Q4 2024 Earnings Summary
- State Street has significantly increased its servicing fee sales, up 45% since 2022 and about 250% since 2020, reaching $380 million in 2024. The company expects to sustain this growth in the $350 million to $400 million range in 2025 by restructuring the sales team, investing in products and services, and focusing on service excellence.
- The Alpha platform is driving substantial client wins, with 35 announced clients and 25 installed, offering longer contract terms of 7+ years, which enhances client retention and addresses clients' complex needs. The company secured 7 mandates in 2024 and expects 6 to 8 in 2025, aligning Alpha ever more to their core business.
- State Street Global Advisors (SSGA) is experiencing rejuvenated and sustainable growth due to product innovation and expansion into retail intermediary markets. They launched about 60 new products, mostly ETFs, in 2024 and continue to gain share in growing ETF markets like EMEA. This contributed to a strong year with notable net asset growth and organic growth, positioning the fourth quarter as a good starting point for continued double-digit fee growth.
- Rapid loan growth may increase risk exposure: State Street plans to continue growing its loan portfolio at a rate of 14% in 2025, similar to 2024, focusing on private markets clients such as capital call financing, BDC lending, and CLOs. This aggressive expansion could heighten risk and impact capital ratios.
- Fee revenue growth is facing headwinds: The company expects a 1% headwind from a previously disclosed client attrition and an additional 1% from currency impacts, reducing its fee revenue growth guidance from 5%-7% to 3%-5% for 2025. Fee compression and client attrition are also challenges affecting core organic revenue growth.
- Capital ratios are under pressure, potentially limiting shareholder returns: The company's Tier 1 leverage ratio was below the low end of its target range due to balance sheet growth and loan expansion. This may constrain the ability to continue returning 80% of earnings to investors through share buybacks.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +12% | Driven by higher net interest income from rising interest rates and increased fee revenue from foreign exchange trading and asset management, partially offset by changes in deposit mix and some market volatility. Forward-looking, continued rate stability and demand for fee-based services may support further growth. |
Operating Income | +378% | Primarily reflecting reduced losses on investment securities compared to the prior period and strong revenue generation outpacing expense growth. Company-specific initiatives to streamline costs also contributed. Forward-looking, ongoing cost discipline can sustain operating margin improvements. |
Net Income | +3629% | Substantial increase due to diminished one-time charges from prior securities repositioning, higher fee income, and improved net interest margin. Market conditions, including favorable interest rate trends, also played a role. Forward-looking, stable rates and continued business momentum could preserve profitability. |
Diluted EPS | +303% | Propelled by significant net income growth and share repurchases reducing share count, thus amplifying per-share earnings. Forward-looking, capital return programs and sustained revenue gains could maintain EPS momentum, barring major market disruptions. |
Interest Expense | +18% | Primarily increased due to higher deposit rates, a shift toward interest-bearing deposits, and elevated borrowing costs amid rising interest rates. Externally, the Federal Reserve’s tighter monetary policy environment has pushed up funding costs. Forward-looking, interest expense may remain elevated if rates stay high. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Gross Fee Growth | FY 2025 | no prior guidance | 5% to 7% | no prior guidance |
Fee Revenue Growth | FY 2025 | 3% to 5% | 3% to 5% | no change |
Loan Growth | FY 2025 | no prior guidance | 14% | no prior guidance |
Servicing Fee Sales | FY 2025 | no prior guidance | $350 million to $400 million | no prior guidance |
Capital Return | FY 2025 | 80% of earnings | 80% of earnings | no change |
Private Market Servicing Fee Growth | FY 2025 | no prior guidance | 15% | no prior guidance |
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NII Outlook
Q: What are the factors affecting NII guidance?
A: NII guidance is influenced by headwinds like deposit mix and expected rate cuts, and tailwinds such as loan growth of about 14% and investment portfolio rollovers, which yield a 100–150 basis point pickup. The company expects deposits to remain elevated in the $230 million to $240 million range, but noninterest-bearing deposits may trend lower to $20 billion to $25 billion. They are asset-sensitive, especially in non-U.S. currencies, where a rate cut in euro or sterling impacts NII by $5 million to $10 million per quarter per cut. -
Loan Growth
Q: How are loans growing and managed?
A: The company anticipates continued loan growth of around 14%, primarily driven by lending to alternative and private markets clients, such as capital call financing. This lending supports client relationships and is viewed as benign from a risk standpoint, integral to expanding their private markets business. -
Core Fee Growth
Q: What is the core fee revenue growth outlook?
A: The company projects a core fee revenue growth rate of 5% to 7%, adjusted down to net 3% to 5% after accounting for a 1% headwind from a previously disclosed client and FX impacts. Servicing fee sales reached $380 million in 2024, up 45% since 2022 and 250% since 2020, driven by restructuring the sales team and enhancing products. -
Capital Returns
Q: What's the outlook for buybacks and capital returns?
A: Despite Tier 1 leverage ratios at the lower end of their range, the company remains committed to returning 80% of earnings to investors through buybacks. They believe they can manage capital ratios while supporting loan growth, seeing a clear path to continue capital return plans. -
Deposit Levels
Q: Can deposit levels increase, and how are betas behaving?
A: The company is engaging with clients to potentially expand deposits, with some growth initiatives included in their outlook. U.S. dollar deposit betas have been around 60–65% on the way down, compared to higher betas on the way up, due to shifts in deposit mix and client behavior. -
SSGA Growth
Q: What's driving growth at SSGA?
A: Growth at State Street Global Advisors is driven by expanding the product suite—launching about 60 new ETFs last year—adjusting fees, and enhancing distribution. They are gaining market share in areas like EMEA and focusing on the retail intermediary market, positioning for continued growth. -
AI and Service Quality
Q: How is AI improving service quality?
A: The company is using machine learning extensively in operations and is testing AI applications like client service chatbots and HR inquiries. They expect AI to power next-generation transformation over the next 2 to 5 years, enhancing efficiency and client service. -
Alpha Platform
Q: How significant is Alpha platform adoption?
A: Alpha accounted for about half of AUC/A wins this year, with 35 clients and 25 installations to date. Alpha helps solve clients' operational challenges, leading to longer-term contracts and aligning with core asset servicing, which may enhance client retention and pricing power. -
Prime Services Growth
Q: What's behind the RWA increase in prime services?
A: The company increased RWA by $2 billion to support clients in prime services, which is integral to their strategy and accounts for about $450 million in securities finance revenues. Prime services support hedge fund clients by providing valued capital, contributing to strong growth.
Research analysts covering STATE STREET.