1 Joseph L. Hooley Chairman of the Board, President and Chief Executive Officer Goldman Sachs Financial Services Conference December 7, 2011 Resilience in a Challenging Environment Exhibit 99.1 |
2 Resilience in a Challenging Environment Agenda Overview Business Environment Widening Our Lead Summary |
3 Forward-looking Statements This presentation contains forward-looking statements as defined by United States securities laws, including statements relating to our financial, operational, strategic, commercial, technological and other goals and expectations regarding our Business Operations and Information Technology Transformation program, as well as regarding other goals and expectations for our business, financial and capital condition, results of operations, operating margins, strategies and the business environment. Forward-looking statements are often, but not always, identified by such forward-looking terminology as "plan," "expect," "look," "believe," "anticipate," "estimate," "seek," "may," "will," "trend," "target,” and "goal," or similar statements or variations of such terms. These statements are not guarantees of future performance, are inherently uncertain, are based on current assumptions that are difficult to predict and involve a number of risks and uncertainties. Therefore, actual outcomes and results may differ materially from what is expressed in those statements, and those statements should not be relied upon as representing our expectations or beliefs as of any date subsequent to December 7, 2011. Important factors that may affect future results and outcomes include, but are not limited to: delays or difficulties in the execution of our previously announced business operations and information technology transformation program, which could lead to changes in our estimates of the charges, expenses or savings associated with the planned program, resulting in increased volatility of our earnings; our ability to control operating risks, data security breach risks, information technology systems risks and outsourcing risks, and our ability to protect our intellectual property rights, the possibility of errors in the quantitative models we use to manage our business and the possibility that our controls will prove insufficient, fail or be circumvented; the potential for new products and services to impose additional costs on us and expose us to increased operational risk; the manner in which the Federal Reserve and other regulators implement the Dodd- Frank Act and other regulatory initiatives in the U.S. and internationally, including any increases in the minimum regulatory capital ratios applicable to us and regulatory developments that result in changes to our operating model or other changes to the provision of our services in order to comply with or respond to such regulations; required regulatory capital ratios under Basel II and Basel III, in each case as fully implemented by State Street and State Street Bank (and in the case of Basel III, when finally adopted by the Federal Reserve), which may result in the need for substantial additional capital or increased levels of liquidity in the future; changes in law or regulation that may adversely affect our, our clients’ or our counterparties’ business activities and the products or services that we sell, including additional or increased taxes or assessments thereon, capital adequacy requirements and changes that expose us to risks related to compliance; financial market disruptions and the economic recession, whether in the U.S. or internationally; the liquidity of the U.S. and international securities markets, particularly the markets for fixed- income securities, and the liquidity requirements of our clients; increases in the volatility of, or declines in the levels of, our net interest revenue, changes in the composition of the assets on our consolidated balance sheet and the possibility that we may be required to change the manner in which we fund those assets; the financial strength and continuing viability of the counterparties with which we or our clients do business and to which we have investment, credit or financial exposure; the credit quality, credit agency ratings, and fair values of the securities in our investment securities portfolio, a deterioration or downgrade of which could lead to other-than-temporary impairment of the respective securities and the recognition of an impairment loss in our consolidated statement of income; the maintenance of credit agency ratings for our debt and depository obligations as well as the level of credibility of credit agency ratings; the results of, and costs associated with, government investigations, litigation and similar claims, disputes, or proceedings; the risks that acquired businesses will not be integrated successfully, or that the integration will take longer than anticipated, that expected synergies will not be achieved or unexpected