Good morning. Thank you for joining us. For our next session, I'd like to welcome John Woods, State Street's recently appointed CFO. State Street is one of the largest global asset servicing and asset management firms, with around $52 trillion in assets under custody and administration, and $5.5 trillion in assets under management. Over the course of 2025, State Street saw a nice boost in service and fee growth, with positive sales momentum, largely stable NII, and continued focus on delivering positive operating leverage and robust pace of share repurchases, so all clearly welcome trends. Hopefully more of that to come into 2026, so thank you for joining us. Your first time here as State Street CFO?
Yeah.
Probably not the first time to the conference.
Yeah.
But glad to have you here. Thank you for joining us.
Great to be here.
So, John, I wanted to start with a question maybe on 2026 priorities. Obviously, financial markets saw a lot of volatility over the course of the year. State Street is still on track to deliver very healthy financial performance this year across the fee revenue stream, but also pretty stable NII and, to my point earlier, positive operating leverage, healthy, you know, healthy return of capital. Looking out into 2026, what are the top strategic priorities and key areas of growth for you and the team?
Yeah. I mean, I think I agree on 2025. I think the strength of the franchise is coming through. Just in my first, you know, couple of months, maybe three, four priorities I would highlight. One is financial delivery, and that's exceptionally important to continue to deliver on our commitments and what we expect to be able to do from a financial standpoint. So that's top of the list. I think the second one, which is related, is I would highlight maybe balance sheet.
Mm-hmm.
Looking for opportunities to optimize the balance sheet, put it to work, you know, for customers, and deepening relationships, but also making sure it's very efficient and looking for ways to grow NIM over time and grow NII over time is an objective, so that's the second item. I mean, I think the third one is very important these days when we wanna invest in our strategic initiatives, but it's managing expenses.
Yep.
And productivity. So I think we've done a great job of that in the past. It'll continue to be really important. I think we have significant opportunities to continue to generate productivity over time. And that's important in terms of, as I mentioned, you know, kind of supporting the strategic roadmap. And maybe I will add a fourth. That's the fourth major priority is partnering with the business leaders and Ron to drive, you know, our portfolio of strategic initiatives over time, which I believe is, you know, very distinctive.
Yeah.
And so, more to come on all those priorities as we, you know, talk about how that plays out for 2026. But those are, I, I'd say those are the top four.
Yeah. Those are all the good ones.
Yeah.
So, look, maybe starting with the last one you mentioned around just partnering with Ron and other people within the team to really drive growth. So I wanted to start there. So, let's talk about the service and fees. It's your largest business, investment servicing. So a really nice ramp in 2025 in fee growth. Some of it is obviously the market that's been quite helpful for the last, call it, you know, 12- 18 months. But importantly, the sales momentum within kind of organization of that $350-$400 million in new fees remains on track. So talk to us a little bit about key areas of strength within that and how you're thinking about sustainability of this type of organic growth into next year.
Yeah. I think that we're feeling good about this. I mean, I think we had an objective of $350-$400 in sales. I think that, you know, sales can be lumpy quarter to quarter, as you know, and we'll see how things close out in the coming weeks. I think that probably ends up coming in closer to $350. But I think the context there is really important. I think there's been a pivot several years ago where sales were, you know, lower than we wanted them to be. And I think for the last three years, we've had sales north of $300 million, and 2025, 2025 will be no exception.
Mm-hmm.
So that's really emblematic of all the work that's been put in by Jörg and the team, you know, in changing the operating model in terms of go-to-market and the sales force approach, and so we're seeing NPS scores rise, and the sustained kind of sales momentum continues, so feeling very good about that. I think another way to look at it is how the backlog is evolving.
Mm-hmm.
And I think the mix of the backlog is now more concentrated in back office and frankly privates, private markets.
Mm-hmm.
And, from the back office standpoint, the quality of that is, you know, it's faster to install. It's our bread and butter, and it's important to us. And so that's been good. And then, of course, in the private market space, that's a higher growth segment that Jörg is focused on, that is also a big part of the backlog and a big part of our growth going forward will be underpinned by the private market space.
Yeah. That's interesting. So when you look out into 2026, kind of this range still sounds reasonable, but it would make shift towards the areas you just kind of highlighted.
Yeah.
Yeah. Got it. All right, well, let's talk about private markets. Obviously, it's a long-term growth area within financial services. It's been one for quite some time, more recently with significant growth in semi-liquid products in particular for the wealth channel. How do you think about the competitive dynamics for service providers like State Street evolving within that ecosystem? And can you maybe just remind us, your footprint here and what that looks like, and some of the key competitive differentiation factors within the semi-liquid and just private market space broadly?
