State Street Q2 2025 Earnings Report

State Street EPS Results

• Actual EPS: $2.53
• Consensus EPS: $2.36
• Beat/Miss: Beat by +$0.17
• One Year Ago EPS: $2.15

State Street Revenue Results

• Actual Revenue: $3.47 billion
• Expected Revenue: $3.33 billion
• Beat/Miss: Beat by +$142.54 million
• YoY Revenue Growth: +2.90%

State Street Announcement Details

• Quarter: Q2 2025
• Date: 7/15/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, July 15, 2025
• Conference Call Time: 12:00PM ET

State Street (NYSE:STT) is a leading global financial services firm headquartered in Boston, Massachusetts, with roots tracing back to the establishment of Union Bank in 1792. Over the centuries, the company has evolved through strategic acquisitions and reorganizations, formally adopting the State Street name in the 1960s. Today, State Street is recognized for its pioneering role as a custodian bank and financial services provider, supporting institutional investors with a comprehensive suite of solutions.

At the core of State Street’s offerings is its investment servicing business, which encompasses custody, fund accounting, administration and depositary services for mutual funds, pension plans, insurance companies and other institutional clients. The firm’s securities finance and foreign exchange operations facilitate efficient liquidity management and trading, while performance analytics and risk management tools allow clients to monitor and optimize portfolio outcomes. In addition, State Street’s middle- and back-office outsourcing capabilities help streamline operational workflows, driving cost efficiencies and scalability.

Through State Street Global Advisors (SSGA), the company extends its expertise into investment management, offering a broad range of strategies across equities, fixed income, multi-asset and alternative investments. SSGA is well known for its SPDR exchange-traded fund (ETF) platform, which has become one of the industry’s largest ETF providers. These investment vehicles serve a diverse spectrum of investors, from sovereign wealth funds and endowments to retail brokerage clients looking for transparent, low-cost exposure to global markets.

State Street maintains a presence in over 100 geographic markets, with major operations in North America, Europe and the Asia-Pacific region. Its global network of offices and data centers underpins the firm’s commitment to service continuity and regulatory compliance. Led by President and Chief Executive Officer Ronald O’Hanley—who joined the company in 2019 after a distinguished tenure at BlackRock—State Street’s senior leadership team continues to drive innovation in digital platforms, data analytics and client service models. Under their guidance, the firm remains focused on delivering integrated financial solutions that meet the evolving needs of the world’s largest institutional investors.

State Street Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong second-quarter performance with EPS of $2.17 (+18% YoY ex-items), nearly 30% pretax margin, and 19% ROTCE, driven by positive fee and total operating leverage.
• Positive Sentiment: Robust business momentum in Investment Services, Investment Management, and Markets, including over $1 trillion in new AUCA servicing wins, $145 million in servicing fee wins, >$80 billion net inflows, AUM above $5 trillion, and record FX trading volumes.
• Positive Sentiment: Upgraded full-year 2025 outlook to 5–7% total fee revenue growth (from 3–5%), 3–4% expense growth, flat net interest income, and continued positive operating leverage.
• Positive Sentiment: Strong capital and liquidity positions with a 10.7% CET1 ratio, $517 million returned in Q2, and an announced 11% dividend increase to $0.84 per share, subject to board approval.
• Negative Sentiment: Recognized $138 million pretax in notable items, mainly a $100 million repositioning charge for ~900 severance actions, to accelerate operating model transformation.

Presentation

[Operator]

Good afternoon, and welcome to State Street Corporation's Second Quarter twenty twenty five Earnings Conference Call and Webcast. Today's call will be hosted by Elizabeth Lynn, Head of Investor Relations at State Street. We ask that you please hold all questions until the completion of formal remarks, at which time you will be given instructions for the question and answer session. Today's discussion is being broadcasted live on State Street's website at investors.statestreet.com. This call is also being recorded for replay.

[Operator]

State Street's conference call is copyrighted, all rights are reserved. This call may not be recorded for rebroadcast or distribution in part or in whole without the express written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now I would like to hand the call over to Elizabeth Lynn.

[Elizabeth Lynn, EVP & Global Head - IR at State Street]

Thank you, operator.

[Elizabeth Lynn, EVP & Global Head - IR at State Street]

Good afternoon, and thank you all for joining us. On our call today, our CEO, Ron O'Hanley, will speak first. Then Mark Keating, our Interim CFO, will take you through our second quarter twenty twenty five earnings presentation, which is available for download on our website, investors.statestreet.com. Afterward, we'll be happy to take questions. Before we get started, I'd like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP.

[Elizabeth Lynn, EVP & Global Head - IR at State Street]

Reconciliations of these non GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our presentation. In addition, today's call will contain forward looking statements. Actual results may differ materially from those statements due to a variety of important factors, such as those referenced in our discussion today and in our SEC filings, including the Risk Factors section in our Form 10 ks. Our forward looking statements speak only as of today, and we disclaim any obligation to update them even if our views should change. With that, let me turn it over to Ron.

[Ronald O'Hanley, Chairman & CEO at State Street]

Thank you, Liz, and good afternoon, everyone. Before we begin, I want to take a moment to acknowledge the devastating floods in Texas. Our thoughts are with those who have tragically lost their lives and with the people and communities who have been affected by this event. Now turning to the second quarter. In a period characterized at times by significant financial market volatility driven by geopolitical and economic uncertainty, our strong 2Q results demonstrate the powerful and diversified nature of our franchise.

[Ronald O'Hanley, Chairman & CEO at State Street]

By advancing and leveraging our deep capabilities in technology and investment services, markets and investment management, we continued to strategically position State Street as our clients' essential partner and executed on our purpose to help create better outcomes for the world's investors and the people they serve. Disciplined execution of this strategic approach is delivering positive results, including accelerating financial performance and strong business momentum. For example, on a year over year basis, our 2Q results marked the fourth consecutive quarter of positive fee operating leverage and the sixth consecutive quarter of positive total operating leverage, excluding notable items. New business was strong as we generated a near record quarter for sales and investment services, surpassed $5,000,000,000,000 in AUM at State Street Investment Management and generated record FX trading volumes in 2Q. This positive momentum reflects the strong strategic operating and technology foundation we have built over the past several years to support the long term growth of our businesses.

[Ronald O'Hanley, Chairman & CEO at State Street]

As we work to build on this progress, we remain focused on disciplined execution against our strategy, delivering consistent growth for our shareholders and maintaining operational excellence in the service of our clients. Turning to Slide two of our investor presentation, I will cover our second quarter highlights before Mark takes you through the quarter in more detail. Beginning with our financial performance, reported earnings per share were $2.17 as compared to $2.15 in the year ago period. Excluding notable items, which Mark will speak to, fee and total revenue increased 129% year over year, respectively. We delivered positive fee and total operating leverage, increased pretax margin to nearly 30% and achieved a 19% return on tangible common equity, while EPS increased 18% year over year, all excluding notable items. Turning to our business momentum. Within Investment Services, we delivered a very strong sales performance this quarter, securing over $1,000,000,000,000 in new AUCA asset servicing wins and generated $145,000,000 of related new servicing fee revenue wins, including two new State Street Alpha mandates.