disynergies will be experienced, that client and deposit retention goals will not be met, that other regulatory or operational challenges will be experienced and that disruptions from the transaction will harm relationships with clients, employees or regulators; the ability to complete acquisitions, divestitures and joint ventures, including the ability to obtain regulatory approvals, the ability to arrange financing as required and the ability to satisfy closing conditions; the performance of and demand for the products and services we offer, including the level and timing of redemptions and withdrawals from our collateral pools and other collective investment products; the possibility that our clients will incur substantial losses in investment pools where we act as agent, and the possibility of significant reductions in the valuation of assets; our ability to attract deposits and other low-cost, short-term funding; potential changes to the competitive environment, including changes due to the effects of consolidation, and perceptions of State Street as a suitable service provider or counterparty; the level and volatility of interest rates and the performance and volatility of securities, credit, currency and other markets in the U.S. and internationally; our ability to measure the fair value of the investment securities on our consolidated balance sheet; adverse publicity or other reputational harm; our ability to grow revenue, attract and/or retain and compensate highly skilled people, control expenses and attract the capital necessary to achieve our business goals and comply with regulatory requirements; changes in accounting standards and practices; and changes in tax legislation and in the interpretation of existing tax laws by U.S. and non-U.S. tax authorities that affect the amount of taxes due. Other important factors that could cause actual results to differ materially from those indicated by any forward-looking statements are set forth in our 2010 Annual Report on Form 10-K and our subsequent SEC filings. We encourage investors to read these filings, particularly the sections on risk factors, for additional information with respect to any forward-looking statements and prior to making any investment decision. The forward-looking statements contained in this presentation speaks only as of the date hereof, December 7, 2011, and we do not undertake efforts to revise those forward-looking statements to reflect events after that date. Among the initiatives incorporated within Business Operations and Information Technology Transformation program, we are standardizing several core business and information technology processes, primarily through the execution of Lean efficiency principles and increased automation. We are also creating a new technology platform, including moving many core software applications to a private cloud. In addition, we are planning additional servicing and processing centers of excellence in globally distributed low-cost locations to improve the work allocation and responsiveness of service demands and have also expanded our relationships with strategic information technology service providers to enhance efficiencies. |
4 Overview |
5 Overview Key Messages Focused on Solutions for Institutional Investors Focused on Solutions for Institutional Investors Leading Global Market Share and Industry Recognition Leading Global Market Share and Industry Recognition Outperforming Key Competitors Outperforming Key Competitors |
6 1 Overview Focused on Solutions for Institutional Investors • Fiduciary heritage since 1792 • Core Business: Managing and Servicing Financial Assets • Operating-basis 1 revenue growth of 10% compounded annually over the 10 years 2000-2010 2 • AA- senior debt rating (State Street Bank and Trust Company) Driving Long-term Shareholder Value Financial data presented on an operating basis. Operating-basis information is a non-GAAP presentation. For a description of operating-basis information and related reconciliations to GAAP-basis information, see the Appendix. 2 12/31/00 – 12/31/10. Past performance is not a guarantee of future results. |
7 Overview Focused on Solutions for Institutional Investors • $21.5 trillion in assets under custody and administration • Largest provider of – Investment manager operations outsourcing – Alternative asset servicing – Mutual fund custody and accounting services in the U.S. – Securities lending • Trading relationships with 89 of the top 100 global investment managers Asset Servicing – 87% of YTD Revenue 1 Asset Management – 13% of YTD Revenue • $1.9 trillion in assets under management • No. 2 worldwide in institutional asset management • Investment solutions across the risk / return spectrum • Leader in passive, enhanced and ETFs POWER OF THE COMBINED FRANCHISE • 78 of Top 100 Clients Use Both Asset Servicing and Asset Management • These 78 Clients Account for about 35% of Total Management Fee Revenue (YTD 2011) • State Street Provides Strong Oversight, Governance and Financial Strength 1 As of 9/30/11. 2 HFN.net Q2 2010 HF Administrator Survey; ICFA Alternative Fund Administration Survey, May 2011, The NASDAQ Stock Market, Inc. 3 Data Products, 10/1/11. 4 Based on company filings, 9/30/11 5 As of September 30, 2011; AUM includes SPDR ® Gold Fund for which SSgA is not the investment manager but acts as distribution agent. 6 P & I 12/31/10. 1 3 4 5 6 1 2 |
