State Street - Earnings Call - Q2 2020

Transcript

Speaker 0

Good morning and welcome to the State Street Corporation's Second Quarter twenty twenty Earnings Conference Call and Webcast. Today's discussion will be broadcast live on State Street's website at investors.statestreet.com. This conference call is also being recorded for replay. State Street's conference call is copyrighted and all rights are reserved. This call may not be recorded for rebroadcast or distribution in whole or in any part without the expressed written authorization from State Street Corporation.

The only authorized broadcast of this call will be housed on the State Street website. Now I would like to introduce Eileen Fissel Beeler, Global Head of Investor Relations at State Street.

Speaker 1

Good morning and thank you all for joining us. On our call today, our CEO, Ron O'Hanley, will speak first. Then Eric Abloff, our CFO, will take you through our second quarter twenty twenty earnings slide presentation, which is available for download in the Investor Relations section of our website, investors.statestreet.com. Afterwards, we'll be happy to take questions. During the Q and A, please limit yourself to two questions and then re queue.

Before we get started, I would like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our slide presentation. In addition, today's presentation will contain forward looking statements. Actual results may differ materially from those statements due to a variety of important factors, such as those factors referenced in our discussion today and in our SEC filings, including the risk factors in our Form 10 ks. Our forward looking statements speak only as of today, and we disclaim any obligation to update them even if our views change.

Now let me turn it over to Ron.

Speaker 2

Thank you, Eileen, and good morning, everyone. We released second quarter results this morning. Let me begin by saying that I am very pleased with our continued strong financial performance. I am proud of our team members worldwide who continue to put our clients first and deliver these results for our shareholders. Turning to Slide three, I will provide a brief update on how we are successfully navigating the COVID-nineteen operating environment while also delivering earnings growth for our shareholders.

Providing exceptional service quality through improved client engagement, driving product performance, supporting the overall financial system and safeguarding our workforce are all key priorities for us. We demonstrated success in each of these areas this quarter and delivered strong results for our shareholders as a result. Our clients are at the center of everything we do. You will recall that in 2019, we took a number of actions to improve client service quality, engagement and decision making. These measures have led to improved client engagement, which is critically important in the current environment, and its impact is evident in our results and business performance.

Our clients are continuing to turn to State Street for our operational capabilities and solutions. During the second quarter, we effectively managed to onboard a number of new client projects across various client segments, including a large asset manager, a significant asset owner and a national wealth manager in CRD. Indeed, we see true sustainable momentum developing in our Alpha CRD platform. All this occurred while processing 1335% increases in back and middle office transactions, respectively. We were the first service provider to support the launch of the semi transparent ETF product, and we see strong demand in the market for this innovative solution.

Our service quality is being recognized across the industry. For example, we are particularly proud of our ranking in the 2020 EuroMoney FX survey, where State Street was named the number one FX provider to asset managers for the third consecutive year, with a number one ranking in overall customer satisfaction globally. This strong client engagement is reflected in our product performance. Our investment servicing assets under custody administration, which increased 5% quarter over quarter to $33,500,000,000,000 had another healthy level of new wins amounting to $162,000,000,000 in the second quarter. Assets yet to be installed stood at a strong $1,000,000,000,000 at quarter end.

At Global Advisors, assets under management totaled $3,100,000,000,000 and we recorded $23,000,000,000 of total net inflows during the second quarter. Our SPIDER range of ETFs recorded its best quarter of inflows since the 2017, while SPDR GLD, the gold ETF, had its strongest ever level of inflows at 12,000,000,000 competing and winning in key strategic areas of focus for us. Our recently expanded and re benchmarked range of low cost ETFs also recorded its highest quarterly level of inflows at $11,000,000,000 Our sector spiders made strong market share gains with almost half of sector industry flows going into the product during the second quarter. And we remain a flight to quality for cash management and liquidity solutions across a suite of product options. We continue to play a critical role in supporting the financial system.

The operating environment remains uncertain as the pandemic continues to impact many parts of the world. While we have seen a partial recovery in some areas, many economic indicators continue to point negatively and unemployment remains high, reflecting the real human cost of this health crisis. State Street continues to support the broader economy and markets and is actively assisting client access to various Federal Reserve programs that support the flow of liquidity and credit. Currently, State Street is involved in five Federal Reserve programs, either directly, such as with the Money Market Mutual Fund Liquidity Facility, or as the program's custodian and administrator, such as the Main Street Lending Facility. Lastly, developing a high performing organization and planning ahead for our global workforce also continues to be a priority.

We continue to have about 90% of our employees working from home as we optimize a work from home model while leveraging technology to enable better collaboration and more effective ways to serve our clients. Last quarter, we took measures to protect our employees and announced that through the end of the year, we suspended any workforce reductions other than for performance or conduct reasons in light of the COVID nineteen crisis. Now

Speaker 3

we

Speaker 2

are going further for our employees by increasing their opportunities for mobility by launching an internal talent marketplace. By supporting our employees as they take on new roles and learn new skills, the marketplace will better develop and redeploy our internal talent to meet our evolving business needs and the growing demands of clients and stakeholders. Turning to Slide four and our second quarter and first half performance highlights, I am pleased by our continued strong performance and the progress we are making toward achieving our medium term financial goals. Relative to the prior year period, total revenue increased 2% and fee revenue increased 5%. Second quarter EPS was $1.86 up 31% year over year and ROE was 12.1%.

I am pleased to report that our second quarter pretax margin improved by over two percentage points year over year to 27%. Our first half pretax margin increased by three percentage points. The front to back Alpha platform strategy provides an attractive value proposition for our clients. Our second quarter performance was helped by the strong revenue performance at Charles River Development, where we had key business wins and renewals. The Alpha CRD pipeline continues to develop well with a good mix of deal sizes, functionalities and scope.

We expect to be announcing new major wins between now and year end. Turning to expenses, the pandemic created an immediate challenge to our expense reduction planning relative to our original expectations at the start of the year. To help offset this impact, we took immediate action by implementing a hiring freeze, launching the talent marketplace I just referenced and reassessing all discretionary expenses. I am pleased to report that through our continued expense management efforts, further IT optimization and operational productivity measures, we reduced total expenses by 3% in the second quarter relative to the year ago period. While we continue to invest in our business, first half twenty twenty expenses are now down 2% net of those investments relative to the year ago period.

For us, productivity management is a way of life as we continue to build on the strong culture of expense management we successfully established during 2019 when we undertook significant actions to improve our operational efficiency and reduce expenses through a comprehensive firm wide expense savings program. We cannot control the economic environment, but we can control our expenses. Despite the challenges the COVID-nineteen pandemic has created, we remain highly focused on driving productivity improvements and automation benefits as we strengthen our operating model and enhance service quality even during this challenging period. Turning to our balance sheet and capital, we are pleased with our 2020 CCAR results and the inaugural determination of our preliminary stress capital buffer at the minimum 2.5% level. The COVID-nineteen pandemic has provided an unprecedented real time stress test, and our strong capital position has enabled us to operate effectively, help stabilize the financial markets, and support our clients, employees, and communities.

