Good morning and welcome to State Street Corporation’s Fourth Quarter 2020 Earnings Conference Call and Webcast. 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 rebroadcast or distribution in whole or in any part 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 introduce Ilene Fiszel Bieler, Global Head of Investor Relations at State Street.

Good morning and thank you all for joining us. On our call today, our CEO, Ron O’Hanley, will speak first. Then Eric Aboaf, our CFO will take you through our fourth quarter 2020 earnings slide presentation, which is available for download in the Investor Relations section of our website, investors.statestreet.com. Afterwards, we will be happy to take questions. During the Q&A, please limit yourself to two questions and then re-queue. 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 appendix to our slide presentation. In addition, today’s presentation will contain forward-looking statements. Actual results may differ materially from those statements due to a variety of important factors such as those factors referenced in our discussion today and in our SEC filings, including the risk factors 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 change. Now, let me turn it over to Ron. Ronald O’Hanley: Thank you, Ilene, and good morning everyone. Earlier this morning, we released our fourth quarter and full-year 2020 financial results. Before I review our results, I would like to reflect on how State Street successfully adapted to the unique operating environment in 2020, supporting our clients, communities, and the financial system, all while advancing and positioning the business for future success. 2020 was a year like no other in recent memory. As we entered the year, few could have predicted how volatile the operating market -- operating environment would be as the health crisis precipitated by the COVID-19 pandemic resulted in…

Thank you, Ron, and good morning everyone. Turning to Slide 4, and before I begin my review of our fourth quarter and full year 2020 results, let me briefly outline $145 million of notable items we recognized in the fourth quarter, which totaled $0.30 of EPS that will collectively help us deliver another year of declining expenses in 2021. First, we took an employee severance charge of $82 million to eliminate approximately 1,200 positions, mostly in middle management, which will be partially offset by in-sourcing and critical hires during the year. This complements the senior management reductions we made 2 years ago and the ongoing reduction of junior roles through automation that were deferred during the COVID-19 pandemic. We expect this to generate savings of approximately $120 million in 2021 and about twice that in the following year. Second, we took a $51 million occupancy charge for real estate to reduce our total office space across 20 sites by about 1 million square feet or approximately 13% of our total square footage. This is the start of our process of reconfiguring our office space for a post-COVID environment. We expect this action to generate savings of roughly $30 million in 2021. We try to minimize repositioning charges, but we have delivered 2 years in a row of underlying expense reduction while investing in our business and want to do so again in 2021. Turning to Slide 5, I will begin my review of both our 4Q '20 and full year 2020 results. As you can see on the top left of the table, we finished fourth quarter with strong revenues. Total fee revenue increased 2% year-on-year and was up 5% quarter-on-quarter. And while interest rate environment continues to be a headwind, the absence of the $20 million in the third…

[Operator Instructions] Your first question comes from Alex Blostein with Goldman Sachs. Your line is open.

Great, thank you. Good morning, everybody. So first, Eric, for you, maybe just to clarify some of the comments you made around servicing fees. So you talked about $1.5 trillion in sort of annual client attrition. Is that a -- that's about 4%, I think of your AUC. Is that sort of what we should be thinking about as kind of like a gross impact on revenues as well? And qualitatively, how does that compare to prior periods? Has anything changed that sort of drives this churn higher?

Alex, it's Eric. Thanks for the question. We're trying to be real clear about our sales expectations for our business, because at the end of the day that is part of what we do every day and we do it across segments, across regions, across client groups. And I think to kind of give you some perspective on that, we wanted to be clear that to actually have to demonstrate net new business, right, so to be able to offset the nominal amount of attrition that we always get, which is a few percentage points and actually overcome that plus deliver some amount of net new business growth, we need about $1.5 trillion of gross new sales a year to accomplish that, and we think that's what would really contribute to the rebound of growth that we'd like to see. Now, in truth, we've not gotten there this year. This year, net new business was flat, and you saw our AUC/A wins at about $800 billion. And so, it's just obviously an area of pretty intense focus, but I think it's the kind of area that we feel like we can make a dent on. If you step back, we've made really good progress on our top 50 clients where our -- where we rolled out our coverage process and set of executives about 2 years ago, and we've seen the growth there. We've seen it in a couple of segments, and now we need to broaden that and deepen that kind of coverage intensity across the rest of franchise. Ronald O’Hanley: Yes, Alex, I'd like to just add to that. I would not want to leave you with the impression that there's a client retention problem here, if anything, client retention has gone up. But if you think about things like what the market is facing in terms of reduction in funds, for example, or if you think about M&A, oftentimes represents an opportunity for us. So, there's a small amount of attrition broadly defined as much asset attrition as it is client attrition. And what we're trying to be here is very clear on how we think about our -- what we need to do from a sales perspective and what we're doing about it.