8 Alternative Assets Under Administration as of 6/30/11 Source: Company reports. BNP and HSBC data as of 6/30/11. Custody Assets Held by Global Custodians as of 9/30/11 Overview Leading Global Market Share and Industry Recognition Source: ICFA Annual Fund Admin Survey 2011. AUA, $B AUA / AUC, $T |
9 AUM, $B Global Institutional Assets Managed as of 12/31/10 Average Assets on Loan, $B Global Securities Lending as of 9/30/2011 Global ETF Assets Managed as of 9/30/11 Overview Leading Global Market Share and Industry Recognition AUM, $B Source: Company reports as of 9/30/11 except BlackRock which is 12/31/10. Source: Pensions and Investments (5/2011). SSgA AUM as reported by State Street. Source: ETF Landscape Report (9/2011). SSgA AUM as reported by State Street. 400 300 200 100 0 368 250 221 104 100 94 3,000 2,500 2,000 1,500 1,000 500 0 2,556 2,010 1,042 1,017 1,014 1,005 600 500 400 300 200 100 0 548 247 152 54 45 38 |
Overview Leading Global Market Share and Industry Recognition Custodian of the Year 2011 European Pensions Awards Outsourcing Provider, Transfer Agent and Mutual Fund Administrator of the Year International Custody and Fund Administration ETF Manager of the Year Asia Asset Management 2011 Best of the Best Awards No. 1 Global Custodian for Institutional Investors Global Custodian 2010 Global Custody Survey No. 1 Overall Equity Lender Global Investor / isf 2011 Equity Lending Survey Best Liquidity Management (Currenex) Profit & Loss 2011 Readers’ Choice Digital Markets Awards Best in Securities Lending The Asset 2011 Triple A Transaction Banking Awards No. 1 in the Americas Global Investor / isf 2011 Global Custody Survey World’s Best Bank – Asset Management Global Finance 2011 World’s Best Bank Awards 10 |
11 Overview Outperforming Key Competitors¹ 2011 YTD STT BK NTRS Pre-tax margin 28.6% 26.2% 25.8% Return on equity 10.0% 8.0% 9.1% Net interest margin 1.56% 1.39% 1.26% Tier 1 common 16.0% 12.5% 11.8% Tier 1 common (under Basel III) 11.7% 6.5% 11.8% 1 All data as of 9/30/11. Each company’s operating/adjusted (non-GAAP) presentation may be calculated differently and therefore may not be comparable to other companies’ operating/adjusted (non-GAAP) presentation. Please review each company’s public filings and earnings reports for a description, to the extent contained therein, of their respective operating/adjusted presentation. For STT, financial data is presented on an operating (non-GAAP) basis, and tier 1 common ratios include non-GAAP data in their calculation (in addition to Basel III ratios being made based upon various estimates). For a description of this operating-basis presentation, as well as a description of referenced ratios and related reconciliations, see the Appendix. |
Total Returns Significantly Outperformed Primary Peers and Broader Financials Index Overview Outperforming Key Competitors Bank of New York Mellon Corp. Northern Trust Corp. S&P 500 / Financials State Street Corp. STT -13.3% S & P Fin. -18.5% NTRS -30.8% BK -34.4% Source: FactSet 12 |
Overview Outperforming Key Competitors Bank of New York Mellon Corp. Northern Trust Corp. S&P 500 / Financials State Street Corp. STT -3.8% S & P Fin. 6.9% NTRS -12.3% BK -32.2% Source: FactSet Total Returns Significantly Outperformed Primary Peers 13 |
14 Business Environment |
Business Environment Global Headwinds Higher Capital Requirements Rising Cost of Compliance and Regulation Constrained Economic Growth Low Interest Rates 15 |
Business Environment Our Response – Widening Our Lead Optimizing Capital in a Regulated Environment Managing Risk Transforming Operations and IT Driving Growth in the Core 16 |
17 Widening Our Lead |
Widening Our Lead Well Positioned Against Long-term Trends Globalization Retirement Increased Complexity Alpha / Beta Separation Regulation and Transparency Driving Growth in the Core 18 |
Widening Our Lead Globalization NORTH AMERICA EMEA ASIA PACIFIC 1 As of 9/30/11. Financial data is presented on an operating (non-GAAP) basis. For a description of this operating-basis presentation, and related reconciliations, see the Appendix. Driving Growth in the Core 19 Spanning the Globe with Investment Servicing and Investment Management YTD 2011 1 $4,340B Revenues 17,676 Employees YTD 2011 1 $2,339B Revenues 8,817 Employees YTD 2011 1 $0.537B Revenues 3,192 Employees |
