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    STT
    Earnings call· Dec 2024(Q4 FY24)

    STATE STREET CORP STT

    Jan 17, 2025 Source

    Executive summary

    State Street Q4 FY24 — Strong Revenue Growth and Capital Returns

    State Street concluded FY24 with strong Q4 results, driven by broad-based fee growth, higher NII, and robust capital returns. The company achieved its sales goals for servicing fees and Alpha mandates, demonstrating improved sales performance and strategic investments in capabilities. Management expects continued positive fee operating leverage in 2025, contingent on NII performance, and aims to return approximately 80% of earnings to shareholders.

    Highlights

    5

    • Full year fee revenue increased 7% and total revenue 9%, with both fee and total revenue (excluding notable items) up 6% year-over-year.

    • Full year new servicing fee revenue wins totaled $377 million, meeting the annual target of $350 million to $400 million.

    • AUC/A wins exceeded $2.3 trillion in 2024, including $1.1 trillion in Q4, with Alpha mandates accounting for approximately 50% of these wins.

    • Organic AUM growth was over 3% for the second consecutive year, exceeding the 2% target, driven by $146 billion of net new assets in 2024.

    • Returned $2.2 billion of capital to shareholders in 2024, including common share repurchases and a 10% increase in the quarterly common dividend per share.

    Concerns

    3

    • Fourth quarter notable items collectively totaled $58 million pretax or $0.14 per share, largely due to accelerated deferred incentive compensation awards.

    • Servicing fees were impacted by a previously disclosed client transition, which was a headwind of roughly 1 percentage point to year-on-year growth in Q4.

    • A stronger U.S. dollar is expected to have an unfavorable impact on fee revenues, worth roughly 1 percentage point, in 2025.

    Guidance & targets

    7
    CategoryTargetConfidence
    Global equity markets growth
    up 5% point-to-point
    medium materiality
    Medium
    Fee revenue growth (excluding notable items)
    up approximately 3% to 5%
    high materiality
    Medium
    Net Interest Income (NII)
    roughly flat for the full year, with a range from up low single digits to down by a similar amount in percentage terms
    high materiality
    Low
    Expense growth rate (excluding notable items)
    up approximately 2% to 3%
    high materiality
    Medium
    Effective tax rate
    at or just above 22%
    medium materiality
    High
    Total payout ratio
    about 80% of earnings
    high materiality
    Medium
    Positive total operating leverage (excluding notable items)
    path to delivering positive
    high materiality
    Low

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Investment Services
    Servicing fees increased 6% year-on-year, reflecting higher average market levels and net new business. This was partially offset by pricing headwinds, lower client activity, and a previously disclosed client transition (1 percentage point headwind). The annual servicing fee sales goal of $350 million to $400 million was comfortably met.
    AUC/A wins: over $2.3 trillion (FY24)AUC/A wins: $1.1 trillion (Q4)New servicing fee revenue wins: $377 million (FY24)New servicing fee revenue wins: $154 million (Q4)Alpha mandates won: 7 (FY24)Alpha mandates won: 2 (Q4)Private markets business growth: 15% YoY (4Q)Private markets business as % of servicing fees: approximately 9% (FY24)
    		—6%——
    Investment Management
    Management fees increased 20% year-on-year to a record $576 million, primarily reflecting higher average market levels and quarterly net inflows. Organic AUM growth of over 3% was achieved for the second year in a row, driven by expansion of distribution and product capabilities. The segment generated a pretax margin of approximately 32%.
    Net inflows: $64 billion (4Q)Net new assets: $146 billion (FY24)Organic AUM growth: over 3% (FY24)ETF launches: 24 (FY24)ETF launches: 3 (4Q)
    		$576 million20%—approximately 32%
    Markets and Financing
    FX trading revenues increased 17% year-on-year due to investor confidence and increased FX volatility driving double-digit increases in client volumes. Securities finance revenues increased 22% year-on-year, primarily driven by strong prime services performance. Agency lending volumes grew 25% year-on-year, despite muted U.S. equity specials activity and spreads.
    FX trading revenues growth: 17% YoY (4Q)Securities finance revenues growth: 22% YoY (4Q)Agency lending volumes growth: 25% YoY (4Q)
    		————

    Operational metrics

    41
    EPS (excluding notable items)
    $8.21up 13% YoY
    FY24

    Full year EPS was $8.21, with growth of 13% year-over-year excluding notable items.

    Pretax margin (excluding notable items)
    approximately 28%expanded by more than 100 bps
    FY24

    Full year pretax margin expanded by more than 100 basis points, reaching approximately 28% excluding notable items.

    Return on average tangible common equity
    19%
    FY24

    Full year return on average tangible common equity was a robust 19%.

    Pretax margin (excluding notable items)
    about 30%
    4Q

    In the fourth quarter, the company achieved a pretax margin of about 30% excluding notable items.

    ROE (excluding notable items)
    roughly 12%
    FY24

    ROE was roughly 12% for the full year, excluding notable items.

    ROE (excluding notable items)
    over 13%
    4Q

    ROE was over 13% in the fourth quarter, excluding notable items.

