State Street Reports Third-Quarter 2014 GAAP-Basis EPS of $1.26 on Strong Revenue of $2.58 Billion Compared to the Third Quarter of 2013

Third-quarter 2014 operating-basis1 EPS was $1.35, up 13.4 percent, on strong revenue of $2.7 billion, up 8.5 percent compared to the third quarter of 2013

BOSTON--()--In announcing today's financial results, Joseph L. Hooley, State Street's chairman, president and chief executive officer, said, "Our third-quarter results demonstrated good growth in asset servicing and asset management fees, which together were up 9 percent from the third quarter of 2013, reflecting improved equity markets and new business. Our market-driven revenues also performed well in a traditionally seasonally slow quarter. We won new business commitments of $302 billion of assets to be serviced and had $3 billion of net new assets to be managed during the quarter demonstrating the continued strength of our business."

"Despite the current challenges we face from low interest rates, we have leveraged our strong market positions and capabilities to generate profitable top-line growth."

"We continue to prioritize the return of capital to our shareholders. During the third quarter of 2014, we purchased approximately $410 million of our common stock and ended the third quarter with approximately $880 million remaining under our March 2014 common stock purchase program authorizing the purchase of up to $1.7 billion of our common stock through March 31, 2015. We also declared a common stock dividend during the quarter of $0.30 per share."

Third-Quarter 2014 GAAP-Basis Results

  • Earnings per common share (EPS) of $1.26 decreased from $1.38 in the second quarter of 2014 and increased from $1.17 in the third quarter of 2013. Third-quarter 2014 results include a net after-tax charge of $53 million, or $0.12 per share, reflecting our intention to seek to resolve some, but not all, of the outstanding and potential claims arising out of our indirect FX client activities.
  • Net income available to common shareholders of $542 million decreased from $602 million in the second quarter of 2014 and increased from $531 million in the third quarter of 2013.
  • Revenue of $2.58 billion decreased from $2.60 billion in the second quarter of 2014 and increased from $2.43 billion in the third quarter of 2013.
  • Net interest revenue of $570 million increased from $561 million in the second quarter of 2014 and from $546 million in the third quarter of 2013.
  • Provision for loan losses of $2 million was flat with the second quarter of 2014 and increased $2 million from the third quarter of 2013.
  • Expenses of $1.89 billion increased from $1.85 billion in the second quarter of 2014 and from $1.72 billion in the third quarter of 2013.
  • Return on average common shareholders' equity (ROE) of 10.6% decreased from 11.9% in the second quarter of 2014 and from 10.8% in the third quarter of 2013.

Non-GAAP Financial Measures

In addition to presenting State Street's financial results in conformity with U.S. generally accepted accounting principles, or GAAP, management also presents results on a non-GAAP, or operating basis, in order to highlight comparable financial trends with respect to State Street's business operations from period to period. Non-GAAP measures are not a substitute for, and are not superior to, measures presented on a GAAP basis. Summary results presented on a GAAP basis, descriptions of our non-GAAP, or operating-basis, financial measures, and reconciliations of operating-basis information to GAAP-basis information are provided in the addendum included with this news release.

The following table reconciles selected third-quarter 2014 operating-basis financial information to financial information prepared and reported in conformity with GAAP for the same period. The addendum included with this news release includes additional reconciliations.

                       
 
(In millions, except per share amounts)

Income Before
Income Tax
Expense

Net Income
Available to
Common

Shareholders

Earnings Per
Common
Share

GAAP basis $ 688 $ 542 $ 1.26
Tax-equivalent adjustments
Tax-advantaged investments (processing fees and other revenue) 86
Tax-exempt investment securities (net interest revenue) 43  
Total 129
Non-operating adjustments
Discount accretion associated with former conduit securities (net interest revenue) (33 ) (20 ) (.05 )
Severance costs associated with staffing realignment (compensation and employee benefits expenses) (2 ) (1 )
Provision for foreign exchange matters (other expenses) 70 53 .12
Provisions for other litigation exposure and other costs, net (other expenses) (4 ) (3 )
Acquisition costs (expenses) 12 8 .02
Restructuring charges, net (expenses) 8 5 .01
Effect on income tax rate of non-operating adjustments   (3 ) (.01 )
Total 51   39   .09  
Operating basis $ 868   $ 581   $ 1.35  
 
