Skip to content
    STT
    Earnings call· Mar 2025(Q1 FY25)

    STATE STREET Q1 FY25 earnings call STT

    Apr 17, 2025 Source

    Executive summary

    State Street Q1 FY25 — Strong Fee Revenue Growth and Capital Return Amidst Market Uncertainty

    State Street delivered solid Q1 FY25 results, marked by robust fee and total revenue growth, significant margin expansion, and strong capital returns. Despite heightened global market uncertainty and sequential NII compression, the company maintained its full-year guidance for fee revenue, NII, and expenses, citing strong business momentum, a healthy pipeline, and effective expense management. Strategic investments in platforms and partnerships continue to drive growth, positioning the firm for resilience in a volatile environment.

    Highlights

    6

    • Fee revenue increased by 6% year-over-year.

    • Total revenue rose by a healthy 5% year-over-year.

    • Pretax margin reached 30% (excluding notable items and seasonal expenses), expanding nearly 2 percentage points year-over-year.

    • Adjusted EPS growth was a very strong 21% year-over-year.

    • New asset servicing AUC/A wins totaled $182 billion, with new servicing fee revenue wins of $55 million, primarily from back-office mandates.

    • Management fees increased by 10% year-over-year, and SPDR U.S. low-cost ETF AUM reached a record $256 billion.

    Concerns

    5

    • Net interest income (NII) decreased 5% sequentially, primarily reflecting changes in deposit mix, lower short-end rates, and lower day count.

    • Net outflows of $13 billion in Investment Management were driven by an anticipated single client event within the institutional business.

    • ETF inflows were muted in Q1 as market uncertainty led to outflows in institutional-oriented SPI products.

    • Noninterest-bearing deposits moderated by roughly $1 billion (5%) in Q1 from seasonally high levels.

    • Net interest margin (NIM) compression occurred in Q1.

    Guidance & targets

    6
    CategoryTargetConfidence
    Full-year FY25 fee revenue growth
    3% to 5%
    high materiality
    High
    Full-year FY25 Net Interest Income (NII)
    roughly flat for the full year with a range of up low single digits to down by a similar amount in percentage terms
    high materiality
    High
    Full-year FY25 expenses
    up approximately 2% to 3%
    high materiality
    High
    Full-year FY25 positive operating leverage
    both positive fee and total operating leverage
    medium materiality
    High
    Full-year FY25 capital return
    around 80% of earnings
    high materiality
    High
    New servicing fee revenue wins
    $350 million to $400 million
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Investment Services
    Servicing fees increased 4% year-over-year, driven by higher average market levels, net new business, and improved client activity, partially offset by normal pricing headwinds. A client transition was a headwind of just under 1 percentage point. The vast majority of Q1 wins were in the back office. To-be-installed revenue is the highest reported since disclosure began.
    New asset servicing AUC/A wins: $182 billionNew servicing fee revenue wins: $55 millionAlpha mandate wins: notedServicing fee sales (past 4 quarters): $370 millionTo-be-installed revenue: $356 million
    		—4%——
    Investment Management (Global Advisors)
    Management fees increased 10% year-over-year, largely reflecting higher average market levels and prior period net inflows. Net outflows were primarily driven by an anticipated single client transition within the institutional business. ETF inflows were muted due to market uncertainty, but strong inflows and market share gains were seen in key product segments like U.S. low-cost offerings.
    Net outflows: $13 billionSPDR U.S. low-cost ETF AUM: $256 billionGlobal Gold ETFs AUM: exceeded $100 billion
    		—10%—28%
    Markets
    FX trading revenue increased 9% year-over-year due to higher FX volatility and increased client volumes. Securities finance revenues increased 19% year-over-year, supported by continued client engagement, higher balances, and solid revenue performance in prime services.
    FX trading revenue growth: 9% YoYSecurities finance revenue growth: 19% YoYFX client volumes: notably higherAverage assets on loans: increased 14%
    		————
    Software and Processing (Charles River)
    Software and processing fees increased 9% year-over-year, primarily driven by higher front office software and data revenue associated with Charles River. The front office software market continues to be an important growth area, strengthening client relationships and providing consistent fee revenue.
    Front office software revenue: $158 million (up 10% YoY)Software-enabled and professional services revenue: up 7%Annual recurring revenue: $373 million (up 15% YoY)SaaS client conversions and implementations: over 25
    		—9%——

    Operational metrics

    18
    Pretax margin
    30%nearly 2 percentage point expansion YoY
    Q1 FY25

    Achieved with positive fee and total operating leverage.

