State Street (STT) Earnings Report: Q1 2016 …five strategic priorities I outlined for you at our...

CompanyName:StateStreetCorpCompanyTicker:ST TSector:FinancialIndustry:FinancialServices

EventDescription:Q12016EarningsCallMarketCapasofEventDate:24.99BPriceasofEventDate:63.93

StateStreet(STT)EarningsReport:Q12016ConferenceCallTranscriptThefollowingStateStreetconferencecalltookplaceonApril27,2016,09:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

AnthonyOstler;StateStreetCorporation;InvestorRelationsJayHooley;StateStreetCorporation;Chairman&CEOMikeBell;StateStreetCorporation;CFO

OtherPart icipants

AshleySerrao;CreditSuisse;AnalystKenUsdin;Jefferies&Company;AnalystGlennSchorr;EvercoreISI;AnalystAlexBlostein;GoldmanSachs;AnalystJimMitchell;BuckinghamResearchGroup;AnalystBrianBedell;DeutscheBank;AnalystBetsyGraseck;MorganStanley;AnalystAdamBeatty;BoAMerrillLynch;AnalystBrennanHawken;UBS;AnalystBrianKleinhanzl;Keefe,Bruyette&Woods;AnalystGeoffreyElliott;AutonomousResearch;AnalystGerardCassidy;RBCCapitalMarkets;AnalystVivekJuneja;JPMorgan;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheStateStreetCorporation'sfirst-quarterof2016earningsconferencecallandwebcast.

Today'sdiscussionisbeingbroadcastliveonStateStreet'swebsiteatwww.StateStreet.com/stockholder.Thisconferencecallisalsobeingrecordedforreplay.

StateStreet'sconferencecalliscopyrighted,andallrightsarereserved.Thiscallmaynotberecordedforarebroadcastoradistribution,inwholeorinpart,withouttheexpresswrittenauthorizationfromtheStateStreetCorporation.TheonlyauthorizedbroadcastonthiscallwillbehousedontheStateStreetwebsite.

NowIwouldliketointroduceAnthonyOstler,SeniorVicePresidentofInvestorRelationsatStateStreet.

AnthonyOstler (InvestorRelations):

Thanks,Operator.Goodmorning,andthankyouallforjoiningus.

Onourcalltoday,ourChairmanandCEO,JayHooley,willspeakfirst.ThenMikeBell,ourCFO,willtakeyouthroughourfirst-quarter2016earningsbypresentation,whichisavailablefordownloadintheInvestorRelationssectionofourwebsite,www.StateStreet.com.

Afterwards,wewillbehappytotakequestions.DuringtheQ&A,pleaselimityourquestionstotwoquestions,andthenre-queue.

Beforewegetstarted,Iwouldliketoremindyouthattoday'spresentationwillincludeoperating-basisandothermeasurespresentedonanon-GAAPbasis.Reconciliationsofthesenon-GAAPmeasurestothemostdirectlycomparableGAAPorregulatorymeasuresareavailableintheappendixtoour1Q2016slidepresentation.

Inaddition,today'spresentationwillcontainforward-lookingstatements.Actualresultsmaydiffermateriallyfromthosestatementsduetoavarietyofimportantfactors,suchasthosefactorsreferencedinourdiscussiontoday,inour1Q2016slidepresentationundertheheading,Forward-lookingStatements,andinourSECfilings,includingtheRiskFactorssectionofour2015Form10-K.

Ourforward-lookingstatementsspeakonlyasoftoday,andwedisclaimanyobligationtoupdatethem,evenifourviewschange.

Aswiththepastcoupleofquarters,wehaveinstitutedanewpatternofreleasingourfinancialresultsonthefourthWednesdayofthemonthfollowingeachquarterend.Assuch,weexpecttoholdoursecond-quarterearningsonWednesday,July27,2016.

NowletmeturnitovertoJay.

JayHooley(Chairman&CEO):

Thanks,Anthony.Goodmorning,everyone.

Despitethechallengingenvironment,I'mpleasedwiththeprogresswemadeduringthequarteronthefivestrategicprioritiesIoutlinedforyouatourInvestorDayinFebruary.TheseprioritieswillhelpustotransformStateStreet,competeinthenewenvironment,anddelivervalueintheshortterm.

Asareminder,theseprioritiesare,one;tobecomeadigitalleaderinfinancialservices,todrivegrowthfromourcorefranchise;toinvestinnewproductsthatwillenhancerevenueanddrivedifferentiation;increaseourfocusonexpensemanagement;andleverageourstrongcapitalpositiontocontinuetoreturncapitaltoshareholders.Asyoucanseeonslide4oftheslidedeck,we'veoutlinedforyouhighlightsofourprogresssofarthisyearagainstthosefivepriorities.

First,onbecomingadigitalleaderinfinancialservices,weareinvestinginbecomingadigitalleaderinfinancialservicesthroughStateStreetBeacon.Ourjourneytodigitizecoreprocesseswilldeliveranenhancedclientexperienceandgenerate$550millioninannualpretaxnetrunrateexpensesavingsbytheendof2020.Ourclientsarealreadybeginningtoseetheresultsofourinvestmentsthroughfasterandmoreconsistentdeliveryofservices,impactingourclients'operationsanddrivingimprovedrankingwithindistributionchannels.

Wearealsoactivelyengagedinevaluatingnewtechnologies,suchasBlockchain.WeremainontracktoachieveStateStreetBeacon-relatedannualizedrunratesavingsof$100millionbytheendofthisyear.Thatamountwillbereflectedinour2017results.AsweindicatedcouldbethecaseatourInvestorDay,wedidtakeapretaxrestructuringchargeof$97millioninthefirstquarterrelatedtoBeacon.

Second,weexpectourcorefranchisetocontinuetodelivergrowth,givenourleadingpositionsandattractivemarkets.Althoughourfirst-quarterfeerevenuereflectsachallengingmarketenvironmentexperiencedatthebeginningoftheyear,IamencouragedbythesignsofstabilityinMarchandthestrengthofourpipelineacrosstheFirm.Thefirstquarterincludednewassetservicingwinsofapproximately$264billion,withapproximately$400billionofservicecommitmentsremainingatquarterendtobeinstalledfromcurrentandpriorperiods.

IwanttohighlightawinthatourglobalservicesgroupinAsia-Pacificrecentlyfinalized.InearlyMarch,wewereselectedtobethemastercustodianforAustralia'sthird-largestsuperannuationfund,FirstStateSuper.

Thisnewrelationshipwillalsoextendintoglobalmarketsandourglobalexchangebusinesses.Ofnote,StateStreetnowservicesfourofthesevenlargestsuperfundsinwhatisahigh-growthsectorforusinAustralia.

I'malsopleasedtosaythatourassetmanagementbusinesshadnetinflowsof$13billion,withexpectedannualizednetnewrevenueof$11millionduringthequarter,providingthestrongestquarterlynetflowinannualizedrevenueresultssincethefourthquarterof2014.Netactivitywasdrivenprimarilyby$7billionofinflowsintoETFsand$11billionofinflowsintocashproducts.

Third,webelievecontinuousinvestmentinnewproductsandsolutionswillenhancerevenueanddrivedifferentiation.OurrecentagreementtoacquireGEAssetManagementsupportsourstrategytoinvestinhigher-growthand-returnbusinesses.

GEAssetManagementsignificantlyenhancesourpositionintheoutsourcedCIOmarket,whichisoneofthefaster-growingsegmentsoftheassetmanagementbusiness.Additionally,GEAssetManagementexpandsSSGA'salternativecapabilities,whileenhancingouractiveequityandfixedincometeams,whichbroadenthesolutionsetswecanprovidetoourcombinedclientbase.

Mostimportantly,GEAssetManagementisahigh-qualityorganizationwithstrongculturalalignmentwithSSGA.Andthistransactionisanendorsementofourongoingandstronglong-termrelationshipwithGE.Weexpectthisacquisitiontobeaccretiveinthefirst12monthsofoperation.