20 Widening Our Lead Globalization – Expansion through Acquisitions 1 On an operating basis. Operating basis is a non-GAAP presentation. See Appendix for a description of operating-basis presentation. Driving Growth in the Core Intesa SanPaolo Deutsche GSS MIFA BIAM Achieved in Aggregate 90% Revenue Retention All Were Accretive in First Year of Operation 1 |
21 Widening Our Lead Globalization 79% of New Revenue Growth Comes From Existing Clients 1 9 months ended 9/30/11, compared to 9 months ended 9/30/10. Average Number of Products Used Average Length of Relationship Top 100 Clients 14.1 Products 20.1 Years Top 1,000 Clients 8.4 Products 11.1 Years Driving Growth in the Core 1 |
Investment Servicing • Positioned as market leader in servicing solutions for pension funds • Advanced performance and analytics capabilities Investment Management • Investment management solutions for DB and DC – Portfolio Solutions – Target-date funds – Liability-driven Investing – Alternative Strategies to support allocations to this asset class Widening Our Lead Retirement Opportunity • 44% of total assets in retirement plans globally are now in Defined Contribution (DC) plans, up from 35% in 2000 1,2 • DC assets have grown at 7.5% annually since 2000, approximately 2.5 times faster than the rate of growth in DB assets 1,2 • Pension-plan allocation to alternative assets has grown to 19% of total assets from 7% over the last 10 years 1,2 1 As of 12/31/10. 2 Towers Watson, Global Pension Asset Study 2011, 2/2011. Driving Growth in the Core 22 |
Widening Our Lead Increased Complexity Opportunity • Increased product sophistication driving need for global solutions • Increased IT / Operational investment requirements; market for middle-office outsourcing set to grow in next three years from about 20% to 35% 1 • Increased regulatory requirements Investment Servicing • Largest middle office administrator globally with $7.9TN in AUA 2 • Investment in end-to- end solutions to support emerging regulatory changes in OTC derivatives Investment Management • Providing strategic multi-asset solutions for clients • Providing strategic component parts to other asset managers to meet their client needs Driving Growth in the Core 23 1 BCG Global Asset Management and Building on Success, 2011; 2 As of 9/30/11. |
24 Widening Our Lead Investing for Growth – Alpha / Beta Separation • Growth opportunities exist in both beta and alternatives • ETF assets growing at 15% per annum • Hedge fund assets expected to grow with a 12% CAGR from 2011-2014 • Private equity market expected to grow at 6% CAGR from 2011-2014 Opportunity Investment Servicing • No. 1 ETF servicer • No. 1 in alternative investment servicing Investment Management • SPY and GLD No. 1 and No. 2, respectively, of world’s largest ETFs • No. 2 of global passive management assets • Delivering alpha in quantitative, fundamental and alternative strategies 1 BCG Global Asset Management Building on Success (2011). 2 STT estimates based on market size as of 10/2011. 3 HFN.net Q4 2010 HF Administrator Survey; ICFA Alternative Fund Administration Survey, 5/2011. 4 Bloomberg,10/2011. 5 P & I, 5/2011. Driving Growth in the Core 1 1 1 2 3 4 5 |
25 Goals • Position the company for accelerated growth • Achieve estimated annual pre-tax run-rate expense savings of $575MN to $625MN by the end of 2014 for full effect in 2015 • Achieve, by the end of 2015, a 400bp improvement in operating-basis pre-tax margin, compared to 2010 operating- basis pre-tax margin, assuming all else being equal 2 Widening Our Lead Program Overview 1 Estimated annual pre-tax, run-rate expense savings and operating-basis pre-tax margin improvement relate only to the Business Operations and Information Technology Transformation program; actual operating expenses and operating margin of the Company may increase or decrease due to other factors. 2 Includes operating-basis information. Operating-basis information is a non-GAAP presentation. See Appendix for a description of operating-basis information. Transforming Operations and IT 1 |
26 Widening Our Lead Operations Plan 14 Core Business 14 Core Business Operations Operations Processes are Processes are in Scope in Scope 2012 Milestones • Four key operations transformation levers – Process transformation – Automation – Consolidation – Workforce optimization • Operations transformation portfolio includes 160+ initiatives • Initiatives have been sequenced into master plan through 2014 • Establish two additional global Centers of Excellence for a total of seven overall • Achieve 20% targeted automation benefits • Establish two new low-cost locations to balance our global footprint Transforming Operations and IT |
27 Widening Our Lead IT Plan Industrial-strength Application Development Key Program Benefits Proprietary Real-time Information • Automation / capacity on demand • Accelerated time to market • Integrated security environment • Real-time data infrastructure • Advanced platform for product innovation • Strengthened client service Transforming Operations and IT 2012 Milestones • Scale cloud computing platform to enable major migrations in 2013 and 2014 • Realize 20% of the expected benefits from our IT application portfolio rationalization • Substantially complete transition to previously announced strategic servicing relationships |