While the environment remains uncertain, State Street's performance under the Federal Reserve severely adverse scenario is another reminder of our business model's resiliency and our capital stability. We recently announced our intention to continue our quarterly common stock dividend of $0.52 per share in the third quarter. Consistent with the Federal Reserve's instructions to all large banks, we will be suspending share repurchases for the third quarter. As we look ahead, given our strong capital position, we will consider a full range of capital actions, including the resumption of share repurchases in upcoming quarters. We will of course take into account economic conditions, safety and soundness, the Federal Reserve supplemental CCAR scenarios and review process, our capital levels and any interim regulatory limitations.

To conclude, I am very pleased with this quarter's results, which demonstrates continuing revenue improvement even during difficult times as well as further evidence of our ongoing ability to tightly control expenses while continuing to safeguard our employees and serve our clients. And with that, let me turn it over to Eric to take you through the quarter in more detail.

Speaker 4

Thank you, Ron, and good morning, everyone. Let me begin my review of second quarter by summarizing our year over year results on the left panel of Slide five. EPS is up 31%. Revenue is up 2%. Expenses down 3% with expanding margins and healthy ROEs.

And I think it is useful to point out that while we continue to operate in an extraordinary environment with the COVID pandemic, our results this quarter show strong underlying momentum and durability in our State Street operating model. Our bellwether servicing fees are up year on year. Our prior investments in our global FX and CRD franchises have yielded strong results. We've been able to carry a reserve build and throughout all of this we have continued to drive expenses lower and lower. And so our pre tax margin is up 2.3 points year on year and our ROE is up two points.

Turning to Slide six, period end AUCA levels increased 2% year on year and 5% quarter on quarter. The year on year move was driven by higher period end market levels and client flows, partially offset by previously announced client transition that had a de minimis effect on revenue during the quarter. Quarter on quarter the AUCA increase which is partially reported on a lag was mainly due to higher period end equity market levels. AUM levels increased 5% year on year and 14% quarter on quarter to $3,100,000,000,000 driven largely by higher period end market levels and net inflows. Amidst continued and uncertain economic conditions, Global Advisors saw net inflows of $23,000,000,000 driven by cash and ETF flows, partially offset by institutional outflows.

I'd highlight that our U. S. SPDR ETF saw another strong quarter with $24,000,000,000 of inflows, which was well diversified once again. As Ron mentioned, our low cost spider portfolio ETF saw their largest quarterly inflow yet and continue to gain share. Our commodity ETFs and sector ETFs saw strong inflows too.

Moving to slide seven, servicing fees were up 2% year on year reflecting higher client activity and net new business only partially offset by some pricing headwinds which continue to moderate. Servicing fees were down 1% quarter on quarter driven by lower average market levels, partially offset by higher client activity. Despite the recovery in equity markets since the first quarter, average domestic and international equity markets were still down sequentially impacting servicing fees. However, client activity remained elevated, though down from March levels as market volatility persisted throughout the quarter. Amidst the ongoing pandemic, we have maintained business continuity and continue to provide clients with the benefits of our scale and diverse capabilities.

On the bottom right of the panel of this page, we've included again some sales performance indicators that underline this dynamic. As you can see, AUCA wins totaled $162,000,000,000 in 2Q with several deals coming through. Assets to be installed as of period end 2Q are strong at $1,000,000,000,000 We continue to have a strong pipeline of front to back Alpha deals and expect multiple alpha announcements in the second half of the year. Turning to Slide eight, let me discuss the other important revenue lines. Beginning with management fees, 2Q revenues decreased 4% year over year driven by institutional product outflows and mix, partially offset by strong net inflows from both ETF and cash products.

With the second quarter now complete and a better sense of the forward rate picture, we now anticipate that the likely impact of money market fee waivers net of distribution expense will be at the low end of our previously announced range or just 10,000,000 to $15,000,000 for the full year. As I mentioned earlier in my remarks, FX trading services saw another strong quarter with revenues up 26% year on year, but down 25% quarter on quarter as the business again saw elevated volumes and increased client demand, but down from the record levels seen in 1Q. The FX trading franchises continue to see market share gains and increased client engagement. As Ron mentioned, we saw strong results across the recently released 2020 EuroMoney survey securing the number one spot in global customer satisfaction and service as well as the number one spot for all products and for electronic trading for our asset manager clients. Securities finance revenue decreased 27% year on year as agency lending demand for assets lightens and shift towards lower spread fixed income assets and as ongoing hedge fund deleveraging in falling markets drove down enhanced custody demand.

Securities finance revenue was flat quarter on quarter. Finally, and processing fees increased 46% year on year and more than doubled quarter on quarter, driven by significant revenue adds at CRD, which I'll talk more about shortly and past positive outcomes in our market sensitive activity, which includes certain currency translation impacts and marks on employee long term incentive plans. These other items were positive this quarter in contrast to first quarter when they were notably negative. Moving to Slide nine, CRD generated standalone revenue of $145,000,000 which was up 59% year on year and 45% quarter on quarter, driven by a large and several large asset manager renewals. We've always talked about the lumpiness inherent in ASC six zero six revenue recognition standards.

So while we are extremely pleased with these results, we remind you not to read across any one quarter. Moving to the right hand side of the page, we were quite pleased to see the momentum in CRD this quarter overall, and the progress we have made to expand the CRD presence in the wealth segment in particular, which you may recall was one of our key synergy commitments at the time of acquisition. Wealth now represents approximately 20% of CRD revenue and represents another area of growth for us. Turning to slide 10, NII decreased 9% year on year and 16% quarter on quarter. Excluding the impact of episodic market benefits of $20,000,000 in the first quarter, NII was down 13% quarter on quarter.

The sequential decline in NII was primarily driven by the full quarter impact of lower market rates, including the impact of Central Bank intervention with more USD liquidity driving lower than expected sponsor repo volumes. We continue to support clients' use of the Federal Reserve's money market mutual fund liquidity facility. As a result this quarter, MMLF balances averaged $19,000,000,000 and finished the quarter at $11,000,000,000 You will see on the left hand side of the slide that this quarter we are also showing our NIM excluding the impact of the MMLF. While MMLF had a positive impact on NII this quarter, its impact on our NIM was a negative five basis points. Average assets increased 13% quarter on quarter and average deposits increased 9% quarter on quarter.

However, end deposits decreased 22% or $57,000,000,000 quarter on quarter as a portion of the uptick in the deposits we saw at the height of the pandemic receded in the last few months. Given the Fed's expansion of the money supply, however, we do expect a good portion of the current deposits to stay with us, which we will reinvest in a mix of both loans and securities. Moving to slide 11, we've again included some color on the loan portfolio as well as the company's allowance for credit losses. On the top panels of this page, can see updated detail around our high quality loan book and its characteristics. Compared to first quarter, average loans decreased 4%, while period end loans decreased 17%, primarily driven by a reduction in client overdraft levels we saw during March.