 

Third-Quarter 2014 Operating-Basis (Non-GAAP) Results1

  • EPS of $1.35 decreased from $1.39 in the second quarter of 2014 and increased from $1.19 in the third quarter of 2013.
  • Net income available to common shareholders of $581 million decreased from $603 million in the second quarter of 2014 and increased from $537 million in the third quarter of 2013.
  • Revenue of $2.68 billion increased slightly from the second quarter of 2014 and increased from $2.47 billion in the third quarter of 2013.
  • Net interest revenue of $580 million increased from $575 million in the second quarter of 2014 and from $553 million in the third quarter of 2013. Operating-basis net interest revenue excluded discount accretion on former conduit securities of $33 million, $28 million and $28 million for the third quarter of 2014, the second quarter of 2014, and the third quarter of 2013, respectively. All quarters are presented on a fully taxable-equivalent basis.
  • Expenses of $1.81 billion decreased slightly from $1.82 billion in the second quarter of 2014 and increased from $1.69 billion in the third quarter of 2013.
  • ROE of 11.4% decreased from 11.9% in the second quarter of 2014 and increased from 11.0% in the third quarter of 2013.

Third-Quarter 2014 Highlights

  • Total operating-basis revenue increased slightly from the second quarter of 2014 despite the second quarter benefit from seasonality within securities finance.
  • New business2 New asset servicing mandates during the third quarter of 2014 totaled $302 billion and net new assets to be managed were $3 billion.
  • Business Operations and Information Technology Transformation program3 remains on track to achieve $575 million to $625 million in annualized pre-tax expense savings by 2015.
  • Capital4 Our tier 1 common ratio as of September 30, 2014, calculated under the advanced approaches in conformity with the Basel III final rule, was 12.7%. Our estimated pro forma Basel III tier 1 common ratio as of September 30, 2014, calculated under the standardized approach in conformity with the Basel III final rule, was 10.9%.
  • Return of capital to shareholders Purchased approximately $410 million of our common stock at an average price of $70.61 per share and declared a quarterly common stock dividend of $0.30 per share in the third quarter of 2014.

1 Operating basis is a non-GAAP presentation. For an explanation of operating-basis information and related reconciliations, refer to the addendum included with this news release.

2 New business in assets to be serviced is reflected in our assets under custody and administration after we begin servicing the assets, and net new business in assets to be managed is reflected in our assets under management after we begin managing the assets. As such, only a portion of these new asset servicing and asset management mandates is reflected in our assets under custody and administration and assets under management, as the case may be, as of September 30, 2014. Distribution fees from the SPDR® Gold Exchange-Traded Fund, or ETF, are recorded in brokerage and other fee revenue and not in management fee revenue.

3 Estimated pre-tax expense savings relate only to the Business Operations and Information Technology Transformation program and are based on projected improvement from our total 2010 operating-basis expenses, all else being equal. Our actual total expenses have increased since 2010, and may increase or decrease in the future, due to other factors.

4 Earlier this year, we announced that we had completed our Basel III qualification period. As a result, beginning with the second quarter of 2014, we have been required to calculate and disclose our regulatory capital ratios under the advanced approaches framework of the Basel III final rule. Our estimated pro forma Basel III tier 1 common ratio, calculated under the standardized approach, is an estimate, calculated in conformity with the standardized approach in the Basel III final rule. Refer to the “Capital” section of this news release for important information about the Basel III final rule, our calculations of our tier 1 common ratios thereunder, factors that could influence State Street's calculations of its tier 1 common ratios and other information about our capital ratios. Unless otherwise specified, all capital ratios referenced in this news release refer to State Street Corporation and not State Street Bank and Trust Company. Refer to the addendum included with this news release for a further description of these ratios.

