Exhibit 99.2
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FINANCIAL UPDATE AND OUTLOOK
EDWARD J. RESCH
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
[LOGO]
TODAY’S DISCUSSION
Year-to-date Financial Review
Achieving Our Goals
Balance Sheet/Capital Management
Summary
COMPARATIVE PERFORMANCE*
• Three Months Ended
$ In millions (except per share)
|
| 9/30/04 |
| 6/30/04 |
| % |
| ||
Servicing and management fees |
| 724 |
| 723 |
| 0 |
| ||
Securities lending |
| 48 |
| 89 |
| (46 | ) | ||
Foreign exchange |
| 75 |
| 116 |
| (35 | ) | ||
Brokerage |
| 31 |
| 36 |
| (14 | ) | ||
Processing and other |
| 83 |
| 81 |
| 2 |
| ||
Net interest revenue |
| 223 |
| 238 |
| (6 | ) | ||
Gains/losses from sale of securities |
| — |
| 16 |
| (100 | ) | ||
Total operating revenue |
| 1,184 |
| 1,299 |
| (9 | ) | ||
Expenses |
| 890 |
| 937 |
| (5 | ) | ||
Operating EPS |
| $ | .55 |
| $ | .68 |
| (19 | ) |
*Total operating results as defined by State Street in its SEC filings.
OPERATING REVENUE
[CHART]
Operating revenue as defined in State Street Corporation SEC filings.
*Excludes Corporate Trust and Private Asset Management.
OPERATING EARNINGS PER SHARE
[CHART]
Operating earnings as defined in State Street Corporation SEC filings.
*Excludes Corporate Trust and Private Asset Management.
FINANCIAL GOALS
• Operating EPS Growth 10%-15%
• Operating Revenue Growth 8%-12%
• Operating ROE 14%-17%
Operating results as defined in State Street Corporation SEC filings.
ACHIEVING OUR GOALS
• Operating EPS Growth: 10%-15%
• 5-year historic operating EPS Growth (CAGR): 11.1%
• Impact on operating EPS growth
• Revenue growth: 8%-12%
• Positive operating leverage
• Capital management: ~ 1%
Operating earnings as defined in State Street Corporation SEC filings.
• Continue re-organization of large operations groups
• Modify incentive compensation program
• Direct IT spending to create operating efficiencies
• Reduce real estate portfolio
• Pursue offshoring opportunities
• Operating Revenue Growth: 8%-12%
Historic Operating Revenue Growth Rate 2000-2003 (3-year CAGR)
Investment Servicing/Management fee revenue* |
| 14.0 | % |
Market-driven fee revenue |
| 4.0 | % |
Total fee revenue |
| 11.5 | % |
NIR** |
| (1.1 | )% |
Total |
| 8.4 | % |
• S&P declined (15.8)%
• Depressed equity environment in ‘01 and ‘02
• Unfavorable interest rate environment ‘02 and ‘03
• Larger company growth rate
• International markets beginning to accelerate
Operating revenue as defined in State Street Corporation SEC filings.
* Includes processing and other.
** Includes gains/losses from the sale of securities.
• Five-year historic average ROE: 18.3%
• Grow NIAT faster than equity
• Continue share purchase program
• Offset dilution from employee benefit plans
• Buyback stock opportunistically
• Continue to re-evaluate capital structure
• Maintain consistent dividend policy
Operating ROE as defined in State Street Corporation SEC filings.
MANAGING RISK
• Lower Yield With Lower Risk Asset* Classes
Peer Average | State Street |
|
|
[CHART] | [CHART] |
At 12/31/03; peers include BK, MEL, IFIN, and NTRS.
*Total earning assets.
Source: FRY 9C reports, 12/31/03.
BALANCE SHEET ADJUSTMENTS
• Beginning to re-position investment securities to enhance yield while controlling risk
• Replace treasuries & agencies with MBS & CMO investments
• Replace some fixed investments with floating-rate investments
• Adjust mix of durations within portfolio
• Control balance sheet growth
RATIO TARGET RANGES
Leverage Ratio Range | 5.25%-5.75% |
|
|
Tangible Ratio Range | 4.25%-4.75% |
• Goal: Remain well-capitalized & comply with requirements of Basel II
• Share buyback: to offset dilution from employee stock issuance and make opportunistic purchases
• Develop disclosure on economic capital model
SUMMARY
• Manage the company for the long term
• Adjust expenses to slower revenue growth environment
• Continue to invest in Europe and Asia
• Maintain stream of new and innovative products
• Increase focus on balance sheet and capital management