[Ronald O'Hanley, Chairman & CEO at State Street]

With this continued good sales performance, we remain confident in our ability to meet our full year servicing fee revenue wins target of $350,000,000 to $400,000,000 for a second consecutive year. Second quarter marked an important milestone for our asset management business, which we rebranded State Street Investment Management. This new name reflects our commitment to investing in our relationships, innovation and in the future. Among other benefits, this new brand name reinforces our One State Street approach that aims to leverage collaboration across our firm, expand product offerings, and deepen relationships with our clients. This moment for our investment management business came as period end AUM exceeded $5,000,000,000,000 for the first time.

[Ronald O'Hanley, Chairman & CEO at State Street]

Quarterly net inflows were over $80,000,000,000 and we continued to gain market share in the strategically important U. S. Low cost ETF market segment. The second quarter also offered further evidence of the strength and depth of our ETF franchise as our U. ETFs led the industry in trading volume, surpassing $4,600,000,000,000 in total volume for the quarter, ranking number one in equity, number one in commodities, and among the top three in fixed income.

[Ronald O'Hanley, Chairman & CEO at State Street]

State Street Markets is seeing the results of its efforts to deepen client relationships and in q two clearly demonstrated its ability to support clients through volatile periods with deep liquidity and trading expertise while also providing important diversification to our revenue profile. Amid a constructive environment for our markets business, we saw significant year over year increases in both FX trading and security finance revenues driven by higher client volumes. Our FX trading business recorded its best quarter since 2020, and Security Finance revenues rose to the highest level since 2019. Turning to our balance sheet. Our strong financial position enabled over $500,000,000 in capital return in the second quarter and over $800,000,000 year to date.

[Ronald O'Hanley, Chairman & CEO at State Street]

Our financial strength was further underscored by the results of the Federal Reserve's annual stress test in June, subsequent to which we were pleased to announce our intention to increase State Street's quarterly per share common stock dividend by 11% to zero eight four dollars beginning in the third quarter, subject to approval by our Board of Directors. As we look ahead, we remain committed to returning capital to our shareholders, subject to market conditions and other factors. Turning to our operational efficiency, we have a well established track record of expense discipline. This continues to be supported by a proven ability to generate productivity savings to fund investments in our business, which in turn is driving revenue growth and operating leverage. For example, over the last three years, we have generated over $1,000,000,000 of expense savings largely from productivity initiatives, and we anticipate that number will increase to over $1,500,000,000 by year end as we continue to progress well against our $500,000,000 expense savings target in 2025.

[Ronald O'Hanley, Chairman & CEO at State Street]

Importantly, as we look further ahead, the next generation of our operating model transformation remains our priority and a key opportunity to add even more value for clients and shareholders. The charge we second quarter illustrates this opportunity as we drive further operational efficiency and unlock productivity gains over time supported by AI and continued platform scaling. To conclude, our first half results build meaningfully on 2024. The second quarter included a number of strategic and platform milestones for State Street, offering tangible proof points that our strategy is delivering, reflected in the continuing improvement in our financial performance and the strong momentum we're seeing across our businesses. These results underscore the strength of our franchise and the disciplined execution of our strategy by our teams.

[Ronald O'Hanley, Chairman & CEO at State Street]

As we look ahead, we have strong conviction in our strategy and in our ability to serve our clients well, underpinned by our distinctive value proposition, financial strength and the next generation of our technology and operational transformation. With that, let me hand the call over to Mark, who will take you through the quarter in more detail.

[Mark Keating, EVP & Interim CFO at State Street]

Thank you, Ron, and good afternoon, everyone. Picking up on Slide three, before turning to our second quarter financial results, let me briefly walk you through the notable items we recognized this quarter. Notable items totaled $138,000,000 pretax or $0.36 per share, primarily driven by a $100,000,000 repositioning charge associated with our ongoing operating model transformation. This action relates to the severance of approximately 900 employees and as we noted in June, is expected to drive expense savings mostly in 2026 with a payback period of roughly four to five quarters. We also recognized roughly $40,000,000 of notable items related to a rescoping of an Alpha client contract along with a few smaller items as detailed on the slide.

[Mark Keating, EVP & Interim CFO at State Street]

Turning to slide four. Excluding notable items, second quarter EPS grew a robust 18% year over year to $2.53 a share. Total revenue increased 9% and fee revenue increased 12% year over year, each excluding notable items, reflecting strong business momentum across the business. Expenses increased 6% year over year, excluding notable items. Approximately half of the year over year increase was driven by a combination of higher performance and revenue related costs associated with the more constructive revenue environment in the second quarter and to a lesser extent, the unfavorable impact of currency translation.

[Mark Keating, EVP & Interim CFO at State Street]

The remaining increase primarily reflects continued investments in the franchise, including technology and infrastructure. This performance enabled us to deliver meaningful fee and total operating leverage, five twenty six basis points and two forty one basis points, respectively, excluding notable items. Accordingly, our pretax margin expanded to nearly 30%, while ROTCE was approximately 19%, excluding notable items. Turning now to slide five. AUCA reached a record $49,000,000,000,000 up 11% year over year, driven by higher period end market levels and client flows.

[Mark Keating, EVP & Interim CFO at State Street]

AUM also reached a new record in the second quarter, increasing 17% year over year to over $5,000,000,000,000 reflecting higher period end market levels and positive net inflows. Key market indicators reflected the dynamic operating environment in the second quarter with higher period end market levels and elevated FX volatility across both developed and emerging markets. Against this backdrop, our markets business performed well, supported by record quarterly FX volumes as we help clients navigate a shifting market landscape, which I'll speak to in more detail shortly. Turning to slide six. Servicing fees increased 5% year over year, supported by higher average market levels, net new business, improved client activity, and the favorable impact of currency translation.

[Mark Keating, EVP & Interim CFO at State Street]

We were encouraged by the strong sales momentum in our investment services business this quarter with $145,000,000 of servicing fee revenue wins. These wins were well distributed across regions with key new mandates in Europe and North America and are closely aligned with our strategic priorities, particularly in core back office solutions and private markets. Installations progressed steadily and as expected during the quarter. Onboarding our 441,000,000 of to be installed servicing fee revenue, the highest on record, remains a key priority as we aim to drive consistent, sustainable servicing fee growth. In addition, we reported two new alpha mandates representing $380,000,000,000 of our AUCA wins this quarter.

[Mark Keating, EVP & Interim CFO at State Street]

Our interoperable front to back alpha platform remains a key enabler in deepening and expanding client relationships. Moving to slide seven. Management fees increased 10% year over year, primarily reflecting higher average market levels and the benefit of prior period net inflows. For the quarter, net inflows totaled $82,000,000,000 driven by solid performance across ETFs and institutional. In ETFs, we saw healthy inflows across the product set, including US low cost, gold, SPY, and US fixed income.

[Mark Keating, EVP & Interim CFO at State Street]

Our U. S. Low cost offering achieved continued market share gains in the quarter, reflecting the strength of our strategic positioning in this segment. As Ron noted, the market volatility in the second quarter further highlighted the deep liquidity of State Street Investment Management's ETF franchise, which led the industry in US ETF trading volumes. In our institutional business, we delivered a record $68,000,000,000 of quarterly net inflows driven by continued momentum in retirement, including our strategically important U.