Selected Financial Information and Ratios

The table below provides a summary of selected financial information and key ratios for the indicated periods, presented on an operating, or non-GAAP, basis where noted. Amounts are presented in millions of dollars, except for per-share amounts or where otherwise noted.

                               
 
Financial Highlights
(Dollars in millions) Q3 2014 Q2 2014

% Increase
(Decrease)

Q3 2013

% Increase
(Decrease)

Total revenue1 $ 2,678 $ 2,676 0.1 % $ 2,469 8.5 %
Total expenses1 1,808 1,818 (0.6 ) 1,687 7.2
Net income available to common shareholders1 581 603 (3.6 ) 537 8.2
Earnings per common share1 1.35 1.39 (2.9 ) 1.19 13.4
Return on average common equity1 11.4 % 11.9 % (50) bps 11.0 % 40 bps
Total assets as of period-end $ 274,976 $ 282,324 (2.6 )% $ 217,180 26.6 %
Quarterly average total assets 247,310 234,664 5.4 201,282 22.9
Net interest margin1 1.06 % 1.12 % (6) bps 1.27 % (21) bps
Net unrealized gains (losses) on investment securities, after-tax, as of period-end $ 411 $ 456 $ (79 )
 
 

1 Presented on an operating basis, a non-GAAP presentation. Refer to the addendum included with this news release for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information.

 
 
Assets Under Custody and Administration and Assets Under Management
(Dollars in billions)         Q3 2014       Q2 2014      

% Increase
(Decrease)

      Q3 2013      

% Increase
(Decrease)

Assets under custody and administration1, 2 $ 28,465 $ 28,400 0.2 % $ 26,033 9.3 %
Assets under management2 2,421 2,480 (2.4 ) 2,241 8.0
Market Indices:
S&P 500® daily average 1,976 1,900 4.0 1,675 18.0
MSCI EAFE® daily average 1,924 1,942 (0.9 ) 1,748 10.1
S&P 500® average of month-end 1,969 1,923 2.4 1,667 18.1
MSCI EAFE® average of month-end 1,901 1,955 (2.8 ) 1,747 8.8
 
 

1 Includes assets under custody of $21,707 billion, $21,687 billion and $19,206 billion, as of September 30, 2014, June 30, 2014 and September 30, 2013, respectively.

2 As of period-end.

Revenue1

The following table provides the components of our operating-basis (non-GAAP) revenue1 for the periods noted:

                             
 
(Dollars in millions) Q3 2014 Q2 2014

% Increase
(Decrease)

Q3 2013

% Increase
(Decrease)

Servicing fees $ 1,302 $ 1,288 1.1 % $ 1,211 7.5 %
Management fees 316 300 5.3 276 14.5
Trading services revenue:
Foreign-exchange trading 161 144 11.8 147 9.5
Brokerage and other fees2 117   116   0.9   118   (0.8 )
Total trading services revenue 278 260 6.9 265 4.9
Securities finance revenue 99 147 (32.7 ) 74 33.8
Processing fees and other revenue1, 2, 3 103   108   (4.6 ) 94   9.6  
Total fee revenue1, 2, 3 2,098 2,103 (0.2 ) 1,920 9.3
Net interest revenue1, 4 580 575 0.9 553 4.9
Gains (losses) related to investment securities, net   (2 ) (100.0 ) (4 ) (100.0 )
Total Operating-Basis Revenue1 $ 2,678   $ 2,676   0.1 % $ 2,469   8.5 %
 
 

1 Presented on an operating basis, a non-GAAP presentation. Refer to the addendum included with this news release for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information.

2 Brokerage and other fees for the third quarter of 2014 and second quarter of 2014 reflect the reclassification of revenue associated with currency management from processing fees and other revenue. Brokerage and other fees and processing fees and other revenue previously reported for the third quarter of 2013 have been adjusted for comparative purposes.

3 Processing fees and other revenue for the third quarter of 2014, second quarter of 2014 and third quarter of 2013, presented in the table, included tax-equivalent adjustments of $86 million, $64 million and $37 million, respectively, related to tax credits generated by tax-advantaged investments. GAAP-basis processing fees and other revenue for these periods was $17 million, $44 million and $57 million, respectively.

