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STATE STREET CORP 8-K Report, Financial Results (Jul 16, 2024)

Reports
Earnings & Results·Regulation FD·Exhibits & Filings
Filing Date
Filed July 16, 2024
Period End
July 16, 2024
Securities
STTSTT-PG
In the record · 2016–202610-K1210-Q328-K196

STT filed 12 annual reports (10-K), 32 quarterly reports (10-Q) and 196 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Jan ’17Jan ’17
  2. Material agreement8-K · Mar ’20Mar ’20
  3. Leadership change8-K · Dec ’22Dec ’22
  4. Leadership change8-K · Oct ’26Oct ’26

01—Abstract

Summary

Summary of the 8-K filed July 16, 2024. Cited figures are marked; the original filing is the authoritative source.

State Street (STT) reported second-quarter 2024 EPS of $2.15a, versus $2.17 a year earlier, a roughly 1% decline.

Total revenue rose 3% year over year to $3.19 billionb, driven by a 6% increase in net interest income to $735 million and a 2% increase in fee revenue to $2.46 billion. Management fees grew 11% and FX trading services grew 11%, which offset weaker Servicing fees (down 2%), Securities finance (down 8%) and Other fee revenue (down 17%). Expenses rose 3% to $2.27 billion, and the pre-tax margin was 28.6% with ROE of 11.9%.

Year over year, EPS was roughly flat and net income fell 7%, mainly because the prior-year quarter had lower preferred dividends and a different tax rate. Net income was $711 millionc, up sharply from the $463 million in 1Q24, which had absorbed a $130 million FDIC special assessment. The headline operating metrics were strong.

Assets under custody and/or administration reached a record $44.3 trilliond (up 12% year over year), and assets under management reached a record $4.4 trillion (up 16%). New servicing AUC/A wins were $291 billion, and the company reported $2.4 trillion of AUC/A yet to be installed. Management highlighted the consolidation of its final operations joint venture in India as progress on its productivity agenda.

Capital returns totaled $407 million in the quarter, including $200 million of buybacks and $207 million of dividends. The board has been asked to approve a planned 10% increase in the quarterly dividend to $0.76 per share for 3Q24, which would be the fourth consecutive year of such an increase. The main investor concerns are soft fee growth, a decline in servicing fees driven by pricing pressure and a client transition, and capital ratios that declined year over year.

The CET1 ratio was 11.2%, down 0.6 points from 2Q23, and the Tier 1 leverage ratio was 5.3%, down 0.5 points. Net interest income is supported by higher securities yields, but deposit mix shift is a headwind. The Q2 result also reflected a sizable episodic revenue headwind within Servicing fees, which management cited as offset by stronger management and FX revenue.

02—Key points

Key Highlights

  1. Diluted EPS of $2.15 versus $2.17 in 2Q23 (about -1%); net income of $711M, up 54% sequentially from $463M, which included a $130M FDIC special assessment in 1Q24.
  2. Total revenue of $3.19B, up 3% year over year: net interest income up 6% to $735M and fee revenue up 2% to $2.46B.
  3. Record AUC/A of $44.3T (up 12% YoY) and record AUM of $4.4T (up 16% YoY); new servicing AUC/A wins of $291B and new servicing fee revenue wins of $72M.
  4. Management fees rose 11% and FX trading services rose 11%, while Servicing fees fell 2%, Securities finance fell 8%, and Other fee revenue fell 17%.
  5. Pre-tax margin of 28.6% and ROE of 11.9%; total expenses rose 3% to $2.27B, with compensation down 2% from lower contractor spend tied to India JV consolidation.
  6. Standardized CET1 ratio of 11.2% (down 0.6 points YoY, up 0.1 point QoQ); Tier 1 leverage ratio of 5.3%; SSBT LCR of 134%.
  7. Returned $407M to shareholders in 2Q24 ($200M buybacks, $207M dividends); planned 10% increase to the quarterly dividend to $0.76 per share in 3Q24, subject to board approval.

03—Questions

Frequently Asked Questions

  1. Did State Street's earnings grow year over year in Q2 2024?

    Not meaningfully. Diluted EPS was $2.15 versus $2.17 in 2Q23, about 1% lower, and net income fell 7% to $711M. Revenue grew 3%, but expenses also grew 3% and the effective tax rate was higher, which kept profit roughly flat.

  2. What drove the revenue growth, and what held it back?

    Net interest income rose 6% on higher investment securities yields and loan growth, partly offset by deposit mix shift. Management fees (+11%) and FX trading services (+11%) were the main fee drivers. Servicing fees fell 2% because of pricing pressure, a previously disclosed client transition and lower client activity, and Securities finance fell 8% on muted industry specials activity.

  3. Are the record AUC/A and AUM levels a sign of organic growth?

    Only partly. Management attributed the year-over-year increases to higher quarter-end market levels, which accounted for much of the gain. AUC/A rose 12% and AUM rose 16%, while AUM net flows were slightly negative in the quarter (-$6B). Servicing fee revenue wins of $72M and $2.4T of AUC/A still to be installed point to future growth, but those amounts are gross estimates and do not translate directly into revenue.

  4. Is State Street's capital position weaker than a year ago, and how safe is the dividend?

    Capital ratios declined year over year: the standardized CET1 ratio fell to 11.2% from 11.8% and the Tier 1 leverage ratio fell to 5.3% from 5.8%. Management attributed the decline to continued capital return and higher risk-weighted assets, partly offset by earnings. The planned 10% dividend increase, to $0.76 per share, depends on board approval, and management described the supervisory stress test results as confirming the balance sheet's strength.

04—Continue

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