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Transcript of STT
Running Head: State Street Corporation
Financial Performance of State Street Corporation
Research Paper
Tahamidur Rahman
Instructor: Roberto Marchesini, Ph.D
University of Houston- Clear Lake
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Running Head: State Street Corporation
TABLE OF CONTENTS
Business Brief:..........................................................................................3
Industry Insights......................................................................................3
Business Strategies..................................................................................5
Quality of Earnings...................................................................................8
Performance Assessment......................................................................10
Conclusion.............................................................................................15
Appendices............................................................................................16
Bibliography...........................................................................................26
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Running Head: State Street Corporation
Business Brief:
The report has been drafted to measure the performance efficiency of State Street Corporation; a
financial holding company traded at NYSE under the Financial Services Industry’s sector of
Asset Management. It is registered with Federal Reserves and is regulated by the Bank Holding
Company Act. It’s primarily involved in business through its banking subsidiary, State Street
Bank- A custodian bank with global footprints that usually serves institutional investors. It
operates in two lines of businesses listed as: Investment Servicing through State Street Bank and
Investment Management through State Street Global Advisors (SSGA) (Deloitte 2015)
Industry Insights
The definition of Financial Services Industry has evolved from a group of traditional money
handlers to a diverse sector with constituents that principally operated on “Old industrial model”
of lending mainly for exports and on short-term while financing limited to the state-owned
corporations and multinationals. Today, the efforts are concentrated in investing to devise a new
business model focused on innovation and domestic consumption that provides value to lenders,
borrowers, investors& creditors (individuals or otherwise) and the economy at large (Wyman
2014). This industry plays a backbone for any economy in meeting its capital requirements,
managing liquidity and mitigating risks by offering a wide range of financial products for the
mutual benefits of all the parties involved.
The industry has emerged victorious from multiple recessions, devastating crises and horrific
transitions throughout its long history. It stands with even-solid footings than it has ever stood,
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Running Head: State Street Corporation
compared to the financial position before the Global Financial Crisis 2008 (Deloitte
2015).Investors’ confidence globally is a bit shattered as they seek to take possible preventive
measures to avoid any such mishaps that had struck them in the recent past.
State Street’s investment management services fall into Asset Management Industry, a division
of Financial Services Industry. For this industry in particular, continued efforts of recovery from
the crisis yielded results when it registered its first post-crisis growth in 2012, four years past the
crisis. Since then, the indicators have bolstered and performance has elevated. However, this
return of economic optimism was noted particularly in developed markets with emerging
markets still trying to make a shift.
The industry noted growth in Assets Under Management (AUM), primarily driven by rising
equity prices and modestly contributed from net flows. Then flows have been pumped in to the
economy by “non-traditional” asset managers and innovative solution providers. Hence, the
situation appears complex for traditional practitioners, and the industry at large, as the space for
them shrinks after a new wave of evolution and regulatory frame work to enhance transparency.
The global asset management industry manages assets worth $68.7 trillion in 2013after a rise of
11% from previous year reading. However, it used to manage around $54.7 trillion in AUM a
year before the crisis struck. Despite only a moderate contribution in AUM-increase recorded
from new asset flows, the contribution looks a little applauding if seen in context with the
previous year level; that is, 0.4% increased contribution in AUM.
On the other hand, the industry is turning again into one of the most profitable industries. It
operated with 39% operating margin in 2013, after a rise of 2% from the previous year. Such
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Running Head: State Street Corporation
high levels have been obtained as a result of cost efficiencies that are helping approach the pre-
crisis period’s peak margin of 41% in 2007.
Precisely, the stats show that the Financial Industry, in general, is well positioned to invest in
compliance and respond accordingly to the changes made in regulatory framework, has made
substantial investment in technology, is way deeper in the use of analytics to grab their share and
is more focused on growing revenues and enhancing cost efficiencies to drive financial
performance (Deloitte 2015).This further advocates prospects for the industry in years to follow.