Onanongoingbasis,weevaluateproductsthatarenotmeetingourstrategicorfinancialexpectations.Wemadethedecisionduringthequartertoexitourfuturesclearingbusiness.Andatthebeginningofthesecondquarter,wecompletedthesaleoftheWM/Reuters-brandedforeignexchangebenchmarkbusinesstoThomsonReuters.Theseandotherongoingreturn-on-capitalactionsareaimedatimprovingourefficiency,strategicfocusandROEoverthemediumtolongterm.

InnovationisacriticaldifferentiatorinthecompetitiveETFsegment,andakeyfocusforSSGA.OurSSGA,ourSPDRETFbusiness,introduced13newfundsduringthequarter,includingtheSSGAGenderDiversityETF.SHEisthefirstself-indexedETF,anditsdevelopmentwasinspiredbyCalSTRSeffortstomovetheneedleongenderdiversityincorporateAmericaandseekstotrackperformanceoftheSSGAGenderDiversityIndex,whichcompriseslargeUSlarge-capcompanieswiththehighestlevelswithintheirsectorsofgenderdiversityontheirboardsofdirectorsandintheirseniorleadership.

Fourth,weareincreasingourfocusonexpensemanagement.Ourresultsthisquarterreflectourcommitmenttomanageexpenses,withfirst-quarteroperatingexpensesflatcomparedtothesameperiodayearagoandalsoflat,excludingtheseasonalimpactofequitycompensationforretirement-eligibleemployeesandpayrolltaxes,comparedtothefourthquarterof2015.

Wecontinuetomakeexpensedisciplinecoretoourculture,encouragingemployeestoembraceanowner'smindsetandidentifywayswecanreducecostsacrosstheenterprise,lookingateverythingfromtraveltoconsultantspend.AsInotedearlier,StateStreetBeaconiscontributingtoourexpensemanagementefforts,andweareontracktogenerateatleast$100millioninannualizedpretaxnetrunrateexpensesavingsthisyearfromtheprogram.

Andfifth,we'releveragingourstrongcapitalpositiontocontinuetoreturncapitaltoshareholders.Ourfirst-quarter2016commonstockdividendwas$0.34pershare,andwepurchasedapproximately$325millionofourcommonstock.Weexpecttorepurchaseupto$390millionofourcommonstockin2Q2016.

AsI'vejustreviewedforyou,wewillcontinuetofocusourattentionandeffortin2016onourstrategicpriorities.Weexpectthiswillallowustogeneratepositivefeerevenuegrowth,andtoachieveourobjectiveofgeneratingpositivefee-basisoperatingleveragethisyearrelativeto2015.

Twoweeksago,theFederalReserveandFDICreleasedtheirreviewofourJuly2015RRPsubmission.BoththeFederalReserveandtheFDICnotedthatwehavemadeimprovementsoverourpriorplans,butdeterminedthatour2015resolutionplanisnotcredible.

Whiledisappointedwiththefindings,wearecommittedtoaddressingtheissueandenhancingourresolutionplanasourbusinessandregulatoryrequirementsevolve.We'vehadongoingcommunicationswiththeregulatorandarefocusedonaddressingallthedeficienciesjointlyidentifiedbytheFederalReserveandtheFDICbyOctober1,2016.

NowI'llturnthecallovertoMike,whowillreviewourfinancialperformanceforthefirstquarter.Andthenwe'llbothbeavailabletotakeyourquestions.

MikeBell(CFO):

Thankyou,Jay.Goodmorning,everyone.

Thismorning,beforeIstartmyreviewofouroperating-basisresults,I'dliketonotethatourGAAPbasisresultsforthefirstquarterincludedpretaxrestructuringcostsof$97millionrelatedtoStateStreetBeacon,includingtheexitofourfuturesclearingbusiness.

Nowturntoslide8intheslidepresentationforasummaryofouroperating-basisresultsfor1Q2016.1Q2016resultsreflectsoftnessinourfeerevenue,primarilydrivenbylowerglobalequitymarkets,partiallyoffsetbystrongexpensecontrol.Operating-basisEPSfor1Q2016decreasedto$0.98asharefrom$1.16in1Q2015,anddecreasedfrom$1.21in4Q2015.

Ourfirst-quarterresultsin2015and2016includedtheseasonaleffectofdeferredincentivecompforretirement-eligibleemployeesandpayrolltaxes.Importantly,totalexpenseswereapproximatelyflatcomparedtotheyear-agoquarter.Andexcludingthenotedseasonalretirement-eligibleexpensesandpayrolltaxes,totalexpenseswereapproximatelyflatcomparedto4Q2015.Regardingcapital,in1Q2016,wedeclaredacommonstockdividendof$0.34ashare,andpurchasedapproximately$325millionofourcommonstock.

Movingnowtoslide9,1Q2016feerevenuedecreased3.6%,whileexpenseswereapproximatelyflatversusayearago.Weaknessinglobalequitymarketsandelevated1Q2015FXrevenueresultingfromtheSwissNationalBankactionsatthetimecontributedtothedecreaseinfeerevenuerelativetotheyear-agoquarter.

I'llnowturntoslide11forareviewofour1Q2016operating-basisrevenues.Servicingfeesdecreasedfromtheyear-agoquarter,primarilyduetothelowerglobalequitymarketsandtheimpactofthestrongerUSdollar,partiallyoffsetbynetnewbusiness.

Thedecreaseintheinternationalequitymarkets,particularlyinemergingmarkets,negativelyimpactedfirst-quarterservicingfees.Comparedtotheyear-agoquarter,averagedailyvaluesfortheMorganStanleyEmergingMarketsIndexdecreased22%,whiletheEAFEEquityIndexwasdownapproximately12%.

Managementfeesdecreasedrelativetoayearago,reflectingglobalequitymarketsandnetoutflows,partiallyoffsetbylowermoneymarketfeewaivers.Foreignexchangerevenuedecreasedfromthestrongmarketactivityin1Q2015,duetolowervolatilityinvolumes.Nevertheless,itincreasedrelativeto4Q2015.

Securitiesfinancerevenueincreasedfrom1Q2015and4Q2015.Theincreaseoverbothperiodsreflectsincreasedrevenuefrombothenhancedcustodyandagencylending.Comparedto4Q2015,processingandotherrevenuedecreased,reflectinglowerequityearningsfromjointventures,andlowerrevenuesassociatedwithtax-advantagedinvestments.

Movingtoslide12,Iwouldnotethatouroperating-basis1Q2016netinterestrevenuebenefitedfromhigherFedfundsrateanddisciplinedliabilitypricing.Netinterestrevenuedecreasedfromayearago,primarilydrivenbythesuccessfulreductioninthesizeofourbalancesheet.

Nowlet'sturntoslide13toreview1Q2016operating-basisexpenses.Importantly,totaloperating-basisexpenseswerewell-controlledin1Q2016,andwereapproximatelyflatrelativeto1Q2015,anotableaccomplishment.Compensationemployeebenefitswereimpactedbytheseasonaldeferredincentivecompensationforretirement-eligibleemployeesandpayrolltaxes.

Demonstratingsolidexpensecontrol,theotherexpensecategorydecreasedascomparedtoboth1Q2015and4Q2015.Comparedto4Q2015,lowerotherexpensesweredrivenbylowerprofessionalservicesfeesandtravelexpenses,aswellasthesettlementthattheSecuritiesandExchangeCommissionrecordedinthefourthquarterof2015.

Nowturntoslide15toreviewourcapitalposition.Asyoucansee,ourcapitalratiosremainedstrong,whichhasenabledustoaccomplishakeypriorityofreturningcapitaltoshareholdersthroughdividendsandcommonstockpurchases.ComparedtoDecember31,ourCommonEquityTier1ratioincreasedundertheBaselIIIfullyphased-in,advancedapproach,andremainedapproximatelyflatunderthestandardizedapproach.

Importantly,theMarch31fullyphased-insupplementaryleverageratioatthebankincreasedto6.2%,primarilyduetoanincreaseinTier1capital.

