State Street Corporation (NYSE:STT) Q2 2023 Earnings Call Transcript

Obviously, FX is a function of are they — do they have occasion to use FX? And increasingly, most managers do, securities finance manager, line managers. So the reason why I’m saying it’s tactical, it’s — there’s a holistic conversation that needs to occur here. And it’s important on both sides, ours included, to lay out for the client that remember all we did for you over the past few years to get you through whatever fee challenges they were having, that was predicated on X. And X might be an assumed deposit level, it might be on an assumed FX level, X isn’t playing out. We need to have a conversation on this. And that could, in cases, lead to more fees or it could and the more typical outcome is that, well, hey, we’re not doing this with you, let’s try and do that or even there’s a set of funds over here that we’ve never talked about, whatever Cayman Islands or something, and let’s see if we can move those.

I mean the positive situation is a challenge. The conversations it’s spurring are opportunities. And there are real opportunities. There’s senior people intimately involved in these because we don’t get a lot of redos on them. This is the moment to be doing it. So we think it’s a way to, I mean, again, the kind of NII outflow is a significant headwind, but we think it’s an opportunity to mitigate some of it. The strategic side of this, Brian, I don’t want to lose, right? Because going back to the acquisition of Charles River, the launch of Alpha, all the development we’ve been doing, we’re now seeing onboarding happening there. With the typical onboarding journey tends to be the lower fee complicated kind of middle office stuff starts first.

And then there’s follow-on services. And it’s making sure that we are implementing, addressing and implementing those follow-on services as fast as possible. So when we talked earlier and talked about the onboarding, I talked about that we were able to move a little over $1 trillion into to be onboarded to onboarded. What will follow there is other services and increase kind of the revenue per asset per — I mean that’s the way Alpha works and that’s the way Alpha is going to play out, which is why notwithstanding the short-term issues that Eric has raised in terms of we’ve got this client transition. We’re actually quite optimistic over the — what I would call the short to medium term as we look into 2024 about the revenue picture.

Brian Bedell: That’s great color. And then maybe just on the expense side, Eric, you mentioned the expense levers. Are they more tactical in nature? Or do you see sort of an ability to reengineer — continue to reengineer the cost base. You’ve already done a great job in reducing costs structurally over the last several years. I don’t know if we’re like mostly through that and when you do have the cost saves you reinvest them in growth initiatives? Or is there an ability to sort of reduce the overall cost structure?

Ronald P. O’Hanley: Brian, let me address that first, and then Eric will comment. The — we are definitely not through this. And by that, I mean, when we started down this journey a couple of years ago, we obviously addressed call it, which you want the lower-hanging fruit, the kinds of things that we could get at without a lot of technology investment, without a lot of reengineering, but there is more to do, and we’re making a lot of progress on it. We’ve got people in place now on both the operations reengineering side and on the technology side that are working this through. The way this has played through in our results, you’ve seen what our expenses have been, but we’ve also been able to invest more in the businesses than we otherwise would.