State Street (STT) Q1 FY26 earnings call: guidance and Q&A

How does the strong NIM expansion reconcile with only 1% growth in average interest-earning assets, and how does this dynamic factor into the updated NII guidance?

NIM progress is primarily driven by improvements in funding mix, specifically growth in deposits allowing for the reduction of higher-cost short-term wholesale funding. Interest-earning asset growth is less of a driver for NII in 2026, with NIM expansion being the main contributor to the updated guidance.

“interest-earning assets will be less of the story. It wasn't -- it was -- 1Q was driven almost entirely by net interest margin. I think that's a similar story for our guide for 2026, that range that you articulated that we talked about earlier is almost entirely driven by net interest margin as well.”

asked by Glenn Schorr · answered by John Woods

What are the overarching goals for the next phase of State Street's transformation, specifically regarding revenue growth and profitability targets like the pretax margin?

The goals include both faster revenue growth and improved profitability. The company has already achieved its 30% pretax margin target and expects to reach around 31% for FY26. Future efforts will focus on driving profitability metrics higher, growing the platform overall from a revenue standpoint, leveraging business execution discipline, strategic initiatives, and ongoing transformation pillars like operating model, technology modernization, and AI.

“what you'll probably hear from us in July is an updated view about what we think this platform can deliver over the medium term from a profitability standpoint. And we feel like there are extremely attractive opportunities to grow profitability metrics pretax margin and other metrics. And we also believe that we have very unique opportunities to grow this platform overall from a revenue standpoint.”

asked by Alexander Blostein · answered by John Woods

Do the strong Q1 FX trading and NII results represent a sustainable run-rate, or are they expected to moderate given the market volatility seen in the first quarter?

FX trading conditions are expected to moderate gradually throughout the year, but the 7-9% fee guide does not depend on Q1's highly favorable conditions. For NII, the strong tailwinds are expected to continue, with NIM projected to be 110-115 bps for FY26 (slightly down from Q1's 116 bps), driven mainly by funding mix optimization and deposit growth.

“So we're not depending upon those highly favorable conditions in the first quarter being maintained for the rest of the year in order to deliver the 7% to 9%. So that's how I would just kind of articulate the FX trading side of things. When it comes to net interest income, we had an -- the original guide was up low single digits. So now it's in an 8% to 10% range. So we're seeing some very solid tailwinds there.”

asked by Kenneth Usdin · answered by John Woods

Does State Street's digital asset platform and tokenization efforts primarily aim to retain existing customer activity, or do they open up new revenue opportunities?

It's both. While serving existing clients with advanced capabilities, tokenization of assets (like money market funds) presents net new opportunities. The development of on-ramps and off-ramps between traditional and digital finance is also a significant new revenue source, as current infrastructure is underdeveloped.

“But if you think about some of the use cases, they're a very real in terms of the tokenization of assets. That's in the end net new opportunity for us. And we talked and we've talked to you before in other venues about tokenized money market funds. I mean that's a real use case and it's beneficial to the market. It's beneficial to liquidity and will result in more revenues for us.”

asked by Ebrahim Poonawala · answered by Ronald O’Hanley

How does State Street view the long-term impact of AI on its business model, and can the company dimension the expected financial benefits?

State Street is very positive on AI, seeing it as an opportunity rather than a threat to its business model, given its investment, operational, and technology intensity. AI is comprehensively embedded, driving productivity in development, and a centralized AI hub has 200+ use cases (70 live). Tangible business impact is expected to scale in H2 2026 and accelerate. The company will provide more detail on medium-term financial impact in July and near-term benefits as run-rate data becomes available.

“I think it's going to start scaling in the second half of '26, and we're going to dimension what the impact is going to be over the medium term. It will be very meaningful and it will be a very important pillar of how we're going to drive value and financial bottom line impact as well as expanding resources to continue to invest in our strategic road map.”

asked by Michael Mayo · answered by John Woods

How important is scale for competing successfully in the custody banking business, especially with the advent of AI, and does it pose a greater challenge for smaller players?

Scale remains critically important, if not more so, due to increasing investments required for technology, cybersecurity, and regulatory compliance. The ability to effectively deploy and profit from AI also demands significant scale in terms of people and know-how. The long-term transition to digital finance, requiring on-ramps and off-ramps, further emphasizes the need for scale, making it challenging for smaller players to compete effectively.

“I think that the importance of scale certainly hasn't gone down. If you think just about the investments required around technology and cyber and those kinds of things just to stay where you are, right? Forget about growth, forget about new opportunities. the cost of doing that, which is either being imposed regulatorily on all the other players or increasingly by clients themselves who are saying, this is our expectation in terms of what we're going to expect in demand of you.”

asked by Gerard Cassidy · answered by Ronald O’Hanley