    Productivity savings
    $500 million
    FY24

    Approximately $500 million of year-over-year productivity savings were achieved in 2024, in line with the target.

    Incremental business and technology investments (self-funded)
    $375 million
    FY24

    Productivity savings allowed the company to self-fund roughly $375 million in incremental business and technology investments.

    Compensation expense (excluding performance-based incentive compensation and employee benefits)
    roughly flatYoY
    4Q

    Outside of performance-based incentive compensation and employee benefits expenses, fourth quarter compensation expense was roughly flat year-over-year.

    Total capital returned to shareholders
    $2.2 billion
    FY24

    The company returned $2.2 billion of capital to shareholders in 2024.

    Total capital returned to shareholders
    $770 million
    4Q

    In total, $770 million of capital was returned to shareholders in the fourth quarter.

    Total payout ratio
    87%
    FY24

    The total payout ratio for the full year was 87%.

    Total payout ratio
    106%
    4Q

    The total payout ratio in the fourth quarter was 106%.

    Common share repurchases
    $550 millionup from $450 million in the prior quarter
    4Q

    Common share repurchases were $550 million in 4Q, up from $450 million in the prior quarter.

    Quarterly common dividend per share
    —10% increase
    FY24

    The company announced a 10% increase in its quarterly common dividend per share.

    Fee revenue growth (excluding notable items)
    6%YoY
    FY24

    Full year fee revenue increased by a solid 6% year-over-year, excluding notable items.

    Total revenue growth (excluding notable items)
    6%YoY
    FY24

    Full year total revenue increased by a solid 6% year-over-year, excluding notable items.

    Fee revenue growth
    13%YoY
    4Q

    Fourth quarter fee revenue was up 13% year-on-year.

    NII growth
    10%YoY
    4Q

    Fourth quarter NII increased 10% year-on-year.

    NII growth
    4%QoQ
    4Q

    NII increased 4% on a sequential basis.

    Average total deposits growth
    15%YoY
    4Q

    Average total deposits were up 15% year-on-year in 4Q.

    Average total deposits growth
    5%QoQ
    4Q

    Average total deposits were up 5% quarter-on-quarter in 4Q.

    Average noninterest-bearing deposits increase
    $2 billionQoQ
    4Q

    Average noninterest-bearing deposits increased $2 billion sequentially.

    Front office software and data revenue growth
    9%YoY
    4Q

    Fourth quarter software and processing fees were up 9% year-on-year, mainly driven by higher front office software and data revenue.

    Front office software revenue growth
    10%YoY
    4Q

    Front office software revenues increased 10% year-on-year in 4Q.

    Software-enabled and professional services revenue growth
    25%YoY
    4Q

    Software-enabled and professional services revenues were up a robust 25% year-on-year.

    New bookings (front office)
    $48 million
    4Q

    Record quarterly new bookings of $48 million in the front office.

    New bookings (front office)
    over $70 million
    FY24

    Over $70 million in new bookings for the full year in the front office.

    Servicing fee sales goal
    $350 million to $400 million
    FY24

    The annual servicing fee sales goal of $350 million to $400 million was comfortably met in 2024.

    Servicing fee sales (back office related)
    about 85%
    FY24

    Of the $380 million in servicing fee sales, about 85% was related to the back office.

    Servicing fee sales (2019-2020)
    approximately $140 million to $160 million
    2019-2020

    Servicing fee sales were approximately $140 million to $160 million per year in 2019 and 2020.

    Servicing fee sales (2021-2022)
    around $250 million to $260 million
    2021-2022

    Servicing fee sales stepped up to around $250 million to $260 million in 2021 and 2022.

    Servicing fee sales increase (from 2022)
    about 45%
    FY24

    Servicing fee sales increased about 45% from 2022 to 2024.

    Servicing fee sales increase (from 2020)
    over 250%
    FY24

    Servicing fee sales increased over 250% from 2020 to 2024.

    Revenue retention (servicing fee business)
    97%
    target

    The company targets a revenue retention rate of 97% for its servicing fee business.

    Fee compression (servicing fee business)
    2%
    target

    The company targets approximately 2% of fee compression in its servicing fee business.

    Servicing fee backlog
    $350 millionup from $200 million at end of Q3 2023
    end of 2024

    The servicing fee backlog was roughly $350 million at the end of 2024, an increase of nearly 75% from $200 million at the end of Q3 2023.

    Organic AUM growth target
    2%
    target

    The company laid out a 2% organic AUM growth target early last year.

    Cash business full year inflows
    $32 billion
    FY24

    The cash business generated an aggregate $32 billion of full year inflows.

    U.S. Defined Contribution inflows
    $28 billion
    FY24

    U.S. Defined Contribution continued to drive inflows with $28 billion in 2024.

    Risk-weighted assets (RWA) increase
    $5 billionsequentially
    4Q

    RWAs increased roughly $5 billion sequentially, largely due to the impact of the appreciating U.S. dollar on the FX trading business, and good volumes and utilization in lending and prime services businesses.