Great. Thank you. That clears it up a bit. Speaking of M&A, Ron, I wanted to ask you a question around SSGA. Obviously, there's been several headlines around potential strategic actions State Street could make around its asset management business. And in the past, you also talked about the drive for scale in that business, just like what you're trying to provide to your clients. So maybe you can update us on your latest kind of strategic thinking for SSGA when it comes to either acquisitions or divestitures, obviously there was a JV headline out there as well. And as you think about sort of these various avenues, what is the ultimate kind of financial and strategic goal you're trying to achieve for State Street as a whole when it comes to SSGA? Thank you. Ronald O’Hanley: Yes, Alex, I'm not going to comment on market rumors, but what I'm going to say is what I've said before. We have a very strong franchise in SSGA. It's particularly strong in the ETF space, the cash space, the indexing space. It’s got an increasingly strong position in ESG. Having said that, as we've said before, we see the world evolving. And therefore we need to think about how to add capabilities, both product and distribution capabilities, or distribution access to this. So we are -- it's not new. Any time you ask us about this, I think I answered it more or less the same way that we're constantly thinking about this. We've made some steps over the past several years in terms of organically adding really important product capability, for example, fixed income ETFs, ESG capabilities, we launched the low-cost range of funds, we created the distribution arrangement to help propel those low-cost funds. So, we will continue to look at those things, and we'll continue to look at inorganic activities, if we think it's the best outcome. And to answer the last part of your question, what we're looking to do is to best position SSGA for growth. It’s a to remarkable asset. It's got a lot of potential, and we'll do what we need to do to best position it for growth.

Yes, for sure. Great. Thank you very much.

Your next question comes from Ken Usdin with Jefferies. Your line is open.

Thanks. Good morning, everyone. Hey Eric, just a follow-on on the NII side. Just wondering if you could help us understand you talked about some type of step off from fourth to first in terms of NII and then stabilization. And I'm just wondering if you can walk us through the pieces of what are still moving through other than day count in the first quarter. And how much premium AUM was in the quarter, and is that part of a rate of change that you can see any type of -- help that stabilization or benefit thereafter? Thanks.

Ken. It's Eric. Sure. Let me describe first maybe third quarter to the fourth quarter to give you some context, and then fourth quarter to first quarter and then kind of see what we see from there. Going into the fourth quarter, we have the usual headwinds from investment -- from the investment portfolio and actually higher premium amortization than we've had previously, and that would cost us sequentially about $35 million. That's kind of the headwind. Now, that will come back to, because that headwind is attenuating each quarter, but that was a headwind. Against that headwind in the fourth quarter, we had some unusual benefits. We had the FX swap mark-to-market, which was about $5. We had a surge in deposits, both in developed markets and in emerging markets. Remember, they're valuable in emerging markets worth about $10 as a tailwind. And then we built our investment portfolio and added quite a bit of loans at the tune of about $20 million. Now, that was a larger bill than usual, but a better remunerated plan. And so, those are the kind of features that held us flat in effect from 3Q to 4Q. I think if we go into first quarter, you kind of take each of those in pieces, the investment portfolio, headwind, it's probably going to be about $25 million instead of $35 million. So you see it attenuate. And part of that is that the prepayment speeds are neutral we think from 4Q to 1Q. We have some tailwinds of deposits and loans and investments, but that's probably worth about 10 bucks. And then we still have a couple headwinds, we have the unwind of the swap mark-to-market which sequentially is worth 10, because you got to double up the positive turns negative. And then you have day count worth another 10 as a headwind. So that's kind of what gets us to the guide that we gave. Once we get through the first quarter, I think what we expect to see is that stabilization and what we're effectively expecting is that the investment portfolio headwind which was $35 million, but coming $25 million, it's going to start to trend down to $10 million a quarter. And why is that partly rates have been kind of working through the on the yield side and partly because prepayment speeds we expect to start to attenuate as we see higher rates. And so, we do expect some lesser headwinds. And against that, we think that the actions that we take on a more traditional basis will be worth about plus 10. And so it will be roughly neutral and stable from 1Q to 2Q and 2Q to 3Q and so forth. Obviously, it'll be range bound. And obviously, it'll be -- there's always a little bit of lumpiness that we get into, but that's our best estimate of what we're seeing today, based on the curves, the expectations of rates and so forth.