Yeah. I mean, it's a big part of what we're doing in the investment services side of the house. I mean, we have a global platform that supports the private market space with a range of products across all the range of products, whether it's private equity, private credit, real estate, infrastructure funds, you name it. So, it's a broad offering. I'd say that this is a relatively fragmented space. So I think we've got a right to win here. Our capabilities are significant in the context of, you know, whether it's tax obligations or regulatory requirements, all on a global platform. You know, we think that's unique, and that gives us a competitive advantage. We've been demonstrating strong growth into 2025, and we expect that to be, you know, driving double-digit growth into 2026.
Great. Great. Double-digit growth in that part of the market in terms of fees, right?
Yeah.
Okay. Makes sense. I wanted to spend a couple of minutes on wealth servicing. It's something that, you know, I think the market doesn't really spend a whole lot of time on when they think about State Street. But you did make a couple of interesting announcements here over the course of the year. Back in July, you announced strategic partnership with UC. And I guess more recently, there was announcements of strategic investment and partnership with Apex Fintech Solutions as well. So can you just expand a little bit on the opportunity you see for State Street within the wealth market, and how do you differentiate your offering there, against some of the players as well?
Yeah. I mean, I think, well, this is a pretty exciting growth opportunity for us. I mean, if, you know, if you think about the revenue pool, it's growing significantly with the demographic shift from the Baby Boomers.
Sure.
And the transfer of wealth, the Great Wealth Transfer that I think is underway and will be ongoing for quite some time. And we feel like we're well-positioned to capture a big part of that revenue pool based upon the investments that we're making in wealth. I would start off with, in the front office basically in terms of CRD Wealth.
Mm-hmm.
And our capabilities there, which are unique, and when we combine that with, you mentioned, our Apex partnership, that we think that positions us very well to go from front office to back office support for wealth managers in the custody and clearing space. It's, you know, I think, you know, I think going back to the front office, I mean, I think, you know, portfolio construction and wealth trading support all the way through into the back, all the way through into the core custody and clearing space. It's a unique offering. This partnership with Apex is maybe one of a kind in terms of their global platform with a truly cloud-native digital wealth custodian support, is, we think, very unique, and so positions us exceptionally well in the wealth space.
So that's in the kind of front -to- back range of things. I think the UC Investments is also very interesting. They're a very important strategic partner to us, and I'd say their expertise and our capabilities in the wealth space, plus our new partnership with Apex and the unique technology platform that they create. I think we're gonna look for opportunities to innovate, you know, along those lines with UC Investments. And so putting it all together, we're very well-positioned in wealth. It's gonna be a big part of our investments as we head into 2026 and part of an outsized growth that we expect to generate in that space.
Is there a way to frame how big that business is for you guys today just to kind of help contextualize, hey, if the grow's a lot, how much of a needle-mover that is for the service and fee business as well?
Yeah. It's early days. I mean, we'll have some more to talk about this, as we get into 2026. But it is. It'll be outsized growth and have a bigger impact over time.
Yeah. Got it. Okay. Let's talk about digital. It's been a big area of focus for you know over the last really you know two days at this conference. I think there's not been many fireside chats like this that didn't touch on digital assets or crypto tokenization in one form or another. So let's talk about your views on that ecosystem, the role you see State Street playing there. I know you guys are aiming to launch a digital asset platform I guess in the coming months. So maybe just discuss what your offering there will look like. And again relative to competitors BK has been out there for a little while already. How do you expect that to be differentiated?
Yeah. I mean, I'd start off with the fact that we're already in the space, in the fund accounting and administration offering that we have to support, you know, digital custodians. And we've had that, you know, for many, several years now. That's an important part of the foundation of our capabilities in the digital space. As you mentioned, you know, we're launching a digital asset platform, I would say, in the coming weeks, not months. That's imminent. We're excited about that. And what that, I think that will allow us to do is to build products off of that foundation. And I think the first product that you could see come out of that in 2026 would be a tokenized money market fund.
So that's really our near-term emphasis is to get that platform launched in the coming weeks and start building products and delivering that into the marketplace. I think, down the line, I mean, this is gonna be transformative. I mean, it's already transforming, many parts of financial services, and we wanna be in a leadership position here in digital. I mean, another area we're exploring, would be whether it makes sense for us to directly custody stablecoin or crypto. It's, you know, that with the evolution of the regulatory environment, you know, it's something we're thinking about. It's not a definite at this point, but certainly, the regulatory environment has become more conducive. And, we'll be evaluating from a risk and compliance standpoint whether that'll be something that will make sense for us.