Werepurchased$325millionofcommonstockin1Q2016,andexpecttorepurchaseupto$390millionin2Q2016.Thiswillputusapproximately$65billionbelowourgrosssharerepurchaseprogramof$1.83billion.The$65milliondifferencerepresentsthereductioninour1Q2016equitycompensationforouremployees,relativetowhatweexpectedatthetimeourcapitalplanwasapproved.Thenetrepurchasedamountisthereforeconsistentwiththecapitalplan.

Movingontothenextslide,letmebrieflydiscussouragreementtoacquireGEAssetManagement.Whileitremainsatopprioritytoreturncapitaltoshareholdersthroughcommonstockrepurchasesanddividends,wealsoarefocusedonallocatingcapitaltohigher-growthand-returnbusinesses.TheagreementtoacquireGEAssetManagementreflectsthisplan.

Thepurchasepriceis$435million,subjecttoadjustments,withuptoanadditional$50milliontiedtoincrementalopportunitieswithGE.Excludingmergerandintegrationcharges,thetransactionisexpectedtobeaccretivetooperating-basisEPSforthefirst12-monthperiodfollowingthecloseofthetransaction.Andwe'retargetingaclientassetretentionrateofatleast90%.Importantly,theacquisitionwillsignificantlyenhanceStateStreet'spositioninthefast-growingoutsourcedchiefinvestmentofficermarket.

Movingtoslide17,I'llnowprovideanupdatetoour2016financialoutlook.Despitethepressureonglobalequitymarketsinthefirstquarter,weareencouragedthattheenvironmentimprovedinMarch.Importantly,comparedtoJanuaryandFebruary,servicingandmanagementfeesimprovedinMarch.

Ontheexpensefront,wecontinuetoexpectoperating-basisexpensegrowthofupto2%forfull-year2016comparedtofull-year2015,withvariabilityacrossquarters.Wealsocontinuetoexpecttogeneratepositivefeeoperatingleveragerelativeto2015.

Pleasenotemycommentsrelatedtoour2016outlookexcludeanypotentialimpactfromtheacquisitionofGEAssetManagement.Also,we'reontracktogenerateatleast$100millioninestimatedannualpretaxnetrunrateexpensesavingsfromStateStreetBeaconbytheendof2016.

Nowasareminder,upwardpressureonregulatoryandcompliancecostisexpectedtocontinuethroughout2016.However,weexpectthegrowthratetobelowerthanfull-year2015relativeto2014.Wealsoexpectexpensegrowthtobeaffectedbythevolumeofnewbusiness,aswellascontinuedinvestments.

Inaddition,wecontinuetohavetwoscenariosfor2016netinterestrevenue,largelyconsistentwithpriorcommunications.ThefirstscenarioassumesmarketinterestratesremainstaticatMarch2016levels.Underthisscenario,weexpectfull-year2016NIRtobeinarangeofapproximately$2.025billionto$2.125billion.

ThesecondscenarioassumesadministeredratesintheUSincrease25basispointsinbothJuneandDecember,andcorrespondingmarketratestotrendhigherfromMarch2016levels.Underthisscenario,weexpectfull-year2016NIRtobeinarangeofapproximately$2.1billionto$2.2billion.Wecontinuetobeexpectthe2016operating-basistaxratetobe30%to32%.

Andlastly,Iwouldemphasizethatreturningcapitaltoshareholdersthroughsharerepurchaseanddividendsremainsapriority.Our2016capitalplanremainssubjecttotheresultsofthe2016CCARprocess,includingareviewbytheFederalReserveBoard.

Insummary,althoughtherevenueenvironmentremainschallenging,asreflectedin1Q2016results,weareencouragedthatfeerevenuegainedmomentuminMarch.Andweremainfocusedonprudentlymanagingexpensesandprovidingsolutionstoourclients.NowletmeturnthecallbackovertoJay.

Thanks,Mike.Operator,wearenowavailabletoopenthecallforquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

AshleySerrao.

AshleySerrao (Analyst-CreditSuisse):

Goodmorning.

FirstquestionjustonexpensesandBeacon.Curiouswhattherunratebenefitto1Qresultswas?

MikeBell(CFO):

Ashley,goodmorning,it'sMike.InQ1ascomparedtoQ4--soonasequentialbasis--wehadnetsavingsofapproximately$7million.WehadnotedattheInvestorDaythatwedidexpectafairamountofspendingforBeacon,andwehadthat.ButasIsaid,thenetsavingsinQ1wasapproximately$7million

sequentially.

Okay,sostillfairlyearlyinningsthere.Okay.Andjust,too,ifIlookatthenetinterestrevenuethisquarterandthesequentialjumpinNIM,whatdrovetheincreasingyieldsontheotherassetbucket?

MikeBell(CFO):

Let'ssee.Iwouldpointtoacouplethings.AndIwouldn'tcharacterizeit,Ashley,asjusttheimpactontheotherassetbucket.Buttherewereacoupleofthingsthatbroadlyhelpedus.

Firstofall,aswe'vediscussedbefore,wehaveasignificantamountofourbalancesheetthatisinfloatingrateassets.Sothat'sacombinationofthecentralbankdepositsthatwehavehereintheUS,thatincludesthefloatingratesecuritiesinthesecuritiesportfolio--abouthalfofthefloatingratesecuritiesareinUSdollars.Sothat'sapproximately$18billion.Andthenwealso--ourloanstendtobealsoafloatingrateasset.Sobasically,thefloatingrateassetsinourbalancesheetincreased,asyouwouldexpect,basedupontheincreaseinshort-termmarketinterestrates.

Inaddition,wealsowereabletocaptureawiderspreadonclientrepo,andwealsosawincreasednettingforrepo's.Sothosetwothings,combined,increasedwhatyouseeontheAverageRatesEarnedandPaidpage.Thatincreasedsignificantlytheaverageratefortheassetsthatareinthereposecuritiescategory.Andthenintheotherinterest-earningassetlinethatyouspecificallyaskabout,that'sourenhancedcustodyasset.Andbasically,thatjustreflectsthemarketrateincreaseasaresultofshort-termratesbeinghigher.

Operator :

KenUsdin.

KenUsdin (Analyst-Jefferies&Company):

Thanks.Justonemorefollow-upontheNIIfrontthen,Mike.Sodoyounormalizeforsomeofthosehelpers?BecauseifItakewhatyou'resayingaboutthatandjustthinkaboutthefactthatyou'veleftthewithout-ratebandunchanged,itwouldseemthat,eventogetthemtothathighendofthatX-ratespending,you'retalkingaboutmoreofa510-typeofnetinterestincomerunrate.Socanyoujusthelpuswalkthroughhowmuchofthatfirstquartergoesaway?Andthentheothertypicalpushesandpulls,intermsofanylingeringyieldcompressionversusbalancesheetstrengththatweshouldbethinkingabout?

MikeBell(CFO):

Sure,absolutely,Ken.Goodmorning.Thecouplethingsthatweexpectinthestatic-ratescenario,Ken,thecouplethingsthatweexpecttoputdownwardonourNIRunderthestaticscenariowouldbe,numberone,thegrindinthefixedrateportionoftheportfolio.SoImentionedthatapproximately$36billionofourportfolioisfloatingrate.AbouthalfofthatisintheUS,thatbenefitedfromtheshort-termratehike.AbouthalfofthatisoutsideoftheUS,whichobviouslydidnotbenefitfromtheshort-termratehike.

Butinthefixed-ratecategory,whichisapproximately$66billionoftheportfolio,we'reseeingthisgrind,wheretherateontheinvestmentsthatarematuringisapproximately100to150basispointshigherthanthenewfixed-rateinvestmentsthatwe'remakingwiththeproceedsfromthosematurities.Sothatgrindoverthecourseoftheyearisanegative.

