State Street (STT) Morgan Stanley US Financials, Payments & CRE Conference 2024 summary

Macro environment and strategic priorities

• Positive macro outlook driven by strong equity markets and cautious investor optimism, with stable rates in the U.S. and some rate cuts in Europe.

• Watching for risks from U.S. dollar strength, geopolitical tensions, and cyber threats.

• Focused on growth by enhancing service quality, client retention, and expanding Alpha and private markets offerings.

• Private market servicing targeted to grow 15% annually, aiming for $1 billion in revenue over five years from a current base of ~$450 million.

• Software business also targeted to reach $1 billion in five years, leveraging Alpha's front, middle, and back office solutions.

Balance sheet, deposits, and NII guidance

• Deposit balances have stabilized around $215–$220 billion, above previous expectations, due to strong client engagement.

• Non-interest-bearing deposits continue to decline, expected to stabilize above $20 billion in the second half of the year.

• Quantitative tightening impact has lessened, with deposit levels reaching equilibrium.

• Net interest income (NII) sensitivity is described as relatively neutral over one to three years, with a balanced asset-liability mix.

• 2Q NII expected at the better end of guidance (down 2–5% QoQ), with fee revenues up about 1% QoQ; expense growth guided at 2–2.5% sequentially.

Business drivers and growth initiatives

• Accelerating implementation of Alpha and custody services, with $2.6 trillion yet to be installed and $300 million in servicing fee revenues.

• Sales targets for servicing fees raised to $350–$400 million for 2024, with strong pipelines and broad client wins.

• Custody offers high variable contribution margins due to scale, while middle and private markets processing remain more manual.

• T+1 settlement implementation seen as an opportunity to enhance reputation and drive FX and outsourced trading revenues.

• Outsourced trading market estimated at $600 million, growing 20–30% annually, with new offerings targeting mid-size and large asset managers.