Since State Street’s operations are concentrated in North America as per the divisional share in
Assets under Custody and Administration (AUA) and Assets under Management (AUM), its
largest competitors include certain businesses traded at NYSE in the same sector, examples of
which include The Bank of New York Mellon Corporation, JPMorgan Chase & Co., Northern
Trust Corporation and many more (Yahoo Finance 2105).
Business Strategies
The compliance with newly enacted regulations by the authorities and the growing demand for
non-traditional investing tools, combined with continued thrive for technology-driven measures
to enhance operational efficiently has made business survival a difficult drive. Increasing
downward pressure on prices due to intense competition has made State Street management
consider several restructuring options to smoothly pave its way into the future. Certain strategic
measures; aligned with Business Strategy; that complemented operations include.
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Running Head: State Street Corporation
Business Operations and Information Technology Transformation Program
This program (2010-14) was launched to improve cost efficiencies by generating marginal
savings to offset expenses associated with business operations; Information Technology
infrastructure and usage; and measures to cut cost on certain targeted initiatives including
occupancy cost and undesirable employee compensation. However, the management considers
employees its partners in success and couldn’t consider unjustified cost-cutting at the expense of
compromising on its strategic assets. The implementation involved $440million worth of pre-tax
expenses to generate pre-tax savings worth $625million over the entire course of four years.
Advantages derived include
Employee Compensation and Benefits
In 2014, the employee compensation and benefits expenses rose by 7% only. Had there been
no implementation of this program, the incremental cost could have been much higher. The
cost was partially offset by the saving generated from the program. This increase in cost
primarily corresponds, not restricted, to staffing expenses and increased remuneration as a
result of promotion.
Information System improvements
For the initiatives in Information Technology, the company has invested substantially. The
implementation of this program allowed the offset of increased expenses in Information
systems and communication.
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Running Head: State Street Corporation
Business Operations
For the purpose of reducing complexity, many core business processes have been standardized.
These processes were then readily automated, and the reliance on specialist third-party services
providers for IT infrastructure and support services has been increased.
Acquisition Strategy
The management of State Street Corporation has a well-devised business strategy to grow and
sustain its market share by building upon any opportunity to acquire a complementary business
or technology. Its progress throughout is marked with several events of acquisitions, few of
which involve acquisition of Complementa Investment-Controlling AG, Intesa Securities and
Bank of Ireland Asset Management by its Investment management business; SSGA.
Liquidity Management Strategy
State Street runs complementary sets of businesses. The deposits available with world-wide
branches of its custodian banks are used for settlement of transactions associated with client’s
investment portfolio. Thus, the business generates most of its liquidity from clientele deposits
and doesn’t have to rely entirely on wholesale funding. Hence, the global presence of
complementary businesses helps save margins for State Street in terms of savings in funding cost
and transaction cost (State Street 2014).
Customer-Oriented Strategies
Management at State Street is fully aware of the benefits associated with having its customers
satisfied in order to enhance the business sustainability in the long-run. In order to keep the
clients contented and allow them purchases of services from different business unit, the company
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Running Head: State Street Corporation
offers an integrated model of sales. It translates into providing customer the leisure to choose
different products, all from different business units, and couple them into becoming a single
integrated product. This integrated product is priced individually based on the customer’s
relationship with the business and is called Relationship pricing for clients.
Quality of Earnings
The predictability of income over a period of time is referred to as the quality of earnings. The
more predictable the earnings are, the more qualitative they are deemed to be. Predictability of
earnings is greatly depended on a company employing the same accounting standards over the
years, having no prominent swings in its recurring operational income and not having sizable
extraordinary items reported.
For predictability of State Street earnings, its Consolidated Statement of Income has been
thoroughly and critically analyzed with particular attention paid to in-depth assessment of
accompanying notes. The conclusion derived is stated in the lines to follow.
Revenue Sources:
The two major chunks that contribute largely to the fee revenue include servicing fees and
management fees. They comprised of some 78-79% of the total fee revenue. Along with FEE
REVENUE which makes up around 76-78% of the total revenue in the past 2 years, NET
GAINS/(LOSSES) related to investment securities and NET INTEREST REVENUE are
summed up to measure TOTAL REVENUE. Servicing fees are driven by Asset under
Custody and Administration (AUA) while the Assets under Management (AUM) primarily
drive investment fee revenue. However, the fee revenue doesn’t entirely depend on these two
factors, and relationship pricing along with other factors can make an influence.