4 Net interest revenue for the third quarter of 2014, second quarter of 2014 and third quarter of 2013, presented in the table, included tax-equivalent adjustments of $43 million, $42 million and $35 million, respectively, and excluded conduit-related discount accretion of $33 million, $28 million and $28 million, respectively. GAAP-basis net interest revenue for these periods was $570 million, $561 million and $546 million, respectively. The Company expects to record aggregate pre-tax conduit-related accretion of approximately $427 million in interest revenue from October 1, 2014 through the remaining lives of the former conduit securities. This expectation is based on numerous assumptions, including holding the securities to maturity, anticipated pre-payment speeds and credit quality.

Servicing fees of $1.30 billion in the third quarter of 2014 increased 1.1% from the second quarter of 2014, primarily due to net new business and stronger global equity markets, partially offset by the impact of the stronger U.S. dollar. Compared to the third quarter of 2013, servicing fees increased 7.5%, primarily due to stronger global equity markets and net new business.

Management fees of $316 million in the third quarter of 2014 increased 5.3% from the second quarter of 2014, primarily due to net new business, higher performance fees, and stronger global equity markets. Compared to the third quarter of 2013, management fees increased 14.5%, primarily due to stronger global equity markets, net new business, and higher performance fees.

Foreign-exchange trading revenue of $161 million increased 11.8% from the second quarter of 2014, due to higher volumes and volatility. Compared to the third quarter of 2013, foreign-exchange trading revenue increased 9.5%, due to higher volumes, partially offset by lower volatility. Brokerage and other fees of $117 million in the third quarter of 2014 were relatively flat with the second quarter of 2014 and the third quarter of 2013.

Securities finance revenue of $99 million in the third quarter of 2014 decreased 32.7% from the second quarter of 2014, primarily due to second-quarter seasonality. Compared to the third quarter of 2013, securities finance revenue increased 33.8%, primarily due to higher volumes.

Processing fees and other revenue of $103 million in the third quarter of 2014 decreased 4.6% from the second quarter of 2014. Compared to the third quarter of 2013, processing fees and other revenue increased 9.6%, primarily due to higher revenue associated with tax-advantaged investments and other fees, partially offset by valuation adjustments. See notes 1, 2 and 3 to the table above for a description of the presentation of operating-basis processing fees and other revenue.

Net interest revenue of $580 million in the third quarter of 2014 increased 0.9% from the second quarter of 2014. Compared to the third quarter of 2013, net interest revenue increased 4.9%, primarily due to a higher level of interest-earning assets, partially offset by lower yields on interest-earning assets. See notes 1 and 4 to the table above for a description of the presentation of operating-basis net interest revenue.

Net interest margin, including balances held at the Federal Reserve and other central banks, decreased to 106 basis points in the third quarter of 2014 from 112 basis points in the second quarter of 2014 and from 127 basis points in the third quarter of 2013. Refer to the addendum included with this news release for reconciliations of our net interest margin.

Expenses1

The following table provides the components of our operating-basis (non-GAAP)1 expenses for the periods noted:

                               
 
(Dollars in millions) Q3 2014 Q2 2014

% Increase
(Decrease)

Q3 2013

% Increase
(Decrease)

Compensation and employee benefits1, 2 $ 955 $ 974 (2.0 )% $ 903 5.8 %
Information systems and communications 242 244 (0.8 ) 235 3.0
Transaction processing services 199 193 3.1 185 7.6
Occupancy 119 115 3.5 113 5.3
Other1, 3 293   292   0.3   251   16.7  
Total Operating-Basis Expenses1 $ 1,808   $ 1,818   (0.6 )% $ 1,687   7.2 %
 
 

1 Presented on an operating basis, a non-GAAP presentation. Refer to the addendum included with this news release for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information.

2 Compensation and employee benefits expenses for the third quarter of 2014 and the second quarter of 2014, presented in the table, excluded severance cost credit adjustments of $2 million and severance costs of $4 million, respectively, related to staffing realignment. GAAP-basis compensation and employee benefits expenses for the third quarter of 2014, second quarter of 2014 and third quarter of 2013 were $953 million, $978 million and $903 million, respectively.

