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    STATE STREET (STT)

    Q1 2025 Earnings Summary

    Reported on May 1, 2025
    Pre-Earnings PriceN/ADate unavailable
    Post-Earnings PriceN/ADate unavailable
    Price ChangeN/A
    • Robust New Business Pipeline: The executives emphasized accelerating new servicing fee wins—with a target range of $350–$400 million in new fee revenue for the year—and highlighted the strong momentum from their Alpha mandates that are accelerating overall sales, suggesting revenue growth potential.
    • Flexible Expense Management: Management noted that they can adjust expenses aggressively if needed and have already achieved a track record of efficient cost control, which can help protect margins even amid market volatilities.
    • Diversified Global Footprint & Stable Liquidity: With roughly 45% of servicing revenues coming from non-U.S. markets and strong global deposit activity, the firm’s diversified operations and robust balance sheet—supporting capital return plans of around 80% of earnings—enhance its resilience and growth prospects.
    • Global Economic and Geopolitical Uncertainty: Management referenced heightened uncertainty from trade, taxes, geopolitics, and deficits that could lead to volatile client behavior and pressure fee revenue growth.
    • Margin Pressure from Deposit and Reinvestment Dynamics: Comments on potentially muted net interest margins due to shifts in deposit mixes and a focus on short-term reinvestment strategies suggest that deteriorating deposit quality or changes in interest environments could compress margins.
    • Regulatory Changes and Capital Constraints: Discussions about impending regulatory adjustments—including changes to capital ratios and liquidity rules—raise concerns that an evolving regulatory framework could increase funding costs and limit profitability.
    MetricYoY ChangeReason

    Total Revenue

    +4.6%

    Total Revenue rose from $3,138 million in Q1 2024 to $3,284 million in Q1 2025, driven by improved fee income and organic growth in client activity—factors that build on strong revenue bases seen in prior periods.

    Net Income

    +39%

    Net Income surged from $463 million to $644 million YoY, reflecting not only higher revenue but also improved cost management and operational leverage—continuing the momentum from previous periods where efficiency measures and favorable expense dynamics were already emerging.

    Software and Processing Fees

    -24%

    Software and Processing Fees declined from $207 million to $158 million, primarily due to a drop in on-premises renewals despite strong front office software and data performance in earlier periods, indicating a shift in revenue recognition patterns for CRD products.

    U.S. Geographic Revenue

    +6%

    U.S. Geographic Revenue increased from $1,794 million to $1,902 million, bolstered by a continuation of organic growth in servicing and management fees along with rising client activity—a trend that contributed to robust revenue gains in prior fiscal years.

    Foreign Exchange Trading Services

    +9%

    Foreign Exchange Trading Services revenue grew from $331 million to $362 million, driven by higher client volumes and favorable market conditions, reflecting an upward trend that was already evident in previous periods.

    Securities Finance Revenue

    +19%

    Securities Finance Revenue rose sharply from $96 million to $114 million, largely due to increased client lending balances—a factor that builds on the modest 3% growth seen in FY2024 and signals stronger market demand and portfolio expansion in Q1 2025.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Fee Revenue Growth (net)

    FY 2025

    3% to 5%

    3% to 5%

    no change

    Fee Revenue Growth (gross)

    FY 2025

    5% to 7%

    no current guidance

    no current guidance

    Net Interest Income

    FY 2025

    Deposit levels expected at $230B–$240B; rate cuts and impact of $5–$10M reduction per quarter

    Roughly flat with a range of up low single digits to down by a similar amount

    no change [comparison inconclusive]

    Expenses

    FY 2025

    no prior guidance

    Approximately 2% to 3%

    no prior guidance

    Operating Leverage

    FY 2025

    no prior guidance

    Positive fee and total operating leverage

    no prior guidance

    Servicing Fee Revenue

    FY 2025

    $350 million to $400 million in servicing fee sales

    $350 million to $400 million in new servicing fee revenue wins

    no change

    Capital Return

    FY 2025

    80% of earnings returned to investors

    Around 80% of earnings returned to shareholders

    no change

    Loan Growth

    FY 2025

    14%

    no current guidance

    no current guidance

    Private Market Servicing Fee Growth

    FY 2025

    15% growth benchmark

    no current guidance

    no current guidance

    MetricPeriodGuidanceActualPerformance
    Fee Revenue Growth
    Q1 2025 (y/y)
    5% to 7%
    6.1% (2,570In Q1 2025 vs. 2,422In Q1 2024)
    Met
    Deposit Levels
    Q1 2025
    $230B to $240B
    $272B
    Surpassed
    Loan Growth
    Q1 2025 (y/y)
    14% y/y
    ~16% y/y (44,685In Q1 2025 vs. 38,500In Q1 2024)
    Surpassed
    TopicPrevious MentionsCurrent PeriodTrend

    Servicing Fee Revenue Growth & New Business Pipeline

    In Q2–Q4 2024 calls, servicing fee revenue growth was discussed with historical growth figures and targets ranging from $350–400M, driven by new business wins, backlog installations, and the contribution of the Alpha platform, despite headwinds from client transitions and pricing pressures.