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Running Head: State Street Corporation
All the revenue streams appear relatively consistent and uniform. The stats suggest only 2%
change in total revenue in case of 10% change in the global equity valuations worldwide and
only a percent change in total revenue if the values for global fixed income securities
fluctuate by 10%. This highlights high quality revenue streams
Contra-Revenue Accounts
The business is a participant in the lending program to non-investment-grade borrowers for
which, the management records provisions for loan losses. The recent year readings show an
increase of 66% resulted from growth in the lending portfolio. However, the amount is not
substantial enough to render any serious deterioration in company’s revenue, there-by,
making the predictability of income more certain.
Expense Account
The incurred expenses over the past two years indicate steady rise when seen in context with
the increased number of employees. The expenses rose by approximately 8.8% in 2014
compared to 4.4% in 2013 as the number of employees increased by 540 in the year 2014.
Upon examining the expense account closely, it is concluded that over half the expenses
incurred in 2014 and 2013 correspond to Compensation and Employee Benefits (CEB). Even
the major chunk of expenses from Business Operations and Information Technology
Transformation Program (2010-14) relate to CEB, making it the prime factor to drive overall
Expenses.
The observations suggest that CEB expenses increased by 7% in 2014 as a result of many
factor, momentous of which include Severance cost, which increased by 7.6X.The
Regulatory Compliance cost increased substantially in terms of liquidity and capital
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Running Head: State Street Corporation
management and the Management anticipates such hikes to continue in the near future,
making the expenses account vulnerable to changes.
In light of the above presented arguments coupled with facts and figures, it appears with
reasonable assurance that the financial statements provided no evidence of discounted
operations, change in accounting policies and reporting of any frequent extraordinary items
that have significantly affected the earnings stream of the business, rendering them
unpredictable. Therefore, the company can be assumed to have a sound outlook in terms of
quality of the earnings; however, the management considers exposure to operational and
reputational risk.
Performance Assessment
This section evaluates the performance of State Street Corporation by employing a series of
analytical tools such as Ratio Analysis performed on the Statement of Income and Statement of
Financial Position and cash flow analysis performed on Statement of Cash flows. The aim is to
predict the company’s prospects in the future based on historical performance and identify the
lapse that poses risks. The business has been evaluated on certain matrices such as Profitability,
Liquidity, Asset management efficiency, Gearing and Leveraging and Cash Flow management.
Profitability
The company’s profitability has been evaluated for efficiency in deployment of assets and
capital in a manner that generates higher returns for the business and increase sits cost
efficiencies to earn greater margins. The ratios employed are Net Profit margin, Return on
Asset and the Return on Capital Employed.
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Running Head: State Street Corporation
The company’s net margins are observed to have a slightly diminishing trend in the last year.
This decrease was notably contributed from the 7% increased expenses in Compensation and
Employee Benefits, which form the greatest portion of the total expenses every year.
However, the company still earns competitive net margins of 19.79% compared to one of its
largest competitors- JPMorgan Chase & Co. - that earns 21.33% Net margins.
When observed on the efficiency of Assets utilization to earn profits, a similar trend is
observed with efficiency decreasing slightly each year probably due to the relatively greater
attainment of assets in 2014 (12.67%) compared to 2013(9.34%). This in turn pushed the
efficiency down a little; recorded using ROA; to 0.74% in 2014 from 0.88% and 0.93% in
2013 and 2012 respectively. Despite this decrease, the efficiency is not substantially subpar
compared to the competitor’s efficiency of 0.81% in 2014. However, the industry as a whole
must be operating at significantly lower margins and efficiency.