3 GAAP-basis other expenses for the third quarter of 2014, second quarter of 2014 and third quarter of 2013 were $359 million, $292 million and $256 million, respectively.

Compensation and employee benefits expenses of $955 million in the third quarter of 2014 decreased 2.0% from the second quarter of 2014, primarily due to the impact of a stronger U.S. dollar and lower incentive compensation costs. Compared to the third quarter of 2013, compensation and employee benefits expenses increased 5.8%, primarily due to new business support, lower employee benefit expense recorded in the third quarter of 2013 resulting from plan changes, and higher regulatory compliance costs, partially offset by savings associated with Business Operations and Information Technology Transformation program. See notes 1 and 2 to the table above for a description of the presentation of operating-basis compensation and employee benefits expenses for the relevant periods.

Information systems and communications expenses decreased 0.8% compared with the second quarter of 2014 and increased 3.0% compared to the third quarter of 2013.

Transaction processing services expenses of $199 million in the third quarter of 2014 increased 3.1% and 7.6% from the second quarter of 2014 and the third quarter of 2013, respectively. The increase over both periods is primarily due to higher equity values and higher volumes in the investment servicing business.

Occupancy expenses of $119 million in the third quarter of 2014 increased 3.5% from the second quarter of 2014, primarily due to a one-time recovery of $5 million recorded in the second quarter of 2014. Compared to the third quarter of 2013, occupancy expenses increased 5.3%.

Other expenses of $293 million in the third quarter of 2014 increased 0.3% from the second quarter of 2014. Compared to the third quarter of 2013, other expenses increased 16.7%, primarily due to Lehman Brothers-related gains and recoveries recorded in the third quarter of 2013. See notes 1 and 3 to the table above for a description of GAAP-basis other expenses for the relevant periods.

Income Taxes

Our third-quarter 2014 GAAP-basis effective tax rate was 18.6%, up from 16.6% in the second quarter of 2014 and down from 23.2% in the third quarter of 2013. Our third-quarter 2014 operating-basis tax rate was 31.0%, up from 27.2% in the second quarter of 2014 and from 30.2% in the third quarter of 2013.

Capital

In July 2013, the Federal Reserve issued a final rule intended to implement the Basel III framework in the U.S., referred to as the Basel III final rule. Provisions of the Basel III final rule become effective under a transition timetable which began on January 1, 2014. On February 21, 2014, we were notified by the Federal Reserve that we completed our Basel III qualification period and would be required to begin using the advanced approaches framework provided in the Basel III final rule in the determination of our risk-based capital requirements. Pursuant to this notification, we have used the advanced approaches framework to calculate our regulatory capital ratios beginning with the second quarter of 2014.

For the remainder of 2014, including the third quarter of 2014, the lower of our regulatory capital ratios calculated under the Basel III advanced approaches and those ratios calculated under the transitional provisions of Basel III will apply in the assessment of our capital adequacy for regulatory purposes. Once the provisions of the Basel III final rule are fully implemented effective January 1, 2015, the lower of the Basel III regulatory capital ratios calculated by us under the Basel III advanced approaches and the Basel III standardized approach will apply in the assessment of our capital adequacy for regulatory purposes.

The following table presents our regulatory capital ratios as of September 30, 2014 and June 30, 2014. Refer to notes 1, 2 and 3 following the table for an explanation of the methodology as of those dates. Refer to the addendum included with this news release for a further description of these ratios, and for a reconciliation applicable to State Street's tangible common equity, or TCE, ratio presented in the table. All capital ratios presented in the table and elsewhere in this news release refer to State Street Corporation and not State Street Bank and Trust Company.