[Mark Keating, EVP & Interim CFO at State Street]

S. Defined contribution business. Overall, we were pleased with the strong performance of our investment management business in the second quarter, which generated a pretax margin of approximately 33%. Turning now to slide eight. FX trading revenue increased 27% year over year, excluding notable items.

[Mark Keating, EVP & Interim CFO at State Street]

This strong performance was driven by record client volumes with solid activity across our trading venues, reflecting heightened FX volatility in the quarter. Securities finance revenues increased 17% year over year with strong balance growth across both agency lending and prime services. Within our prime services business, fee revenue increased 29% year over year supported by higher balances and continued momentum in client engagement. Moving to slide nine. Software and processing fees increased 19% year over year in the second quarter, excluding notable items.

[Mark Keating, EVP & Interim CFO at State Street]

Front office software and data revenue increased 27% compared to the prior year quarter, excluding notable items. This strong performance was primarily driven by higher on premises renewals largely associated with CRD wealth clients. In addition, software enabled and professional services revenues increased 10% year over year, excluding notable items, reflecting continued momentum in SaaS client conversions and implementations. We are pleased with our ongoing success in transitioning clients to our cloud based SaaS platform, with annual recurring revenue increasing by approximately 10% year over year to $379,000,000 in the second quarter. Moving to slide 10.

[Mark Keating, EVP & Interim CFO at State Street]

Net interest income of $729,000,000 was down 1% year over year, primarily due to the impact of lower average short end rates and changes in deposit mix. These headwinds were partially offset by continued loan growth and securities portfolio repricing. On a sequential basis, NII increased 2% supported by growth in non US deposit balances, securities portfolio repricing, and loan growth, partially offset by the impact of lower average short end rates. As detailed on the right of the slide, the average balance sheet size expanded relative to 1Q, driven by a 7% increase in average deposit balances. The sequential increase in average balances was partly a reflection of the more uncertain macro backdrop that we observed early in the quarter, which moderated through May and June.

[Mark Keating, EVP & Interim CFO at State Street]

We remain committed to supporting our clients with our strong, highly liquid balance sheet. Looking ahead, while we expect deposit balances to remain somewhat elevated relative to our expectations coming into the year, we do anticipate that balances will continue to moderate over the coming months and quarters subject to market conditions. Turning to slide 11. Expenses increased 6% year over year, excluding notable items, as I mentioned earlier. Compensation related costs were up 7% year over year, excluding notable items, mainly reflecting higher performance based costs and the impact of currency translation, while total headcount was down slightly.

[Mark Keating, EVP & Interim CFO at State Street]

Information systems and communications expense increased 11% year over year, excluding notable items, as we continue to invest in technology and infrastructure to modernize our platforms while enhancing data delivery and user experience. At the same time, we continue to execute on our productivity and optimization savings initiatives, which generated over $150,000,000 in year over year savings during the quarter. Year to date, these efforts have delivered approximately $250,000,000 of savings towards our $500,000,000 full year target. Our ability to consistently generate productivity and optimization savings reflects the intense work of recent years and is a key enabler of strategic investment, fueling technology modernization, supporting revenue growth, and helping us drive six consecutive quarters of positive operating leverage, excluding notable items. We expect the repositioning actions taken in the second quarter to build on this momentum and support the continued transformation of our operating model in the quarters and years ahead.

[Mark Keating, EVP & Interim CFO at State Street]

Moving to slide 12. Our capital and liquidity levels remain strong, enabling us to continue supporting our clients as we look ahead. As of quarter end, our standardized CET1 ratio of 10.7% was down approximately 30 basis points from the prior quarter. Risk weighted assets increased approximately $8,000,000,000 from the prior quarter, reflecting growth in our lending and securities finance businesses as well as higher volumes and volatility in our FX trading business. The LCR for State Street Bank was a robust 136% in the quarter.

[Mark Keating, EVP & Interim CFO at State Street]

Capital return increased to $517,000,000 during the quarter, consisting of $300,000,000 of common share repurchases and $217,000,000 in declared common stock dividends for a total payout ratio of 82%. As Ron noted, following our strong performance in this year's Federal Reserve stress test, we also announced our intention to increase our per share quarterly common dividend by 11% in 3Q, subject to Board approval. Looking ahead to the second half of the year, we continue to expect a progressive cadence of common share repurchases, targeting a total payout ratio of approximately 80% for 2025. In summary, we are encouraged by our second quarter and first half results, which highlight our ability to execute on our strategy, driving sustained business momentum while delivering positive fee and total operating leverage excluding notable items. With that, let me turn to our improved full year outlook, which as a reminder excludes notable items and remains subject to significant variability given the current economic and geopolitical environment.

[Mark Keating, EVP & Interim CFO at State Street]

Over the first half of twenty twenty five, we have demonstrated our ability to drive sustainable growth across our core businesses. Given this strong performance, plus the current more constructive market environment and the anticipated impact of currency translation, we now expect 2025 total fee revenue growth in the 5% to 7% range, which is an improvement to our prior 3% to 5% full year outlook. We expect full year NII to be roughly flat to last year's record performance with the potential for some variability driven by global monetary policy and changes in deposit mix and levels, which are difficult to predict. With our improved revenue expectations, full year expense growth is now expected to be roughly 3% to 4%, up from our prior full year outlook of 2% to 3%, reflecting higher revenue related costs as well as expectations of a negative impact from currency translation. And importantly, we continue to expect to generate both positive fee and total operating leverage this year.

[Mark Keating, EVP & Interim CFO at State Street]

And with that, operator, we can now open the call for questions.

[Operator]

At this time, we will open the floor for questions. If you would like to ask a question, please press 5 on your telephone keypad. You may remove yourself at any time by pressing 5 again. Please note, you will be allowed one question and one follow-up question. Again, that is star five to ask a question.

[Operator]

We will pause just a moment. Okay. Our first question will come from Ken Usdin with Autonomous. Please ask your question.

[Ken Usdin, Senior Analyst & Co-Head - Large Cap Banks at Autonomous Research]

Hey, guys. Good good afternoon. I just wanted to just ask on kind of, like, fees and fee operating leverage. Just kinda walking through the implied fee update. And, you know, what drives that?

[Ken Usdin, Senior Analyst & Co-Head - Large Cap Banks at Autonomous Research]

Is it mostly just the market's backdrop? Is it what we see in terms of the, yet to convert and and anything in terms of, like, how that how that timing of these, you know, great new wins and still left to convert will come through? Thank you.

[Ronald O'Hanley, Chairman & CEO at State Street]

Yeah. Ken, what it's Ron. Why don't I start that? So it's as we've noted, our pace of sales continues to be at an accelerated level. We said we were going to do in servicing fees $3.50 to 400.

[Ronald O'Hanley, Chairman & CEO at State Street]

We're on track to do that. That's what we did last year. That has led to a fairly sizable, in fact, a record level of fees to be installed, roughly 440,000,000. About half of that's going to install this year, and yet we're adding to that at about the same pace. So just on sales alone, there's a bit of a flywheel element to it.

