How much of the $750M cost savings from transformation will be reinvested versus contributing to margin expansion.

John Woods stated that the $750M serves two purposes: growing strategic investment capacity and contributing to margin expansion. He estimated it's relatively equal parts allocated to reinvestment and margin expansion. “I think it's relatively equal parts allocated to reinvestment and margin expansion is, I think, the best way to think about it.”

Questioned the financial materiality of digital asset initiatives given the $250M revenue contribution is small, and asked about State Street's approach to new digital networks (Visa/MasterCard, tokenized deposits).

Ron O'Hanley clarified that the $250M is for the next phase of transformation, with existing digital initiatives already contributing. He emphasized State Street's role as an infrastructure provider enabling clients' digital strategies, focusing on traditional-to-digital rails and client-centric solutions like tokenized money market funds. John Woods highlighted recent launches of a tokenized money market fund and a stablecoin reserves money market fund. “The way we think about this is we're primarily an infrastructure provider to our clients, enabling them to do to execute their digital strategies.”

Asked why this new phase of transformation will succeed, given past failures to deliver desired results from similar initiatives.

Ron O'Hanley cited the strong foundation of 10 consecutive quarters of positive operating leverage, consistent organic revenue growth, and a productivity-focused culture with declining headcount. He also highlighted the strength of the current management team and the ambitious but achievable nature of the targets over a cycle. “We didn't have that kind of foundation in the history that you're referring to. Secondly, I put a lot of -- we put a lot of credence in this team. The current management team is a strong one. Over 50% of that team is either new or new to its role in the last 3 years.”

STT

State Street (STT) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Financials· Jul 16, 2026

Source: earnings call transcript

Executive summary

State Street Q2 FY26 — Record Revenue and Strong Operating Leverage

State Street delivered a strong second quarter, achieving record revenue and significant earnings growth, driven by broad-based momentum across its businesses and disciplined execution. The company reported its tenth consecutive quarter of positive operating leverage, leading to substantial margin expansion and improved returns. Management is confident in its ability to deliver sustained growth and expand margins, supported by strategic initiatives and a new set of ambitious medium-term financial targets.

Highlights

EPS (excluding prior year notable items) was $3.65, up 44% year-over-year.
Total quarterly revenue reached a record $4 billion, increasing 17% year-over-year.
Pretax margin expanded 470 basis points year-over-year to 34%.
Return on tangible common equity (ROTCE) increased over 6 percentage points to approximately 26%.
Announced a 10% increase to the quarterly common stock dividend, raising it to $0.92 per share.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 fee revenue growth	12% to 13% high materiality	FY26	High
Full-year 2026 NII growth	14% to 15% high materiality	FY26	High
Full-year 2026 expenses growth	roughly 8% medium materiality	FY26	High
Full-year 2026 positive operating leverage	roughly 500 basis points high materiality	FY26	High
Full-year 2026 pretax margin	approximately 32% high materiality	FY26	High
Full-year 2026 effective tax rate	approximately 22% medium materiality	FY26	High
Full-year 2026 total payout ratio	roughly 80% high materiality	FY26	High
Medium-term pretax margin	35% high materiality	Over the cycle	High
Medium-term Return on Tangible Common Equity (ROTCE)	mid-20s high materiality	Over the cycle	High
Transformation run rate benefits	$1 billion high materiality	by 2029 · FY29	High
Medium-term NII growth	low to mid-single digits medium materiality	Medium term	Medium
Medium-term net interest margin (NIM)	upper end of 110 to 115 bps range medium materiality	Medium term	Medium
Medium-term CET1 ratio	approximately 11% high materiality	Medium term	High
Medium-term Tier 1 leverage ratio	approximately 5.25% to 5.75% high materiality	Medium term	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Investment Services Growth primarily reflects organic growth, client activity, flows, net new business, higher average market levels, and currency translation. Servicing fees: $1.5 billionServicing fees growth YoY: 13%Servicing fees organic growth: ~7%Assets under custody and administration (AUC/A): $57.9 trillionAUC/A growth YoY: 18%Servicing fee sales: $87 million	—	—	—	Expected to contribute ~300 basis points to enterprise margin expansion over medium term
Investment Management Supported by higher period-end market levels and positive net flows, primarily from strong index ETF and cash net inflows. Management fees: $772 millionManagement fees growth YoY: 29%Management fees organic growth: ~9%Assets under management (AUM): $6.3 trillionAUM growth YoY: 23%Net inflows: $114 billion	—	—	—	Expected to contribute ~200 basis points of enterprise margin expansion over medium term
Markets Driven by record high client volumes, particularly strong in Asia Pacific, and higher client lending balances. FX trading services revenue: $494 millionFX trading services revenue growth YoY (ex-notable item): 27%Securities finance revenue growth YoY: 19%	—	—	—	Expected to contribute ~100 basis points of enterprise margin expansion over medium term