Capital ratios        

Basel III
Advanced
Approach
September 30,
20141

     

Basel III
Transitional
September 30,
20142

     

Basel III
Advanced
Approach
June 30,
20141

     

Basel III
Transitional
June 30,
20142

Total capital ratio 16.2 % 19.1 % 16.1 % 20.2 %
Tier 1 capital ratio 14.2 16.7 14.1 17.7
Tier 1 common ratio 12.7 15.0 12.8 16.0
Tier 1 leverage ratio         6.4         6.4         6.9         6.9  
 
TCE ratio3 6.6 7.0

1 Total capital, tier 1 capital, tier 1 common and tier 1 leverage ratios as of September 30, 2014 and as of June 30, 2014 were calculated in conformity with the advanced approaches provisions of the Basel III final rule.

2 Total capital, tier 1 capital, tier 1 common and tier 1 leverage ratios as of September 30, 2014 and as of June 30, 2014 were calculated in conformity with the transitional provisions of the Basel III final rule. Specifically, these ratios reflect total and tier 1 capital, as applicable (the numerator), calculated in conformity with the provisions of the Basel III final rule and total risk-weighted assets or, with respect to the tier 1 leverage ratio, quarterly average assets (in both cases, the denominator), calculated in conformity with the provisions of Basel I.

3 The tangible common equity, or TCE, ratio is an additional capital ratio that management believes provides context useful in understanding and assessing State Street's capital adequacy. The TCE ratio is not required by GAAP or by banking regulations, but is a metric used by management to evaluate the adequacy of State Street’s capital levels. The TCE ratio is a non-GAAP financial measure and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Reconciliations with respect to the calculations of our TCE ratios as of September 30, 2014 and June 30, 2014 are provided in the addendum included with this news release.

Our tier 1 common ratios as of September 30, 2014 and June 30, 2014, calculated in conformity with the advanced approaches provisions of the Basel III final rule, were 12.7% and 12.8%, respectively. Our estimated pro forma Basel III tier 1 common ratio, calculated in conformity with the advanced approaches provisions of the Basel III final rule, was 11.3% as of September 30, 2013. Our estimated pro forma Basel III tier 1 common ratios, calculated in conformity with the standardized approach in the Basel III final rule, were 10.9% as of September 30, 2014, 11.3% as of June 30, 2014 and 10.2% as of September 30, 2013. Our estimated pro forma tier 1 common ratios are preliminary estimates, calculated in conformity with the advanced approaches or the standardized approach (as the case may be) in the Basel III final rule, based on our interpretations of the Basel III final rule as of the respective date of each estimate’s first public announcement.

The advanced approaches ratios (actual and estimated) presented in this news release reflect calculations and determinations with respect to our capital and related matters, based on State Street and external data, quantitative formulae, statistical models, historical correlations and assumptions, collectively referred to as “advanced systems,” in effect and used by us for those purposes as of the respective date of each ratio’s first public announcement. Significant components of these advanced systems involve the exercise of judgment by us and our regulators, and these advanced systems may not accurately represent or calculate the scenarios, circumstances, outputs or other results for which they are designed or intended. Due to the influence of changes in these advanced systems, whether resulting from changes in data inputs, regulation or regulatory supervision or interpretation, State Street-specific or market activities or experiences or other updates or factors, we expect that our advanced systems and our capital ratios calculated in conformity with the Basel III framework will change and may be volatile over time, and that those latter changes or volatility could be material as calculated and measured from period to period.

Refer to the addendum included with this news release for information concerning our estimated pro forma Basel III tier 1 common ratios calculated under the advanced and standardized approaches, and for reconciliations of these estimated pro forma ratios to our tier 1 common ratio calculated under then currently applicable regulatory requirements.

Additional Information

All earnings per share amounts represent fully diluted earnings per common share. Return on average common shareholders' equity is determined by dividing annualized net income available to common equity by average common shareholders' equity for the period. Operating-basis return on average common equity utilizes annualized operating-basis net income available to common equity in the calculation.

Investor Conference Call and Quarterly Website Disclosures

State Street will webcast an investor conference call today, Friday, October 24, 2014, at 9:30 a.m. EDT, available at www.statestreet.com/stockholder. The conference call will also be available via telephone, at +1 877-423-4013 inside the U.S. or at +1 706-679-5594 outside of the U.S. The Conference ID is # 88300396.

