State Street Corporation · NYSE:STT
State Street — Investor Day (February 2007)
60 slides from State Street's investor day presentation, Feb 6, 2007
Slide 1: Investor and Analyst Forum
INVESTOR AND ANALYST FORUM 6 February 2007 STATE STREET.
Slide 2: Setting the Standard
SETTING THE STANDARD || | Ly / Roni fo ut
Slide 3: Agenda
AGENDA SETTING THE STANDARD Performing Against Goals in 2006 Building on Success in 2007 Leveraging Global Reach Delivering Financial Performance Setting the Standard
Slide 4: Reminder
REMINDER This presentation includes discussion of State Street Corporation’s financial and business goals and strategies, which may be perceived as “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially, and there can b
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Slide 6: Performing Against Goals in 2006
PERFORMING AGAINST GOALS IN 2006 *GAAP results from continuing operations excluding tax-related adjustments in Q2 and Q4 2006 and including fully taxable-equivalent net interest revenue. SETTING THE STANDARD Operating ROE from continuing operations of 17.1% Operating ROE of 14%–17% A Prudent Allocat
Slide 7: Performing Against Goals – Tactical Objectives
Year-over-Year as of 12/31/06 PERFORMING AGAINST GOALS – TACTICAL OBJECTIVES Generate Positive Operating Leverage Grow Non-US Revenue to 50% Over Time Actively Manage the Balance Sheet Make SSgA Larger Contributor to NIBT Grew non-US revenue to 43%, up from 39% at 12/31/2005 Expanded net interest ma
Slide 8: 2006 Financial Metrics vs peers
SETTING THE STANDARD 21.5% 21.0% 13.2% 18.2% Mellon 17.6% 12.8% 14.0% 13.6% Northern Trust 17.1% 12.3% 15.2% 21.6% State Street 14.3% 14.9% 10.7% 11.3% Bank of New York** ROE Expense Growth Revenue Growth EPS Growth* Company PERFORMING AGAINST GOALS IN 2006 *First Call consensus reports. **BK revenu
Slide 9: Performing Against Goals in 2001
PERFORMING AGAINST GOALS IN 2001 $2,851M Revenues 15,560 Employees 2001 $198M Revenues 1,225 Employees 2001 $578M Revenues 2,211 Employees 2001 $267M Revenues 757 Employees 2001 4,193, or 21% Non-US Employees 19,753 Employees $1.043B, or 27% Non-US Revenue $3.894B Revenue GAAP results including full
Slide 10: Performing Against Goals in 2006
SETTING THE STANDARD PERFORMING AGAINST GOALS IN 2006 $3,615M Revenues 13,055 Employees 2006 $2,851M Revenues 15,560 Employees 2001 $669M Revenues 1,874 Employees 2006 $198M Revenues 1,225 Employees 2001 $1,808M Revenues 5,693 Employees 2006 $578M Revenues 2,211 Employees 2001 $264M Revenues 1,063 E
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Slide 12: Our Annual Financial Goals
SETTING THE STANDARD BUILDING ON SUCCESS IN 2007 Our Annual Financial Goals A Consistent Earner Operating EPS growth of 10%–15% A Top-line Revenue Generator Operating revenue growth of 8%–12% A Prudent Allocator of Capital Operating ROE of 14%–17%
Slide 13: Acquisition of Investors Financial
SETTING THE STANDARD BUILDING ON SUCCESS IN 2007 Acquisition of Investors Financial Accelerates leadership in high-growth areas such as mutual fund custody, administration and servicing for hedge and offshore funds Add $2.2 trillion in assets under custody and more than $800 million in revenue Exten
Slide 14: Expectations for 2007