The last ratio used to gauge efficiency of capital employment to generate returns is Return on
Capital Employed. The capital considered for calculation is the owner’s equity coupled with
only the long-term borrowing of the business. The short-term borrowings are identified from
the Note 8 of the annual accounts (Annual Report and Accounts 2014) and outcast in an
attempt to evaluate performance in a long run. Since short term borrowings are not accounted
for in calculation of this ratio, the net of tax interest expense is also deducted from the
Income before tax. The reading comes out to 1.07% in 2014 following an elevated
performance in 2013 (1.30%) and 2012 (1.49%).
The decrease in all three ratios are probably indicating a maturity point of State Street along
with many other factors for this decrease such as increased growth in assets in 2014 and
decreased margins due to higher regulatory compliance expenses.
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Running Head: State Street Corporation
Liquidity
The liquidity is measured in perspective of having the ability to meet all its short term
obligations. The ratios used include Current Ratio and Interest Coverage Ratio also known as
Times Interest Earned. The Current ratio for State Street is on a continuous rise for the last
three years with readings measured at 8.87X, 7.60X and 5.63X in 2014, 2013 and 2012
respectively. The times interest earned; however, show somehow consistent performance
over the period with no substantial increase or decrease. The slight change has been the result
of exponentially increased interest bearing liabilities, the effects of which have been largely
offset by the increased income for the year in 2014. The ratios stand at 7.27X, 7.54X and
6.81Xin 2014, 2013 and 2012 respectively. This highlights an even better performance than
its competitor: JPMorgan Chase & Co. which has a coverage ratio of 3.76X in the trailing
twelve months period (WikiInvest 2015).
On this matrix, the company has been outperforming its competitors and has a sound outlook
of the ability to payout its near maturity debts.
Leverage
Generally, the constituents of the financial services industry, particularly the Custodian
Banks, have a higher multiple of Debt relative to their equities. These debts are owed to the
bank in the form of deposit and other liabilities. For State Street, the gearing has been
measured using Debt to Equity ratio and the Degree of Financial leverage (DFL) that gauges
the change in EPS with a subsequent percentage change in EBIT.
The Debt/ Equity ratio for State Street represents the customers’ astounding belief in the
management of their deposits which are on a continuous exponential hike since 2012. The
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ratio reads at 11.15X in 2014 compared to its competitor’s measure of 10.44X (WikiInvest
2015). The year 2014 represents a rise of 7.5% from 10.36X in 2013 and 9.05X in 2012.
On the other hand, the DFL specifies the impact of interest expense on the post-interest
income of the business. State Street has managed to remain considerably consistent on this
matrix with year 2014 measuring a DFL of 1.16, a rise of 0.5% from the past year’s
performance of 1.15 in 2013. This ratio represents relative stability when compared to the
competitor’s measure of 1.45 in the last fiscal year 2014 (MorningStar 2014).
Asset Management Efficiency
The asset management efficiency relates to activity ratios that measure the use of tangible
and intangible assets and equity to generate revenue for the company. The ratios estimated
are Total Asset Turnover, Equity Turnover and Intangible Asset Turnover.
Asset turnover implies to the amount of sales generated per dollar of assets. As State Street
and other custodian banks have to have a large amount of assets invested in to securities or
kept with the regulatory authority in compliance with the set standards, the turnover is
usually lesser than 1. For the period under consideration for analysis, State Street has
managed to consistently meet the industry and competitors’ set benchmark of 0.4 in 2014
(Wall Street Journal 2015). The bank impressively generated ratio equaling 0.4 in all the
three periods (2102-14) of analysis.
The Intangible Asset turnover brings into attention the utilization of goodwill and brand
name to help generate revenues for the business. It is important ratio at times when the
industry becomes saturated and efficiency is measured on the use of brand name to attract
customers. The business has been observing quite consistent growth in registering revenues
derived from enormous goodwill and brand equity. It has been earning $1.31, $1.18, and
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Running Head: State Street Corporation
$1.13 per dollar of sales in the year 2014, 2013 and 2012 respectively. These measures
signify consistent rise in the use of goodwill to attract business.