Recorded replays of the conference call will be available on the website, and by telephone at +1 855-859-2056 inside the U.S. or at +1 404-537-3406 outside the U.S. beginning approximately two hours after the call's completion. The Conference ID is # 88300396.

The telephone replay will be available for approximately two weeks following the conference call. This news release, presentation materials referred to on the conference call (including those concerning our investment portfolio), and additional financial information are available on State Street's website, at www.statestreet.com/stockholder under “Investor Relations--Investor News & Events" and under the title “Events and Presentations.”

State Street intends to publish updates to its public disclosure regarding regulatory capital, as required by the Basel III final rule, on a quarterly basis on its website at www.statestreet.com/stockholder, under "Filings & Reports." Those updates will be published each quarter, during the period beginning after State Street's public announcement of its quarterly results of operations and ending on or prior to the due date under applicable bank regulatory requirements (i.e., ordinarily, ending no later than 60 days following year-end or 45 days following each other quarter-end, as applicable). For the third quarter of 2014, State Street expects to publish its updates during the period beginning today and ending on November 14, 2014.

State Street Corporation (NYSE: STT) is the world's leading provider of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $28.47 trillion in assets under custody and administration and $2.42 trillion* in assets under management as of September 30, 2014, State Street operates globally in more than 100 geographic markets and employs 29,510 worldwide. For more information, visit State Street's website at www.statestreet.com or call +1 877-639-7788 [NEWS STT] toll-free in the United States and Canada, or +1 678-999-4577 outside those countries.

* Assets under management include the assets of the SPDR® Gold ETF (approximately $30 billion as of September 30, 2014), for which State Street Global Markets, LLC, an affiliate of SSgA, serves as the distribution agent.

Forward-Looking Statements

This news release contains forward-looking statements as defined by United States securities laws, including statements relating to our goals and expectations regarding our business, financial and capital condition, results of operations, investment portfolio performance and strategies, the financial and market outlook, dividend and stock purchase programs, governmental and regulatory initiatives and developments, and the business environment. Forward-looking statements are often, but not always, identified by such forward-looking terminology as “expect,” “objective,” “intend,” “plan,” “forecast,” “outlook,” “believe,” “anticipate,” “estimate,” “seek,” “may,” “will,” “trend,” “target,” “strategy” 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 October 24, 2014.

In particular, in this news release, we announced a $53 million net after-tax third-quarter 2014 charge (due to a $70 million pre-tax legal accrual recorded in that quarter) reflecting our intention to seek to resolve some, but not all, of the outstanding and potential claims arising out of our indirect FX client activities. We have reported on these matters in our previous public filings with the SEC. With respect to that legal accrual: (1) we are engaged in discussions with some, but not all, of the governmental agencies and civil litigants that we have described in connection with these matters regarding potential settlements of their outstanding or potential claims; (2) there can be no assurance that we will reach a settlement in any of these matters, that the cost of such settlements would not materially exceed such accrual, or that other claims will not be asserted; and (3) we do not currently intend to seek to negotiate settlements with respect to all outstanding and potential claims, and our current efforts, even if successful, will address only a portion of our potential material legal exposure arising out of our indirect FX client activities.

Important factors that may also affect future results and outcomes include, but are not limited to:

  • 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, including, for example, the direct and indirect effects on counterparties of the sovereign-debt risks in the U.S., Europe and other regions;
  • increases in the volatility of, or declines in the level of, our net interest revenue, changes in the composition or valuation of the assets recorded in our consolidated statement of condition (and our ability to measure the fair value of investment securities) and the possibility that we may change the manner in which we fund those assets;
  • the liquidity of the U.S. and international securities markets, particularly the markets for fixed-income securities and inter-bank credits, and the liquidity requirements of our clients;
  • 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;
  • 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;
  • our ability to attract deposits and other low-cost, short-term funding, and our ability to deploy deposits in a profitable manner consistent with our liquidity requirements and risk profile;
  • the manner and timing with which the Federal Reserve and other U.S. and foreign regulators implement the Dodd-Frank Act changes to the Basel III capital framework and European legislation, such as the Alternative Investment Fund Managers Directive and Undertakings for Collective Investment in Transferable Securities Directives, with respect to the levels of regulatory capital we must maintain, our credit exposure to third parties, margin requirements applicable to derivatives, banking and financial activities and other regulatory initiatives in the U.S. and internationally, including regulatory developments that result in changes to our structure or operating model, increased costs or other changes to how we provide services;
  • adverse changes in the regulatory capital ratios that we are required or will be required to meet, whether arising under the Dodd-Frank Act or the Basel III capital and liquidity standards, or due to changes in regulatory positions, practices or regulations in jurisdictions in which we engage in banking activities, including changes in internal or external data, formulae, models, assumptions or other advanced systems used in the calculation of our capital ratios that cause changes in those ratios as they are measured from period to period;
  • increasing requirements to obtain the prior approval of the Federal Reserve or our other regulators for the use, allocation or distribution of our capital or other specific capital actions or programs, including acquisitions, dividends and equity purchases, without which our growth plans, distributions to shareholders, equity purchase programs or other capital initiatives may be restricted;
  • changes in law or regulation, or the enforcement of law or regulation, that may adversely affect our business activities or those of our clients or our counterparties, and the products or services that we sell, including additional or increased taxes or assessments thereon, capital adequacy requirements, margin requirements and changes that expose us to risks related to the adequacy of our controls or compliance programs;
  • financial market disruptions or economic recession, whether in the U.S., Europe, Asia or other regions;
  • our ability to promote a strong culture of risk management, operating controls, compliance oversight and governance that meet our expectations and those of our clients and our regulators;
  • the results of, and costs associated with, government investigations, litigation and similar claims, disputes, or proceedings;
  • 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 and may cause volatility of our earnings;
  • the potential for losses arising from our investments in sponsored investment funds;
  • the possibility that our clients will incur substantial losses in investment pools for which we act as agent, and the possibility of significant reductions in the liquidity or valuation of assets underlying those pools;
  • our ability to anticipate and manage the level and timing of redemptions and withdrawals from our collateral pools and other collective investment products;
  • the credit agency ratings of our debt and depository obligations and investor and client perceptions of our financial strength;
  • adverse publicity, whether specific to State Street or regarding other industry participants or industry-wide factors, or other reputational harm;
  • our ability to control operational risks, data security breach 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;
  • dependencies on information technology and our ability to control related risks, including cyber-crime and other threats to our information technology infrastructure and systems and their effective operation both independently and with external systems, and complexities and costs of protecting the security of our systems and data;
  • our ability to grow revenue, control expenses, attract and retain highly skilled people and raise the capital necessary to achieve our business goals and comply with regulatory requirements;
  • changes or potential changes to the competitive environment, including changes due to regulatory and technological changes, the effects of industry consolidation and perceptions of State Street as a suitable service provider or counterparty;
  • changes or potential changes in how and in what amounts clients compensate us for our services, and the mix of services provided by us that clients choose;
  • our ability to complete acquisitions, joint ventures and divestitures, including the ability to obtain regulatory approvals, the ability to arrange financing as required and the ability to satisfy closing conditions;
  • the risks that our acquired businesses and joint ventures will not achieve their anticipated financial and operational benefits or will not be integrated successfully, or that the integration will take longer than anticipated, that expected synergies will not be achieved or unexpected negative synergies 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 our relationships with our clients, our employees or regulators;
  • our ability to recognize emerging needs of our clients and to develop products that are responsive to such trends and profitable to us, the performance of and demand for the products and services we offer, and the potential for new products and services to impose additional costs on us and expose us to increased operational risk;
  • 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 2013 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 news release speak only as of the date hereof, October 24, 2014, and we do not undertake efforts to revise those forward-looking statements to reflect events after that date.

Contacts

State Street Corporation
Investor Contact:
Anthony Ostler, +1 617/664-3477
or
Media Contact:
Hannah Grove, +1 617/664-3377

Contacts

State Street Corporation
Investor Contact:
Anthony Ostler, +1 617/664-3477
or
Media Contact:
Hannah Grove, +1 617/664-3377