STT operating KPIs by quarter

STT operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Dec 2024 Q4 FY24	Mar 2025 Q1 FY25	Sep 2025 Q3 FY25	Dec 2025 Q4 FY25	Mar 2026 Q1 FY26	This call Jun 2026 Q2 FY26	Sep 2026 Q3 FY26	Change vs prior quarter
Net new assets	$64B We generated $146 billion of net new assets in 2024, including $64 billion in 4Q. Source: earnings call transcript	-$13B For the quarter, net inflows -- net outflows totaled $13 billion and were primarily driven by an anticipated client transition within our institutional business. Source: earnings call transcript	$26B Net inflows totaled $26 billion for the quarter, reflecting solid momentum across ETFs, cash and institutional index fixed income. Source: earnings call transcript	$85B Management fees increased 15% year-over-year to a new quarterly record of $662 million, driven by higher average market levels and quarterly net inflows of $85 billion, supported by strong performance across our ETFs, cash and institutional segments. Source: earnings call transcript	$49M Net inflows totaled $49 million for the quarter, led by strength across index strategies and solutions, including ETFs and fixed income as well as our cash franchise. Source: earnings call transcript	$114B Net inflows totaled $114 billion in the quarter, marking our fifth consecutive quarter of positive organic growth. Source: earnings call transcript	$7B As Ron noted, we delivered our sixth consecutive quarter of positive organic AUM growth with net inflows of $7 billion. Source: earnings call transcript	-93.9%
Common equity tier 1 ratio (CET1)	10.9% As of quarter end, our standardized CET1 ratio of 10.9% was down approximately 70 basis points quarter-on-quarter. Source: earnings call transcript	11% As of quarter end, our standardized CET1 ratio of 11% was up approximately 10 basis points quarter-over-quarter. Source: earnings call transcript	11.3% Our standardized CET1 ratio was 11.3% at quarter end, up approximately 60 basis points quarter-over-quarter, reflecting capital generated from earnings and a decline in risk-weighted assets coming off of the elevated FX volatility of the prior quarter. Source: earnings call transcript	11.7% At quarter end, our standardized CET1 ratio was 11.7%, up approximately 40 basis points from the prior quarter, primarily reflecting a decline in risk-weighted assets with the largest driver being market dynamics in our FX trading and agency lending businesses. Source: earnings call transcript	10.6% At quarter end, our standardized CET1 ratio was 10.6%, down approximately 100 basis points from the prior quarter. Source: earnings call transcript	10.8% Our standardized CET1 and Tier 1 leverage ratios were 10.8% and 5.3%, respectively, broadly stable relative to the first quarter. Source: earnings call transcript	—	+0.2 pt
Backlog	~$350M One other thing I would -- one other way to think about the sustainability of our fee revenue growth, servicing fees is to also take a look at the backlog that we've been now disclosing over the last several quarters, which is roughly $350 million at the end of 2024. Source: earnings call transcript	—	~$400M This momentum is reflected in our third quarter servicing fee revenue backlog of approximately $400 million, up roughly 40% from the prior year. Source: earnings call transcript	—	—	—	—	—
Assets under management (AUM) gold ETFs	—	$100B+ Further, we saw strong ETF flows in EMEA, while the commodities ETF segment gained market share, benefiting from market volatility in our industry-leading gold ETFs, which exceeded $100 billion of AUM for the first time. Source: earnings call transcript	~$145B Our gold ETF suite further strengthened its market leadership, reaching a record AUM of approximately $145 billion. Source: earnings call transcript	—	—	—	—	—
Return on tangible common equity (ROTCE)	—	16%+ While we've seen uncertainty weigh on global equity markets in recent weeks, our first quarter results demonstrate the strength of our business with a nearly 2 percentage point expansion of our pretax margin year-over-year, excluding notable items and an ROTCE of over 16% for the quarter. Source: earnings call transcript	21% For example, 3Q marked our seventh consecutive quarter of positive total operating leverage, excluding notable items as we delivered total revenue growth of 9%, a pretax margin of 31% and return on tangible common equity of 21%. Source: earnings call transcript	—	—	~26% These results drove another quarter of improved profitability, with pretax margin expanding 470 basis points year-over-year to 34% and ROTCE increasing over 6 percentage points to approximately 26%. Source: earnings call transcript	25% Combined with a pretax margin of 35% and a return on tangible common equity of 25%, these results reflect both the strength of our franchise today and the investments we are making to position State Street for long-term growth. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