[Ronald O'Hanley, Chairman & CEO at State Street]

We've talked about what's occurred in the asset management business that continues to grow fees at a double digit rate, some of that market, there's been positive organic revenue growth throughout this throughout these whole periods. And then finally, in markets, we'd invested heavily in client relationships that really do pay off when you get times of elevated volatility. So the organic elements in here are the primary driver of what we're talking about assisted by some constructive markets.

[Ken Usdin, Senior Analyst & Co-Head - Large Cap Banks at Autonomous Research]

Okay. Great. And, can you talk about just, you know, the the new ones you're putting on and put it in context with the the client rescoping that occurred? Like, is that now kind of a done in the past issue? And or is there anything else that we could see in regards with regards to that type of thing going forward?

[Ronald O'Hanley, Chairman & CEO at State Street]

Yeah. We don't anticipate anything like that going forward. As we noted, we had two new alpha wins this quarter, three alpha installs. In terms of the nature of the back of of our servicing fee revenue wins, about half of that are back office related, which that's a combination of pure back office sales plus alpha, which now only comes with back office sales. We will not do something alpha related without some kind of back office element to it because, as you know, back office drives recurring fees, but also gives us the right to other revenue sources like deposits, like FX, like securities finance and that.

[Ronald O'Hanley, Chairman & CEO at State Street]

So in terms of of that one client, it's a it remains a very important client to us where it's very important partner to us. And, basically, they changed one element of it. Instead of going to a single platform, they're going to be a multiplatform in their front office, and we have built Alta to be interoperable. So whether it's Charles River or some other provider or Charles River plus another provider, as it will be in this case, we've got the ability to interoperate in that way, and we'll be providing all the other services that we intended to. More importantly, this was a was a client that worked with us right from the very beginning on the development side of what we were doing.

[Ronald O'Hanley, Chairman & CEO at State Street]

So going back to the 2019 time frame, and all that development IP still remains with us, which is important because being extended to other clients.

[Mark Keating, EVP & Interim CFO at State Street]

And and, Ken, it's Mark. Maybe I'll just add to that just to to make sure. And, you know, this is was very contained to a software client contract rescoping, it had no impact on the servicing fee revenue to be installed, did not have an impact on our assets to be installed. It was very contained, as Ron said, to, you know, one particular aspect of a software agreement, which we, you know, renegotiated and took the appropriate kinda actions on our that we've talked about here in our notables.

[Ken Usdin, Senior Analyst & Co-Head - Large Cap Banks at Autonomous Research]

Okay. Thank you.

[Operator]

Our next question comes from Glenn Schorr at Evercore. Please ask your question.

[Glenn Schorr, Senior MD & Senior Research Analyst at Evercore]

Hi. Thanks very much. Maybe we could step back and and ask just the big picture question of NII that feels a little different for you guys, and you've been you've been consistent in in talking about something in the range of flat year on year after a good 24%, but feels like the NIM has moved lower more so than others and balances your thought process on moderating is more so. Is there something maybe related to your client base that's a little bit different? I appreciate the full package of operating leverage and better margins and all that. Just want to focus on NII for a sec.

[Mark Keating, EVP & Interim CFO at State Street]

Yeah. Thanks, Glenn. It's Mark. Let me take you through this kind of two parter there. One was kind of our overall NII guide.

[Mark Keating, EVP & Interim CFO at State Street]

And then secondly, there's, I think, a specific question on NIM which I can get at as well. So first, I'd say our guide, as you mentioned, is generally consistent with our original outlook of flat year over year. And I said roughly flat because there's still some amount of variability of the factors that we always talk about in terms of rates and deposit mix and levels. I think now that we're halfway through the year, you'd expect that we'd be able to start to narrow, possibly narrow the outcome that we're seeing here. But again, we feel good about being able to, you know, continue to deliver on our guide of roughly flat, you know, standing here today.

[Mark Keating, EVP & Interim CFO at State Street]

You know, if you look at the first half of twenty twenty five, NII has been roughly, you know, flat to slightly down versus, again, the record year we had in 2024. First half was down about 0.6% versus the first half of last year. So we're tracking well to our guide given some puts and takes that I can get into in a little more detail. So, again, holding NII flat to a record year after 6% growth last year, you know, means we're delivering on our guide and, you know, executing well in terms of what we've laid out for you. And, you know, we understand how important NII is, obviously.

[Mark Keating, EVP & Interim CFO at State Street]

But, you know, if we unpack the NII guide with a little more detail, and I'll frame it in the same way that we've been doing it, you know, since January and then again in April, you know, using kind of the four buckets of drivers and describing what the impact is to us as a firm in terms of tailwinds and headwinds. So the first one would be deposit levels and obviously you saw those go up this quarter. So interest bearing deposits have certainly provided upside versus our expectations in what we talked about in January and then again in April while noninterest bearing deposits have actually largely played out as expected notwithstanding an early pop in the second quarter. We did have a near term benefit in April during the peak of market volatility and uncertainty. However, in May and June, and then again as we sit here in mid July, we have seen some normalization in deposit balances since quarterly high point in April.

[Mark Keating, EVP & Interim CFO at State Street]

I'd also point out the majority of the spike in asset and deposits that we saw happened in lower spread buckets like market rates and exception rates, and so they did carry a more limited benefit for us. So mix is important. So while deposits are up about 7% sequentially, our noninterest bearing balances where we have the widest liability spread, that was down sequentially roughly a billion. So we think deposits will remain somewhat elevated, but we do expect to see some leveling off over the coming months and we'll obviously continue to track that closely. In terms of other impacts, again, to us as a firm, our loan growth we've talked about, that's also played out as expected.

[Mark Keating, EVP & Interim CFO at State Street]

It's been a tailwind year over year and I can talk about that a little bit more in-depth. The investment portfolio reinvestment, we talked about $4,000,000,000 a quarter at 100 to 150 basis points. You know, in terms of benefit there, given where rates are, we're seeing it more at the lower end around a 100 basis points, you know, which brings us then to, like, the major, you know, bucket for us which is is short term rates. And as we've discussed previously, we are an asset sensitive bank. We've seen rates come down faster than expected.

[Mark Keating, EVP & Interim CFO at State Street]

If you look at the US treasury curve, the two, three, five year, rates are down 50 to 60 basis points over the first six months of the year on a spot basis. Also, non US central banks, you know, while the ECB and the Bank of England have largely been in line with expectations, albeit a little more aggressive in the case of Bank of England in terms of timing. Other central banks have act actually been relatively more aggressive in the lowering of their rates such as the Reserve Bank of Australia and Canada. You know, I've talked previously about a cut at the ECB or Bank of England being worth, you know, about 5 to 10,000,000 per cut per quarter for 25 basis points. And while, you know, Australia and Canada may not be that large to us, you know, when you start to look across, you know, several of the central banks, you know, it does start to add up as a headwind.

