01—Abstract
Summary
Summary of the 10-K filed February 26, 2018. Cited figures are marked; the original filing is the authoritative source.
State Street Corporation's 2017 Form 10-K highlights a year of growth and strategic initiatives, including a 9% increase in total revenue to $11.17 billiona and a 10% rise in fee revenue to $8.91 billion.
This growth was primarily driven by strong performance in investment servicing and management fees, bolstered by market appreciation, net new business, and the acquisition of GE Asset Management. Diluted Earnings Per Share (EPS) saw a 5% increase to $5.24b. The company continued to enhance its capital position, with CET1 capital ratio under the Basel III standardized approach increasing to 11.9% and a Tier 1 leverage ratio of 7.3% as of year-end 2017.
The report also details State Street's ongoing commitment to cost efficiencies through its "Beacon" program, which generated approximately $150 millionc in savings in 2017 and is projected to achieve target savings of $550 million by mid-2019. Despite these positive developments, the company faces a complex operating environment characterized by extensive regulation, heightened prudential standards for systemically important financial institutions, and ongoing efforts to manage risks related to cybersecurity, geopolitical events, and evolving market conditions. The company's significant fee-based revenue model, coupled with a large AUCA ($33.1 trillion) and AUM ($2.78 trillion), positions it as a key player in the institutional investment services sector.
02—Key points
Key Highlights
- Total revenue increased by 9% to $11.17 billion in 2017, primarily driven by higher fee revenue and net interest income.
- Fee revenue grew by 10% to $8.91 billion, with significant contributions from servicing fees (up 6%) and management fees (up 25%), boosted by market appreciation and the GEAM acquisition.
- Diluted Earnings Per Share (EPS) increased by 5% to $5.24 in 2017.
- Assets Under Custody and Administration (AUCA) rose by 15% to $33.12 trillion, and Assets Under Management (AUM) increased by 13% to $2.78 trillion.
- The 'Beacon' cost efficiency program generated approximately $150 million in savings in 2017 and aims for total savings of $550 million by mid-2019.
- Capital ratios remained strong, with CET1 capital ratio under the Basel III standardized approach at 11.9% and Tier 1 leverage ratio at 7.3% as of December 31, 2017.
- State Street operates under a robust regulatory framework, including heightened standards as a Global Systemically Important Bank (G-SIB), impacting capital and liquidity requirements.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 26, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $11.27B$10.21B | +10.4% |
| Interest Expense | $604.00M$428.00M | +41.1% |
| Net Income | $2.16B$2.14B | +0.6% |
| EPS (Basic) | $5.26$5.03 | +4.6% |
| EPS (Diluted) | $5.19$4.97 | +4.4% |
| Shares Outstanding (Basic) | 374.79M391.49M | −4.3% |
| Shares Outstanding (Diluted) | 380.21M396.09M | −4.0% |
05—Questions
Frequently Asked Questions
What were State Street's main revenue drivers in 2017?
State Street's primary revenue drivers in 2017 were its Investment Servicing and Investment Management businesses. Fee revenue, which constituted a significant majority of total revenue, saw increases in servicing fees (driven by market appreciation and net new business) and management fees (boosted by the GEAM acquisition, strong global equity markets, and ETF flows). Net interest income also increased, benefiting from higher U.S. market interest rates and loan portfolio growth.
How did the GE Asset Management (GEAM) acquisition impact State Street's financial performance?
The acquisition of GEAM, completed in July 2016, had a positive impact on State Street's financial performance in 2017. It contributed to a significant 25% increase in management fees for the year. The report indicates that GEAM accounted for a full year of results in 2017 compared to half a year in 2016, driving growth in Assets Under Management (AUM) and management fee revenue.
What is the 'Beacon' program, and what are its financial implications?
The 'Beacon' program is a multi-year initiative by State Street aimed at creating cost efficiencies through operational process improvements and digitization. In 2017, the company recorded $245 million in restructuring charges related to Beacon. The program generated approximately $150 million in year-over-year expense savings in 2017 and is projected to achieve target savings of $550 million by mid-2019, ahead of its original schedule. These savings are expected to positively impact future profitability.
How does State Street manage its regulatory capital and what are the key ratios?
State Street is subject to significant regulatory capital requirements, particularly as a Global Systemically Important Bank (G-SIB). The company manages its capital in accordance with Basel III final rules, aiming to exceed minimum regulatory capital ratios. Key ratios reported as of December 31, 2017, include a Common Equity Tier 1 (CET1) capital ratio of 11.9% (under the Basel III standardized approach) and a Tier 1 leverage ratio of 7.3%. These ratios are consistently maintained above regulatory minimums to ensure financial stability and operational flexibility.
06—Continue