Overall, the loan book remains healthy with our largest lending category, capital call financing to private equity funds, seeing no change in borrowing pattern, but with continued strong demand for new facilities. Moving to the bottom panel, the allowance for credit losses increased to $163,000,000 primarily due to a $52,000,000 in provisions for credit losses, driven by changing economic conditions and ratings migration, offset by $14,000,000 in net charge offs. You'll note, we took advantage of the rally in the leverage loan market to selectively derisk our leverage loan portfolio and exited certain positions, which effectively cost us $6,000,000 given the necessary reserve build, so a good trade. On Slide 12, we've again provided a view of expenses this quarter ex notables, so that the underlying trends are readily visible. Our 2Q twenty twenty expenses were down 3% year on year and down 1% quarter on quarter, excluding both notable items and seasonal expenses, with favorable trends across most expense categories.

As we said last quarter, amidst the ongoing pandemic, we continue to execute on many of the investments and optimization savings initiatives detailed earlier in the year. And while we suspended workforce reductions through year end, other than for performance or conduct reasons in light of the COVID crisis, we have found additional expense opportunities to act upon. We continue to make progress on lowering compensation benefits costs, occupancy costs and other costs, while IT costs are lumpy but on track. We're particularly pleased that our results reflected continued and sustainable expense reduction, notwithstanding the extraordinary market conditions, while also delivering top line revenue growth. Moving to Slide 13, on the right, you can see the evolution of CET1 and Tier one leverage ratio.

We are thus navigating this challenging environment with strong capital levels. In 2Q, our standardized CET1 ratio increased 1.6 percentage points quarter on quarter to 12.3%, driven by solid retained earnings and a reduction in RWAs as market volatility receded. The Tier one leverage ratio was essentially flat at 6.1% due to higher capital levels offset by higher deposits. We were also pleased with our 2020 CCAR results. Our capital resilience under the Fed stress scenarios continues to demonstrate our low risk profile.

And this year, we received a preliminary stress capital buffer requirement of 2.5%, which would have been much lower if it were not floored at 2.5%. As you know, the Fed has asked all large banks to suspend share buybacks in the third quarter. However, we expect to continue to pay a quarterly dividend of $52 per share. And finally, Ron noted, the firm's capital position remains strong amid the uncertainty created in the COVID-nineteen pandemic. Accordingly, we will consider a full range of capital actions, including the resumption of share repurchases in upcoming quarters, but we'll do so considering economic conditions, safety and soundness, the Fed supplemental CCAR scenarios and review process, our capital levels and any interim regulatory limitations.

Turning to Slide 14, we've again provided a summary of our 2Q results. As we mentioned earlier, we are pleased with the results and believe they are a reflection of the durability and resiliency of State Street's business model, as well as our focus on delivering on our strategy of both growth and productivity. Throughout this crisis, we have differentiated ourselves by proactively reaching out and assisting clients through these difficult times. We believe that our resiliency during this extraordinary period and our constant attention to service quality has created goodwill with our clients and positioned us for share gains over the medium to long term. Last quarter, I outlined our full year financial outlook under a certain set of assumptions, noting that there was a range of possibilities as a result of the potential length of the COVID pandemic and the associated economic impacts.

I would like to update those expectations with our current thinking, again noting there remain a broad range of possible outcomes. We now expect global central banks will keep short rates at current levels for the remainder of the year and long end rates will stay at a June 30 spot rate through year end. We also now assume that average global equity markets levels for the remainder of 2020 will be flat to current levels. As a result of our client engagements, moderating pricing pressure and CRD and Alpha front to back wins, we now expect that full year fee revenue will no longer be down 1% to 2% year on year for the full year 2020, but instead will be up approximately 1.5% to 2% with servicing fees expected to show a year over year improvement relative to 2019. Regarding NII, given the impact of continued slower long end rates on the investment portfolio and central bank intervention with more USD liquidity driving down the expected repo volumes, we now expect NII to be down approximately 9% to 11% on a sequential quarter basis and expect the fourth quarter to be relatively in line with the coming third quarter.

Turning to expenses, we remain laser focused on driving sustainable productivity improvements and achieving automation Turning benefits. We expect that full year expenses will now be down at the better end of our previous guide of down 1% to 2% year on year excluding notable items as we continue to find ways to control and drive down expenses. In regards to our provision for credit losses, we continue to see a range of outcomes based on evolving economic conditions and any ratings migration. On taxes, we expect our tax rate for the full year to be closer to the lower end of our 17 to 19% range. And with that, let me hand the call back to Ron.

Speaker 2

Thank you, Eric. Operator, can you open the call to questions?

Speaker 0

Thank you. Your first question comes from the line of Brian Bedell from Deutsche Bank. Your line is open.

Speaker 3

Great, thanks. Good morning folks. Thanks for taking my questions. Eric, if you could just unpack a little bit the NII guide just in terms of what you're seeing for client deposit levels moving into 3Q and to what extent your guidance for 3Q and 4Q includes more reinvestment or more shift of deposits into longer term securities. I'm sorry, also one more on that is the repo financing business in terms of the impact.

It looks like that was much lighter in the second quarter. So just your thoughts on that for the second half as well.

Speaker 2

Eric, you're muted.

Speaker 4

Brian, it's Eric. Thanks for the question. We're clearly navigating through some challenging times with the interest rate environment and obviously trying to do our best to navigate through. When you think about the NII guide, there's clearly the continued downtick in long term rates, which is affecting the investment portfolio and will continue to some extent in the coming quarters after that. And then there is some lower volume sequentially and overdrafts and then the MMLF balances that are also contributing to that to the second quarter to third quarter decline.

I think once we get to that level, part of what happens is that you've got offsetting factors. You've got on one hand the lower long end rates, which put a which tend to tractor through the investment portfolio for another couple of quarters, which creates a downdraft. And those I think can be offset by the growth in the investment portfolio and lending base, which is really supported by the higher levels of deposits that we're operating at. Now it's hard to tell exactly what the deposit levels are going to be, but I think if you stare at the data that we've shown here, we used to run at $155,000,000,000 to $160,000,000,000 of deposits. First quarter average was solidly at 180,000,000,000 Second quarter average is solidly at $197,000,000,000 We think we're going to land somewhere between those two points, which means that off of the original base of the call it $160,000,000,000 of deposits, there's an ability to expand the investment portfolio put on duration carefully and selectively invest in some high quality position to maintain our HQLA.