[Mark Keating, EVP & Interim CFO at State Street]

So hopefully that helps, you know, in that we're putting all this together. We're kinda standing back from it. We have some positives like short term pop in interest rates and interest bearing deposits, some negatives like the pacing of cuts. But we see it as being relatively balanced, you know, which brings us back to a guide of roughly, you know, flat, you know, to our record year of NII in 2024. So, again, we understand how important NII is.

[Mark Keating, EVP & Interim CFO at State Street]

We've been pleased with our ability to deliver on our guidance. This is 20% of the revenue of the company. And when we stand back and look at what we are delivering for our shareholders, it's really the momentum across fee revenue franchise, which is roughly 80% of the firm's revenue, which for us is really the story.

[Glenn Schorr, Senior MD & Senior Research Analyst at Evercore]

That was awesome. I really appreciate all that. Ron, I I got one quick one for you. I can't resist. You guys have been great acquirers in the past and integrators.

[Glenn Schorr, Senior MD & Senior Research Analyst at Evercore]

You almost got BBH done, but through no fault of your own, that one fell through. What I'm I'm curious if you share any thought process with us on what you thought when you saw the news when we saw the news that maybe BK and Northern were doing the dance. I'm just curious what crossed your mind and how we should think about that.

[Ronald O'Hanley, Chairman & CEO at State Street]

Well, I'm not going to comment on market rumors either about ourselves or others, but our view on M and A remains consistent. We have a lot of confidence in the organic growth capability and potential of our franchise, but we've always viewed M and A as an important complement to our strategy. But it's a high bar. Right? You have to show that is it actually or is it a good trade off for shareholders to sacrifice a return on capital to some kind of investment that's going to yield some kind of return?

[Ronald O'Hanley, Chairman & CEO at State Street]

And so it's a high bar. And but as you know from us, we we we evaluate these things. Our focus is of late has largely been around capability building. If you think about some of the relatively small investments we've done over the past year or two, Smallcase, the technology platform in India, Ethic, the direct indexing player, the investment in Envestnet, all about helping to augment our capabilities and propel us forward. We will always look for opportunities to build scale, and know, you've seen us do some of those in the past.

[Ronald O'Hanley, Chairman & CEO at State Street]

But right here, right now, we're quite happy with our position, and we'll continue to focus on serving our clients well and building out our capabilities. And if something comes along that makes sense, we'll evaluate it.

[Glenn Schorr, Senior MD & Senior Research Analyst at Evercore]

Okay. Cool. I appreciate it, Ron.

[Operator]

Our next question will come from Jim Mitchell with Seaport Global. Your line is open. You may ask your question.

[James Mitchell, Senior Equity Analyst at Seaport Global Securities]

Hey, good afternoon. Maybe just talk a little bit about the asset management business, record net inflows in the institutional channel and long term assets. That's pretty big change of what we see in the recent years. So can you just talk to is there anything kind of lumpy in there that maybe not to get too excited about? Or do you feel like there's a real turn in sort of the organic growth in that space?

[James Mitchell, Senior Equity Analyst at Seaport Global Securities]

And how do we think about the fee rates in the long term institutional AUM space?

[Ronald O'Hanley, Chairman & CEO at State Street]

Yes.

[Ronald O'Hanley, Chairman & CEO at State Street]

So the I'll answer for the second quarter first. For the second quarter, it's a little bit of both. We have seen and talked about consistent organic growth in the institutional channel, mostly in defined contribution. And that's in The U. S, but not just The U.

[Ronald O'Hanley, Chairman & CEO at State Street]

S. That's been led by a combination of innovative products. You know, we were the first to be out the door with some kind of an income protection product embedded in a target date fund. We've got a we're doing lots of different partnerships to add innovation to target date funds, and we're doing that not just in The U. S, but outside The U.

[Ronald O'Hanley, Chairman & CEO at State Street]

S. In addition, in the second quarter, we had a large new mandate from an existing client in Asia Pacific. And so that that helped drive that number, which was a record quarterly inflow for us in the in the institutional business. But kind of on a on a if you will, on a structural basis here, the investment in DC for us has been very important. We're very tied in with the investment consultants.

[Ronald O'Hanley, Chairman & CEO at State Street]

We've got a very a strong product set that we're constantly innovating and bringing both our know how to it, but also when it makes sense, bringing in partner know how. And so we're quite bullish on that segment.

[James Mitchell, Senior Equity Analyst at Seaport Global Securities]

Okay. That's helpful. And maybe just pivoting to regulation. It seems like some of your bigger peers benefit from the SLR being lowered. You guys already had some exemptions, so you're still somewhat constrained by the tier one leverage ratio.

[James Mitchell, Senior Equity Analyst at Seaport Global Securities]

Do you in your conversations with regulators, do you think there's any acknowledgment of the tier one leverage constraint? And do you think that could also be lowered in the future? What's your sense?

[Ronald O'Hanley, Chairman & CEO at State Street]

Yeah. Jim, so, I mean, you've you've portrayed it accurately. We've gotten relief earlier. So tier one leverage as it relates to leverage constraint, that is the the binding constraint at this moment. I think there's some acknowledgment amongst regulators this is something to be looked at.

[Ronald O'Hanley, Chairman & CEO at State Street]

I don't think it's something that's going to be looked at immediately. It may take till the end of the year for that because there's other things, obviously, around around GSIB and and stress test and things like that that are reportedly higher up on the agenda. But I I would say that we're in this period where, I I think, fifteen, sixteen, seventeen years after the financial crisis and all the changes that were put in place after that, I think there's for the first time, at least in The US, there's a a real look at this. And, well, I don't think any of us expect or even are asking for a, you know, a massive across the board rollback. I think that you're seeing a very sensible look both within agencies and across agencies.

[Ronald O'Hanley, Chairman & CEO at State Street]

And I think that will play out favorably both in regulation and and also even how the the supervisory environment works. And so it it's a I think it's a constructive environment now for large GSIBs.

[James Mitchell, Senior Equity Analyst at Seaport Global Securities]

Right. Okay. Thanks very much.

[Operator]

Our next question will come from Alex Blostein with Goldman Sachs. Your line is open. Please ask your question.

[Alex Blostein, Managing Director at Goldman Sachs]

Hey, good afternoon. Thanks for the question. Ron, I want to go back to the sales momentum you highlighted in the Institutional Servicing business. And again, I appreciate the disclosure you guys put out there a couple of quarters ago, both on the fee backlog and the few wins. That's obviously relevant.

[Alex Blostein, Managing Director at Goldman Sachs]

In the last several quarters, maybe a year or so, the redemptions have been fairly elevated. Obviously, of that is BlackRock. But are you, I guess, aware of anything notable on the redemption side that could sort of offset some of the strong wins you're having? And maybe a little bit more color on the sources of these wins and how investors should think about sustainability of this new business within servicing potentially turning kind of the growth algo around in that part of the business.

[Ronald O'Hanley, Chairman & CEO at State Street]

Yes. Alex, let me let me start. I think that, you know, we we we've quite consistent now going back two or three years that we had recognized to make some changes on the servicing side. And, also, at the same time, we're investing heavily over the past several years in our operating model, which drives service quality. And service quality is does two things for you.