Aswe'vetalkedaboutbefore,inEurope,thesituationisstillrelativelynegative,inthatnotonlyarethe

short-terminterestratesnegativewiththeECB,butinadditiontothat,becauseofthequantitativeeasingprogramoverthere,spreadsarereallyteenyaswell.SothegrindintheportfolioinEurope,aswell,isputtingdownwardpressure.

Sointhestatic-ratescenario,wewouldexpectthosetobethebigdriversofthelowerNIRinthenextseveralquarters.Ifinsteadthough,wegetacouplemoreFedfundhikes,wewouldn'texpectthemtobequiteasaccretiveaswhatwesawinfirstquarter.Butobviously,wewouldexpectittobenet-nethelpful,aswegetahigherrateonthefloatingrateassetsthatamentionedinresponsetoAshley'squestion.

KenUsdin (Analyst-Jefferies&Company):

Great,thanks,Mike.Andjustasecondquestiononexpenses.Greatstartontheflatyear-over-year,butyou'realsokeepingtoaup-to,ora2%fullyear.Andtoyourpointaboutthecompliancebuildsandalsothevolatilityquartertoquarter,arewealsoimplyingthatexpenses--youhavedohaveadistinctupwardtrailfromhere?Becauseitwouldseemlikeyouareonabettertrajectory.Whycouldn'tyoudobetterthanthat2%guidanceyouhadgivenusatInvestorDay?

MikeBell(CFO):

Yes,first,Ken,Iappreciatethecomplimentonthefirst-quarterresults.Wearereallypleasewiththat.AndaswetalkedaboutattheInvestorDay,wecontinuetolookatreallyeverysingleareaofexpenses.AndIthinkwedidaparticularlygoodjobinQ1atreducingtheoutsideconsultingexpenses--someofitregulatory,someofitnotregulatory.WereducedtravelexpensessignificantlyinQ1.ButIdoexpectthattherewillbeamarchupinregulatoryexpensesinQ2,Q3,Q4,asaresultofdealingwiththehigherexpectations.

Now,havingsaidthat,we'llcontinuetolookateveryareaofexpense.AsJaytalkedabout,ProjectBeaconcontinuestobeontrackfortheexpected$100billionofsavingsforthefullyear.Butagain,betweentheregulatorycostsandthenetnewbusinessthatweexpecttobecomingonboard,thatwe'llneedexpensetoservice,wethoughtitmadesensetostickwiththeupto--or,tosayupto2%onexpensegrowth.Andobviously,alotofwherewe'llendupwillalsorelatetowherethefeerevenueendsupaswell.

Operator :

GlennSchorr.

GlennSchorr (Analyst-EvercoreISI):

Hi,thanksverymuch.Twobusinessquestions.Firstoneisonenhancedcustodyandagencylending.Youmentionedthewiderspreads,orIshouldsay,thegrowthinthehighershort-termrates.Butcuriousonoverallbalancesandprogressofthebusiness.Itseemstobegrowingfast.You'vetalkedaboutitinthepast,butwhatarethegoalsintermsofhowmuchyouwanttogrowit?Andwhatrisk--or,letmerephrasethat.Whatcapitalchargesgoalongwithgrowingthatbusiness?

Glenn,letmestartthatone.Youknow,you'veseen,notjustthisquarter,butprogressivequarters,goodperformance,out-performanceinsecuritieslending.Andyou'reright--thisquarteritwasacombinationofagencyandenhancedcustody.ButIwouldsayoveralongercycle,it'sreallybeenenhancedcustodythathasdriventhedisproportionategrowth.Andweexpectthatwillcontinue.

Therecontinuestobehighdemandinour,notonlyhedge,butinourtraditionalclientbase,touseenhancedcustody,asopposedtosomeofthetraditionalmeansofcredit.Andwedon'tseemuch

limitation.I'dsaymostofthebusinessgrowththatwe'reseeingquartertoquarterisexistingclientsdoingmorecreditextensionwithus.Sowe'vebuiltouttheproduct.IthinkImentionedlastquarter,we'rebuildingitoutinEuropeandAsia,aswewoulddonormallyforallofourproducts.

Theabilitytonetthesecuritieslendingbackagainstthebroaderportfoliomakesitanattractivepropositionfromacapitalstandpoint.Sonet-net,weseecontinueddemand.Wedon'tseemuchinthewayofcapacityconstraints.Andwethinkwe'vefiguredouthowtomakethisattractivefromareturn-on-capitalstandpoint.

ROEbetterthantheoverallCompany'sROE?I'mjustcuriousifit'sdrivingyourever-increasingcapitalratios,orthat'sjustallregulatoryand--?

Glenn,it'salittlebitless,butIwouldsaysteadilyimprovingoverthelastcoupleofyears.

Okay.Iappreciateit.Thanks,Jay.

Operator :

AlexBlostein.

AlexBlostein (Analyst-GoldmanSachs):

Hey,goodmorning,guys.Questiononthelivingwillissuefromacoupleweeksago.Youknow,whatdoyouguys--asfarasthenextstepsgo,whatdoyouexpecttodotoaddresstheissue,especiallywhenitcomestothecapitalconcernthatcameoutoftheirstatement?AnddoanticipatethistohaveanyimpactonCCARforyouguys,whether--probablynotsomuchinthequantitativepiece,butmoreonthequalitative?

MikeBell(CFO):

Sure.Goodmorning,Alex,it'sMike.Firstofall,Idon'tviewthecapitalpiece,thecapitalitemthatwasnotedasadeficiency,asbeingasignificantproblemforustodealwith.AndIdonotexpectatthispointintimethat,thatwouldhaveanimpactonCCAR.NowobviouslytheFedwillmakethejudgmentsthatthey'llmake.ButIhavenoindicationatthispointthat,thatwouldhaveanegativeimpact.

Soreally,whatwe'refocusedonnowisbetter-understandingtheregulatoryexpectations,bothfortheOctober1deliverable,aswellasthesubmissionnextJuly1.Andsothat,morebroadly,iswhatwe'refocusedon.AndasJayindicatedinhispreparedremarks,wearecertainlycommittedtodoingeverythinginourpowertomeetingtheirexpectations.

Gotyou.Andthen,Jay,follow-upforyouontheGEacquisition.Youguystalkedaboutprettyrobustgrowth,Iguess,inthatbusiness.Butmyunderstandingisthatsomethinglike90%orsoAUMisjustGEpensionassetsthatareobviouslystickythere,butI'mnotsurehowgrowthythoseare.Sogiveusasenseofwhattheorganicgrowthhasbeeninthatbusinesspriortoyouracquisition?Andthenmaybewhatyouguysanticipatetoseefrom,again,theorganicgrowthpartofthebusiness?

Sure,happytotakethatoneup,Alex.Asyoupointout,agooddealoftheassetsareGEassets--boththeirpension,whichishowthewholethinggotstarted,outsourcingtheCIOfunctionofGE'spensionassets.Butthey'vealsobeensuccessfulinattractingsomeotherbignamesintheoutsourcedCIOmarketplace.

SoIthinkthatifyoujustlookatthatsegmentofthemarket,particularlyagainstanenvironmentwhereratesarelikelytobelowforaprotractedperiodoftime,wethinkthat'sagrowthmarket.AndwethinkbykindofunshacklingGEfromGE,andmakingitpartofStateStreet,thatwe'llbeamoreattractiveproviderofservicesintheoutsourcedCIOmarket.Sothey'vehadsomegrowthontheirown.We'vealsohadsomegrowth.Bycombiningit,wethinkwecangrowatafasterrate.

Sothat'scoretothegrowthopportunity.Butalsocoretothegrowthopportunityis,you'veheardustalkbeforeabout--anaturalplacewhereweplayveryeffectivelyintheassetmanagementworldisinsolutions.Andwhetherit'satargetdatefundoroutsourcedCIO,ormanyotherversionsofsolutions.Andwehadalittlebitofadeficitinseveralassetclasses,particularlyalternatives.