And we think that together should create some stability on NII in the coming quarters. The sponsored repo program as you mentioned did create a downdraft from 1Q to 2Q. And what we're seeing there is that the overnight repo rates are less attractive than they've been relative to one month treasury rates. And so that creates reduction in volumes. If that were to persist, then we're not going to get a lift there and we're not going to get the volumes we'd like to see.

On the other hand, if that normalizes back, there could be some upside in the coming quarters, but more time will tell before we can incorporate that into our forecast.

Speaker 3

Okay, great. That's super helpful. And then maybe on CRD, the very strong quarter, very encouraging on the wealth management wins. Maybe just a two part question, Eric, on the revenue trajectory, obviously, it's lumpy like you said. Maybe if you can just try to characterize what you thought was one time licensing fee revenue within the second quarter.

And then maybe Ron, if you want to talk a little bit about that wealth strategy, it sounds very encouraging in terms of the win that you've announced and potential new wins down the road. And maybe just in terms of sizing that space for you, what you're doing there on the wealth side that's different than the institutional asset manager side at CRD?

Speaker 2

Yeah, Brian, why don't I start and then I'll turn it over to Eric so I'll start on the latter part of your question there. As we mentioned when we acquired Charles River, in addition to its core institutional client segment, it had developed a fair amount of technology applicable to the wealth segment, particularly the larger wealth manager segment, large private wealth managers, wirehouses, etcetera. And that is we've continued that R and D, and also leveraged our own client relationships, to be able to help propel that growth. And that's what you're seeing playing through. We see it as a solid and additional form of growth on top of the core institutional business.

Right now I think it's about 20% of the business, up significantly from when we acquired it. And we would expect it to be growing probably a little bit more than the at a slightly higher level than the institutional business. The good news about this is that it shares the same technology and operating platform. I mean there's certain sub applications that are different, but we can do this at scale easily. And the way I would say you should think about the lumpiness, I mean Eric will take you through how the accounting actually works.

But when you start to see kind of positive lumpiness like this, I mean, it's essentially a client being installed. And it's at the point then that we can start to recognize revenue, and following that will be ongoing recurring fee. So that's how you should interpret the lumpiness. It's not necessary it is one time as it relates to that client, but it's certainly not one time. As we continue to grow, you'll see that same kind of lumpiness.

Speaker 4

Brian, let me add some texture and even some numbers to that so that you can get a better sense of the underlying revenues here. Because we're quite pleased with the growth trajectory. We're quite pleased with the pipeline, with the kind of contracted but not yet installed levels. We track a number of different metrics here to give us confidence in the developing growth. The revenues really come, I'll call it broadly into two buckets.

There is SaaS revenues and professional services. And SaaS revenues are pretty straightforward. You win a client, it's a five year contract and the revenue recognition is that the revenue is ratably applied over those five years. Very straightforward. And in fact, we want to be in the business of growing SaaS revenues over time and professional services because those create a very regular and recurring set of revenues.

The second part of the revenues come from on premise installations. And we have a number of clients who've had on premise installations and even some who continue to prefer them. And in those cases, the revenue recognition is comes in two parts. You have an upfront piece which could be in the range of around 60% of the contract. And then you have the balance, the call it 40% in the example I've given you, which could be ratably over the contract length if that were say a four or five year contract.

And so you get a piece and then you get a trail behind that. So those are the two big pieces. When we look at the revenue numbers that we showed you on Page nine, you go back, what we want to be doing is we want to be growing both pieces to be honest. And in particular, the regular the first one, very recurring revenue base. If you go back on Page nine and you look at the data we've shown around revenues, back in the 2019 we had $91,000,000 of revenues.

About 65% of that was in SaaS and professional fees. And so it gives you a sense for the kind of the relative amount. If you go forward to second quarter of this year, those recurring SaaS and professional fee revenues were just over $80,000,000 So we see both we see nice growth year on year. And in fact, it's happened consistently over the five quarters. And then the balance of the $145,000,000 is been more in the on premise kind of revenue installations where you get a good sized piece upfront, but then the recurring piece in the future.

And I think if you step back with that kind of revenue recognition, where we're focused on growing client and client engagements and some clients are delighted to be on the SaaS platform and we've seen consistent growth there. So that gives us some confidence in the kind of the completely recurring base. And then you have the more on prem kind of revenues, which start off with a piece. They then have a trail. All right?

And then when the contract ends, you get another piece in the that's lumpy and then in the trail after that. And that's just the nature of the beast of how the revenue recognition works. All in, we're quite pleased with this revenue trajectory, the backlog, the contracted but not yet installed and the sales performance. And so while you see some lumpiness, it's you know, we're seeing good underlying metrics as well.

Speaker 3

That's great color and a lot of detail. Thank you very much.

Speaker 0

Your next question comes from the line of Betsy Graseck from Morgan Stanley. Your line is open.

Speaker 5

Hi, good morning.

Speaker 2

Good morning, Betsy.

Speaker 5

I wanted understand a little bit on the expense side. I know you called out improvement there in part from morning. Things like market data, which is really impressive given that market data cost for most participants is moving higher and higher every quarter. So just wanted to get a little bit of color on that and on the sub custody savings. To what degree is there more legs there in that specific line item in your expenses?

Speaker 4

Betsy, it's Eric. Both of those are sizable expense categories. They both are part of the transaction processing line item that we report. And what we found is that we need to just actively manage those. Sub custody is something that we need provided to us.

And we've worked with some of the largest banks as well as some of the country banks to find the best mix of service at a declining cost level. And our view is that that's something we need to keep doing year after year. And we've been able to deliver I think some good savings this year and our expectation is to continue that trajectory. Market data is a little more complicated to your point is that there is a plethora of market data ingestion that's possible. And what we found is that we need to both manage the ingestion pipes because if we secure market data in too many different pipes then we end up buying more than we need.

We also need to find vendors and over the last couple of quarters we've started to really work more closely with several of our vendors around who gives us the best cost and pricing kind of quality levels. And that's also been factored in. And then there's a third piece, to be honest, on market data, which I find helpful from a client standpoint to be honest, which is some of our market data costs are borne by us, which we want to drive down, but with the right quality. And others market data costs are sometimes borne with our by our clients. And we're in many cases working with our vendors against both pools of market data to try to secure the best results for them as well.

So lots of activity there. What I would tell you is that some of what you see on that transaction processing line is the result of some intense focus on those areas. And it's actually a bit of an example of what we're doing in other areas. We talked about starting to drive our technology costs down. And so we're doing similar work on hardware costs and hardware vendors working with them in a more active way.

We're doing that in software and maintenance contracts on the technology side. And so it's really become an expanding, I'll call it expertise, but sort of partnerships and approaches that we've taken, I think to good effect. But to be honest, one that we need to repeat year after year to get the benefits that we'd like to help drive our expanding margins.

Speaker 5

Okay. And so you've got some more legs there is the nut of that answer. And I appreciate all the color. It's interesting, especially with the client side of it. The follow-up I have for you, Eric, is regarding the net interest income, net interest margin outlook.