[Ronald O'Hanley, Chairman & CEO at State Street]

One, it drives retention rates up. And two, it gives you the right to win, right to win with existing clients, a deepened relationships with existing clients, but also to be able to show up with new clients or takeaway clients. And and that's all playing out as we as as we said it would. So we do not see any kind of any kind of elevated loss rate. In fact, we're quite pleased with where our retention rates are now.

[Ronald O'Hanley, Chairman & CEO at State Street]

In terms of the nature of the clients, again, Alpha is a very important platform for us. So that's driving fee wins kind of across the stack, front office, middle office, back office. But if we really think about it as if it doesn't as I said earlier, if it doesn't come along with back office, then we're really not interested in it, or it'll be a lower priority for us. What we're also finding is is that there's an increasing appeal for alpha within the private space as we're seeing an increasing appeal just in general as the privates markets move from an insource market to an outsourced market. And then finally, our global footprint is really helpful because we saw a lot of wins, a fair number of wins this quarter outside The U. S, which again shows the power of the global franchise here.

[Mark Keating, EVP & Interim CFO at State Street]

And it's Mark. Maybe I'll just jump in to offer a couple of maybe proof points and some context on that and to kind of maybe talk through how this has been building. This is not a kinda just know, recently, we've started looking at posting these type of sales results.

[Mark Keating, EVP & Interim CFO at State Street]

So and I think I've talked about this before. You know, back in 2019 and 2020, we were doing a 140, 160,000,000 in servicing fee sales, and then we started to take that up, you know, in, you know, February, $2.60 in '21 and '22. And that's when we started talking to all of you about setting, you know, a more aggressive target for that of the three fifty to 400. And, again, that came from understanding our business and we've talked you through this before the kind of rubric we have around fee compression and deinstalled business each year. And then, we knew that that number needed to be much higher.

[Mark Keating, EVP & Interim CFO at State Street]

So then, we three did $100,000,000 in 'twenty three and then we did $380,000,000 last year. And if I put it in context, we just talked about $145,000,000 for the second quarter and it was a very good quarter. And we've talked about how it can be lumpy and all that, but it was a very good quarter. You go back and put that in context, that's more in the second quarter than we did in all of 2020. So to me, that's like real change.

[Mark Keating, EVP & Interim CFO at State Street]

That didn't just happen. You know, we changed our organization, our incentives. We focused on service excellence like Ron talked about. And we invested in products and features and functionality. So we expect, you know, the performance to stay in that range, and we know we need to target that going forward.

[Mark Keating, EVP & Interim CFO at State Street]

And with proper execution, that's gonna really power, the business forward.

[Alex Blostein, Managing Director at Goldman Sachs]

Gotcha. Alright. Great. That's that's very helpful. Mark, I wanted to follow-up with you on, on your answer to, to Glenn's question around NII, and sort of how you guys are thinking about it on a forward basis.

[Alex Blostein, Managing Director at Goldman Sachs]

So, you know, obviously, no twenty twenty twenty six guidance just yet. But as you sort of pointed to being, you know, asset sensitive bank, the forward curve is what it is. So help us maybe think about what are the things you guys could do and what are you working on to perhaps mitigate the effects of lower interest rates, as you look out beyond this year? And importantly, is the interplay between NII and and operating leverage. You guys have been focused, correctly on both, positive fee operating leverage and positive total operating leverage.

[Alex Blostein, Managing Director at Goldman Sachs]

Is that kind of total operating leverage dynamic still possible if NII sort of peaks and starts to go down from here?

[Mark Keating, EVP & Interim CFO at State Street]

Yeah. Yeah. I mean, thanks, Alex. I guess, obviously, don't wanna get into anything around, you know, 2026. Mean, there are things that we, you know, have been doing in terms of looking at our, you know, client deposit pricing.

[Mark Keating, EVP & Interim CFO at State Street]

We've been looking at our balance sheet strategy. We've been looking at our investment portfolio. So there's many things, you know, that we can look at and all those things that we have been in trying to gauge, you know, where we're going into 2026 with NII. But I think it's just it's pretty early to start talking about that now.

[Operator]

Our next question will come from Mike Mayo with Wells Fargo. Your line is open. Please ask your question.

[Mike Mayo, MD & Head - US Large-Cap Bank Research at Wells Fargo]

Hi. I just wanted a clarification just with all the discussion here. So did you benefit from heightened volatility and now you see that going down? And NII is at a peak and now you see that going down. I guess, are you over earning the way you look at things or not?

[Mark Keating, EVP & Interim CFO at State Street]

Hi, Mike. It's Mark. I can start with that. And in terms of the volatility, so maybe let me talk a little bit about our FX, know, our markets business. And again, as we've said, we think that business performed very well in the second quarter.

[Mark Keating, EVP & Interim CFO at State Street]

We saw and we did see some heightened FX volatility, but we also saw the payoff in our strategy of expanding geographically. In Continental Europe, for example, it's been a big focus for us. We've increased our product mix, added some capabilities in things like derivatives. We've deepened our client engagement, both existing clients and new clients in privates and hedge funds, which, again, those businesses, you know, private markets business, we've been talking about that. I mean, that has been growing.

[Mark Keating, EVP & Interim CFO at State Street]

I think year over year, grew 19%. And, again, that brings new clients, new opportunities for our markets business as well. And that's what really powered sequentially FX trading being up 18%, you know, sequentially and year over year 27%, again ex notables. So in how we look at the second half, with continued political and economic risks, we expect the investment climate's going to remain challenged. The volatility we've seen is really from multiple sources, so national economics and politics, differing central bank policies.

[Mark Keating, EVP & Interim CFO at State Street]

So that type of divergence between countries we think is reflected in the FX markets. And so while a replay of the second quarter is not our base case, we do expect volatility to likely be more sustained. We're going to have to see where it plays out for that from here, but hopefully that gives you a little more color on the market side.

[Ronald O'Hanley, Chairman & CEO at State Street]

Mike, it's Ron. I'd add two things I'd add two things to that. The the heightened volatility in markets was really an April event, real spike in volatility then, but it came back down. You know this as as well as anybody. So, I I think after April, the benefit of our deepened client relationships were as important as as anything here.

[Mike Mayo, MD & Head - US Large-Cap Bank Research at Wells Fargo]

On the other hand, I I get the cyclical high point here that you come down to that volatility. On the other hand, seems like some of the core businesses are doing better, like Charles River quarter over quarter that's some kind of growth rate. You've been up tiering the Salesforce. Are you still upgrading? Seems like you have some core business momentum that you didn't have a few years ago.

[Mike Mayo, MD & Head - US Large-Cap Bank Research at Wells Fargo]

Am I looking at the right data? Is it do you have anything to substantiate that?

[Ronald O'Hanley, Chairman & CEO at State Street]

Yeah. I mean, you are, and I'll I'll I'll just pick up on what Mark said a few minutes ago. Dollars 145,000,000 in servicing fee sales in 2020, dollars 145,000,000 of servicing fee sales in the second quarter of this year. And I think that actually does paint a good picture. Secondly, I would just point to the guide, and we try and be very straight with our with you when we give guides.