The last ratio in this matrix, the Equity Turnover Ratio, depicts uniformity, which can now be
considered a representation symbol of State Street Corporation. Its performance pertaining to
this ratio is determined at $0.48 of revenue per dollar of equity in 2014. Similar
measurements have been observed from the past performance in 2013 and 2012 where the
posted equity turnover is appraised at 0.49 and 0.46.
Cash Flow Analysis
There are several methods to analyze the sustainability of the cash flows a business
generates, one of which is the cash flow ratios analysis which is pre-dominantly focused on
Operating Cash Flows. Nevertheless, as opposed to the case with other businesses where
only the operating cash flow are considered as one from the core activities, the banks don’t
count Investing and Financing activities as peripherals, rather core.
There have been three ratios used to scrutinize the efficacy of State Street cash flows.
However, the comparison among banks is meaningless to a large extent as different banks
account for investments differently and estimate non-cash transfer of their loans uniquely. Of
the three ratios, the first is Operating Cash Flow to Net Sales ratio which measures the ability
of a company to turn sales into cash. State Street has substantially large amount of non-cash
assets such as collateral deposit and unrealized gains from Foreign Exchange which keep
increasing each year by significantly large amounts. This may be an achievement for the
company, but in terms of Cash flows, they are to be deducted from Net Sales and results into
decreased operating cash flow, sometimes reaching down into negative. State Street has the
same issues with the cash flow management and doesn’t perform impressively in generating
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Running Head: State Street Corporation
operating cash flows. This in turn results into negative OCF/Net Sales ratio during the past 2
years. However, the performance this year was relatively better, yet not satisfactory. The
ratios are measured at -5%, -20% and 20% in the years 2014, 2013 and 2012 respectively.
For estimation of the free cash flows, the depreciation expense is gathered from note 20 in
annual accounts and deducted from the operating cash flows along with change in CAPEX.
This further amplified the negative OCF to come up with certainly disappointing free cash
flows. The same has been the result with short term debt coverage ratio with OCF. In a
nutshell, the company experiences downgrading performance with management of the cash
flows.
Conclusion
The financial performance of the top notch financial services provider - State Street Corporation
- having global footprints has been quite impressive in all the performance matrices except one.
The company has to invest in making its cash flows getting streamlined with the industry trends.
The consistency in performance is observed by carrying out the analysis on common size
statements, which suggest no considerable proportionate change in different accounts of the
income statement. However, substantial change in the proportion of interest bearing deposits in
assets depicts increased and heavy reliance. This in turn exposes the business to interest rate risk.
The other observation made from the common size Balance sheet is the increasing proportion of
Retained Earnings each year’s followed by the increased payments of dividends to equity
holders. This shows investors’ confidence in the management of State Street in carrying out the
business effectively. This confidence is reflected in the surplus account of the Equity portion in
B/S which makes up nearly half the total equity of shareholders.
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Running Head: State Street Corporation
The Capital Structure and the huge amounts owed to borrowers in the form of deposits put the
company into intensified Financial Risk, the implications of which will be even amplified if an
upward shift is noted in the offering rate. However, economic conditions remain truthful to the
nature of this business and prospects are evident for the stakeholders if the business continues to
prosper and grow with the same consistency and deal with certain factors where it lags.