And I know you had the 9% to 11% down Q2 and 3Q and then stabilization into four Maybe you could give us some color on the assumptions around the 4Q stabilization, what has to happen for that to come through?

Speaker 4

Yes, the 4Q stabilization is really driven by I think the economic kind of the interest rate environment first and foremost. We're assuming short end rates stay more or less where they are and we're assuming long end rates stay more or less where they are. The forwards that we've had some expansion and increase and I think we've gotten a little gun shy about always planning for those. And so we feel like we should plan at the current levels. So that's the first part of the assumption base.

I think the second part of the assumption base is that there is some normalization of deposits. But as I've said, I think we've got a nice chunk there that we can begin to think of as or that we are confident are stickier. And it depends on the speed of our reinvestment in the investment portfolio into some asset classes that we're comfortable with. And I think that will factor in as well.

Speaker 5

Okay. All right. Thanks.

Speaker 0

Your next question comes from the line of Glenn Schorr from Evercore ISI.

Speaker 6

Quick follow-up question on the expense side. I heard your overall comments, so that's what matters most. But within this quarter's drop 3.3% drop down, 40% of the reduction expenses was lower marketing and travel. I'm assuming that's the product of the environment. So how much of that is sustainable or works its way back in?

Again, I appreciate that's probably part of your overall expense comment.

Speaker 4

Yes, Glenn, that's fair because as you know, we're trying to find sustainable expense reductions this year and then into next year. And if we just brought them down and they pop back up, that doesn't count neither for our shareholders nor for us. There are some tailwinds of travel expenses and even some medical benefit claims are lighter in the expense trend. But remember there's also some headwinds that we would have or actions in areas where we would have driven expenses down that we weren't able to. And so as the you know, the biggest simple example is the pause on layoffs because of the pandemic.

That would have been worth at least zero five point of expense reduction, if not a little more for every quarter this year and on a full year basis. And I think what we're going to have to do next year is go back to what we've been doing, down all of our costs, our compensation benefit costs, where we'll be able to now action that and continue to drive down third party spend costs as well. And so I think we're I think the trends will line up. They're just going to be some ins and outs or headwinds and tailwinds at any point. But we see a path to continue doing what we're doing, which is to drive expenses lower and lower year after year.

Speaker 6

Okay. I appreciate that. And then during the quarter, you announced the venture with FNZ on servicing the wealth management space. I'm curious if you could talk a little bit about what the target of that venture is. They seem to have a really strong operation in Europe.

What you bring to the table, what they bring to the table, that would be great. Thanks.

Speaker 2

Hey, Glenn, it's Ron. So FMZ has a very strong operating platform. Its target market is a or certainly in The U. S. Would be the smaller end or a lower end in terms of size of market segment than we do in Charles River and CRD.

So it's quite complementary to what we do. We would we would be their custodian and administrator, as they move into that space. We view it as a way to expand even further into wealth in a segment that we wouldn't naturally have leading capabilities in, number one. Number two, they've got some really interesting technology that we want to continue to figure out how we can use elsewhere. So it's a way of getting some technology leadership as well as a revenue stream at a relatively low cost for us.

Speaker 6

Okay. Thanks very much.

Speaker 0

Your next question comes from the line of Brennan Hawken from UBS. Your line is open.

Speaker 7

Good morning. Thanks for taking my questions. First I'd like to follow-up on the Charles River commentary and the front end fees versus that trail and the trail dynamic. It sounds like that's a little less than half of this quarter's revenue. So wanted to confirm that's the case.

And then, is the onboarding, you know, the the install, the the front end front end, is that a multiple quarter dynamic? Or is that a single dynamic? How does the trailer in those arrangements compare to the upfront? So how should we think about the continuing revenue dynamic? And then how long are those contracts and what's the typical retention rate?

I just would love to get a better dimension for the cadence of those revenues if you can provide some of that. Thanks.

Speaker 4

Brennan, it's Eric. It's fair to get into the details because the details do matter. But as we do that, let me remind you, there's a range of details. And so let me try to answer the questions and we can certainly follow-up with you and other investors that are curious. But this is a bit of the bankers, you know, working in a software space which just operates in a different cadence with ASC six zero six.

First, recurring revenues, the SaaS kind of implementations are pretty straightforward and I think I gave the numbers there. I think you've got the right mix. The mix in each of these quarters has always been much more kind of fast professional services, the completely I'll call it completely stable revenues and those have been building nicely and I think we're quite pleased with that trajectory. On the lumpier part of the revenue, which is the on premise installation, the answer is there's a range of different situations which have to do with different contract lengths. And so let me just give you a sense.

You know, contract lengths can range from call it three years to, you know, eight years, right? And for those kinds of ranges then you tend to get on three year contracts you might get 70% upfront and then the other 30% over the rest of the three years and it comes in kind of year by year by year or quarter by quarter by quarter to be effect. Or for something like a seven or eight year contract, you'll tend to get about 50% in the first year and then the other 50% in those seven or eight years ratably. And so there's a range, but I think it's I don't know, it's the accountant's way to measure the revenues in a reasonable way and you'll have to talk with them if you like it or not. Can't really opine there, but that's the range.

The upfront piece comes in, in a particular quarter. And why is that? Because that's when the system literally goes live and is beginning to serve clients, so it becomes in service. And it's the quarters after that through the length of the contract that you ratably see the rest of the revenues. What I do want to remind folks though is that once we have a client, the client retentions in our business are very, very high.

We retain most of our clients. And so in a three year contract, description that I just gave of 70% plus a 30% over the trail, three years later gets repeated. Right? Same for a five year contract, five years out. And so in a way, you know, we're a little hesitant when people occasionally say, well, that's one time.

It's not really one time, right? If there's a good piece upfront, there's a good piece ratably brought that we've secured. And then there is almost always the extension which brings the same thing again. It's just that it's a little lumpier than we'd all like. So maybe I'll pause there but happy to talk more at the right time.

Speaker 7

Well, one more piece of my question, think that you might have forgotten, Eric, is the retention rate. What's the historical retention rate on those three year re ups?

Speaker 4

We can I think it's very high? I why why don't we why don't we do a little follow-up and get that out to you in a in a reg FD session? But it's we it was part of our diligence of retention rate. Before I put a precise number, let me let me come back to you, but it's very, very high. Yeah.

It's something that gives us a lot of confidence. Because remember, once you have an on premise installation, like, you've invested a lot internally at the on the client side to integrate it with your, you know, with your, with your estate, with your other, systems and subsystems. And so there's a there's a willingness and there's an ability which which together, result in very strong, very high renewal rates.

Speaker 2

Brandon, it's Ron. Maybe just to reinforce why that is. I mean typically what goes on in these conversions is there's a pretty big and significant operating model change that goes on at the asset manager or the wealth manager. So typically a new client is not that we're displacing somebody like Aladdin. Typically it's a client that's got a bunch of bespoke and scattered technology.

