State Street Corporation 2026 Q3 Earnings Call

Morning, and welcome to State Street Corporation's third quarter 2026 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 the 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 conference call is also being recorded for replay. State Street's conference call is copyrighted and all rights are reserved. This call may not be recorded for or rebroadcast for distribution in part or in whole without the expressed 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 morning, and thank you all for joining us. On our call today, our CEO, Ron O'Hanley, will speak first. Then John Woods, our CFO, will take you through our third quarter 2026 earnings presentation, which is available for download in the investor relations section of our website, investors.statestreet.com. Afterward, we will be happy to take questions. Before we get started, I would 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 earnings release addendum. 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 factor section in our Form 10-K. 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 morning, everyone. I want to begin with some context. The world's investors today face a dynamic, complex, and interconnected environment requiring them to manage a wide range of risk and opportunities. Fiscal and sovereign debt pressures, credit, geopolitics, inflation uncertainty, the accelerating opportunities and risks of AI, and advanced cyber threats all require investors to manage through a broad range of forces that are reshaping markets, operating models, and the broader financial system. At times like these, clients are seeking trusted and essential partners, not just service providers. Our ability to combine the strengths and quality of asset servicing, investment management, and markets as one State Street allows us to effectively help clients navigate change, manage risk, and pursue their objectives with greater confidence, creating better outcomes for the people they serve.

We believe this environment reinforces the importance of the role we play, the value of the relationships we have built with many of the world's leading investors, and the strength of the One State Street model. Amid this rapidly evolving backdrop, our positive momentum carried into the third quarter, during which we delivered another period of strong financial and business performance, as highlighted on slide 2. Driven by clear strategic priorities, State Street's results again demonstrated the earnings power of our franchise and the momentum we continue to build across the firm. We generated our 11th consecutive quarter of positive year-over-year operating leverage, excluding notable items, reflecting both the strength of our operating model and our continued focus on disciplined execution. Earnings per share of $3.69 increased 33% year-over-year, supported by double-digit growth in fee revenue, NII, and total revenue.

I am particularly pleased by the momentum we are seeing in our core businesses. During the quarter, we generated record quarterly servicing and management fees and delivered record FX client volumes, demonstrating our ability to capture client activity and benefit from the scale and breadth of our platform. Combined with a pre-tax margin of 35% and a return on tangible common equity of 25%, these results reflect both the strength of our franchise today and the investments we are making to position State Street for long-term growth. July marked an important milestone for State Street as we introduced new medium-term financial targets and outlined the strategic growth initiatives and transformation agenda that we believe will drive our next phase of growth. As I look across our franchise, I see a company executing with discipline, investing for future growth, and increasingly operating as One State Street.

That combination is strengthening our platform, enhancing how we serve clients, and positioning us to deliver sustainable growth and long-term value for shareholders. Our integrated global franchises across investment services, investment management, and markets provide a powerful foundation for continued growth. Importantly, many of our most attractive opportunities lie within businesses where we already have established leadership positions and meaningful scale. When combined with the breadth of our platform, the depth of our client relationships, and the increasing connectivity across our franchise, we believe this positions us uniquely well to serve clients end to end, deepen engagement, and drive sustainable growth over time. Within investment services, we continue to leverage the scale and capabilities of our franchise, generating record quarterly servicing fee revenue, while assets under custody administration reached a record $59 trillion at quarter end.

These results were supported by strong year-over-year organic growth and reflect the value we deliver to clients and our ability to continue growing alongside them as an essential strategic partner. Also during the quarter, we announced an initial agreement to acquire Santander CACEIS' Latin American Securities Services business, which is expected to close in 2027, subject to regulatory approvals and closing conditions. The transaction will create a leading asset servicing platform across Brazil, Mexico, and Colombia, adding scale, local expertise, and expanded capabilities, including custody and fund administration in some of the region's most important and fastest-growing institutional markets. Within investment management, the quality of our platform, our continued innovation, our global distribution capabilities, and the trust clients placed in our franchise continue to drive strong results.

In Q3, State Street Investment Management launched 38 new client solutions, delivered record quarterly management fee income, and ended the quarter with a record $6.3 trillion of assets under management. We had record ETF flows in the quarter, and Q3 also marked our sixth consecutive quarter of organic net inflows. In markets, we generated record FX client volumes supported by strong activity across both EMEA and APAC. These results reflect the benefits of investments in our capabilities and strong product mix and demonstrate our ability to support clients when opportunities emerge across markets and geographies. Importantly, they also underscore the relevance of our client franchise. We were pleased to see that recognized through five awards at Euromoney's 2026 FX Awards, including the world's best FX bank for real money clients.

Next, let me spend a few moments on the progress we are making across our three strategic growth initiatives, which focus on segments of the market undergoing some of the most significant shifts across our industry today. Alternatives is changing where capital is being invested while also expanding the universe of investable assets for the world's investors. Digital assets is shaping how assets will transact, move, and be serviced in the future. Wealth is transforming how individuals and advisors access investment opportunities and channels, navigate increasingly complex markets, and build long-term financial outcomes. While each opportunity is distinct, all three build on and leverage capabilities we already possess across our franchise, are extensions of our core franchises, and are strengthened by our One State Street approach.

Together, these initiatives align us with some of the most attractive long-term growth opportunities in financial services while deepening our strategic relevance to clients. Increasingly, clients are seeking integrated solutions. Our ability to bring capabilities together through our One State Street model is an important differentiator. While still early in digital assets and wealth, we are encouraged by the client engagement, commercial traction, and momentum we are beginning to see. In alternatives, we continue to build on our leadership position in one of the most significant secular growth and opportunities in our industry. Alternative servicing fees grew at a double-digit rate year-over-year in the third quarter, reflecting solid growth across private markets and strong client activity. More broadly, the alternatives ecosystem is evolving.

As investment strategies expand and operating models become more complex, clients increasingly need partners that can help them operate and apply technology to that complexity while improving transparency, efficiency, and access for investors. This plays directly to our strengths. Whether helping clients scale their businesses, enhance the investor experience, or develop new market infrastructure, we are working alongside them to support the continued evolution of private markets. A recent example is our work with Apollo to support the expansion of daily pricing across private credit strategies, helping advance the transparency and infrastructure needed to bring private markets closer to the experience investors have long expected in public markets.

By leveraging the breadth of our platform, the depth of our client relationships, and expertise developed over decades of serving alternative investors, we believe we are well-positioned to benefit from the continued growth of alternatives while creating value across multiple parts of our franchise. In digital assets, we are positioning the firm and our clients for the evolving market structure and investment ecosystems by building on the tech-led capabilities that have long differentiated our firm, including our client relationships, global reach, and deep expertise across financial markets. As tokenization and digital technologies continue to gain traction, we are investing thoughtfully and working closely with clients to help shape the future of market infrastructure.

We remain on track to deliver a tokenized fund servicing capability by year-end, subject to regulatory approval, and our investment management business is expected to be an early adopter of the platform, providing another strong example of our One State Street approach in action. We are also continuing to bring investment products on-chain. In Q3, an example of how we were helping bridge traditional finance and digital markets was the State Street Galaxy on-chain liquidity sweep fund, which is now available on the Stellar network, expanding access to a tokenized cash management solution designed to support 24/7 liquidity. In wealth, the recent launch of our wealth services offering is resonating with clients, and we continue to build a strong pipeline of opportunities in partnership with Apex Fintech Solutions.