Appendices
STATE STREET CORPORATIONCONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DEC 31,
(Dollars in Millions)
2,014
2,013
2,012
Fee Revenue:
Servicing fees 5,129
4,819 4,414
Management fees 1,207
1,106
993
Trading services 1,084
1,094 1,036
Securities finance 437
359
405
Processing fees and other 174
212 240
Total fee revenue 8,031
7,590
7,088
Net interest revenue:
Interest revenue 2,652
2,714
3,014
Interest expense 392
411 476
Net interest revenue 2,260
2,303
2,538
Gains (losses) related to investment securities, net:
Net gains (losses) from sales of available-for-sale securities 15
14
55
Losses from other-than-temporary impairment (1)
(21) (53)
Losses reclassified (from) to other comprehensive income (10)
(2)
21
Gains (losses) related to investment securities, net 4
(9)
23
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Running Head: State Street Corporation
Total revenue 10,295
9,884
9,649
Provision for loan losses 10
6
(3)
Expenses:
Compensation and employee benefits 4,060
3,800 3,837
Information systems and communications 976
935
844
Transaction processing services 784
733 702
Occupancy 461
467
470
Claims resolution -
-
(362)
Acquisition and restructuring costs 133
104
225
Professional services 440
392 381
Amortization of other intangible assets 222
214
198
Other 751
547 591
Total expenses 7,827
7,192
6,886
Income before income tax expense 2,458 2,686
2,766
Income tax expense 421
550
705
Net income 2,037
2,136 2,061
Net income available to common shareholders 1,973 2,102
2,019
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Running Head: State Street Corporation
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STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT DEC 31,
(Dollars in Millions)
2,014
2,013
2,012
Assets:
Cash and due from banks 1,855
3,220
2,590
Interest-bearing deposits with banks 93,523
64,257
50,763
Securities purchased under resale agreements 2,390
6,230
5,016
Trading account assets 924
843
637
Investment securities available for sale 94,913
99,174
109,682
Investment securities held to maturity (fair value of $17,842,$17,560 and $11661) 17,723
17,740
11,379
Loans and leases (less allowance for losses of $38, $28 and $22) 18,161
13,458
12,285
Premises and equipment (net of accumulated depreciation of $4,599, $4,417 and $4037) 1,937
1,860
1,728
Accrued interest and fees receivable 2,242
2,123
1,970
Goodwill 5,826
6,036
5,977
Other intangible assets 2,025
2,360
2,539
Other assets 32,600
25,990
18,016
Total assets 274,119
243,291
222,582
Liabilities:
Deposits:
Noninterest-bearing 70,490
65,614
44,445
Interest-bearing—U.S. 33,012
13,392
19,201
Interest-bearing—non-U.S. 105,538
103,262
100,535
Total deposits 209,040
182,268
164,181
Securities sold under repurchase agreements 8,925
7,953
8,006
Federal funds purchased 21
19
399
Other short-term borrowings 4,381
3,780
4,502
Accrued expenses and other liabilities 20,237
19,194
17,196
Long-term debt 10,042
9,699
7,429
Total liabilities 252,646
222,913
201,713
Commitments, guarantees and contingencies (notes 10 and 11)
Shareholders’ equity:
Preferred stock, no par, 3,500,000 shares authorized:
Series C, 5,000 shares issued and outstanding 491
491
489
Series D, 7,500 shares issued and outstanding 742
-
Series E, 7,500 shares issued and outstanding 728
-
Common stock, $1 par, 750,000,000 shares authorized:
Running Head: State Street Corporation
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
YEAR ENDED DEC 31,
(Dollars in Millions)
2,014
2,013
2,012
Operating Activities:
Net income 2,037
2,136
2,061
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Deferred income tax expense 79
62
231
Amortization of other intangible assets 222
214
198
Other non-cash adjustments for depreciation, amortization and accretion, net 477
461