DELIVERING FINANCIAL PERFORMANCE EXPECTATIONS FOR 2007 SETTING THE STANDARD 12% - 15% 15.5% - 17% Operating Return on Equity 8% - 10% 12.5% - 15% Growth in Operating EPS 16% – 18% 10% – 12% Growth in Revenue *State Street with Investors Financial State Street alone (top half of the ranges) Note: Ope
Slide 15: Acquisition of Currenex
SETTING THE STANDARD BUILDING ON SUCCESS IN 2007 Acquisition of Currenex Accelerates State Street’s participation in fast growing electronic FX trading marketplace Neutral to 2007 results and slightly accretive in 2008 Provides a high-speed technology solution for sophisticated traders who demand fa
Slide 16: Building on Success in 2007
Leveraging Global Reach Delivering Financial Performance Edward J. Resch, Financial Performance William W. Hunt, Asset Management Jay L. Hooley, Asset Servicing SETTING THE STANDARD BUILDING ON SUCCESS IN 2007
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Slide 18: An Integrated, Global Investment Management Firm
San Francisco Rye Brook Atlanta Clearwater Chicago Montreal Toronto Boston Stamford New York London Paris Zurich Brussels Munich Milan Dubai Singapore Hong Kong Seoul Tokyo Sydney Melbourne Santiago SETTING THE STANDARD LEVERAGING GLOBAL REACH AN INTEGRATED, GLOBAL INVESTMENT MANAGEMENT FIRM Common
Slide 19: Product Breadth and Innovation
LEVERAGING GLOBAL REACH PRODUCT BREADTH AND INNOVATION SETTING THE STANDARD Global Advanced Research Center (ARC) 230+ Strategies Across Risk/Return Spectrum Proven Active Manager Global Leader in Index Management
Slide 20: Evolution Reflects Growth Strategy
LEVERAGING GLOBAL REACH EVOLUTION REFLECTS GROWTH STRATEGY SETTING THE STANDARD Assets Under Management $B CAGR 1996–2006: 19.6% 2005-2006 Growth: 21.4% 1,749 1,441 1,354 1,106 763 775 711 667 485 390 292 0 300 600 900 1,200 1,500 1,800 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 Year
Slide 21: Strong Momentum Building for Key Drivers
LEVERAGING GLOBAL REACH STRONG MOMENTUM BUILDING FOR KEY DRIVERS SETTING THE STANDARD 48% 32% Active Management Revenue (as a % of new business) 27% 2003 40% Non-US Revenue (as a % of total) 2006
Slide 22: 2006 Financial Results
LEVERAGING GLOBAL REACH 2006 FINANCIAL RESULTS SETTING THE STANDARD 24% 10% Pretax Income as % of State Street 19% $798 $473 Expenses $111 19% $584 12/31/03 28% $1,225 Revenue 57% $427 35% Pretax Income Pretax Margin 3-YR CAGR 12/31/06 Twelve Months Ended $M
Slide 23: Strategic Priorities
SETTING THE STANDARD LEVERAGING GLOBAL REACH STRATEGIC PRIORITIES Global Expansion Exchange Traded Funds Active Management Research and Global Product Development Global Fixed Income Front and Back Office Solution Alternative Investments Distribution Diversification Beyond Our Established Index Lead
Slide 24: Strategic Focus: Exchange Traded Funds
SPDR remains the world’s largest ETF Daily trading approximately $9.5 billion Asset growth $5.4 billion year over year New SPDR branding campaign Innovative product development GoLD ETF: Over $9 billion RMX ETF: First international real estate ETF GII ETF: First global infrastructure ETF Global cros
Slide 25: Strategic Focus: Distribution Diversification