    Return on Tangible Common Equity (ROTCE)
    over 16%
    Q1 FY25

    Reflects strong execution across the franchise.

    Fee operating leverage
    over 300
    Q1 FY25

    Driven by strong fee revenue performance and well-controlled expense growth.

    Total operating leverage
    over 180
    Q1 FY25

    Driven by strong fee revenue performance and well-controlled expense growth.

    Common share repurchases
    $100 million
    Q1 FY25

    Part of the total capital returned to shareholders.

    Common stock dividends
    $220 million
    Q1 FY25

    Part of the total capital returned to shareholders.

    Total capital returned to shareholders
    $320 million
    Q1 FY25

    Consisting of common share repurchases and dividends.

    Expense growth
    3%YoY
    Q1 FY25

    Reflects tight cost management and contributes to operating leverage.

    Productivity savings
    $90 million
    Q1 FY25

    Generated in Q1, contributing to the full-year target of $500 million.

    CET1 ratio (standardized)
    11%up approximately 10 bps QoQ
    Q1 FY25

    Remains strong and well in excess of regulatory minimums.

    Risk-weighted assets (RWA)
    $4 billionincreased sequentially
    Q1 FY25

    In part driven by higher period-end securities finance RWA, along with increased loan balances.

    Bank LCR
    139%up from 134% in 4Q
    Q1 FY25

    Reflects prudent management of liquidity levels in a dynamic market environment.

    AUC/A growth
    6%YoY
    Q1 FY25

    Reflects higher market levels as well as positive flows.

    AUM growth
    9%YoY
    Q1 FY25

    Reflects higher market levels as well as positive flows.

    Average total deposits growth
    11%YoY
    Q1 FY25

    Reflects continued growth in balances.

    Average total deposits growth
    3%sequentially
    Q1 FY25

    Marking the sixth consecutive quarter of growth in balances.

    Noninterest-bearing deposits decline
    $1 billion5% decline
    Q1 FY25

    Expected moderation from seasonally high levels observed in Q4.

    Private markets business growth
    15%YoY
    Q1 FY25

    Reflects a strong growth area for the company, connected to its lending business.

    Industry KPIs

    4
    MetricValueDetails
    Cet1 ratio11%%
    Payout ratioaround 80%%
    Pretax margin30%%
    Net interest income$714 millionUSD

    Product announcements

    3
    ProductTypeDetails
    Innovative ETFs leveraging Apollo Global Management and Bridgewater Associates partnershipslaunch
    Saudi Arabia fixed income UCITS ETFlaunch
    Strategic investment and partnership with Ethicexpansion

    Risks & headwinds

    5
    Global financial market uncertainty and volatilityCurrent environment

    Noted volatility in global financial markets and investor sentiment due to U.S. trade policy, taxes, geopolitics, interest rates, deficits, and deregulation.

    Mitigation: Focus on financial strength, deep investment services, markets, software, and asset management capabilities; track record of financial and operational resilience; agile strategy; detailed plans for a broad range of scenarios including accelerated expense management.

    NII compressionQ1 FY25, potential for future

    NII decreased 5% sequentially; net interest margin compression in Q1.

    Mitigation: Staying short on reinvestment of deposits; NII guide of roughly flat to +/- low single digits for FY25, subject to monetary policy and deposit mix.

    Net outflows in Investment ManagementQ1 FY25

    Net outflows of $13 billion in Q1.

    Mitigation: Primarily driven by an anticipated single client event; underlying momentum in ETF business with strong inflows in key segments.

    Market levels impacting fee revenueFY25

    Market levels will ultimately be a significant driver of fee revenue.

    Mitigation: Strong business momentum, volume of business to be installed, robust pipeline, Alpha acceleration, sales force effectiveness, and ability to manage expenses.

    Geopolitical shifts impacting client relationshipsOngoing

    Not quantified, but noted as a concern that could lead to clients desiring to go more local.