    Industry KPIs

    5
    MetricValueDetails
    Cet1 ratio10.9%%
    Payout ratio87%%
    Pretax marginapproximately 28%%
    Organic fee growth6%%
    Net interest income$749 millionUSD

    Product announcements

    1
    ProductTypeDetails
    ETFslaunch

    Deals & partnerships

    1
    EnvestnetStrategic investment in a leading provider of integrated technology, data and wealth solutions.

    This investment is consistent with State Street's wealth services strategy.

    Risks & headwinds

    4
    Client transition impact on servicing feesweighted towards the second half of 2025

    roughly 1 percentage point headwind to year-on-year growth

    Mitigation: Previously disclosed and managed, with the impact already factored into 2025 fee revenue guidance.

    Lower client activity and asset mix shift4Q FY24, abating

    slight headwind to year-on-year growth

    Mitigation: Client activity is improving as clients put more money to work, reducing the headwind.

    Stronger U.S. dollar impact on revenues2025

    unfavorable impact on fee revenues worth roughly 1 percentage point

    Mitigation: The stronger U.S. dollar is expected to have a favorable impact on expenses, offsetting some of the revenue headwind.

    NII sensitivity to global monetary policy and deposit mix2025

    roughly flat for the full year, with a range from up low single digits to down by a similar amount in percentage terms

    Mitigation: Management actively manages the investment portfolio duration and focuses on client engagement and deposit growth to mitigate NII volatility.

    What to watch in Q1 FY25

    5

    Servicing fee revenue impact from client transition

    H2 FY25
    Currentroughly 1 percentage point headwind
    TargetMonitor actual impact in H2 2025

    Why it matters

    This transition is a known headwind to fee revenue growth and its actual impact will influence overall revenue performance.

    This includes a headwind of nearly 1 percentage point of servicing fee revenue from the previously disclosed client transition weighted towards the second half⚖️ of the year.

    Q&A highlights

    2

    Seeking granularity on the drivers behind the expected servicing fee growth, specifically regarding underlying assumptions for client retention, attrition, pricing, and future sales targets.

    Mark Keating detailed the multi-year improvement in servicing fee sales, from $140M-$160M in 2019-2020 to $380M in 2024, meeting the $350M-$400M target. He noted that 85% of 2024 sales were back-office related, bringing cross-sell opportunities. He cited a consistent revenue retention target of 97% and fee compression of 2%. Ron O'Hanley added that improved service quality, enhanced capabilities (core custody, private markets, Alpha), and strengthened sales capabilities underpin the sustainability.

    “We tend to talk about our business around 97%. That's a target we've set for ourselves. That's consistent. And then also, we tend to target about 2% of fee compression, which has been consistent.”

    asked by Alex Blostein from Goldman Sachs · answered by Mark Keating

    2 min read6 chapters

    Detailed Narrative

    01

    Strong 2024 Performance and Strategic Execution

    State Street concluded 2024 with robust financial results, including a 7% increase in full-year fee revenue and 9% in total revenue. Excluding notable items, fee revenue, NII, and total revenue each grew by 6% year-over-year. The company achieved a pretax margin expansion of over 100 basis points and a return on average tangible common equity of 19%, driven by strategic investments and improved sales performance against clear objectives.

    02

    Investment Services Momentum

    The Investment Services segment demonstrated significant business momentum, securing over $2.3 trillion in AUC/A wins for 2024, including $1.1 trillion in Q4. New servicing fee revenue wins totaled $377 million, meeting the annual target of $350 million to $400 million. Alpha mandates accounted for approximately 50% of AUC/A wins, with 7 new Alpha clients secured, aligning with the goal of 6 to 8, showcasing the strength of the Alpha value proposition.

    03

    Investment Management Growth

    The Investment Management franchise (Global Advisors) achieved record management fees in both Q4 and full year 2024. It delivered over 3% organic AUM growth for the second consecutive year, exceeding the 2% target, with $146 billion in net new assets. Record ETF inflows, particularly in low-cost U.S. and EMEA ETFs, and 24 new ETF launches contributed to this growth, alongside strategic investments like Envestnet to broaden distribution.

    04

    Capital Management and Shareholder Returns

    State Street returned $2.2 billion to shareholders in 2024 through common share repurchases and a 10% increase in quarterly common dividends. The company targets a payout ratio of approximately 80% of earnings in 2025, subject to market conditions. The CET1 ratio stood at 10.9% at quarter-end, well above regulatory minimums, demonstrating a strong balance sheet position to support clients and capital returns.

    05

    Productivity and Operational Excellence

    The company achieved approximately $500 million in productivity savings in 2024, meeting its target. These savings primarily funded $375 million in incremental business and technology investments, including those driving future revenue growth. These efforts contributed to approximately 200 basis points of positive fee and total operating leverage, even with a 4% increase in underlying expenses, reflecting ongoing organizational simplification and process improvements.

    06

    CFO Transition

    Eric Aboaf, CFO for 8 years, will depart State Street in February. Mark Keating, EVP and CFO for Investment Services, has been appointed Interim CFO while the search for a permanent successor continues. Keating brings 30 years of State Street finance experience, having worked across various areas of the business, and has been instrumental in supporting transformation efforts and revenue growth initiatives.

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