Analyst : Has it been 100%? I mean I know there's not as many clients compared to the whole of State Street and the servicing business, but --

Question: Brennan Hawken - UBS Group AG - Analyst : You retained them all. Yeah. Okay. That's great. Yeah. And the point on going into the front office rather than the back. I mean that's something that I don't think everybody really fully has digested.

Question: Brennan Hawken - UBS Group AG - Analyst : So it's basically you're scaling just it.

Question: Brennan Hawken - UBS Group AG - Analyst : It's totally fair. And I was actually sitting here with Andrew Schlossberg just yesterday, working on his install right now. Have you looked, though, at the impact of potentially pricing power or cross-sell opportunities across that? I know it's still early days, but are there any early indications or do you have any kind of goal as far as Alpha penetration is concerned across the industry? This was a different question. Sorry.

Question: Brennan Hawken - UBS Group AG - Analyst : Does the bond offering allow -- do you have multi asset managers that are using it? Because I know CRD is always the strength is the equity side, right? But are you getting it--

Question: Brennan Hawken - UBS Group AG - Analyst : Got it. Last question on the strategic side. So I think Mark Keating is in the audience, if he is, earmuff it for me for this one, Mark. But how is the process going? You've got an interim CFO in Mark named. So we've got a solution for the moment, but you are considering internal and external candidates still, right? So what's the latest on that?

Question: Brennan Hawken - UBS Group AG - Analyst : Okay. Fair enough. Limited what you can say I totally get that. I'd love to transition to the asset management business, which was, as we touched on in the beginning, a pretty good bright spot, some pretty significant strength in ETFs. I know you've made some key hires in that business and gained some share in retail, and you've launched some new products. So beyond launching the low-cost suite, how are you going to drive adoption in that retail channel?

Question: Brennan Hawken - UBS Group AG - Analyst : Got it. Do you have any sense -- I know it's hard sometimes to estimate this precisely, but do you have any sense about where you've been able to take your retail market share in the US and ETFs? And do you have a goal?

Question: Brennan Hawken - UBS Group AG - Analyst : Sure. Yeah, at mid-single digits, you definitely have the space, especially given the brand. You touched on privates in retirement, which has been an ongoing theme throughout capital markets. I know you've announced the tie-up with Apollo, but I believe it was more on the ETF side. Are you -- is that going to be a broader relationship? Or are you engaging in more partners than just one?

Question: Brennan Hawken - UBS Group AG - Analyst : Got it. Okay. Now we're talking about ETFs. We got to talk about the big news we got last week, right? So Vanguard came out, made some big changes, but it wasn't just ETFs. They did it on traditional mutual funds, too. So do you have -- do you see any impact from those announced cuts? And do you think either first order or second order, right? Because when they've done this in the past, it wasn't one and done. This is a big start. So it might be a little different this time. But what are your thoughts on the implications of that?

Question: Brennan Hawken - UBS Group AG - Analyst : Yeah. And yeah, it's funny because I've pulled up the XLF. They're still above you, even with the cut. So they're more coming to you and --

Question: Brennan Hawken - UBS Group AG - Analyst : Sure. That's fair. I'd love to transition to private markets. We touched on it a little bit there. But you've got some goals. So it's 9% of your servicing revenue now. You want it to get to $1 billion, right, over the next four, five years. That would suggest about a 20% CAGR. So can you tell us how you built out that private business and what's driving your optimism around this really heady growth?

Question: Brennan Hawken - UBS Group AG - Analyst : You spoke to how the progression of growth has sort of moved along with the privates industry. Do you have any -- can you give us any sense about what the asset class breakdown of your privates business looks like, like how -- are they all equally sized and major asset classes?

Question: Brennan Hawken - UBS Group AG - Analyst : Inverse.

Question: Brennan Hawken - UBS Group AG - Analyst : Yeah, right. And it seems something of what you're doing with Apollo. So the fee rate on private business is higher. So is it -- as you grow that business, is it going to be enough to potentially offset that 2% that we talked about before. And can you talk about the profitability? I'd assume that expenses are probably higher. It's probably greater complexity. So I don't know whether or not you look at it this way, but how is it like the unit economics or the margin compare in the Alts versus traditional? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 11, 2025 / 3:30PM, STT.N - State Street Corp at UBS Financial Services Conference

Question: Brennan Hawken - UBS Group AG - Analyst : Got it. You mentioned this before and you also laid it out in your fourth quarter when you provided the outlook, operating model simplification, right, being a factor in your expense growth. So could you put a little meat on that bone. What are some of the details around that? And is it going to be ultimately a net efficiency generator?

Question: Brennan Hawken - UBS Group AG - Analyst : Okay. And you sort of touched on a couple of the points from my next question. But when we think about these AI-driven investments you've been making, what's the impact of the P&L? Has it been a net efficiency adder yet? Or is it still mostly on the investment side?

Question: Brennan Hawken - UBS Group AG - Analyst : Got it. That's helpful. I will give out a few more minutes on to see if there's any questions in the audience. Had a rather low batting average with the questions from the audience, but we'll give it a shot. Okay, back to me. So last one, what I'd like to touch on is capital. So we did get the CCAR scenarios just recently. So I don't know if you have any preliminary thoughts on that. And I'd love to hear how M&A fits in with your capital priorities. And then you're going with an 80% payout ratio, but I think it involves some balance sheet growth here. You've got some lending that you want to do. So it's probably some capital consumption there. Is that the right way to think about it more longer term? Or is it more likely to get back to that 100% we're used to seeing?

Question: Brennan Hawken - UBS Group AG - Analyst : That's great. It's a good note to end on. Thanks a lot, Ron.