291
(Gains) losses related to investment securities, net (4)
9
(23)
Change in trading account assets, net (81)
(206)
70
Change in accrued interest and fees receivable, net (119)
(153)
(148)
Change in collateral deposits, net (4,362)
(4,046)
(1,443)
Change in unrealized (gains) losses on foreign exchange derivatives, net (2,042)
(128)
982
Change in other assets, net 3,612
(819)
(360)
Change in accrued expenses and other liabilities, net (669)
113
(250)
Other, net 289
333
324
Net cash (used in) provided by operating activities (561)
(2,024)
1,933
Investing Activities:
Net (increase) decrease in interest-bearing deposits with banks (29,266)
(13,494)
8,123
Net decrease (increase) in securities purchased under resale agreements 3,840
(1,214)
2,029
Proceeds from sales of available-for-sale securities 9,766
10,261
5,399
Proceeds from maturities of available-for-sale securities 36,120
37,529
44,375
Purchases of available-for-sale securities (43,146)
(39,097)
(60,812)
Proceeds from maturities of held-to-maturity securities 3,217
2,080
3,176
Purchases of held-to-maturity securities (3,778)
(8,415)
(3,577)
Net increase in loans (4,785)
(1,214)
(2,303)
Business acquisitions, net of cash acquired -
-
(511)
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Running Head: State Street Corporation
Purchases of equity investments and other long-term assets (182) (272) (251)
Purchases of premises and equipment (427)
(388)
(355)
Other, net 149
139
116
Net cash used in investing activities (28,492)
(14,085)
(4,591)
Financing Activities:
Net increase (decrease) in time deposits 54,404
(14,507)
7,627
Net (decrease) increase in all other deposits (27,632)
32,594
(733)
Net increase (decrease) in short-term borrowings 1,575
(1,155)
(1,587)
Proceeds from issuance of long-term debt, net of issuance costs 994
2,485
998
Payments for long-term debt and obligations under capital leases (788)
(134)
(1,781)
Proceeds from issuance of preferred stock 1,470
-
488
Proceeds from exercises of common stock options 14
121
53
Purchases of common stock (1,650)
(2,040)
(1,440)
Excess tax benefit (expense) related to stock-based compensation 72
50
(6)
Repurchases of common stock for employee tax withholding (232)
(189)
(101)
Payments for cash dividends (539)
(486)
(463)
Net cash provided by financing activities 27,688
16,739
3,055
Net (decrease) increase (1,365)
630
397
Cash and due from banks at beginning of period 3,220
2,590
2,193
Cash and due from banks at end of period 1,855
3,220
2,590
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Running Head: State Street Corporation
STATE STREET CORPORATION
Ratio Analysis
2,014 2,013 2,012 Profitability Ratios Profit Margin 19.79% 21.61% 21.36%ROA 0.74% 0.88% 0.93%ROCE 1.07% 1.30% 1.49% Liquidity Ratios Current Ratio 8.87 7.60 5.63 Times Interest Earned 7.27 7.54 6.81 Gearing Debt/Equity 11.15 10.36 9.05 Degree of Financial Leverage 1.16 1.15 1.17 Asset Management Ratios Total Assets Turnover 0.04 0.04 0.04 Equity Turnover 0.48 0.49 0.46
Intangible Asset Turnover 1.31 1.18 1.13
CASH FLOW ANALYSISCash Flow Ratios Operating Cash flow/ Net Sales (0.05) (0.20) 0.20 Free Cash Flows (FCF) (1,055) -2557 1545FCF/OCF meaning less (negative flows)
Short-term Debt Coverage (0.04) (0.17) 0.15
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Running Head: State Street Corporation
STATE STREET CORPORATION
COMMON-SIZE STATEMENT OF INCOME
YEAR ENDED DEC 31,
(Dollars in Millions)
2014 2013 2012Total revenue 100.0% 100.0% 100.0%
Provision for loan losses 0.1% 0.1% 0.0%
Expenses:
Compensation and employee benefits 39.4% 38.4% 39.8%
Information systems and communications 9.5% 9.5% 8.7%
Transaction processing services 7.6% 7.4% 7.3%
Occupancy 4.5% 4.7% 4.9%
Claims resolution 0.0% 0.0% -3.8%
Acquisition and restructuring costs 1.3% 1.1% 2.3%
