Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

Fortune 500

The 300 companies on this year’s list brought in over $12.6 trillion in revenue for the latest 12 months, with the median revenue figure at $22 billion.

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Industries included in the sector are banks, insurance, and real estate companies.

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Modern Board 2022-State Street

State Street scored high on board expertise, board size, and its CEO succession plan.   
 
State Street’s board includes six former CEOs and two active CEOs—including its own, Ronald O’Hanley; and William Meaney, the president and CEO of Iron Mountain. DonnaLee DeMaio, former president and CEO of MetLife Bank, is also a board member. 
 
As one of the “Big Three” asset managers along with BlackRock and Vanguard, State Street (which has $3.9 trillion in assets under management) has been using its position to advocate for stronger diversity and sustainability measures across corporate America. <a href="https://www.gibsondunn.com/blackrock-vanguard-and-state-street-update-corporate-governance-and-esg-policies-and-priorities-for-2022/">In 2022</a>, all of the Big Three have raised the bar for the companies in which they hold stakes, advocating for disclosures from “carbon intensive” sectors and increased scrutiny over climate-based proposals; they have also said they may vote against or withhold votes from companies that do not have at least one woman on the board or that fail to disclose demographic data. State Street has specifically said it might vote against an independent board director if a company fails to provide sufficient disclosure or progress on such issues.

Fortune Modern Board 25

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F500-2021-252-State Street

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This year's Fortune 500 marks the 64th running of the list.

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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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One of the oldest financial institutions in the U.S., Boston-based State Street offers a diverse array of products across its asset management and banking divisions. The company helped pioneer exchange-traded products, including launching the first ETF in 1993, and counts as one of the Big Three index fund managers alongside Vanguard and BlackRock. State Street also serves as one of the top asset custodians in the U.S., including expanding into crypto assets such as Bitcoin. State Street continues to launch new investment vehicles. In 2025 the company partnered with private equity giant Apollo to create a private credit ETF available to retail investors. State Street is the second-oldest continuously operating bank in the U.S., with its predecessor receiving a charter from Massachusetts Gov. John Hancock in 1792.

Q2 2025

Q1 2025

State Street (STT): Company Profile, Stock Price, News, Rankings

legacy

State Street

state street

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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

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?

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.

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.

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.

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.

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?

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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?

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.

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.

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

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?

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

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.

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.

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.

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.

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.

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?

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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

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.

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.

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

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?

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.

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.

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.

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.

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.

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.

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

One of the oldest financial institutions in the U.S., Boston-based State Street offers a diverse array of products across its asset management and banking divisions. The company helped pioneer exchange-traded products, including launching the first ETF in 1993, and counts as one of the Big Three index fund managers alongside Vanguard and BlackRock. State Street also serves as one of the top asset custodians in the U.S., including expanding into crypto assets such as Bitcoin. State Street continues to launch new investment vehicles. In 2025 the company partnered with private equity giant Apollo to create a private credit ETF available to retail investors. State Street is the second-oldest continuously operating bank in the U.S., with its predecessor receiving a charter from Massachusetts Gov. John Hancock in 1792.

State Street Q2 2025 Earnings Call Transcript | Fortune

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State Street (STT) Q2 2025 Earnings Call Transcript

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