And they're moving to a comprehensive kind of system like this. So that's why you get very, very high retention rates because frankly the switching costs on the client side are pretty high.

Speaker 7

Thank you for that. Appreciate all that color, Ron and Eric. And then following up on you gave some great color on expenses, and I understand it's really hard to be too granular, Eric, to your point in the unusual operating environment that we're in, but I'll give something a shot anyway. Have you reviewed your real estate footprint? You know, Boston is a fairly expensive city.

And when you look at your website, it seems like you have three different offices in the city. You know, is that really the optimal footprint? Based upon the experience that we've been seeing here, early read on the pandemic and the shutdown, but have you rethought the potential for remote or distributed workplace arrangements? How much do you think you can compress your occupancy expense, you know, over the next few years on the

Speaker 4

back of some of that? Brandon, it's Eric. Let me start on that to give you a little bit of kind of near end views and Ron might play in as well. And in fact, I might ask your CFO the same question when I see him next, because I think every CFO out there, not just bank CFOs is wrestling with this specific question. Here at State Street, we have occupancy expense of about $435,000,000 And we had already plans to drive it down this year by about 5%.

So taking a chunk out of that and part of that is continued rationalization of our high cost location footprint and taking advantage at the same time of some of the productivity, right? Think about some of headcount management that we've done around the world as well. I think in the very near term, a couple of things happen in real estate. One is, we just don't add any real estate and Ron and I put an immediate halt as soon as this pandemic happened. Let me tell you, there's no that halt is perpetual practically.

It then it does have a little bit of an effect where we can't easily sublet. So now what we're doing is going back to every lease that we have and literally going through and asking the question, you know, when does it roll over? The question that it really wrestles through is what kind of occupancy rate can you operate at? And if you know, most of us have operated at the, you know, call it 85% to 95% occupancy rate. And I think what this pandemic has demonstrated is that the tools and the capabilities through technology and the methods that we have in a company is we can drive occupancy rates up to, you know, we're originally planning to 130%, 140%, just by thinking about people's historic approaches to being in the office or not.

And I think that that is kind of what gives us a view that if we originally thought we could get to a 120% occupancy rate, And now with the pandemic, we're confident we could get to 150%. That's how you start to get some real leverage on the occupancy costs. I think the one thing that gets in the way of that and I'm taking a very kind of financial lens, we have to think about our people, our teams, our clients and all the interactions and all that they do is we also need to be respectful of some of the social distancing requirements in the immediate term. So I think what we have is we have a period right now where, you know, work from home is 90%, let's say. With social distancing, we can bring a certain number in.

At some point, there's a vaccine, so the social distancing may not be, you know, at the same level as it is now. And we have a whole group of employees who've learned to operate incredibly effectively work from home, some of whom prefer to be home. And so I think there's a lot to do here is I guess the summary. I tell you we're already driving down occupancy costs. And I think question that we'll come back to in the coming quarters and in the coming year is how much more.

It's not that they can't that they won't come down. They'll come down. I think it's a question of scale off of that base of expense that I circled up from.

Speaker 2

It's Rob. What I would add to that is in a fairly short period of time, we've gone through three kind of phases of work. Work from home was about a one week event for us, and we got 90% of the people out of the buildings and into a home environment. We started about three weeks after that planning the return to office, which is in Asia Pacific, as you can imagine, we've started back. Also parts of Europe slower in U.

S. For all the reasons that we know. We've also launched the third phase of this, which is what we're calling the workplace of the future, which encompasses a lot of the things that Eric is talking about. To your point on Boston, as we had announced earlier, we announced late last year that we're vacating this headquarters tower at the '2, going to move to a new building in Boston, but is much more flexible, better terms, lower amount of space. And it's early enough now that we have ability to customize that even further, given what we know about COVID-nineteen.

So again, I don't believe that we could operate or should operate anything near 90% work from home, but we can operate on a much more flexible basis with work from home being an integral part of what we do. It's certainly part of our disaster recovery now, you should start to see us shedding disaster recovery spaces too. You should expect and hold us to a much lower footprint really starting quite soon.

Speaker 4

That's great.

Speaker 7

Eric and Ron thanks for all the color. And of course Eric happy to line up a discussion with my CFO. He can give you tips on how to deal with my annoying questions.

Speaker 4

Thank you Brennan.

Speaker 0

Your next question comes from the line of Ken Usdin from Jefferies. Your line is open.

Speaker 8

Thanks. Good morning, guys. Eric, was wondering if you could give us a little bit more color underneath your full year fee outlook. And I know given that you've got the CRD comments you talked about and then transaction activity, but can you kind of walk us through how you're now seeing the bigger buckets move both sequentially and year over year given the at least the average asset pricing we have in your earlier comments about fee income pressure moderating? Thanks.

Speaker 4

Sure, Ken. Yes, part of the reason we gave an overall fee guide is that there's always going there always are and there always going to be some ins and outs in that in the various fees. I think if you think about the different buckets, the texture that I'd give against the full year guide of 1.5% to 2%. First on servicing fees, I think we feel positive. We've delivered year on year growth in servicing fees now for the first quarter year on year and then the second quarter year on year.

And we think that will be a positive for the year. And that's different. I contrast that to previous years where we had more fee headwinds or where we didn't feel like we had the performance we would have liked. But we think servicing fees will be positive. And that's without an average equity market uptick really because globally equity markets are kind of in the more flattish range.

Management fees, I think are doing well. We've been a little more negative there. We'd like to do a little bit better than what we've done. FX trading and then all of the electronic services around that will be a clear positive. Sex lending a little lighter as we've described some of the shifts there, although an area that we're working on.

And then in the software and processing fees, I think we're quite confident on the Charles River momentum, especially with some of the recent wins. And then there's the kind of the there's some other in that line, there's some other business activity or loan fees or other software fees, etcetera. And then there's some of the lumpy stuff that we have to just take in marks. So all in all though, full year 1.5% to 2% is what we see today, which is I think gives us the positive momentum that we'd like and then something to build on for next year. And our view is if we can drive even low single digit fees upward and continue to drive expenses down, we're getting the right results.

Speaker 8

Yes. And one big picture one for Ron. Ron, last quarter you talked about a little bit of a push off in either installations and client discussions because of just everything that we're dealing with. Your win rate in servicing was about flat. Can you talk and you've talked about the potential wins in the CRD side of wealth management platform.

Can you just talk about just the conversations that are happening now and how that's evolving just in terms of the core business and any sense that that's starting to open up at all?

Speaker 2

Ken. As we talked about last quarter, we said that it was our sense that just given the additional challenges posed to asset managers and asset owners' operating models of COVID-nineteen that we thought that we'd see even at some point an increase in conversations and interest in outsourcing and operating model changes in general. And that's actually started to happen And it started to happen in a big way in the second quarter. So we see continued interest in not just movement of back office to the lowest price, but much more about how do we comprehensively improve, how do we, the asset owner or asset manager, comprehensively improve our operating model through changes to their back office and even to their front office. So that's continuing.