    Mitigation: State Street's extensive geographic footprint and local presence in 32 countries, where it often operates as a local entity and a top player, helps mitigate this risk. Management is actively engaging with clients on the road.

    What to watch in Q2 FY25

    5

    CFO Search Completion

    Near term
    CurrentProcess is advanced
    TargetAnnouncement of permanent CFO

    Why it matters

    The appointment of a permanent CFO will provide stability and leadership to the finance function, which is critical for investor confidence and strategic execution.

    Finally, I would like to provide an update on our search for a permanent CFO. The process is advanced, and we expect to be in a position to make an announcement in the near term.

    Q&A highlights

    9

    Will the current uncertain environment and deposit flows change the view on capital return pacing, especially given the slow start in Q1?

    Management reaffirmed the plan to return approximately 80% of earnings to shareholders for FY25, with a progressive cadence and an anticipated step-up in repurchase activity in Q2. They are on track with the communicated plan despite the wider potential range of outcomes in the current environment.

    “Right now, we're expecting to continue with our plan, which overall, again, as I mentioned, is to return about 80% of earnings back to shareholders. So right now, I would say we're on track with that.”

    asked by Ken Usdin · answered by Mark Keating

    2 min read6 chapters

    Detailed Narrative

    01

    Market Uncertainty and Resilience

    Investors are currently navigating significant uncertainty stemming from U.S. trade policy, taxes, geopolitics, interest rates, deficits, and deregulation, leading to volatility in global financial markets. State Street emphasizes its 230-year history of supporting clients through such periods, leveraging its financial strength and comprehensive capabilities in investment services, markets, software, and asset management. The company focuses on controllable factors and prepares for uncontrollable ones, aiming to strengthen its client relationships.

    02

    Strategic Progress in Investment Management

    Global Advisors (GA) is broadening its product and distribution capabilities, leading to a 10% year-over-year increase in management fees. The SPDR U.S. low-cost ETF suite expanded its market share, capturing new flows at more than twice its industry AUM market share, with low-cost ETF AUM reaching a record $256 billion. Gold ETFs exceeded $100 billion in AUM for the first time. GA also launched innovative ETFs through partnerships with Apollo Global Management and Bridgewater Associates, and expanded its partnership with the Saudi Arabia Public Investment Fund.

    03

    Sales Effectiveness and Pipeline Momentum

    State Street reported $182 billion in new asset servicing AUC/A wins and $55 million in new servicing fee revenue wins in Q1, with the majority from back-office mandates. Nearly half of the AUC/A wins were driven by Alpha mandates, demonstrating continued momentum in this unique value proposition. The company's pipeline in Investment Services is robust, and management is confident in its platform and improved sales effectiveness, maintaining the full-year goal of $350 million to $400 million in new servicing fee revenue wins.

    04

    Expense Management and Productivity Initiatives

    The company maintained tight cost control, limiting year-over-year expense growth to 3% (excluding notable items) in Q1, contributing to strong operating leverage. State Street generated approximately $90 million in productivity savings in Q1, progressing towards its $500 million target for the year. Management highlighted a track record of consistent expense discipline and a comprehensive book of work focused on delivering significant recurring productivity savings, with flexibility to calibrate expenses to the revenue environment.

    05

    Robust Balance Sheet and Liquidity Position

    State Street's balance sheet remains strong, with a standardized CET1 ratio of 11%, up approximately 10 basis points quarter-over-quarter. The bank's LCR was a robust 139%, up from 134% in Q4, reflecting prudent liquidity management. This strong capital and liquidity position enables the company to support clients through market volatility🌐 and return capital to shareholders, with $320 million returned in Q1 through common share repurchases and dividends.

    06

    Outlook on Regulatory Environment

    Management anticipates real work and thought applied to the regulatory environment, particularly regarding capital and liquidity rules. They expect progress in areas like Basel III Endgame and potential rethinking of liquidity rules, including the exclusion of government securities from supplementary leverage ratios. While incremental relief for trust banks from SLR changes might be limited, such changes would be beneficial for the broader marketplace, especially the treasury market. The company also expects attention on Tier 1 leverage and the interaction of regulation and supervision.

    AI-generated summary of the company’s earnings call. Not investment advice.