LEVERAGING GLOBAL REACH STRATEGIC FOCUS SETTING THE STANDARD Well positioned with asset owners to capitalize on shift to Defined Contribution Separation of manufacturing and distribution trend provides sub-advisory opportunities Competitive global product set Broad packaging expertise including ETF'
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Slide 27: Agenda
SETTING THE STANDARD LEVERAGING GLOBAL REACH – AGENDA Investors Financial Services Acquisition Hedge funds, offshore and private equity funds, and investment manager operations outsourcing Access to new customers for additional cross-sell opportunities Currenex Acquisition Creates opportunities to c
Slide 28: Overview – Investors Financial Acquisition
Overview LEVERAGING GLOBAL REACH – INVESTORS FINANCIAL ACQUISITION Background Services Customers Core services (21% growth 2005-2006): Custody, accounting, fund administration, and middle office Value-added services: (33% growth 2005-2006) Securities lending, FX and cash management Mutual funds, hed
Slide 29: What's Different
SETTING THE STANDARD LEVERAGING GLOBAL REACH – INVESTORS FINANCIAL ACQUISITION WHAT’S DIFFERENT It is a consolidation not integration We are a good cultural fit: very similar customer delivery model We know each other well Clear executive leadership plans A complementary and high-quality customer ba
Slide 30: Top Global Custodians
SETTING THE STANDARD LEVERAGING GLOBAL REACH – INVESTORS FINANCIAL ACQUISITION TOP 10 GLOBAL CUSTODIANS $ Trillions Source: Company filings and www.globalcustody.net as of 2H’06, with exception of Societe Generale which is 1H’06 (1) Proforma for acquisition of Mellon Financial includes ABN AMRO Mell
Slide 31: High-Growth Services: US Mutual Funds
$T Pro forma STT State Street JP Morgan Chase Bank of New York / Mellon Bank of New York Investors Bank Brown Brothers Harriman US Bancorp Fund Services PFPC / PNC Mellon Northern Trust UMB Investment Service Gr Fifth Third Bank Union Bank of CA Pro forma STT State Street PFPC JP Morgan Chase Invest
Slide 32: High-Growth Services: Hedge Fund Administration
SETTING THE STANDARD LEVERAGING GLOBAL REACH – HIGH-GROWTH SERVICES HEDGE FUND ADMINISTRATION $1.4T in Hedge Funds assets worldwide with growth expected to continue at a rate of 15%–20% per year State Street’s assets under administration have grown since acquiring IFS in 2002 from $35B to $190B; a C
Slide 33: High-Growth Services: Offshore Funds
SETTING THE STANDARD $2.7T in industry AUA domiciled in Ireland, Luxembourg and Jersey growing at a CAGR of 29% over the last 3 years Distribution into Europe and Asia markets Differentiated by our proven full-service offering including shareholder servicing Source: Lipper Fitzrovia. LEVERAGING GLOB
Slide 34: Investment Manager Operations Outsourcing
SETTING THE STANDARD *Includes $3.6T in assets under administration by State Street as of January 2007 and $1.4T under administration by IFIN. **Source: The Greensted Report September 2006.***Provided by IFIN LEVERAGING GLOBAL REACH – HIGH-GROWTH SERVICES INVESTMENT MANAGER OPERATIONS OUTSOURCING To
Slide 35: Agenda
SETTING THE STANDARD LEVERAGING GLOBAL REACH – AGENDA Investors Financial Services Acquisition Hedge funds, offshore and private equity funds, and investment manager operations outsourcing Access to new customers for additional cross-sell opportunities Currenex Acquisition Creates opportunities to c