[Ronald O'Hanley, Chairman & CEO at State Street]

At the beginning of the year, we gave you a 3% to 5% guide. We're giving you a 5% to 7% guide now, which I think reflects what we're seeing in terms of the increased power of the franchise.

[Mike Mayo, MD & Head - US Large-Cap Bank Research at Wells Fargo]

Alright. Thank you.

[Operator]

Just a reminder, analysts are allowed one question and one follow-up. Thank you. Our next question will come from Betsy Graseck with Morgan Stanley. Your line is open.

[Betsy Graseck, Global Head - Banks & Diversified Finance Research at Morgan Stanley]

Hi. Good morning.

[Ronald O'Hanley, Chairman & CEO at State Street]

Hi, Patsy.

[Mark Keating, EVP & Interim CFO at State Street]

Good morning.

[Betsy Graseck, Global Head - Banks & Diversified Finance Research at Morgan Stanley]

Hi. I have a question on an announcement that was made on July 1, with University of California on building a super app for individuals. And it was interesting. I I wanted to understand a thought process behind in you know, investing in this. And is this a one off, or or are you anticipating broadening this out to other participants, partners?

[Betsy Graseck, Global Head - Banks & Diversified Finance Research at Morgan Stanley]

And is there any way this would feed into other parts of State Street, or is it a goodwill venture? Just thanks.

[Ronald O'Hanley, Chairman & CEO at State Street]

Yep. So, Betsy, firstly, the University of California is a a long time partner of ours, and this initiative is quite consistent with our strategic commitment to the wealth business. Within State Street Investment Management, wealth now is about it's a little over $1,000,000,000,000 about 1,200,000,000,000.0 of our total assets and growing quite rapidly through the ETF channel. And we have a commitment to the wealth services business. But part of this is an overall belief that that the democratization of wealth is continuing unabated.

[Ronald O'Hanley, Chairman & CEO at State Street]

And in spending some time with the University of California, we realized that they were a quite interesting partner because if you add up all of their stakeholders there, so you look at students, faculty, employees, and alumni, there's 350,000 potential stakeholders there. They're quite close to most of them, and it becomes an interesting platform to start to experiment with with new sorts of offerings. So it's a bit of an experiment for both of us, but certainly our objective would be to develop something that firstly worked for the University of California and then was leverageable in other places. So we we look on it as a way to, at scale, develop some innovative offerings for the wealth market consistent with this idea of democratizing invest investing and being able to extend that or potentially being able to extend that elsewhere.

[Betsy Graseck, Global Head - Banks & Diversified Finance Research at Morgan Stanley]

Okay. Thank you.

[Ronald O'Hanley, Chairman & CEO at State Street]

Thanks, Betsy.

[Operator]

Our next question will come from Ebrahim Poonawala with Bank of America. Your line is open. Please ask your question.

[Ebrahim Poonawala, MD & Head - North American Banks Research at Bank of America Merrill Lynch]

Hey. Thank you. Just a couple of follow ups. One, on capital, and I apologize if you clarified on this, but I I think I heard you talk about 80% payout for the full year. Just give us a sense, remind us in terms of from a capital perspective, what we are managing, to in terms of the ratio feels like you have a lot of flexibility there.

[Ebrahim Poonawala, MD & Head - North American Banks Research at Bank of America Merrill Lynch]

And what stops you from leaning in and doing more in buybacks than the 80%? Thanks.

[Mark Keating, EVP & Interim CFO at State Street]

Yeah. Sure. It's Mark. Let me just maybe a two parter. I'll talk a little bit about our capital return, and then I'll talk a little bit about, you know, CET one, which is is really the ratio that we're managing to here.

[Mark Keating, EVP & Interim CFO at State Street]

So So you're right. I mean, we previously talked about 80% payout. So we've also highlighted previously that our intention is to return capital at a progressive cadence through the year. So, you saw that going from Q1 up into Q2 now at $517 which was an 82% payout with $320 in Q1. So, we expect to move through the third quarter and then into the fourth quarter anticipating additional step ups as we move to deliver on our overall payout target of 80% subject to market conditions and other factors, obviously.

[Mark Keating, EVP & Interim CFO at State Street]

So that's kind of still our guide, and that's what we're committed to. In terms of CET1, I think we've talked about this before. Given the current environment, we are, you know, continuing to prudently manage toward the higher end of our 10 to 11% CE one target range. You should generally expect us to continue in that range and managing to that as our clients, you know, really appreciate the value, financial stability, and soundness and appreciate us running the business at healthy capital levels. And also, I'd say we're cognizant of our own sensitivities around our RWA stack, which can swing several billion at quarter end with market volatility.

[Mark Keating, EVP & Interim CFO at State Street]

And that's what you saw this quarter, right, with our 10.7 print. So, you know, still, again, very much in line with what we've talked about over the last few quarters.

[Ebrahim Poonawala, MD & Head - North American Banks Research at Bank of America Merrill Lynch]

Thanks, Mark. And just one quick let. I think you talked about deposit balances elevated but maybe drifting lower in the back half. Just give us a sense of when you think about noninterest bearing or overall deposit balances, what gets them growing again? Is there a trough that we should look at from a cycle standpoint? Or just how you're thinking about it here?

[Mark Keating, EVP & Interim CFO at State Street]

Yeah. So maybe a couple of things. First, in terms of overall levels, so, you know, Ron mentioned it earlier too. April was really the month that had the most volatility and we saw the quarterly period spike, right? That's what happened in April.

[Mark Keating, EVP & Interim CFO at State Street]

And then we saw deposit levels overall come down in sorry, in April May and then again in June. And then, you know, sitting here in mid July, you know, our deposit levels are, you know, not too far off like our expectations that we had given back in April around the kinda high end of the $2.30 to $2.40. It's not quite down back to that high end of that range, but it's approaching it, you know, sitting here kind of July. So that's number one. Number two on noninterest bearing, again, it was down a billion quarter to quarter.

[Mark Keating, EVP & Interim CFO at State Street]

You know, we expected, as we've said, you know, before, we expect that to continue to, you know, moderately decline, you know, maybe into the low twenties is what we've talked about. You know, so that's that's kind of generally deposit levels. You know, your question about raising deposits, you know, the best way that we can raise deposits is to sell and install back office business. Right? Custody brings deposits.

[Mark Keating, EVP & Interim CFO at State Street]

Custody brings FX trading revenues, securities finance revenues, all the kind of good stuff that goes around, you know, custody as the hub of the company. So, you know, 444,000,000,000 in to be installed revenue of which roughly 60% of that is back office, which means custody, that's a good sign in terms of our ability to generate, you know, custody client related deposits. And if we keep the flywheel spinning on the servicing fee sales target, that's what we'll see.

[Ebrahim Poonawala, MD & Head - North American Banks Research at Bank of America Merrill Lynch]

Thanks, Mark.

[Operator]

Our next question will come from Brian Bedell with Deutsche Bank. Your line is open. Please ask your question.

[Brian Bedell, Director at Deutsche Bank Securities]

Great. Thanks. Good afternoon, folks. One housekeeping one quickly and then a longer term one. The housekeeping is just the your assumptions on market returns for the second half that underpin the 5% to 7% guide.