    In Q1 2025, servicing fees grew 4% YoY with $55M in new wins and a robust pipeline—supported by back‐office mandates and an increased target for new wins.

    Improved momentum and steady target; slight improvement in growth and pipeline quality despite headwinds.

    Alpha Platform and Client Acquisition

    Across Q2–Q4 2024, the Alpha platform was a focal point for client wins, with multiple mandates, integration of front-to-back solutions, and strategic initiatives to deepen and expand client relationships.

    In Q1 2025, the Alpha platform continued to drive client acquisition with new mandate wins and a focus on back‐office deals, reinforcing its role in accelerating sales and expanding client relationships.

    Consistent emphasis with continued momentum and further strategic refinement.

    Lending Growth and NII Stability vs. Credit Risk

    Q2–Q4 2024 discussions highlighted strong lending growth (double-digit and 14–16% growth rates) largely focused on private markets, with NII supported by loan growth and portfolio adjustments. Credit risk was managed conservatively with high-quality underwriting.

    Q1 2025 reported robust loan growth, particularly in private markets, alongside a relatively flat NII (with a sequential 5% dip due to deposit mix and rate changes), while maintaining a cautious approach to credit risk.

    Continued strong performance with stable risk management despite evolving market conditions.

    Operational Efficiency & Flexible Expense Management

    Q2 and Q3 2024 emphasized organizational simplification, process improvements, and savings (e.g. $125M in Q3, 3–6% expense growth), driven by automation and technology investments.

    Q1 2025 delivered $90M in savings with a target of $500M for the year, supported by targeted technology investments and flexible expense management strategies.

    Consistent focus with maintained or improved cost discipline and continued reinvestment in technology.

    Capital Returns and Share Buybacks

    In Q2–Q4 2024, the company described sizable capital returns through dividends and repurchases (with quarterly buyback increases and an 80% payout target), supported by strong capital ratios.

    In Q1 2025, State Street returned $320M (combining repurchases and dividends) and reiterated the plan to return 80% of earnings, with expectations of accelerated repurchase activity later in the year.

    Steady commitment to capital returns with progressive buyback acceleration.

    Regulatory Changes and Capital Constraints

    Q2 2024 discussed manageable SLR and CET1 ratios (e.g. CET1 at 11.2%) with regulatory constraints viewed as non-binding, while Q4 2024 noted capital constraints impacting Tier 1 leverage.

    In Q1 2025, executives were optimistic about potential regulatory adjustments—suggesting that moderated capital requirements and liquidity rule tweaks could benefit the industry.

    Emerging optimism as potential regulatory relief may further ease capital constraints.

    Margin Pressure and Interest Rate Sensitivity

    Across Q2–Q4 2024, margin pressure was noted with pricing headwinds, deposit mix issues, and a slight asset sensitivity to interest rate changes, with specific impacts quantified (e.g. 2% pricing headwind, $5–10M per rate cut in non‑U.S. markets).

    In Q1 2025, margin compression was acknowledged (with NII down 5% sequentially) while maintaining focus on deposit mix adjustments and loan growth; interest rate sensitivity remained a careful factor with modeled impacts.

    Persisting challenges from market conditions, with ongoing efforts to mitigate margin compression through strategic adjustments.

    Global Economic & Geopolitical Uncertainty Impacting Revenue

    Q2 and Q3 2024 referenced volatile markets, client caution, geopolitical tensions, and shifting asset mixes—all affecting revenue streams and deposit levels, though the company still delivered strong fee growth.

    Q1 2025 noted significant global uncertainty (with geopolitical and economic volatility) but also highlighted resilience with fee revenue up 6% YoY and diversified revenue streams (e.g. FX trading and securities finance gains).

    Uncertainty remains a constant risk, but the company demonstrates strong adaptability and revenue resilience.

    Client Onboarding Delays & Fee Revenue Headwinds

    In Q2 and Q3 2024, onboarding delays tied to large, development-partner clients and private market slowdowns were discussed, alongside fee headwinds from client transitions (e.g. 1–2 percentage point impacts) and a shift into cash.

    Q1 2025 indicated minimal impact from onboarding delays with no significant change in client behavior, while fee revenue headwinds persisted partly due to client transitions yet were partially offset by back‐office mandate success.

    Continued headwinds and onboarding challenges, though the situation appears managed with mitigating factors.

    Currency Impacts on Fee Revenue

    In Q2 2024, FX market conditions were discussed—low volatility due to dollar strength and muted FX impacts; Q4 2024 mentioned a 100 bp headwind affecting fee revenue growth guidance.

    Q1 2025 did not specifically mention currency impacts on fee revenue.

    Less emphasis in Q1 2025, possibly indicating a reduced focus or improved FX conditions.

    Leadership Transition Risks (CFO Departure)

    Q3 2024 detailed robust succession planning with an overlapping transition process and an active search for a new CFO; Q4 2024 noted Mark Keating stepping in as Interim CFO.