Slide 36: Euromoney 2006 FX Providers Survey
SETTING THE STANDARD 44 32 28 14 13 12 11 10 9 8 7 6 5 4 3 2 1 2006 Ranking 37 36 27 14 15 17 13 7 4 5 10 6 8 16 3 1 2 2005 Ranking 2006 Score .11% Bank of New York .17% Mellon Financial Corporation .44% Northern Trust 2.69% Lehman Brothers 2.81% Credit Suisse 2.82% Bank of America 3.9% RBS 4.6% Mor
Slide 37: Change Agents: FX Connect and Currenex
FX market trading volumes of $2.3T per day projected to grow to more than $3T by 2010 Electronic trading volumes have grown at a CAGR of 104% from 2004 to 2006 and are projected to double in volume by 2010 to more than $2T per day FX Connect is leading process-driven platform Currenex leading platfo
Slide 38: Agenda
SETTING THE STANDARD LEVERAGING GLOBAL REACH – AGENDA Investors Financial Services Acquisition Hedge funds, offshore and private equity funds, and investment manager operations outsourcing Access to new customers for additional cross-sell opportunities Currenex Acquisition Creates opportunities to c
Slide 39: Non-US Business versus US Trust Bank Peers
LEVERAGING GLOBAL REACH – NON-US BUSINESS VERSUS US TRUST BANK PEERS SETTING THE STANDARD *State Street 2006; **MEL revenue excludes gain of $197M from sale of Shinsei Bank in 2005; ***MEL percentage of 2005 pre-tax non-US income from Q4 2006 press release; ****NTRS percentage of non-US employees is
Slide 40: European Growth Opportunity
LEVERAGING GLOBAL REACH – EUROPEAN GROWTH OPPORTUNITY Sources: Cerulli, ICI Int’l Data Exchange, Central Bureau of Statistics Netherlands, BVI, Fitzrovia, AFG-ASFFI, CEA and State Street estimates. SETTING THE STANDARD UK Netherlands Germany Offshore (Ireland/Lux.) Italy Switzerland France Other Pen
Slide 41: Europe: Market and Revenue Growth
SETTING THE STANDARD LEVERAGING GLOBAL REACH – EUROPE $14.5T 2003 $20.9T 2006 $827M 2003 Market Growth 2003–2006 CAGR: 13% State Street Revenue Growth 2003–2006 CAGR: 30% $1,808M 2006 European Collective, Pension and Insurance
Slide 42: Asia-Pacific Growth Opportunity
Sources: Japan Post , GPIF, Each main MAA numbers (PAL, PGP, Police, Municipal Personnel, Public School Teachers, National Government Officials, Private School Teachers), Investment Trust Association, PFA, and The Life Insurance Association of Japan, Cerulli, Australian Bureau of Statistics, Morning
Slide 43: Asia-Pacific: Market and Revenue Growth
SETTING THE STANDARD LEVERAGING GLOBAL REACH – ASIA-PACIFIC $8.2T 2003 $12.2T 2006 $328M 2003 Market Growth 2003–2006 CAGR: 14% State Street Revenue Growth 2003–2006 CAGR: 27% $669M 2006 Asia-Pacific collective, pension, and government
Slide 44: Enhanced Leadership
SETTING THE STANDARD LEVERAGING GLOBAL REACH – ENHANCED LEADERSHIP Two significant recent acquisitions Accelerate growth in mutual fund, private equity, offshore & hedge fund areas and FX trading Provide access to new customers to expand cross-sell opportunities Leverage technology and infrastructur
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Slide 46: Delivering Financial Performance
SETTING THE STANDARD Expectations for 2007 Net Interest Margin Strategy Through 2009 Objectives to Support Goals DELIVERING FINANCIAL PERFORMANCE Acquisition of Investors Financial Services Corp.