So Eric, sorry, if I can speak that back at you is that mean kind of a 50 something million dollar decline for the first, if I got all your add up there? 10, 25 and 10 and 10, and 10? Just trying to understand what that all gets to?

Yes, I think I said 6% to 8%. So I think we're looking at …

Okay.

… whatever $35 million decline in the first quarter and then stable from there.

Okay, sorry. Got it. Understood. All right. Great. Thank you. And then just one follow-up on a big picture, unfortunate another news item to ask you about. Yes, we're going on. Now, I guess 9 months since the BlackRock ETF headline news was out there as well and I know it's a specific client, but if there's a way of just helping us understand just what needs to happen for that to either be codified as you're keeping it or going away. Just any commentary would be helpful. Thank you. Ronald O’Hanley: Yes, that process is still underway. We're working very closely with them. They have not made any decisions at this, but we are feeling reasonably positive about them.

And Ken, it's Eric. I also just remind you though, that is a growing -- it's a growing business, a growing asset at quite a high pace, right. And so I think the last time we had one of these, it took 3 years from start to finish to kind of work out from discussion to RFP to response and so forth. And so I think there's [indiscernible] factor that into the -- to any scenarios that you run.

Yes. Understood. Thank you.

Your next question comes from Brennan Hawken with UBS. Your line is open.

Thank you and good morning. This is Adam Beatty in for Brennan. Just wanted to focus in a little bit on some of the softness you mentioned in the U.S and EMEA mid market phase. I’m wondering if you could help us maybe size that a little bit, recognizing your efforts to broaden and diversify the business, just in terms of the core of what you've got right now. Either maybe size it or talk about the impact that had on your '21 guide. And also interested in any interaction with the activities of the pricing committee there in terms of either structuring pricing, or what have you in order to better retain or win business. Thank you.

Sure, Adam. It's Eric. Let me start. I think the way we think about our business on the servicing side is across segments, right. We have asset managers, we have asset owners, we have insurers, and our business is more geared to asset managers in the other segments. And so, we've historically built our franchise there, but we've actually done quite a bit of success in other -- in those other segments as well. Within asset managers, what we're starting to find is over the last year, last 2 years, the last year, in particular, we've actually secured more growth than the largest of the asset managers. They're obviously winning when you look at the external data, and either less growth or in some places decline in the mid size and smaller asset managers. And so what -- and that gap can be -- that gap in a particular quarter or a year could be a 2 percentage point growth gap, it could be a 3 or 4 percentage point growth gap, it bounces around. And so what we're finding is that, we really feel like we have the right coverage and intensity and kind of seniority focused on the largest of our clients. But our midsize clients are really an important part of our franchise. We built our franchise on them, we provide really, I think outstanding products and capabilities. And we're finding we need to spend both senior time on the midsize clients as well as the time of our relationship managers and client executives. And so this is really about intensifying our coverage of those groups, and helping them see the strength and the opportunities and the products and services that we can offer. And make sure we're top of mind that we're building on share of wallet. I've got share of wallet statistics for top 250 clients, and that includes the midsized players and really executing in that area day in, day out product one, product two, product 30, product 50, it's literally down at that level of granularity where we're focused now.

Excellent. That's helpful in the dynamics. Thank you. And then just a quick follow-up on MBS prepays. I appreciate the detail from before on that. Recognizing, of course, that interest rates will be the main driver there. Do you feel as though this past year 2020 there was any type of pull forward, in prepayments or refinancing, such that a reversal and downward ticking rates might not generate the same level of prepays as previously? Or is it very much still linked to rates? Thank you.