    In Q1 2025, the CFO transition remains in process with Mark Keating serving as Interim CFO and a near-term search underway, accompanied by reassurances of operational stability.

    Transition risks are managed with clear succession planning, ensuring continuity despite leadership changes.

    SSGA Growth & Product Innovation (ETFs & Retail Expansion)

    Q2–Q4 2024 discussions highlighted strong ETF net inflows, new product launches (including strategic partnerships and low-cost funds), retail market penetration, and talent acquisition driving growth.

    In Q1 2025, SSGA continued its ETF and retail expansion with record low-cost ETF AUM, significant new product launches, and strategic partnerships boosting market share and flows.

    Sustained robust growth and innovation with an expanding product slate and deeper market penetration.

    Institutional Net Outflows & AUM Retention

    Q2 2024 mentioned idiosyncratic outflows due to client rebalancing while retention metrics remained strong, supporting core fees and overall AUM stability.

    Q1 2025 reported institutional net outflows of $13B (notably from a client transition) yet saw an overall AUM increase of 9% YoY, underscoring effective retention despite some churn.

    Mixed trends with some institutional outflows, but overall strong AUM retention driven by market growth.

    Pricing Pressure in the Asset Management Segment

    Q2 2024 set expectations of a 2% pricing headwind in the asset management segment, while Q3 2024 noted client transitions and asset mix shifts exerting 1–2 percentage point headwinds on fee growth; Q4 2024 touched on fee adjustments for competitive positioning.

    Q1 2025 did not explicitly discuss pricing pressure in asset management, suggesting either a reduced emphasis or an environment where pressure is balanced by other factors.

    Potential easing or shift in focus on pricing, as it is less prominently featured in the current period discussion.

    1. NII Outlook
      Q: What’s the NII guidance amid deposit mix?
      A: Management expects NII to remain roughly flat with low single-digit swings, balanced by robust loan growth and improvements in deposit mix, building on record growth from prior years.

    2. Regulatory Impact
      Q: How will new capital and liquidity rules affect you?
      A: Management believes that moderate regulatory adjustments could ease pressures—especially on treasury-related metrics—while reinforcing overall balance sheet strength and market liquidity.

    3. Global Trade Risk
      Q: Can trade wars harm overall business performance?
      A: They acknowledged heightened uncertainty from global trade conflicts and geopolitical risks but stressed their readiness with contingency plans, agile expense management, and a strong balance sheet.

    4. Alpha Contribution
      Q: Do Alpha wins boost revenue rates significantly?
      A: While the math isn’t straightforward, management emphasized that Alpha wins have accelerated sales and bolstered revenue growth as part of a broader strategic push beyond traditional mandates.

    5. Fee Guidance
      Q: How does fee guidance hold amid volatility?
      A: They maintain steady fee guidance thanks to strong underlying client momentum, an expanding revenue pipeline, and significant pre-installation sales, even in an uncertain market.

    6. Capital Return
      Q: Are capital return plans changing with uncertainty?
      A: The team remains on track to progressively return about 80% of earnings to shareholders, with plans ready to adjust if market conditions worsen.

    7. Expense Flexibility
      Q: How much leeway is there if revenues drop?
      A: Their multi-year transformation initiatives have built in considerable flexibility, allowing them to re-prioritize investments and accelerate productivity savings should revenues decline.

    8. Expense Variability
      Q: What portion of costs are variable short-term?
      A: Although no specific percentage was provided, management indicated that technological improvements and operational reengineering have increased cost flexibility over the next one to two years.

    9. Deposit Mix
      Q: What are current noninterest deposit trends and drivers?
      A: They reported roughly a 5% decline in noninterest-bearing deposits in Q1, primarily among asset managers and owners, with total deposit levels estimated at $230–240 billion.

    10. Reinvestment Strategy
      Q: Will reinvestment remain short term affecting NIM?
      A: Management confirmed that reinvestments will stay short-term, which may result in a slight compression of NIM but reflects their cautious, adaptive approach amid current conditions.

    11. U.S. vs Non-U.S. Fees
      Q: What is the mix between U.S. and non-U.S. fee revenues?
      A: In servicing, the mix is about 55% U.S. and 45% non-U.S., while Global Advisors sees roughly 67% U.S. exposure, highlighting their extensive international footprint.

    12. Loan Growth
      Q: What factors drive your loan business growth?
      A: The growth is fueled by opportunities in private markets, BDC lending, and middle market financing, all of which support their fee-based business model.

    13. New Contract Onboarding
      Q: Is there any delay in new contract onboarding?
      A: Despite market turbulence, the pacing of new contract onboarding has remained stable, with no significant delays reported by management.

    14. Local Sourcing
      Q: Will geopolitics drive a shift toward local operations?
      A: They admitted that global tensions might encourage a more local focus, but confidence remains high due to their entrenched local presence and top market positions.

    15. Current Deposits/FX Flows
      Q: How are deposits and FX flows trending in April?
      A: Deposits continue to be elevated and FX trading remains robust, reflecting historical trends during uncertainty and contributing positively to revenue through increased volatility.

    Research analysts covering STATE STREET.