Slide 47: Transaction and Financing Summary
SETTING THE STANDARD LEVERAGING GLOBAL REACH –INVESTORS FINANCIAL ACQUISITION TRANSACTION AND FINANCING SUMMARY Total payment of approximately $4.5 billion in an all-stock transaction Issuance of approximately 62 million shares of STT stock based on an exchange ratio of 0.906 State Street shares for
Slide 48: Pro Forma Accretion/(Dilution) Results
(1) Accretion/(Dilution) calculated for 2007 full year assuming a transaction closing of Q3’07. Assumes a phase-in of 24% of cost savings in ’07, 86% in 2008 and 100% in 2009. SETTING THE STANDARD DELIVERING FINANCIAL PERFORMANCE ACQUISITION OF INVESTORS FINANCIAL—PRO FORMA ACCRETION/ (DILUTION) RES
Slide 49: Acquisition of Investors Financial – Cost Savings
DELIVERING FINANCIAL PERFORMANCE ACQUISITION OF INVESTORS FINANCIAL – COST SAVINGS SETTING THE STANDARD $345 - $365 Million Approx. 50% of Investors Financial’s 2007E Operating Expenses Cost Savings Breakout Cost Savings Detail Amount ($ Mil.) Compensation & Benefits $200-$210 51% Technology Related
Slide 50: Precedent Transaction
DELIVERING FINANCIAL PERFORMANCE ACQUISITION OF INVESTORS FINANCIAL – PRECEDENT TRANSACTION SETTING THE STANDARD Exceeded 1,000 reduction Headcount Significantly exceeded cost of capital Exceed cost of capital Transaction IRR $0.01 in 2003 $0.10 in 2004 $(0.01) - $(0.03) in 2003 $0.01 - $0.03 in 200
Slide 51: Pro Forma Balance Sheet at Closing
Financial Impact Pro Forma Balance Sheet at Closing State Street Investors Financial Adjustments Pro Forma ($ in billions) Assets Cash $22.7 $0.4 $ - $ 23.1 Investment Portfolio 67.1 10.7 - 77.8 Goodwill / Intangibles 2.4 0.1 4.3 6.8 Other 17.8 0.7 0.2 18.7 Total Assets $110.1 $11.9 $4.4 $126.4 Tota
Slide 52: Expected Timetable
DELIVERING FINANCIAL PERFORMANCE ACQUISITION OF INVESTORS FINANCIAL—EXPECTED TIMETABLE SETTING THE STANDARD Estimated Timing Milestone Announcement of the signing of a definitive agreement Regulatory approvals Investors Financial shareholders’ approval Targeted closing Consolidation February 5, 2007
Slide 53: Expectations for 2007
DELIVERING FINANCIAL PERFORMANCE EXPECTATIONS FOR 2007 SETTING THE STANDARD Assumptions: Fed funds remain at 5.25% through 2007 US$ yield curve migrates from inverted to flat Non-dollar rates in 2007 ECB: expect one more increase in March (to 3.75%) Bank of England: 5.25% — expect 1–2 increases Bank
Slide 54: Net Interest Margin Strategy Through 2009
DELIVERING FINANCIAL PERFORMANCE NET INTEREST MARGIN STRATEGY THROUGH 2009 SETTING THE STANDARD Expect continued expansion, barring major business shifts and/or market disruptions An expansion in NIM from 1.30% to 1.50% over the next three years Contributors to NIM expansion are: Continued reset of
Slide 55: Net Interest Margin Strategy Through 2009
DELIVERING FINANCIAL PERFORMANCE NET INTEREST MARGIN STRATEGY THROUGH 2009 SETTING THE STANDARD Balance sheet restructuring began in lower interest-rate environment Many fixed-rate assets were purchased in this low-rate environment Market rates have generally risen As portfolio assets are reinvested
Slide 56: Objectives to Support Goals
DELIVERING FINANCIAL PERFORMANCE OBJECTIVES TO SUPPORT GOALS SETTING THE STANDARD Successfully consolidate Investors Financial and meet financial objectives Generate top line growth with new business and cross-sell Leverage scale and efficiencies from consolidation with Investors Financial Invest in
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Slide 58: Leveraging Global Reach
SETTING THE STANDARD LEVERAGING GLOBAL REACH, DELIVERING FINANCIAL PERFORMANCE Growing faster than the markets and growth accelerating over past two years - Hedge funds, Private Equity, Offshore, Investment Manager Operations Outsourcing and Private Equity - Mutual funds, foreign exchange Growth in
Slide 59: Delivering Financial Performance
SETTING THE STANDARD Consistent Innovative Global Customer-Focused Exceeded financial goals Growth rates faster than markets Acquisition of Investors Financial Services Corp. Acquisition of Currenex LEVERAGING GLOBAL REACH, DELIVERING FINANCIAL PERFORMANCE
Slide 60: Consistent Innovative Global Customer-Focused
Consistent Innovative Global Customer-Focused