Andsoagain,bytakingournaturalsolutionscapabilitiesandenhancingitwithsomeofGE'sverycredibleasset-managementcomponentsinthealternatives,realestate,privateequityandhedge--allthree--wethinkwecanaccelerateoursolutionsgrowth.Soit'sreallytaking,I'dsay,averyhigh-qualityandstableassetmanagementorganization,embeddingitatStateStreet,andtruesynergiesontherevenuesideintheOCIOandsolutionssegmentsofthemarket.

Okay,thanks.

Operator :

JimMitchell.

JimMitchell(Analyst-BuckinghamResearchGroup):

Hey,goodmorning.Maybeyoucouldtalkalittlebitabouteurodeposits.Itsoundslikeyouraisedthefeechargedonthose.Haveyouseenanyrunoffthat'smaterial?Orisitalittletooearlytotell,we'llseethatinsecondquarter?Howdowethinkbutyourclientreactiontoraisingrates?

MikeBell(CFO):

Sure,Jim.Goodmorning,it'sMike.Wedid--asyousuggested,wedidincreasetheratethatwearechargingforeurodeposits.Wedidseeapproximately$2billionofrunoffonaverage,Q1versusQ4.Thediscussionswithclientsareongoing.Iwouldsay,atthispointitfeelslikearelativelywell-managedsituation.Butit'ssomethingthatwe'reobviouslypayingcloseattentionto,giventhechallengingconditionsinEurope.

Hey,Jim,letmejustchipinsomething.Iwouldsayonthiscallchargingfornegativerates,weweremarketleadersinthat.AndasIlookacrossthelandscape,we'renotaloneanymore.Sowhetherit'stheUSbanks,theEuropeanbanks,theenvironmenthasshiftedtobesupportiveofthisactivity.SoIthinkthathelpsfromastandpointofbeingabletoraiseratesandretainthedepositsthatwewant.

Right.Andsoitseemslikedepositshaveheldinalittlebitbetterthanmaybeyou'veexpected?IsthatpartoftheupsideweseeinNIIthisquarterrelativetoyourfull-yearforecast?

MikeBell(CFO):

Jim,Iwouldcharacterizeitas,they'reprettymuchtrackingwithwhatweexpected.

Okay.AndifIcouldjustaskoneontheTier1capitalatthebank,itseemslikeyoudownstreamedsomecapitalthere.Isthattrue?Howhasthataccomplishedtheboost,theTier1ontheSLRbank?

MikeBell(CFO):

Well,sure.Intermsofjustadministrativelyhowwedidit,webasicallyjustretainedsomeearningsatthebank,asopposedtodividendingthatfromthebanktotheholdco.Butaswe'vetalkedaboutinthepast,Jim,wedorecognizethatwe'vegotsomeflexibilityintermsofwhatassetsweholdattheholdcoversuswhatwehaveatthebank.Sothiswasreallynormalmanagement,inlinewithourplantobesurethatwewereabove6%intimefor11-18.Obviouslythefactthatthebalancesheetgotsmalleraswell,wasalsohelpfulinthatregard.

Right.Okay,great,thanks.

Operator :

BrianBedell.

BrianBedell(Analyst-DeutscheBank):

Hi,goodmorning,folks.

Goodmorning.

Mike,justtocirclebackonthesecuritiesrepolineyieldgoingfrom236to586,that'sabouta--lookslikearounda$30millionsequentialincrease.Canyoujustexplainthatdynamicagain,andwhatyouwouldexpectthenormalizedratetobeinthesecondquarteronthat?

MikeBell(CFO):

Sure,Brian.Firstofall,Iwouldn'tfocusedasmuchonthe586asIwouldonjusttheoverallcontributionfromthatlineitem.Butagain,firsttalkaboutthechangeinthenumerator.Aswetalkedaboutinoneoftheearlierquestions,wedidearnahigherspread,awiderspreadonclientrepointhefirstquarter.Basically,asshort-termmarketinterestratesincreased,wewereabletocapturethatinourmargin.

Thethingthatmakestheaverageratejumpasmuchasitdidthough,isthatwealsoexpandednettinginthequarter.Soasaresult,weactuallyhadexpandedactivityforourclientsinthequarter,butwewereabletonetmoreofit.Sotheaveragebalanceyouseetheredroppedbyabout$0.5billion,orabout16%sequentially.Butthatwasreallyfromthenetting.Sotheoverallactivityexpanded.Thespreadsexpended.Butasaresult,theaveragebalancethendropped.

IwouldsaythatIthinkitwasacombinationofgoodmanagementandgoodmarketconditions.AndIwouldexpectthatmarketconditionswillremainrelativelygoodinthenear-term.Butit'ssomethingcertainlywecan'tguarantee,andit'ssomethingthatwemanageandmonitoreveryday.

Soinotherwords,that$30millionyouwouldviewassomewhat--or,that$30millionincreaseyouwouldviewassomewhatsustainable?Orwouldyouseethatrevertbacksomewhat?

MikeBell(CFO):

Ithinkthat,again,timewilltell,Brian.Idon'thaveaperfectcrystalball.ButIwouldexpectthatperhapsthemajorityofthesequentialincreaseinthosespreadsshouldbesustainedoverthenextcoupleofquarters.Butagain,itwillbedependentuponmarketconditions.

Okay,great.Andthenmaybe,Jay,doyouwanttocommentalittlebitaboutthetypicaldividendarbitrageseasoninEurope?Iknowthere'sbeensomediscussionofcurtailingthat.AreyouseeingthesametypeofactivitythatyoutypicallyseeinsecuritieslendingandFXtradingcomingintothesecondquarter?Ordoyouexpectthattobealittlebitrestrained?

Youknow,Brian,asyoupointout,secondquarterisaseasonalpeakforuswithregardtothedividendactivity.There'sbeenalotofattentiononthatoverthelastcoupleofyears.Soweprobablyseesomeslightdiminishmentfromwhatwe'veseeninpast.Don'tthinkit'smaterial,butprobablynotquiteatthepeakit'sbeeninpastyears,becauseofalltheattentionthattradehasreceived.

Great,thankyou.I'llgetbackinthequeueforsomefollow-ups.Thanks.

Operator :

BetsyGraseck.

BetsyGraseck(Analyst-MorganStanley):

Ijustwanttodiginontwothings.OnewasontheBeaconproject.Youindicatedtherestructuringchargeof$97millionthisquarter--obviouslyanetsavingsthisquarterof$7million.Iknowyou'reinvesting$500million--you'reinvesting$400milliontogeta$500millionbenefitoverfiveyears.Butcouldyougiveusasenseastohowweshouldthinkabouttheinvestmentinthespaceaswegothroughtheatrestofthisyear?BecauseIthoughtitwasfront-end-loaded.SoIjustwanttomakesureIhavethenumbersrightthere.

MikeBell(CFO):

Sure,Betsy.It'sMike.Idoexpectthatboththebenefitsaswellastheinvestmentsthatwe'remakinginProjectBeaconwillbothsteadilyincreaseoverthecourseof2016.Idoexpectthatthenetbenefitwillincreaseeachofthosethreequarters.Ontheotherhand,asImentionedearlier,Ialsodoexpecttoseesomeupwardpressureonregulatorycosts.Soagain,that'sseveralmovingparts,butIwouldthinkinBeacon,inparticular,asbothinvestmentscontinuingtoincreaseandsavingscontinuingtoincrease.

Andallofthe$97millionininvestmentwaslargelyinseverance,andI'massumingthat'sthebelow-the-linenumber.You'renotanticipatinganyinvestmentsintheBeaconprojecttobeinoperatingexpenses,areyou?

MikeBell(CFO):

Yes,weare,Betsy.Infact,wedidseeinvestmentsinthatareainoperatingexpenses.Thatwasbothincompensation,butit'salsointheinformationsystemsline.Andagain,Iwouldexpecttoseeadditionalspendingintheinformationsystemslineoverthecourseof2016.