Adam, it's Eric. I always like to hope that prepayments are burning through that there's been a one-time pop and then they're going to attenuate, but I've learned that hoping isn't a strategy, right. We just have to operate through the environment. I think what we've seen is certainly a surge of prepayments, starting in the end of 2Q, right, once people figured out how to do the paperwork during COVID in 3Q and 4Q. And our best estimate is informed by the various modeling providers. We subscribe to 3 or 4 of them, because we knew that diversity of opinion suggests that prepayment speeds should probably continue into the first quarter, and then I'll begin to edge down from there in the second quarter and the third quarter, with some stepwise improvement. That said, we've got -- I think we've got to live through time here and just see how it plays out and we'll know more. What we're trying to do, though, is make sure that we're always taking the actions that we can on investment portfolio, on deposit reinvestment, on loans, because that's something we can control and we need to stay focused on those actions.

Fair enough. Thank you, Eric.

Your next question comes from Betsy Graseck with Morgan Stanley. Your line is open.

Hi. This is Ryan Kenny on behalf of Betsy. Good morning. Ronald O’Hanley: Good morning.

So we saw the OCC stablecoin approval come through earlier this month. Just wondering if that has any impact on State Street, and how you're thinking about your blockchain strategy going forward? Ronald O’Hanley: Yes. Hi. This is Ron. In terms of direct impact, first, the OCC doesn't regulate us. And secondly, it directly impacts or, if you will, poses the most challenge to the payments banks. For us, in general, it's probably neutral to positive because anything that stimulates more interest in blockchain and particularly more interested in digital currency is going to create a custody opportunity for us. And we have been investing fairly significantly in that space, as we've said in the past of blockchain itself is actually quite an important part of lots of things that we're doing in custody and asset servicing, and increasingly, we see digital coins, did cryptocurrency as part of holdings within our client base and we'll continue to invest in that. But the OCC's work itself, I would say, not directly relevant to us at this time.

Thanks. And then one quick other question. Wondering how we should think about the impact from money market fee waivers in 2021? Is it in the run rate now? Or should we expect any upset from here? Thanks.

Ryan, its Eric. Good part of it is in the runway run rate I think we said about $3 million in 4Q. We do expect it to tick up one more step and we fix, we're now expecting about $5 million to $10 million a quarter in the coming years. So I think we're much less exposed than others. We don't have retail money market funds. We don't have high net worth funds with higher fees. So -- but those are the figures.

Thank you.

Your next question comes from Brian Bedell with Deutsche Bank. Your line is open.

Great. Good morning, folks. Eric, maybe just to continue along the net interest income guide for '21. Just if you can just talk about your earning asset assumptions for the year and deposit growth strategy realized and obviously, they spiked up in 4Q. But as you -- you're building your servicing business and you're trying to enhance some of the deposit strategies. Maybe if you can talk about that and your assumptions for '21? And then in fact, also on the premium amortization, I think the $35 million from 3Q to 4Q, is that about a $170 million leverage? I just want to [indiscernible].

Brian, it's Eric. Let me do those in reverse order. I think the -- what the $35 million was the headwind we're seeing on a quarterly basis from 4Q to -- from 3Q to 4Q in the investment portfolio. That was a combination of the investment yield grind down and actually higher premium amortization because we're still living through that wave. What I then said is that 4Q to 1Q, we thought the combination of the investment portfolio headwind including premium amortization would be about a $25 million headwind. And then I said starting in second quarter, we thought it would trend down even further to closer to $10 million -- $15 million and $10 million in those out quarters each quarter. So I think what we're starting to see is an attenuation or have that expectation, which partly is the kind of tractor of the investment portfolio playing through and partly lower levels of premium amortization expected as speeds begin to edge downwards. In terms of the deposit forecast and the earning asset strategy, deposits, it's really hard to gauge. The Fed continues to expand the money supply by what about $120 billion a month, we are at 1% or 2% of the deposits. So we pick up deposits just by being here every month. So there's some amount of tailwind. It's just really hard to read, given lots of talk about stimulus bills, asset allocation and reallocation from risk to -- risk on risk off to bar belling. So I think, right now, we're assuming that we're going to at least stay at these fourth quarter level of average deposits, with probably a little bit of edging up. And so we're not yet -- we're not at this point of expecting yet another surge, but you just don't…