[Mark Keating, EVP & Interim CFO at State Street]

Yeah. Sure. Let me take the opportunity to maybe take you quickly through kind of the macro points that are underpinning the guide, and I guess I'll just start with the equity market.

[Brian Bedell, Director at Deutsche Bank Securities]

So Great.

[Mark Keating, EVP & Interim CFO at State Street]

You know, entering the year, right, we we we expected five percent point to point, which implied average market levels up eight percent for the year.

[Mark Keating, EVP & Interim CFO at State Street]

Obviously, as we sit here today, we're tracking a bit better than the assumptions we had coming into the year. That's constructive in our current guide. So you expect that to be a tick higher. That said, we've seen considerable volatility over the past quarter. So we'll continue to monitor developments there and see how the averages go up from here. So that should cover the equity market appreciation side.

[Brian Bedell, Director at Deutsche Bank Securities]

Okay. Great. And then longer term one for Ron. Just on the concept of tokenization of equities and ETPs and other assets, How are you thinking about that longer term? And I guess, your view and whether you think that will evolve more slowly over time?

[Brian Bedell, Director at Deutsche Bank Securities]

Or do you think there's a stronger movement? And maybe some of the pros and cons of that. And and and what is what is State Street doing to, you know, to be a participant in in any kind of trend?

[Ronald O'Hanley, Chairman & CEO at State Street]

Yep, Brian. So we think about it in two ways. One, as as a bank ourselves, but maybe more importantly, as this as an important servicer to other asset managers. So we do see tokenization has been slower than I think anybody anticipated if you go back three, four years. But I think with the current administration and the regulatory frameworks really in most parts of the world starting to emerge, we think that the pace on that will continue to accelerate.

[Ronald O'Hanley, Chairman & CEO at State Street]

And the opportunities for tokenization are are really broad. I mean, we it's it's not just the tokenization deposits, tokenization money market funds enables uses of that money market of that of of these kinds of assets in a different way than originally anticipated. It could be, in some cases, used for collateral better than it could be in other cases, for example. So we think this will as regulatory frameworks are developed, we think this actually will accelerate. I think the questions that the regulators, particularly the bank regulators, need to deal with with all of these things is how do they think about core deposits, and how do they think about banks as the transmitters of monetary policy?

[Ronald O'Hanley, Chairman & CEO at State Street]

And to the extent to which any of this causes more deposits to leave the banking system I mean, remember, money market funds seem like a passing fad four years ago, and now 6,000,000,000,000 is out of the banking system. So I I I think that's a little bit of the unknown and where regulators come down on this. But given the breadth of tokenization opportunities, let's broaden it out to real assets and the ability to actually take assets that right now are paper intensive, very legal intensive, and be able to make them much more liquid. We think that, this will start to take off at an accelerating pace, but probably nowhere near as much as the optimist think nowhere near as fast as the optimist think it will. But for us, we need to be there and intend to be there, first and foremost, as a servicer, as a major servicer to these markets and then secondly, as a bank ourselves.

[Brian Bedell, Director at Deutsche Bank Securities]

That's great color. Thank you.

[Operator]

Our next question comes from Gerard Cassidy with RBC Capital Markets. Your line is open. Please go ahead.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Thank you. Good afternoon. Can you guys come back sensitivity of revenues to market moves? I think in your 10 ks, you give us that 10% increase in equity of global equity valuations generally leads to maybe a 3% increase in service fee revenues. When you look at your service fee revenue growth this quarter of 12% ex notable items, how much was associated to market conditions moving higher?

[Mark Keating, EVP & Interim CFO at State Street]

Hey, Gerard. It's Mark. I guess I would just say that 10%, 3% is servicing fees, and so our servicing fee growth year over year is 5%. So 12% is total, including software and trading and and asset management. So, you know, obviously, the I don't have it in front of me, but, obviously, the, you know, impact year over year of where markets have been has been positive.

[Mark Keating, EVP & Interim CFO at State Street]

It's been a positive to us, and that has generally, you know, been pretty consistent in terms of the you know, if you see a 10% growth, again, over time because quarter to quarter can be we've talked about this before in terms of, you know, billing cycles and whatnot. But the 10%, 3% for for servicing fees, and it's, like, 10%, 5% over, from asset management, it's been pretty consistent.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

I see. Thank you. And and maybe, Ron, just a broader question. You referenced in your opening comments about the rebranding of State Street Investment Management and how that reinforces your One State Street strategy approach and how you're going to leverage the collaboration between different product offerings and deepening your relationships with your clients. How as outsiders can we measure that success as you achieve those deeper relationships?

[Ronald O'Hanley, Chairman & CEO at State Street]

It it it's a good question, Gerard, and we should take that away and think if there's some additional disclosures that we wanna make to to help on that. But if you let me talk about it at a kinda conceptual level. If if you think about our client base, and this is across the firm, we have one broad set of clients, which is really the global institutional investors is our our client base. If you think about the subsegments of that, for example, asset owners, pension funds, sovereign wealth funds, insurance companies, those clients, we serve them both from an investment services basis, from an asset management basis, and from a markets basis. A large segment is our asset managers.

[Ronald O'Hanley, Chairman & CEO at State Street]

There, we're really not servicing them out of their investment management business, but we're providing services and markets. So this idea of one State Street and how do we deliver the whole firm, part of it is because if you if you think about who we are, notwithstanding our size, right, we've got a relatively small number of relatively large clients. So it's very important that we be able to, one, help them help deal with their issues and address their strategic objectives at the highest level and be able to do that across our firm. So it's not just about words. I mean, part of that is you have to then think about how your relationship facing force is squared off against that.

[Ronald O'Hanley, Chairman & CEO at State Street]

We've made a lot of changes over the years in that regard so that rather than have just product specific sales efforts, we have particularly for our largest clients and our global clients, we have relationship managers that think about the total of State Street. And your point's a good one, and we'll think about how we can actually show you the results. We see them, but we can think about how to disclose those in some way.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Appreciate it. Thank you.

[Ronald O'Hanley, Chairman & CEO at State Street]

Thank you.

[Operator]

There are no further questions. I will turn the call back to management for closing remarks.

[Ronald O'Hanley, Chairman & CEO at State Street]

Well, thank you all for joining us this afternoon.

Participants

Executives

• Elizabeth Lynn, EVP & Global Head - IR
• Ronald O'Hanley, Chairman & CEO
• Mark Keating, EVP & Interim CFO

Analysts

• Ken Usdin, Senior Analyst & Co-Head - Large Cap Banks at Autonomous Research
• Glenn Schorr, Senior MD & Senior Research Analyst at Evercore
• James Mitchell, Senior Equity Analyst at Seaport Global Securities
• Alex Blostein, Managing Director at Goldman Sachs
• Mike Mayo, MD & Head - US Large-Cap Bank Research at Wells Fargo
• Betsy Graseck, Global Head - Banks & Diversified Finance Research at Morgan Stanley
• Ebrahim Poonawala, MD & Head - North American Banks Research at Bank of America Merrill Lynch
• Brian Bedell, Director at Deutsche Bank Securities
• Gerard Cassidy, Managing Director at RBC Capital Markets