Andthenonyourslide,youindicated,youknowobviouslythestrategicprioritytobeadigitalleaderinfinancialservices.Couldyoujustbreakapartalittlebittheone-lineryouhavethere--activelytestingnewtechnologiessuchasBlockchain?Couldyougiveusasenseastowhatyou'redoingthere?

Happytodothat,Betsy.ThisisJay.Blockchainhasreceived,appropriately,alotofattention.AndIthinktome,it'ssynonymouswithdigitization,generally.IthinkifIwouldhaveputsomeperspectiveon--putintoperspectiveBeaconandBlockchain,IwouldsaythatBeaconisoureffortinternallytodigitizewithinthefourwallsofStateStreet.Ithinkthat,importantly,thewholedevelopedmarkets'financialservicesinfrastructureneedstobedigitized,andthat'sgoingtorequirestandardizationbetweenfirmsandbetweenactivities.Sothat'sreallywhereIseeBlockchainbeingmostrelevant.

Wehave,internally--withinourBeaconeffort,we'vegot,Ithinkit'sfour,maybefive,pilotsgoingontouseBlockchainasameanstodigitizewithinStateStreet,linkedtootherfirms.Soletmegiveyouthebestexample,maybethemosteasilyexplainedexample.BankloanprocessinghasbeenanactivitythatStateStreethasdevelopedasignificantshareofthemarketin.Processingabankloanrequiresmanyintermediariestocometogether,andacommonledgertoexchangeinformation.

Sowehaveapilotgoingoninourbankloanprocessinggroup,wherewe'reusingBlockchain.Andwe'vegotagreementfromallofthecounterpartiestoparticipateinaBlockchainpilotaroundbankloanprocessing.Sowhatthatwoulddois,takeanactivitywherethere'sprocessimprovementsandtechnologythatweneedtodointernallywithinStateStreet,butitwouldextendittoothercounterparties.Sowe'vegotseveralofthosegoingon,whichwethinkcouldbehelpfultous.

IthinkthatprobablythebiggercommentIwouldmakeisthatwe'lldigitizeourownenvironment,butitwillrequirestandardsacrosstheindustry.Andagain,Blockchainmaybeoneofthose.We'reparticipatinginagroupcalledR3--Ithinkthere'supto16bankinginstitutionsthataretryingtofigureoutwhatthebestapplicationsaretouseBlockchaininordertocreatestandardsinter-company,inter-industry.AndsoIthinkwe'regoingtoabsolutelydowhatweneedtodotodigitizeourenvironment.

Ithinkthehomerunhereisifwecangetsomestandardsdevelopedaroundhowwewillinter-operatefromadigitalstandpoint.AndIthinkBlockchaincouldbe.Ifit'snotBlockchain,itwillbesomethingelse,oneofthosestandardsthatemergethatallowtheinteroperabilityatadigitallevelinthewholeindustry.Idon'tknowifthatconfusesorhelps,butthat'showIviewit.Wecancontrolit--that'swhatwe'redoingwithBeacon.Butinorderforthisreallytowork,theindustryneedstodigitize.Blockchainisjust(multiplespeakers)

Youknow,that'shelpful.It'sjustaquestionof--isitproductbyproduct?Andwhatkindoftimeframedoyouseetopotentiallytakesomethinglikethepilotthatyou'reworkingon,toeitherhaveagoorno-godecision,withsomebenefitstoyou?

Myguessis,it'sproductbyproductatthispoint.Andsobankloansisoneofthoseproducts,oneofthoseservices.I'dbesurprisedif,withintheyear,wedon'tknowwhetheritwouldbetherightanswertothatissue.AndIthink,aswithmanythings,ifyougetabunchoffinancialinstitutionstoconvergearoundaproblemanduseanewtool,ifsuccessful,itwillgrowfromthere.AndIthinkit'sgotadecentchanceofsucceeding.Butitwillbeoneofmanysolutionsversusthesilverbullet.

Yes,gotit.Thankyou.

Operator :

AdamBeatty.

AdamBeatty(Analyst-BoAMerrillLynch):

Goodmorning.IhaveaquestionaboutproductstrategyandETFs.Iappreciatethedetailsearlier.ItseemslikeStateStreetandothershavecomeoutwithsomefairlynicheofferingsrecently.Andthequestionis,withalotofthebigindexesandexposuresalreadybeingcovered,includingbysomeStateStreetproducts,isthatthefutureofETFinnovation,kindoflikewithtelevision,wherethere's300channelssoeverybodycanseeexactlywhattheywant?Orifthat'snotthewholestory,howdoesthatfitintoyouroverallproductstrategy?Thanks.

Yes,Iappreciatethequestion,Adam.IwouldjustremindyouthatourETFstrategyisreallytwotracks.Oneistocontinuetobuildoutthedistribution,whichwe'redoingintheUSandalsoEurope.Andthen,toyourpoint,it'senhancingtheproduct.AndI'dsay,alotofthebasicbetastrategieshavebeenconsumedinanETFproduct.Butthenyougettothenextlevelofcustomizedindexes.

SotheSHEindexthatIdescribedinmypreparedcommentsisdevelopingastrategy,anddeveloped--inthiscase,thisisthefirsttimewehaveself-indexed.Sowebuilttheindex,back-testedit,andthenpackageditinanETF.You'llseemoreandmoreofthathappening.Infact,we'renottheonlyonesdoingthat.IthinkinthebroadbetaandETFspace,that'satheme.

TheotherthingIwouldsayisthat,IwouldpointtomaybethepartnershipwehavewithDoubleLine,wherethey'retakingactivefixed-incomestrategies,theyarethemanager,we'repackagingitintheETFanddistributingit.AndIthinkyou'regoingtoseemoreandmoreencroachmentintotraditionalproductsspaces.AndIcomealittleshort,becauseI'mnotquitesoldyetthatyou'lltakeactiveequityproducts,forinstance,andwrapitinanETF.Butotherswouldtaketheothersideofthatargument.SoIdon'treallyseemuchlimitationforinvestmentstrategiesbeingabletobewrappedandpackagedinanETFstructure,anddistributedtobothinstitutionsandtheretailmarketspace.

Sowehave--IwouldsaythatSSGAhasdeployedkindofanopenplatformstrategy,whereifwecancreatetheindex,inthecaseofSHE,manufactureanddistribute--andwewill.Butifthere'saninterestinginvestmentideaoutsideofSSGA,we'rewillingtodiscusspackaginganddistributing,whichwe'vedonenotjustwithDoubleLine,butwithUVandMFSandseveralotherfirms.Hopethathelps.

Yes,itdoes.Thankyouverymuch,Jay.Anotherquestion,ontheOCIObusiness,inthecontextofassetservicing.Howmuchrevenuesynergywouldyouexpectintermsofassetservicing?Andifso,inwhatareas?IsitpossiblethattheGEacquisitionbenefitsfrombeinghoused,fromthatstandpoint,inanorganizationlikeStateStreet?

Yes,Ithinkit'sanastutequestion,inthatoneofthereasonswehavea25-year-oldrelationshipwithGE,iswe'vebeenthebackendofthefront-endOCIObusinessthatGEhasrunovertheseyears.SoIthinkthat,asImentionedbefore,theoutsourcingofthechiefinvestmentofficerfunctionforthesedefinedbenefitplansislikelytobeagrowingopportunity,growthopportunity.

You'realreadyseeingittoday.Thefactthatwecangoandnotonlyofferthefront-officeexpertiseofhowtoruntheseplans,howtospeakthelanguageofDBtotrusteesandothercustomer-facing,pensionorganizations.Butalsobeabletofullyintegratethebackoffice,completewithasset-servicing,middleoffice,securitieslending--everythingthatgoeswithitisallrelevanthere.SoIsee,themoreOCIObusinessweget,itshouldnaturallybringallthemiddle-andback-officebusinesswithit.

Excellent.Thanksagain.

Operator :

BrennanHawken.

