01—Abstract
Summary
Summary of the 10-K filed February 21, 2014. Cited figures are marked; the original filing is the authoritative source.
State Street Corporation's 2013 10-K filing reveals a robust financial services company with diversified revenue streams from Investment Servicing and Investment Management.
The company manages substantial assets under custody and administration ($27.43 trilliona) and assets under management ($2.35 trillion), serving a global institutional investor base. Despite a challenging economic environment marked by low interest rates, State Street demonstrated revenue growth, primarily driven by increases in servicing and management fees, reflecting stronger equity markets and net new business wins. The company also navigated significant regulatory changes, particularly related to Basel III capital and liquidity standards, which are expected to impact capital ratios and operations.
Key areas of focus for investors include State Street's strong capital position, with all regulatory capital requirements exceeded as of year-end 2013, and its commitment to returning capital to shareholders through dividends and share repurchases, subject to regulatory approvals. The filing also highlights ongoing legal and regulatory matters, particularly concerning foreign exchange trading practices, which have led to accruals for potential settlements and fines. While these matters present risks, management believes they will not have a material adverse effect on the company's consolidated financial condition.
02—Key points
Key Highlights
- State Street reported total revenue of $9.88 billion for 2013, a 2% increase from 2012, driven by strong growth in servicing and management fees.
- Assets under custody and administration grew to $27.43 trillion, and assets under management reached $2.35 trillion as of December 31, 2013.
- The company's Investment Servicing segment saw a 9% increase in servicing fees, while its Investment Management segment experienced an 11% rise in management fees, primarily due to stronger equity markets and new business.
- State Street's regulatory capital ratios, including Tier 1 risk-based capital of 17.3% and total risk-based capital of 19.7% for the parent company, exceeded regulatory minimums.
- The company returned capital to shareholders through dividends ($1.04 per share in 2013) and share repurchases ($2.04 billion in 2013).
- Legal and regulatory matters, particularly concerning foreign exchange trading services, resulted in $119 million in aggregate accruals for legal loss contingencies and regulatory matters as of December 31, 2013.
- The company is actively preparing for the implementation of Basel III capital and liquidity standards, which will alter the calculation of regulatory capital ratios and introduce new requirements.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 21, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $9.86B$9.65B | +2.2% |
| Interest Expense | $411.00M$476.00M | −13.7% |
| Net Income | $2.05B$2.06B | −0.5% |
| EPS (Basic) | $4.52$4.25 | +6.4% |
| EPS (Diluted) | $4.43$4.20 | +5.5% |
| Shares Outstanding (Basic) | 446.25M474.46M | −5.9% |
| Shares Outstanding (Diluted) | 455.15M481.13M | −5.4% |
05—Questions
Frequently Asked Questions
What were State Street's primary revenue drivers in 2013?
State Street's primary revenue drivers in 2013 were its Investment Servicing and Investment Management businesses. Servicing fees increased by 9% to $4.82 billion, and management fees rose by 11% to $1.11 billion, largely due to stronger global equity markets and net new business installations. Trading services revenue also increased by 5%.
How is State Street affected by regulatory changes, particularly Basel III?
State Street is significantly impacted by regulatory changes, especially the Basel III capital and liquidity standards. The company is transitioning to the Basel III framework, which will alter how regulatory capital ratios are calculated and potentially increase minimum capital requirements. As an 'advanced approaches' banking organization, State Street began using the Basel III advanced approaches framework for capital requirements in Q2 2014. The company is actively re-evaluating its investment portfolio to align with these new capital requirements.
What legal and regulatory issues are highlighted in the filing?
The filing highlights ongoing legal and regulatory matters, particularly concerning the pricing and disclosure of indirect foreign exchange trading services provided to custody clients. Several lawsuits and regulatory inquiries are pending, and State Street has accrued $119 million for legal loss contingencies and regulatory matters as of December 31, 2013. Additionally, the company settled with the UK Financial Conduct Authority regarding its transition management business, incurring a fine of approximately $37.8 million.
How does State Street manage its capital and return capital to shareholders?
State Street maintains a strong capital position, exceeding all applicable regulatory capital requirements. The company manages its capital with the objective of providing financial flexibility for business growth and supporting client needs, while also aiming for attractive shareholder returns. In 2013, State Street declared common stock dividends totaling approximately $463 million and repurchased approximately $2.04 billion of its common stock. These capital actions are subject to the Federal Reserve's review of its capital plan.
06—Continue