But, you know, I would put that in the roadmap for evaluation down the line. But, in the here and now, very excited about the tokenization-related, you know, products that'll get launched in 2026.
away from just the tokenized money market fund, that you mentioned, one of the things we're starting to hear is opportunity for even some of the traditional managers to tokenize some of the traditional assets, right? So whether it's, you know, tokenizing equities, tokenizing ETFs.
Yeah.
Maybe tokenizing, you know, some of the private markets, right, where there's clearly a lot more need for efficiencies. How could that impact your guys' revenue model and just what kind of, what kind of the capabilities you guys either need to build or you already have that could support that?
Yeah. I mean, I think that although the first product will be tokenized money market funds, I mean, I think assets are part of the follow-on opportunities.
Sure.
off the same platform, off the same digital asset platform, so I think we're well-positioned there.
Okay.
Agree that that's something that we would engage in as well.
Got it. So it's leverageable across.
It is.
Across the gap.
It is.
Okay. All right. Let's turn our focus to investment management for a couple of minutes. Obviously, another really important area of growth for you guys. You really sort of, you know, try to speed up evolution on the product development side there over the last couple of years, and you could see that in fixed income. You could see it in the wealth channel, as well as several partnerships you announced with alternative asset managers recently, so looking out maybe one to two years, what do you see as the largest growth contributors to that business and what type of organic base fee growth are you ultimately aiming to achieve in the investment management side of the house?
Yeah. There's a lot to unpack there with.
Yeah.
With investment management. There's a lot going on. Yie-Hsin has a very full agenda, and it's an exciting one, so I think just going through a number of the organic things that are on the list. First, I mean, starting off with ETFs, we're a top ETF manager, top three, so we have an exceptional position in the ETF space. Global asset flows still favor ETFs, so I'd throw that out there as a foundational matter that that's still important. We're still investing in that space, and I'll come back to maybe later on some of the stuff that we've been innovating even broadly, but also in the private markets area when I get to that at the end here, but before I get to privates, I mean, I think the second one is geography.
Sure.
We have significant opportunity outside the United States. We have 28 locations around the world, including the recent addition of Riyadh, you know, last year. We have, I think, some outsized growth outside the United States that we expect to see, you know, in the future. I think the other areas that I highlight, I mean, we talked about wealth being a big opportunity in investment services. It's also an opportunity in investment management.
Mm-hmm.
And in terms of how we think about the distribution to wealth managers, it's a place where we're increasingly focusing our efforts to, you know, ensure that our product set is getting shelf space with wealth managers, and capture, you know, you know, better growth there as well. So that's an important focus for Yie-Hsin. The next one that comes up, maybe the last one, before I get to private and other things is fixed income.
Yeah.
You know, where we've seen significant growth, you know, in the fixed income space. So from a product standpoint, that's something that we're optimistic about, and then the broader, I guess, category of privates, there's a lot going on there. I mean, we launched a couple of ETFs partnering with Apollo and Bridgewater earlier this year.
Mm-hmm.
We've also launched a target- date- fund supporting, you know, defined contribution plans, also with Apollo.
Mm-hmm.
And then you mentioned Coller, which is one of the largest secondaries managers in the world. And we have an investment and a partnership with Coller to capture, you know, the growing focus in the secondary space from a private market standpoint. A whole big, large agenda there for investment management, but we're exceptionally well-positioned. And it's part of what I say upfront that one of my, you know, top initiatives or top priorities is to partner with our business leaders to drive their strategic agenda. And there's a very full one on the investment management side.
Just double-clicking into that, you know, I did wanna spend another minute on the alts, but really, you know, overlaying your footprint in the defined contribution market, the target-date channel in particular as part of that. You guys have obviously one of the largest passive and index franchises out there. You have the access and the product with the target-date lineup. And obviously a lot of private market participants really want access to that given the way that world is likely to evolve. I know you have a partnership with Apollo, but how do you think about sort of monetizing your footprint and capabilities on the liquid side of things, with the alts more broadly? Are there more partnerships that you're able to participate in? Are there things that you might consider buying to sort of, further, you know, further enhance that, those capabilities?
Yeah. I think we have the organic opportunities, and you know, I think we use bolt-ons like we did with Coller to accelerate capabilities in certain places. So I think all of those levers will be brought to bear. But there is a huge opportunity to combine our experience with privates and our position in the retirement space, you know, with defined contribution plans in particular. So I think you're hitting on an area of focus that will play out, you know, in the future that we think is attractive to be positioned for.