28 Technology Transformation program; actual operating expenses of the Company may increase or decrease due to other factors. Widening Our Lead Estimated Annual, Pre-tax, Run-rate Expense Savings $MN 2011 2012 2013 2014 2015 Business Operations Transformation $150 $250 $370 $430 $440 Information Technology Transformation 5 20 90 150 160 Net Benefits Before Non-recurring Project-related Expenses 155 270 460 580 600 Less: Non-recurring Project-related Expenses 75 100 70 40 0 Annual Pre-tax, Run-rate Expense Savings $80 $170 $390 $540 $600 1 Transforming Operations and IT The full effect of the annual pre-tax, run-rate savings is not expected to be experienced until 2015. Chart data based on the approximate mid-point of the range of the estimated annual pre-tax, run-rate expense savings of $575MN-$625MN at the end of 2014, for full effect in 2015; estimated savings for individual years may vary up or down based on the execution of the Business Operations and Information Technology Transformation program. Annual pre-tax, run-rate expense savings relate only to the Business Operations and Information |
Widening Our Lead Strong Enterprise-wide Governance Culture Values Alignment Governance Risk Management Objectives Embedded into Business Unit and Individual Goals Overarching Structure Sets Risk Appetite and Risk Policies Globally • Dedicated Risk Teams in All Business and Geographies • Comprehensive Stress and Scenario Testing • Deep Expertise in Credit, Market and Operational Risk • Risk Exposures Monitored and Measured Globally Execution Managing Risk 29 |
30 Widening Our Lead Strong Ratios State Street Corporation “Well Capitalized” 1 9/30/11 Actual under Basel I 9/30/11 Adjusted to Reflect Basel III Proposal 5 Tier 1 leverage 5.0% 2 7.8% 6.0% Tier 1 capital 6.0% 17.9% 12.8% Tier 1 common ratio 3 ---- 16.0% 11.7% Total capital 10.0% 19.5% 14.4% Tangible common equity 4 ---- 7.0% 7.0% Optimizing Capital in a Regulated Environment 1 Except as noted in note 4 below, minimum “Well Capitalized” as defined by Federal regulators under Basel I. 2 Minimum “Well Capitalized,” as defined by Federal regulators, applies to State Street Bank and Trust only and therefore stated only as a reference point. 3 The tier 1 common ratio is not required by GAAP or on a recurring basis by bank regulations. See Appendix for a description of this ratio and related reconciliations. 4 As defined by State Street. The Tangible Common Equity ratio is not required by GAAP or by bank regulations. See Appendix for a description of this ratio and related reconciliations. 5 Calculated based on State Street’s estimates, based upon published statements of the Basel Committee and the Federal Reserve, of the effects of the requirements under Basel III affecting capital. See Appendix for a description of the specified capital ratios and related reconciliations of these ratios to ratios calculated under presently applicable requirements. |
31 Widening Our Lead Performance in 2011 Capital Deployment to Shareholders • Median payout ratio for those banks that participated in the CCAR stress test and were able to increase dividends and repurchase shares was 58.6% of consensus earnings 1 • Median payout ratio for all banks that were allowed to return capital in some form to shareholders was about 19.8% of consensus earnings 1 1 Percentages represent the payout ratios calculated on the March 1, 2011 consensus IBES estimates for 2011 operating-basis earnings. 2 Percentages represent the payout ratios calculated on the March 1, 2011 consensus First Call estimates for 2011 operating-basis earnings. Optimizing Capital in a Regulated Environment • Increased quarterly dividend to $0.18 per share (~ 20% of consensus earnings) 2 • Board authorized a share repurchase of $675 million (~ 37% of consensus earnings) 2 |
Widening Our Lead Philosophy Share Buybacks • Expect to request in January 2012 a share purchase plan in keeping with the limits imposed by the Federal Reserve Dividend • Expect to target a 20%-25% payout ratio Acquisitions • Intend to be opportunistic; Pressure on European banks may accelerate prospects • Rigorous financial analysis and hurdle rates must be achieved Optimizing Capital in a Regulated Environment Committed to Returning Capital to Shareholders 32 |
33 Summary |
34 Summary No. 1 or No. 2 Position in Key Growth Markets Financial Results Outperforming Peers Most Diversified Global Footprint Strongest Capital of Peer Group Driving Growth in the Core Transforming Operations and IT Managing Risk Optimizing Capital in a Regulated Environment Driving Long-term Shareholder Value |
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