BrennanHawken (Analyst-UBS):

Hey,goodmorning.Justonequickfollow-upatthispoint.Thedeclineinotherexpenses--Ithinktheimplicationwasthatyouhadsomebenefithere.Ithinkyoulaidouttheconsultantexpensescomingdown,buthereasonwhytheguidedidn'tgoupisbecauseyougotsomeupwardpressurependingfrompotentiallivingwillspendandsuch.AmIparaphrasingthatcorrectly?AmIreadingthroughyourcommentsright,orcanyouclarifyit,please?

MikeBell(CFO):

Brennan,it'sMike.Ithinkthosearefaircomments,butIwouldn'tlimitupwardregulatorycostpressuretojustthelivingwills.Ithinkit'sbroaderthanthat.Butotherthanthat,yourcommentisveryfair.

Okay.Andthenisthereawaytounpacktheotherexpenseresultthatwasbetterthanexpected?Andhowmuchindependentlyyouthinkmightsustainablebeyondthenthependingupwardpressurefromhere?Isthereawaytothinkaboutthatseparately?

MikeBell(CFO):

Well,Iwouldjustremindyouthatwe'restillguidingtoupto2%overallexpensegrowthyearoveryear,excludingtheacquisitionofGEAssetManagement.Sothefactthat,that'sthecasesaystomethatwearegoingtomanageexpenses,really,inaggregate.Andobviouslyourpreferredroutewouldbetocontinuetobuildin-housecapabilities,hirefull-timepeopletomanageandruntheseregulatoryandcomplianceactivities,andrelylessandlessonoutsideconsultants.

Andsoifwecontinuetobesuccessfulinthatarea,thenIthinkthatlineitemwilllikelyrunbelowlastyear's.Butagain,itreallyisaquestionofmanagingthoseprioritiesinaggregate,asopposedtojustfocusingononelineitem.

Okay,thankssomuch.

Operator :

VivekJuneja.

Vivek?

Operator :

Hey,itlookslikeVivekwithdrewhisquestion.BrianKleinhanzl,KBW.

BrianKleinhanzl(Analyst-Keefe,Bruyette&Woods):

Thanks,goodmorning.QuickquestionontheGEAssetManagementdeal.Iknowyougaveguidanceastowhattheexpectedaccretiontobeforoneyear,andalsoyouwanttoretain90%withregardstoAUM.Soarewetoassumethattheoneyearisjustbecausethat'swhenthelockupperiodisforthoseassets?Oristherealongerlockupontheassetsbeingacquired?

MikeBell(CFO):

Brian,Iwouldn'trelatethetwo.Basically,wewerefocusedonthefirst12months,becausewewantedtogiveyouatimeperiodatwhichweexpectthistobeaccretivetoEPS.AndsothatreallyisirrespectiveofanykindofalockupperiodwiththeGEplan.

AndI'dadd,Brian,thatourexpectationisthatthe90%-plusbusinessthatweretainwillhavealonglifetoit.

SoIguess,askeddifferently,whendoesthelockupperiodend?

MikeBell(CFO):

Thereisnotacontractuallockupperiod.Basically,we'reconfidentthatwecancontinuetomeettheGEpensionplansneeds,andthat'swhatwewillbefocusedon.

Okay,thanks.Andthenjustasecondquestion.What'stheimpactontherevenuesfromtheexitofthefuturesclearingbusinesses?AndIguess,what'stheimpactonthepretaxmarginaswell?

MikeBell(CFO):

Sure.SoBrian,theFCMbusinessearned$9millioninfeesinfull-year2015.Andtheexpensesweregreaterthanthat,butwerepartoftheoverallsavingsthatItalkedaboutearlierintermsofBeacon.SoIwouldn'tbemorespecificatthispoint.

Okay,great.Thanksfortakingmyquestions.

Operator :

GeoffreyElliott.

Geof f reyElliott (Analyst-AutonomousResearch):

Morning,thankyoufortakingthequestion.Ontheresolutionplan,couldyoutalkaboutwhatyouneedtodothere?Andhowmuchofthatissimplyaroundchangingtheplanversushowmuchisaroundmakingchangesinthewaybusinessisstructured,theamountofliquiditythatyouhold,howcapitalisallocatedbetweendifferententities,andsoon?

MikeBell(CFO):

SoJeff,it'sMike.Iwouldsayitisearlydaystoberealspecificontheactionsthatwewilltaketoultimatelymeettheregulatoryexpectations.YousawthesameinformationthatwedidintermsofthepaperthatlaysoutexpectationsfortheJuly1,2017submission.AndIthinkwe'llbeinongoingdialoguewithboththeFederalReserveaswellastheFDICoverthenext,atleast12months,tomakesurethatwespecificallyunderstandthem.

SoIthinkit'sgoingtobeacombinationofallthethingsthatyoujustdescribed.There'slikelytobesomeadditionalinfrastructuretobebuilt.Someofitwillbeadditionalmodelingcapabilities.Someofitwillbeadditionalmonitoringcapabilities.Andalsoasyoucorrectlyindicated,Iwouldexpecttoseeadditionallegalentitysimplificationovertimeaswell.ButIreallythinkit'salittlebittooearlytotrytobespecificuntilwehavemoreongoingdialoguewithbothgroups.

Thankyou.AndthenjusttofollowuponthepreviousquestionontherenotbeingacontractuallockupontheGEAssetManagementassets.Whynot?Iwouldthoughtthatwhenyou'reacquiringamanager,andthevastmajorityoftheassetsarein-house,thatwouldbeabsolutelycriticaltomakingsureyoudon'tjustgettheone-yearaccretion,buttheaccretionthree,four,five,10yearsout.

Iwouldsay,Geoff,itsapensionplan,soithasalistofrestrictions.IfyoulookatSSGA,probablythebiggestsegmentthattheymanageforarepensionplans.Andtheydothat,andastheyarefulfillingtheirreturnexpectations,it'sunlikelythat,thatchanges.AndsoGEhasbeenmanagingthisplanforalongtime.Weseeinourbusiness--theOCIOmarket,verystickyassets.

SoIdon't,frankly,viewitas--Iviewitasnotaconcernatall.Aslongaswedowhatwearebeingaskedtodo--whichwedoeverydayformanycustomersaroundtheworld--thenwethinktheseassetswillbewithusforatime.Andthefactthatwe'regoingtocombineitwithourbusinessgivesusmorescaleandexpertise,andwillmakeusamoreattractivecounterpartyforotherpensionplansthatwanttooutsourcethat.Iviewitasastable,stickyseriesofassets,withsomecapabilitieswedon'thavetodaythatwillallowustogrowthebase.

Thankyou.

Great.

Operator :

GerardCassidy,RBC.

GerardCassidy(Analyst-RBCCapitalMarkets):

Thankyou.Canyouguyssharewithusonthenewbusinesswinsonthenetassetservicingsideofabout$264billion,whatpercentageofthatwastheFirstStateSuperAustraliawin?Andthensecond,what'sthepipelinelookforthesecondquarter?

Yes,letmetakethatone,Gerard.Ican'tgiveyouFirstStateSuper,butwhatIwouldtellyouisthatofthe$264billion,alittlebitunusually,50%ofthatcamefromAsia-Pacific.Sowe'vebeenrunningmoreprobably60%/40%,US,non-US.Forthisquarter,itwasmore70%/30%,30%beingUS,70%non-US.SogoodprogressinAsia-Pacific,reallyanchoredinnotonlyAustralia,whichIhighlighted,butthatwe'vealsoseensomemovementinJapan.Wherewe'veseenthefirstoutsourcingofinvestmenttrustfunds,somethingwe'vebeenpursuingforalongtime.Sothat'sthefirstquestion.

Thesecond--pipelinesarequitefull.Ithinkthat--I'vesaidthatbefore--butifyoulookattheassetowner,andmaybeevenmorespecifically,theassetmanagementsegment.Betweendifficultyinachievingabove-benchmarkreturnstoincreasingregulatorypressure,we'veneverseenthedemandforthingslikemiddleofficeoutsourcingthatwehaveonourplaterightnow.Andimportantly,inthatparticularproduct,there'sawillingnesstoacceptstandardizedservices.SoIfeelverygoodaboutthepipeline,notonlyfromageographicstandpoint,butacross,inparticular,assetmanagers,butassetserviceownersaswell.