Got it. Okay. All right. All super interesting. Look, we're halfway through, so maybe we'll turn our attention to some of the financial items as well. You know, we're kind of getting closer to quarter end here, so hoping you can give us an update on what Q4 is shaping up to be. Obviously, it's been a bit of a bumpy road with market volatility. Things were a little worse coming out. Now it feels a little bit better, so your latest expectations around fees and NII expenses and anything else you're willing to share with us as far as Q4?
Yeah. Sure. I mean, I think things have been playing out well in 2025. I mean, I think in the face of this volatility, I mean, I think the franchise is performing well. I would say broadly, revenue's coming in a little better than expected. We had an 8.5%-9% range on fees. I think you'll likely see that coming in more at the upper end of that range for the full year. I would say also and a lot of that is attributable to speaking of the investment management business. A lot of that would be attributable to the management fees. We're seeing you know maybe flows a little better than expected, and market levels have been a little higher as well. So that's really the main driver of that.
Okay.
But very solid and strong fee revenue performance, you know, that we expect to deliver for 2025. I would say it's also true for NII. I think we're seeing a little better NII play out here in the fourth quarter, and I'd call that when I think about the full year NII.
Mm-hmm.
I think we now see that coming in flat to slightly up slightly, and I think the drivers there are primarily, you know, we've got the ongoing benefits that I maybe talked about back in October, but what we're seeing in the fourth quarter is maybe some seasonal funding mix coming in better than we had expected, and so that's driving better net interest margin and NII to allow us to get to that flat to slightly up outlook for NII, turning to expenses, just given the revenue picture, we now see expenses coming in approaching 5%.
I would say that, you know, the other item I wanted to highlight. I think for the quarter, just given all of the productivity efforts that we're engaging in, and some operating model adjustments that we're gonna try to make from a productivity standpoint, we're gonna have some notable items in the quarter and attributable to that, and so that'll probably come into the range of approximately $275 million, you know, for the quarter, and you know, when you wrap all that up, I think it ends up looking like a very strong 2025, with positive operating leverage from a full year standpoint, and I think that also implies the seventh or eighth quarter in a row of positive operating leverage.
Yeah.
And I think that's the theme for 2025, but also heading into 2026. And, you know, if I can make a comment or two about 2026, I mean, I think it's our expectation to continue the objective of delivering positive operating leverage. I mean, I would add that, you know, from an expense standpoint, you know, the growth in expenses probably comes in lower than it did in 2025. But, with respect to all other matters related to 2026.
Mm-hmm.
We'll probably hold off and cover that in more detail in January.
Great. Okay. Super helpful. Maybe we can just go back and double-click into a couple of items.
Sure.
The $275 million of notables for the fourth quarter, just talk to us a little bit of what that's related to and if that's kind of further headcount, repositioning, etc. And is that sort of what's driving a slightly better outlook for expense growth in 2026 versus 2025?
Yeah. It's, I mean, I think it's all, well, let me, it's the first part of it, and I'll come back to the second part. But, the first part of it is, yeah, I mean, it's operating model, model adjustments, severance, real estate, those kind of things.
Yeah.
And, yeah, I think it's part of the story, but it's not the only part of the story. I mean, I think productivity in 2025 is gonna come in around $500 million, pretty similar to where we were in 2024. I think when we're, as we're heading into 2026, we have a large strategic portfolio that we wanna organically invest in. We wanna continue the momentum on driving productivity so that we can continue to invest in these, you know, in these growth-oriented initiatives.
Mm-hmm.
And, you know, we calibrate our expenses to the revenue picture. And so we'll have more to talk about that in, and more color around that, of course, in January. But there's a lot of factors that play into that.
Yeah.
our investment opportunities, our level of productivity that we're driving, you know, the fact that we are seeing some opportunity to revise the operating model here at the end of December, so that'll provide a tailwind.
Yeah.
But we're gonna wanna try to invest in all these strategic initiatives as well.
Mm-hmm.
While calibrating to revenue and keeping our positive operating leverage, you know, objectives intact, so more to come on in January.
Yeah.
But that's kind of the contours of how I think about it.
Got it. Got it. Okay. If I were to go back to some of the original points you made as kind of like key objectives for you in your CFO role, but really broadly as an organization, you talked about both kind of the balance sheet construct and NII, and while acknowledging that you guys are probably not ready to share full-out 2026 guidance on NII just yet, I do hope we can maybe talk about just some of the building blocks and kind of how you're thinking and framing a slightly different approach to balance sheet and NII or maybe some of the area of incremental efficiencies that you can get out of the balance sheet.
So, first, I guess when you talk about optimizing the balance sheet, in terms of the asset mix, so what you guys are doing for your clients, can you expand on that a little bit? What, what does that mean?