And as I noted in my opening remarks, as a result of that, we would expect to see and be in a position to announce some significant new wins between now and the end of year that are some combination of front, middle and back office of notable names.

Speaker 8

Got it. Thank you, Ron.

Speaker 0

Your next question comes from the line of Alex Bohlstein from Goldman Sachs. Your line is open.

Speaker 9

Hey, thanks. Good morning, Ron. Good morning, Eric. So maybe just building on the last comment, want to dig into CRD a little bit more. As you think about the pipeline in CRD and sort of this sizable implementation opportunity you guys see, what percentage of that is the on premise versus kind of the SaaS type of contract?

And then secondly, was hoping you guys could dig into the CRD wealth strategy a little bit broadly. Thanks for some of the added disclosure there. But what kind of the what what are the typical sort of client in the wealth management space? Is it a warehouse? Is it a independent broker dealer?

Is it an IRA? So just a little bit more flavor there. And which one of these channels incremental growth has been coming from? Thanks.

Speaker 2

Why don't I start there? Eric can talk about the mix, Alex. But on the wealth channel, it tends to be the higher, the larger wealth managers. And it's a combination, if I think about both what installed this quarter, but also where we have conversations and we'll be installing in future quarters. It's a combination of the wirehouses and that obviously comes with lots of seats as you would imagine.

But also the larger private wealth managers. I mean, could be RIAs, but again, it tends to be the larger ones and the larger names. And if you think why that is, oftentimes they're bringing these institutions are bringing some fairly significant asset allocation capability to bear. And while they want to give their advisers some freedom to customize, they also want to have a lot of control over that. And the CRD platform works really well in that regard.

And as I mentioned in response to an earlier question, the great thing for us is that this it certainly is a bespoke application for the wealth segment, but it's leveraging much of the same underlying technology. So there's a lot of scale in all this, both in terms of the initial development we've done, but also as we roll out software improvements.

Speaker 4

And Alex, just to round out on the financials. We had a range of implementations this quarter on the on premise side, the ones that are lumpier. The range was three years to eight years. And it actually runs the gamut of, you know, 50% to 70% in the first year and then the balance ratably. I think the largest of the implementations was actually on the close to eight year mark, would be 50% in the first year and the other 50% in the coming years.

Speaker 9

Got you. Thanks. And then

Speaker 10

just maybe to round up

Speaker 9

the discussion around NIR. So Eric, your comment around kind of stabilizing NIR towards the end of the year, does that already contemplate significant reinvestment of liquidity that you guys have built up on the balance sheet into securities and loans? Or with a little more reinvest into 'twenty one, could we maybe even see a little bit of growth from that sort of trough level of net interest revenues? Yes,

Speaker 4

Alex. It's little early to get into 2021, to be honest. But with guide that I gave for 4Q does contemplate some reinvestment in the investment portfolio. And we're just kind of driving the balance. The long end rates do have a of a tail of effect for us.

And so in a way, this is the time for us to add to the investment portfolio and do our work to offset what would naturally be a downward headwind. But I think I think I think we're we're we're we've we've got a path. It's just it's it's hard to it's hard to see growth in NII at this point. We're but but we see a path to, you know, relative stability within a range, but it's gonna take some work. And, you know, we don't really know what happens with rates and and how they evolve.

But, you know, we we can we can see a path there. Your

Speaker 0

next question comes from the line of Jared Cassidy from RBC. Line is open.

Speaker 11

Morning, Ron. Good morning, Eric.

Speaker 4

Good morning. Good morning.

Speaker 11

Ron, can you follow-up on the new wins that you guys gave us this quarter? And you mentioned in your comments about the stickiness of not losing customers. And the win's primarily coming from existing customers where you're adding more products and services. And in the cases where you win a new customer, I think you alluded to lower prices. But can you share with us, is it price driven that the new customers are coming over?

Or is it a combination of price and better products that you're offering them?

Speaker 2

Hey, Gerard. I don't remember referring to lower pricing in in the context of the wins. But to answer your questions, it's a mix that we're seeing. And right now I'm referring to the, what we call our Alpha front to back platform in Charles River. It's a mix of existing clients or new clients we're seeing.

And that's particularly true as I look at the near term pipeline. So for those existing clients, in effect, we're expanding our share of activity with them to use the vernacular expanding the wallet where we might historically have had a back office custody relationship, and we're moving to the middle and the front office. But beyond that, in the kind of more traditional core business, we continue to see a fair amount of outsourcing there too. Firms that had historically done everything but custody inside, where we might have been one or the only custodian, are now reconsidering that and moving things like fund accounting out. Middle office would be another big part of that because, in fact, our middle office business is the outsourcing of their back office and that solves lots of challenges for them and we've learned how to scale that business.

So that would give you a sense of all that. I mean what has been pleasing about the pipeline as it's developed, and again, given the comprehensive nature of what we do, these pipelines do take a while to move from when there's the first contact to the actual signing of the business. But what's pleasing about that is we're seeing a fair number of new clients there to us. And the attractive thing about that is to really get the full advantage of the front to back platform. We're able to show that, yeah, we can do the Charles River in middle office for you, but we're going to get real data advantages is having the full front to back.

So it fuels growth in our traditional back office business.

Speaker 11

Very good. And then, Eric, I know it's not as material to your business as a traditional bank, but your loan portfolio, you mentioned you've exited some of the leveraged loans. Two questions. One, can you give us any color on the industries in which you derisk the balance sheet from? And second, what type of pricing did you see when you sold those leverage loans?

Thank you.

Speaker 4

Gerard, we're trying to be proactive here. Right? The leverage loan market has really moved up and down a good bit and just finding some points where it might make sense. We derisked roughly about $160,000,000 of balances of leveraged loans. I remember, you know, one of the cinema chains was in that and we got out at a good price.

I think the average pricing on the exits was around I think around $0.92 I want to say on the dollar, so somewhere in that range. So we feel like we made some good tactical decisions. It didn't cost us that much because we would have had to build a reserve anyway for those. And that's why I said on that $160,000,000 it cost us effectively a net $6 But for the peace of mind and just trying to be careful because we are a trust and custody bank and that's our brand, We felt like it was a good trade and we'll continue to selectively do that. But in truth, we feel quite good about this loan book.

I mean it's a most leveraged loans are in the indices are single B and below. Ours are double B and sometimes even better. And so I think we're pretty confident here, but there's always something and we just we're happy to be proactive and make some tactical decisions and that's what we did.

Speaker 6

Thank you.

Speaker 0

Your next question comes from the line of Mike Mayo from Wells Fargo Securities. Your line is open.