Thankyou.AndthenmaybeMike,whenwelookatyouraveragebalancesheetthatyou'vegiveusonthesupplement,onpage11,Inoticedthattheinterest-bearingdepositsintheUnitedStates,theyieldonthatorthecost,Ishouldsaytoyouguys,jumpedfrom23basispointsto40basispoints.Andthenthisisquiteabitdifferentthansomeofyourpeers.Whatcausedittojumpupthatmuch?

MikeBell(CFO):

Sure,Gerard.Firstofall,themaindriverinthatcategoryisactuallythecostofourwholesaleCDs.Sowehaveapproximately$15billion,onaverage,ofwholesaleCDbalancesinQ1,andthosemovedwithLIBORrates.Sothat'sthedriverofthesequentialincreasethere.Ifwestrippedthoseoutandjustlookedattheinterest-bearingDDA,thatwasprettyclosetoflat,sequentially.Soit'sreallythewholesaleCDs.

AndtheCDsasapercentageoftotalthatyoujustgaveus,isthatconsistentwiththosepriorperiods?Orisitagreaterpercentagetodaythanitwasinthosepriorperiods?

MikeBell(CFO):

It'sprobablyaslightlysmallerpercentagetodayat$15billion.WeusedthewholesaleCDsasamanagementtoolaroundliquidity.Andthosebalanceswereactuallyalittlebithigherin2015.Nowremember,therateswerelower,becauseLIBORwaslowerin2015thanwhatitisinQ12016.

Great.Thankyou.

Operator :

VivekJuneja.

VivekJuneja(Analyst-JPMorgan):

Hi,thankyoufortakingmyquestions.Acoupleofthings.Firstly,Mike,justfollowinguponthequestionyouweretalkingaboutontherepomarket,yousaidmajorityoftheincreaseinspreadscanbesustainedoverthenextcoupleofquarters.Canyougiveusalittlemorecoloronwhat'sgoingoninthatmarketstructurallythat'scausingthiswideninginspreads,andthatwillsustainit?

MikeBell(CFO):

Sure,Vivek.Reallyit'sacombinationofthefactthatshort-terminterestrateshaveobviouslygoneupwiththeFedfundhike.Andit'salsojustafunctionofsupplyanddemand.Andsowewillmonitorthoseconditionscarefully.ButIseenothingthatwouldsuggestthat,that'sgoingtoevaporatehereinQ2.Soagain,it'ssomethingthatwewillpaycloseattentionto.

Okay,thanks.Justshiftinggears,Jay,ifIlookatofyourassetmanagementbusiness,ifIlookattheoperatingmargininthefourthquarter,itwas13%.AndifIlookatfullyear,assetmanagementmarginwas19%andchange.13%forthefourthquarterand19%andchange,soreallylowmargincomparedtopeers.Canyoutalklittlebitaboutspecificallythatbusiness?Whatyoucandoto--especiallywhenmovingthingslikeETFs,whatyoucandotoacceleratetheoperatingmarginimprovement?Andwhyit'ssofarbehindpeers?

Sure,Vivek.I'mhappytotakethat.We'renotpleasedwiththemarginintheSSGAbusiness--IthinkIsaidthatbefore.Andwedothinkbyre-orientingaroundthestrategicprioritiesthatwelaidoutbackinFebruary--whichareanchoredinETFsolutions,OCIOasanadditionalcategory--thatwe'regettingtherightleveloffocusandinvestingattherightamountinordertodrive,really,topline.Andalsocreatemoreefficiencythroughthefocus.

AndIthinkthatifyoulookoveranextendedperiodoftime,youwouldhaveseenwe'vehitatroughwithregardtoreturns.AndIfeelliketheinvestmentsthatwe'vebeenmakingarestartingtocreatesometraction.AndIlookatETFsand,really,solutionsasbeingthecornerstoneofthat.InadditiontosomeofthepositioningwehaveinmarketsoutsidetheUS,again,Iwouldpointtothosesametwocornerstoneelements.

Sowe'reworkingonit.Wethinkwe'remakingtherightinvestments.Ithinkfocusisimportant.SSGA,insomerespects,doesnothavealotofpurecomps,givenwhatitdoes,andwe'retryingtobeverygoodatacoupleofthings,anddothemwellglobally.AndIthinkwe'reontherighttrack.

Anddoyouthinkitwillbesooner,SSGA,intermsof--youknow,you'vegivenouttargetsforoverallCompanyoperatingmarginimprovement.DoyouseeSSGAasdoingsametimeframeorsooner,Jay,comparedtotheservicingbusiness?

I'vegottwoviewsonthat,Vivek.Oneis,yes,sooner,becausewe'remakingproportionallymoreinvestmentsintheSSGAbusiness.AndIthinkyoualsoneedtocomebacktooneofthecommentswemadearoundtheGEacquisition.AswelookatourdifferentbusinesseswithinStateStreetandlookatreturns,SSGAhasadisproportionatelyhigherreturn,asdoesabusinesslikeglobalexchange.

Soaswelookatinvestinginareasthatwe'vehadnaturalgrowthupside,andinaddition,wouldbeaccretivetoourreturnonequity,wearegoingtoproportionallyleaninthatdirection.SoIthinkfor

thosereasons,IwouldexpectthatyouwouldseeSSGAimprovesoonerthantherestofthefranchise.

Thankyou.

Operator :

BrianBedell.

Theassetsunderadministrationlookedliketherewasasignificantdeclineinthepensionproductarea,from$5.5trillionto$5.2trillion.Justwaswonderingwhatdrovethat?

MikeBell(CFO):

Nothingspecific,Brian.It'sreallybenegativeimpactofmarketsthat'sthebigdriverthere.

Onthepensionside,okay.Wasthe6%linked-quarter--wasallmarket-related?

MikeBell(CFO):

Iwouldn'tsayallmarket-related.Idon'thavethatdesegregationrateatmyfiguretips.ButthemaindropintheAUAwas,infact,frommarkets.

Nothinggoingonfromalostbusinessstandpointthat's(multiplespeakers)

Oh,okay.That'swhatIwasgettingit.Okay,great.Thanksforthat.Andthenjusttaxrateguidance,Iguess,wouldimplythatwe'dbebetweenthehigherendforthenextthreequarters,givenitwas29%for1Q?Isthatfair?

MikeBell(CFO):

Yes,Ithinkthat'sfair,Brian.Firstofall,theoperatingtaxratethatweprovideisheavilyimpactedbytaxadvantagedinvestments.Andsojustbasedontheseasonalpatternoftax-advantagedinvestments,wetendtoseethepatternthatyou'redescribing.Sonothingparticularlysurprisingthere,andweexperiencedasimilarpatternin2015.

Gotit.Andthenjustlastly,Ithink,Mike,youtalkedaboutthefuturesclearingbusiness.ButtheimpactoftheReutersbusiness[firstsold]toThomsonReuters?AnddoesthatflowthroughtheFXtradingline,oristhatonadifferentline?

MikeBell(CFO):

That'sin--let'ssee,it'sintheother--it'sinthefeeslineitem.Inthebrokerageandotherfeeslineitem.

Brokerage,okay.Andisthat--canyousizethat,justfrom[owing]?

MikeBell(CFO):

Idon'thavethatrightatmyfingertips.It'srelativelysmall.Wecanfollowupwithyouofflineonthatone,Brian.

Yes,perfect.Thankyou.Thanksalot,guys.

Operator :

Okay,thankyou.Andthatwasourfinalquestion.

Thanks,Operator,andthanks,everybody,forjoiningusthismorning.Welookforwardtotalkingwitheverybodyattheendofthesecondquarter.

Operator :

Ladiesandgentlemen,thankyouforjoiningtoday'sconference.

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SETTING PRIORITIES FOR IMPROVING BOSTON CITY STREET