Professional services 4.3% 4.0% 3.9%
Amortization of other intangible assets 2.2% 2.2% 2.1%
Other 7.3% 5.5% 6.1%
Total expenses 76.0% 72.8% 71.4%
Income before income tax expense 23.9% 27.2% 28.7%
Income tax expense 4.1% 5.6% 7.3%
Net income 19.8% 21.6% 21.4%
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STATE STREET CORPORATION
COMMON-SIZE STATEMENT OF POSITON
YEAR ENDED DEC 31,
(Dollars in Millions)
2014 2013 2012Assets:
Cash and due from banks 0.7% 1.3% 1.2%
Interest-bearing deposits with banks 34.1% 26.4% 22.8%
Securities purchased under resale agreements 0.9% 2.6% 2.3%
Trading account assets 0.3% 0.3% 0.3%
Investment securities available for sale 34.6% 40.8% 49.3%
Investment securities held to maturity (fair value of $17,842,$17,560 and $11661) 6.5% 7.3% 5.1%
Loans and leases (less allowance for losses of $38, $28 and $22) 6.6% 5.5% 5.5%
Premises and equipment (net of accumulated depreciation of $4,599, $4,417 and $4037) 0.7% 0.8% 0.8%
Accrued interest and fees receivable 0.8% 0.9% 0.9%
Goodwill 2.1% 2.5% 2.7%
Other intangible assets 0.7% 1.0% 1.1%
Other assets 11.9% 10.7% 8.1%
Total assets 100.0% 100.0% 100.0%
Liabilities:
Deposits:
Noninterest-bearing 33.7% 36.0% 27.1%
Interest-bearing—U.S. 15.8% 7.3% 11.7%
Interest-bearing—non-U.S. 50.5% 56.7% 61.2%
Total deposits 82.7% 81.8% 81.4%
Securities sold under repurchase agreements 3.5% 3.6% 4.0%
Federal funds purchased 0.0% 0.0% 0.2%
Other short-term borrowings 1.7% 1.7% 2.2%
Accrued expenses and other liabilities 8.0% 8.6% 8.5%
Long-term debt 4.0% 4.4% 3.7%
Total liabilities 100.0% 100.0% 100.0%
Commitments, guarantees and contingencies (notes 10 and 11)
Shareholders’ equity:
Preferred stock, no par, 3,500,000 shares authorized:
Series C, 5,000 shares issued and outstanding 2.3% 2.4% 2.3%
Series D, 7,500 shares issued and outstanding 3.5% 0.0% 0.0%
Series E, 7,500 shares issued and outstanding 3.4% 0.0% 0.0%
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Running Head: State Street Corporation
Common stock, $1 par, 750,000,000 shares authorized: 0.0% 0.0% 0.0%
503,880,120, 503,882,841 and 503,900,268 shares issued 2.3% 2.5% 2.4%
Surplus 45.6% 48.0% 46.3%
Retained earnings 69.3% 65.7% 56.3%
Accumulated other comprehensive income (loss) -2.4% -0.5% 1.7%
Treasury stock, at cost (88,684,969,69,754,255 and 45,238,208 shares) -24.0% -18.1% -9.1%
Total shareholders’ equity 100.0% 100.0% 100.0%
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BibliographyDeloitte (2015) 2015 Banking Outlook, UK: Deloitte Development LLC.
Oliver Wyman (2014) The Challenges Ahead , North America: Marsh & McLennan Companies.
State Street (2014) Resolution Plan for State Street Corporation , Massachusetts: State Street Corporation.
State Street Corporation (2015) Annual Report & Accounts - Form 10K, Massachusetts: UNITED STATES SECURITIES AND EXCHANGE COMMISSION.
Wall Street Journal (2015) JPM, Available at: http://quotes.wsj.com/JPM/financials (Accessed: 11th April 2015).
WikiInvest (2015) JPMorgan & Chase - Debt to Equity, Available at: http://www.wikinvest.com/stock/J_P_Morgan_Chase_%28JPM%29/Data/Debt_to_Equity (Accessed: 11th April 2015).
WikiInvest (2015) JPMorgan & Chase - Interest Coverage, Available at: http://www.wikinvest.com/stock/J_P_Morgan_Chase_%28JPM%29/Data/Interest_Coverage_Ratio (Accessed: 11th April 2015).
Yahoo Finance (2105) State Street Corporation (STT), Available at:http://finance.yahoo.com/q/co;_ylt=A0LEV7tnqCpVlHAAYSwPxQt.;_ylu=X3oDMTEzMW0yNTZkBHNlYwNzcgRwb3MDMQRjb2xvA2JmMQR2dGlkA1lIUzAwMV8x?s=STT+Competitors(Accessed: 10th April 2015).
MorningStar (2015) JPM, Available at: http://financials.morningstar.com/ratios/r.html?t=JPM®ion=usa&culture=en-US (Accessed: 11th April 2015).
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