Product	Type	Timeline
Tokenized fund servicing capability	launch	by year-end 2026
SPYM (S&P 500 ETF)	milestone	—
Tokenized money market solution	launch	Q2 FY26
Stablecoin reserves fund	launch	Q2 FY26
QNDX ETF	launch	Recent

Deals & partnerships

91 Strategic partnership

A State Street Alpha client entered into a strategic partnership with State Street Investment Management, demonstrating the 'One State Street' approach.

U.S. Department of the Treasury Exclusive default ETF provider

SPYM, State Street's low-cost S&P 500 ETF, was selected as the exclusive default ETF for Trump accounts.

Q&A highlights

Seeking granularity on the $250M revenue contribution from transformation and how it impacts firm-wide organic fee growth.

John Woods explained that the $250M revenue uplift is primarily from State Street-driven strategic initiatives in alternatives, digital, and wealth, with alternatives being the largest contributor due to its maturity. He noted that positive operating leverage of 100-150 bps is the North Star, driven by organic growth and low to mid-single-digit NII growth.

“the $250 million that we have in there is primarily related to the targeted strategic initiatives that you'll see that we're mentioning here that are on State Street driven. That would be in the alternative space. and in digital and in wealth and among those 3 probably alternatives is the biggest contributor, just given its maturity profile.”

asked by Alexander Blostein · answered by John Woods

2 min read 6 chapters

Detailed narrative

Strong Q2 Performance and Momentum

State Street reported strong Q2 FY26 results, with EPS of $3.65 (up 44% YoY excluding notable items) and record total revenue of $4 billion (up 17% YoY). This marks the tenth consecutive quarter of positive operating leverage, driven by record fee revenue across servicing, management, and FX trading, alongside record NII.

The performance led to a 470 basis point expansion in pretax margin to 34% and ROTCE increasing to approximately 26%.

Strategic Growth Initiatives

The company is focusing on three strategic growth initiatives: alternatives, digital assets, and wealth services. These initiatives span Investment Services, Investment Management, and Markets, aligning with evolving client demand and fast-growing revenue pools. Alternatives are the most mature contributor, while digital assets are gaining momentum with new product launches like tokenized money market funds and stablecoin reserves funds.

Technology and AI-Enabled Transformation

State Street is undergoing a significant technology and AI-enabled transformation to simplify operations, accelerate time to market, and improve productivity. This involves migrating to a product platform structure with integrated agile delivery teams, modernizing technology stacks, and leveraging AI. These efforts are expected to deliver approximately $1 billion in run-rate benefits by 2029, with 75% from expense productivity and 25% from revenue.

Capital Allocation and Shareholder Returns

The company maintains a robust capital position, reflected in its recent stress test results. It announced a 10% increase in its quarterly common stock dividend to $0.92 per share, effective Q3. State Street returned $631 million to shareholders in Q2, consisting of $400 million in share repurchases and $231 million in dividends, targeting a total payout ratio of approximately 80% for the full year.

Medium-Term Financial Targets

State Street introduced new medium-term financial targets, aiming for a pretax margin of 35% and a return on tangible common equity (ROTCE) in the mid-20s over the cycle. These targets are supported by a clear path to sustained organic revenue growth and positive operating leverage, building on the firm's strong momentum and consistent financial performance improvements.

Investment Management Growth

Investment Management demonstrated strong performance with AUM reaching a record $6.3 trillion (up 23% YoY) and net inflows of $114 billion, marking the fifth consecutive quarter of positive organic growth. The business is driving growth through scale, expanded client access (ETFs, index investing, fixed income), and strategic focus on wealth, alternatives, and tokenization.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.