Speaker 10

Hi. So you're guiding for better fee growth for this year, 1.5% to 2% versus down before. How much of that is already reflected in the first half results? And how much should be coming in the second half? You mentioned servicing fees, management fees, FX processing, but is this mostly reflecting what you've done already, or is it mostly to come?

And as a subcomponent of that, when it comes to CRD, I guess, linked quarter revenues were up 45,000,000 and pretax was up 42,000,000. So I guess that's, what, a 93% incremental profit margin. So that leads me to ask, you know, are there some upfront revenues with the new business wins and the, in terms of the timing between the revenues and expenses? How does that work out? And then lastly, if I can throw it in there, you were going to be a client of CRD and how is that moving along?

Thanks.

Speaker 4

Sure, Mike. It's Eric. Let me take the first couple and then I think Ron will probably want to take the third. In terms of the full year guide, you're right, there's a number of different pieces to it. There are some pieces of the full year 1.5% to 2% fee revenue guide that are driven by the first half of the year and there are some that will be driven by I think continued progress in the second half.

I think if you just go through the line items, servicing fees have been good for the first half and we expect them to continue to be good. So I think that'll be a continued story. Management fees, largely because of markets, I think a little lighter in the first half. We're hoping that they come in a little stronger on a year on year basis in the second half. FX, obviously a first half story where the second half will not be there.

Sec finance has been light for us in the first half. We're hoping for some and looking for some stability there and some sequential stability if not some, a little bit of uptick. And then you have Charles River, where we obviously got a big part in the second quarter, but and that maybe end up being a little more first half weighted. But I think you typically get performance in the fourth quarter of these software businesses. So we'll see, I think, some activity there.

So a little bit of a mix, to be honest. On Charles River, good question on the on premise installation in particular or the renewals, but I think it's really on a combination of the new implementations. You do get some professional servicing fees where we build revenues and we incur expenses. And my recollection is those are fairly aligned. Accounting standards encourage us to do that.

But there I think the professional services tend to be billed as incurred and then and part of the what I described as the more stable part of the revenues. And what we're finding is there's just a professional services installation work that we do for kind of coming clients, you know, that are not yet implemented but are on their way to implementation. There are some during the implementation that last sprint. And then there's clients behind that. So it's a bit of a mix to be honest but something we could try to parse out a little more detail in future, conferences or calls.

Speaker 2

Yeah. Mike, regarding the last part of your question, which is State Street Global Advisors becoming a client of Charles River. They're actually becoming a client of the full alpha front to back platform, including Charles River. So it's a fairly comprehensive install, and it's underway. Right?

It's the the installation's happening.

Speaker 10

What what yeah. Because you're gonna be like a that that'll be a nice showcase once you get that done as you say. We use it ourselves. You should use it too. Kind of what inning are you in as far as implementing it internally?

Speaker 2

I mean, I'm I'm I'm somewhat speculating here now, but we're well over half installed is the way I would describe it. And again, it's not just installing Charles River, but it's moving the State Street Global Advisors back office to our middle office platform. It's accommodating some existing technology that they have in place too. So As you'd imagine, it's a $3,100,000,000,000 asset manager. It's pretty complicated.

But it's well over halfway along.

Speaker 10

And just one last clarification, Eric. The CRD revenues, should we a 145,000,000, in the second quarter should I and that this is getting pretty granular. But is that something that's kinda lumpy, or are we now to we should extrapolate that out? Or how should we think about that?

Speaker 4

No, it's lumpy. And Mike, that's why, I was trying to give a little bit of color, but just to reaffirm. You know, in that 140 font, we said there's kind of very recurring, literally kind of recurring revenues of just over 80 and then the balance is in the kind of lumpy category where you get these on premise installations. I also so you kind of have to take a piece of the lumpy and say there's always going to be lumpy because we have three year contracts, five year contracts, eight year contracts. And every quarter, every year, there's some of those contracts rollover.

And so you're going to get a new lumpiness or you get new business that you add in the lumpy category. I also gave, if you want another quarter as a contrast back a year ago, 2019, have $90,000,000 of total revenues. And I said we had about $65,000,000 of the very kind of recurring SaaS and professional services revenue and just a smaller piece of that was lumpy. So you can kind of, I think draw some lines and say the lumpiness this is big lumpy, that's for sure, but there's always going to be some. But I think hopefully I've given you enough on the kind of SaaS and professional services to let you extrapolate from there and then put in something in the models on the lumpy part.

Speaker 10

Great. Thanks a lot.

Speaker 0

Your next question comes from the line of Jim Mitchell from Seaport Global Securities. Your line is open.

Speaker 12

Hey, good morning. Maybe just we could talk a little bit of a question on the new business wins you've had and the cadence and impact. If I look at new business to be installed, you have about $1,000,000,000,000 to go. That's been pretty stable since the big wins in 3Q 'nine I mean 'nineteen. So is it on these bigger wins, does it just really take this long?

Is there something unusual here? And I guess going forward with the new business wins you've alluded to in the second half of this year, is it a similar kind of time to install?

Speaker 2

Yeah, Jim, it's a good question. When you see this kind of to be installed backlog, if you will, that typically reflects that there's multiple tranches of business. So for example, it could be custody and fund accounting in middle office. And a custody conversion we can do very quickly, right? Literally did some you know, we were notified by a client that they wanted to move in the midst of the crisis and, you know, we got it done intra quarter.

Those move quickly and so oftentimes don't even show up in this backlog here. I mean, they would if it was carrying over to a quarter. What you're seeing here is clients, including some very large clients that have multiple tranches of business that they're either moving over from an existing provider or in some cases moving from an in source to an outsource model. And again, that reflects the nature of our business. We're using our ability to do these kinds of outsourcing to actually drive not just the outsourced business, but to drive traditional core custody, which scales easily and is quite profitable to us.

But that's how you should think about that, is that in any given quarter, our new business wins will be some very traditional custody to custody kinds of things or fund accounting to fund accounting. But oftentimes the backlog reflects just much more comprehensive kinds of moves.

Speaker 12

Right. And should we assume that those more complex deals have a higher fee rate? Should we see a little bit more of a material impact on servicing fees when they close?

Speaker 2

Well, what you should expect to see is that there's fees coming from more than one source, right? The custody fee, a fund accounting fee, a middle office fee, etcetera. That's how you should think about it.

Speaker 12

Okay, thanks.

Speaker 0

Your next question comes from the line of Vivek Tajamaja from JPMorgan. Your line is open.

Speaker 2

Vivek, we can't hear you.

Speaker 0

Vivek, if you're on mute, please unmute.

Speaker 2

Are you there, Vivek?

Speaker 0

And there are no further questions at this time. I'll turn the call back over to Ron Hanley for closing remarks.

Speaker 2

Well, thank you, operator, and thanks to all of you on the call who joined us. Thanks for the questions, and we look forward to the follow-up.

Speaker 0

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.