01—Abstract
Summary
Summary of the 8-K filed January 19, 2024. Cited figures are marked; the original filing is the authoritative source.
State Street reported fourth-quarter 2023 EPS of $0.55a on a GAAP basis, down 71% year over year, and $2.04 excluding notable items, down 1%.
Total revenue was $3.04 billionb, down 4% year over year, or down 3% excluding notable items. The GAAP decline was driven by $620 million of pre-tax notable items, chiefly a $387 million FDIC special assessment and $203 million of net repositioning charges tied to workforce rationalization and real estate optimization. Net interest income fell 14% year over year as lower non-interest-bearing deposit balances and deposit mix shift offset the benefit of higher rates, though it rose 9% sequentially.
Fee revenue was flat at $2.37 billionc, with servicing fees up 1% and management fees up 5%, while FX trading services fell 16% on subdued volatility. The quarter showed commercial momentum. State Street won $501 billion of new servicing AUC/A, mostly from asset managers and alternatives clients, and recorded record Global Advisors net inflows of $103 billion, led by ETFs and cash.
Front office software and data ARR rose 16% to $315 milliond. Expenses excluding notable items rose 2%, which management attributed to continued business investment, partly offset by productivity savings. Capital returns remained significant.
The company returned $709 million in the quarter, including $500 million of buybacks, and announced a new repurchase authorization of up to $5 billion with no expiration date. The standardized CET1 ratio was 11.6%, up 0.6 points sequentially but down 2 points from a year earlier, and the Tier 1 leverage ratio was 5.5%. Investors should weigh the strong sales and buyback capacity against revenue pressure from lower NII and weak FX activity, and against the company's 2024 outlook for fee revenue of about -1% year over year and NII of about -10% year over year (excluding notable items).
02—Key points
Key Highlights
- GAAP EPS of $0.55 (down 71% YoY) versus $2.04 excluding notable items (down 1% YoY); notable items cost $1.49 per share, mainly the $387M FDIC special assessment and $203M of repositioning charges.
- Total revenue of $3.04B, down 4% YoY (down 3% ex-notables); NII fell 14% YoY but rose 9% QoQ, and fee revenue was flat at $2.37B.
- Record Global Advisors total net inflows of $103B in 4Q23, driven by ETFs ($68B) and cash ($29B); AUM reached $4.13T, up 19% YoY.
- New servicing AUC/A wins of $501B and new servicing fee revenue wins of $103M, mainly in back-office custody including Private Markets; AUC/A rose 14% YoY to $41.8T.
- Returned $709M to shareholders in 4Q23 and announced a new buyback authorization of up to $5B with no set expiration date.
- Standardized CET1 ratio of 11.6% (up 0.6 points QoQ, down 2.0 points YoY); LCR for State Street Corporation about 106%.
- Expenses ex-notables up 2% YoY, with 2024 guidance of about 2.5% growth ex-notables and ~$500M of targeted productivity savings, versus ~$300M in 2023.
03—Questions
Frequently Asked Questions
Why did GAAP EPS fall so sharply in Q4 2023?
GAAP diluted EPS was $0.55 versus $1.91 a year earlier. The decline came mainly from $620M of pre-tax notable items, including a $387M one-time FDIC special assessment and $203M of net repositioning charges for workforce rationalization and real estate optimization. Excluding these items, EPS was $2.04, down about 1% YoY.
Is the revenue pressure temporary or structural?
Part of it is structural. NII fell 14% YoY on lower non-interest-bearing deposits and deposit mix shift, although it improved 9% sequentially. FX trading revenue fell 16% on muted volatility. Management guides 2024 NII down about 10% and fee revenue down about 1% ex-notables, with rate cuts expected to weigh on NII from March. Fee growth is expected to recover modestly in 2024 as market levels and business momentum help.
How strong is the new business pipeline?
Fourth-quarter servicing AUC/A wins were $501B, and $2.3T of AUC/A remained to be installed at quarter-end. New servicing fee revenue wins were $103M, and servicing fee revenue to be installed was $270M. Alpha added four new mandates, and Front office software and data ARR grew 16% to $315M. The company noted that these wins do not directly translate into a revenue run rate because installation timing and pricing vary.
Does the buyback program signal confidence in capital strength?
Management presents the new $5B authorization as a sign of confidence. It follows $500M of buybacks in the quarter and a total payout ratio target of about 100% for 2024. However, the CET1 ratio of 11.6% is down 2.0 points from a year earlier, and the Tier 1 leverage ratio fell to 5.5%, so repurchases are not without cost to capital headroom. Buybacks can be suspended at any time and depend on capital and market conditions.
What are the main risks to watch from this report?
Key risks include NII compression from deposit outflows and rate cuts, continued pricing pressure in servicing fees, muted FX volatility, and the possibility that AUC/A-driven fee growth fails to materialize as expected. Investors should also monitor expense discipline, since investment spending of about $400M in 2023 and planned acceleration in 2024 must be offset by productivity savings. Client transitions and the Argentine peso devaluation also affected results.
04—Continue