Okay. That's great color. Thank you. And then on the -- just back to the $1.5 trillion that you mentioned of growth service, you went to offset some of the headwinds. Can you just talk about the cross-sell portion of that. So this would be adding different new services to existing clients. Maybe how that sort of tracking within that outlook, and then also the importance of SSGA's indexing business as a cross-sell to asset servicing clients. Ronald O’Hanley: Yes, Brian, it's Ron. Cross-sell is a very big piece of this. I mean, if you think about what Eric said earlier, look at 2020 performance, it was largely the same in 2019. The fastest growing segment, or the segments that accounted for the most growth was in fact our global client division, which is our largest client. So by definition, we weren't adding many to that, if any, but what we were doing was growing substantially in there. And that will be a key part of our growth going forward, for both traditional asset servicing products, as some of these providers continue to consolidate -- some of these institutions continue to consolidate providers, but also for front to back Alpha activities as we install either fully install Alpha or even put Charles River in a situation where we have the middle in the back office, but not the front. So that's a key part of it. As we think about the numbers, certainly the ability to have common clients where we're both the asset servicer and the indexer is attractive, we always look for those opportunities. That that's not in the assumption that Eric's describing there. So what we really were trying to do here, in response to many questions we've gotten is more or less dimension, what we need to do to grow revenue, it's obviously that number. It's based on averages. So to the extent to which, in a given year or given quarter, we're bringing in higher fee kinds of assets, then obviously, the 9.5 goes down. So that's the way to think about it. You can never at the end of any particular quarter say, well, if you're not a quarter of the way there you -- are you making it or not, you got to go one click down and say what was the nature of the kind of underlying business which you'll be able to understand from us.

Okay, great. That’s helpful. Thank you. Ronald O’Hanley: Thanks, Brian.

Your next question comes from Rob Wildhack with Autonomous Research. Your line is open.

Good morning, guys. Ronald O’Hanley: Hi, Rob.

You called out some reduced client activity is pressuring servicing fees in the fourth quarter. Just wondering how that played out with respect to expectations. And then more qualitatively, the level of client activity, you're thinking about? Is it the outlook for next year or this year, 2021?

Yes, Rob. It's Eric. There are a number of features in how we quantify the growth kind of headwinds, tailwinds of our servicing business. Client activity is one of those that fluctuates and really represents some of the trading volumes of our clients, because there's some tolling that we do for that, in particular, cash and derivative trades tend to have more likely have tolls than others just because they're a little more complicated, ETF creation, redeem that kind of stuff. So it's a part of our fee schedules that we try to quantify, but it has a long list of kind of volumetric elements. I think on a year-on-year basis, 4Q '20 versus a year ago, the -- that -- those some of the client activity volumes actually trended down. So servicing fees, it was worth about a percentage point of servicing fee headwinds. That's an example of a time it hits against us. For full year 2020, it was actually a positive of almost 2 percentage points. So we saw that as a tailwind. And obviously, the -- all the activity in first quarter, second quarter, in particular, was helpful. Next year, we're going to have to lap ourselves on that. So it'll probably be a 1%. headwind. So it's got that kind of effect. And what it does is it reminds us that everything matters in our business to drive growth, right. If there's an equity market, tailwind or headwind that matters. This client activity matters, as well net new business, right, and [indiscernible] I referenced kind of the importance of gross new sales matters, and then there's always the normalized fee headwinds. And the good news on that last one is that those have normalized back to something pretty close to historical levels.

Okay, thanks. And I wanted to also ask about the business that you're forming with Microsoft, IHS, PIMCO and others. Can you give us some more detail on the structure there? What products and services you'll be contributing and how the potential offering there will compare to your standalone offering today? Ronald O’Hanley: Yes, Rob, it's early days you're referring to hub. And it's early days there in terms of what's going to happen. And our view was that given the role that we play as a custodian as well as our own Alpha product, that this was a good initiative to hang around, if you will. We also have clients that are part of it, but it's just very early days in terms of how that's going to develop its initial focus is on data and data usage and helping firms kind of managing employee data in a more efficient way. But, again, it's so early on, there's really not much to report.

Okay. No problem. Thank you.

There are no further questions at this time. I would like to turn the call back over to Eric Aboaf for closing remarks. Ronald O’Hanley: It's Ron. I'll take it. Thank you everybody for your time and attention and we look forward to following up with you.

This concludes today's conference call. You may now disconnect.