Yeah. I mean, I think the focus there is, you know, in the loan portfolio, ensuring that we're using that capital and deploying that capital into deep customer relationships and solidifying those relationships and in places where the relationships may be thinner.
Mm-hmm.
You know, we can allow that kind of stuff to run off and be redeployed.
Mm-hmm.
And I think that's a pretty typical, you know, commercial banking approach to where you're going to be relevant and you're gonna have deep customer relationships. You're gonna solidify that with providing access to balance sheets. So we'll take a look at that. And I think that, you know, also risk-adjusted returns, you know, just that change over time in different portfolios. It's an exceptionally high-quality loan book, but there's still variable risk-adjusted returns across the portfolio. And we're digging deeper into the subsets of that book to make sure that we're getting paid for the risk that we take.
Mm-hmm.
And so I think we'll, you'll see that book continue to churn, as we increase the level of focus on strong returns deriving deep customer relationships in the loan book. So that's the area I would look at. I think in the investment portfolio itself, looking for opportunities to, you know, kind of turn over, you know, the fixed asset repricing is gonna be a tailwind, you know, going forward. And that happens naturally. But if we can find opportunities to accelerate that here and there, we do that, as part of good hygiene in terms of managing the investment portfolio on the asset side. And that basically covers the interest-earning asset.
Yeah.
Side of the ledger.
Yeah.
I think the other side is equally important, which is funding mix.
Yeah.
And so just taking a harder look at, you know, the mix of deposits and what's in low to moderate cost, versus more market-rate stuff in the deposit portfolio, and then just wholesale funding in general.
Mm-hmm.
and the mix of wholesale funding as part of our entire funding, you know, stack and determining what the right level is on that. So you put all that together, I think we have, you know, we started working on that, you know, right out of the gate when I arrived, and that the company has had been doing things.
Yeah.
Along the way, but we intensified that a bit, and you know, we're seeing a little bit of benefits of that in the fourth quarter, where we'll see NII up and net interest margin up in the fourth quarter versus the third, and you know, we'll see how that plays out as you look forward into 2026. I think we've got some tailwinds. We've got runoff of terminated hedges.
Yeah.
That was a drag for a while, and we've got the turnover, as I mentioned, of fixed assets being repriced, some optimization stuff. All those things are on the good side of the ledger.
Yeah.
The other things we're monitoring, you know, from a rate standpoint, we're asset-sensitive and, you know, we're in a rate-cutting world, right?
Mm-hmm.
You know, check your watch this afternoon, right?
Right.
We'll hear about, you know, what happens in the U.S. today and whether we get another couple into 2026, you know, and that'll have, you know, an impact. But I think you put it all together and I'm, you know, feeling good that off of the 3Q base, we see opportunities to grow net interest margin and NII.
Yeah.
And, again, more to come in January. But those are the things we're thinking about in the NII space and balance sheet.
Got it. Okay. No, super helpful. These are all really good building blocks to think about. Okay. We didn't really talk a whole lot about capital returns, so maybe we can hit on them as well, both for the fourth quarter and just broadly kind of how you're thinking about that into next year.
Yeah. I mean, so in 2025, I think you could, you've heard us talk about approximately or roughly 80%. I think you can count on that, for us to be at around or roughly 80% capital return, in 2025. Our capital priorities really haven't changed. I mean, you can kind of think of it in a waterfall. I mean, at the top of it is supporting a strong and attractive dividend.
Mm-hmm.
I think the second item you'd have on that list is supporting organic growth, you know, putting capital to work on behalf of customers, both with respect to the balance sheet as well as in terms of, you know, investments from an operating expense standpoint. The third one, which is closely related to the first, is you know, bolt-on investments that we may make to accelerate our product capabilities that you saw us do in the fourth quarter with Apex, on the investment, on the wealth services side of things and Coller in secondaries. And so that's highly strategic, very connected to our ongoing organic investments over time. And then the last one is buybacks, right?
Yeah.
And so we've been, you know, able to satisfy some expectations there this year, and so the waterfall really hasn't changed. I think the priorities really haven't changed, and we'll play that out again into 2026 in terms of capital return.
Gotcha. Gotcha. Maybe we can zone in on that third one, some of the bolt-on investments, and, you know, State Street has been kind of out of the M&A market for a little bit of time, and this is not large M&A by no stretch, but as you think about opportunities for either larger transactions, something that could really enhance your footprint or add scale in areas of interest, or more of these kind of smaller bolt-on things to just kind of accelerate growth, how much more active are you likely to be there over the next couple of years relative to what we've seen in the past?
Yeah. I think you put us in the category of using our capital for bolt-ons and smaller, you know, acquisitions that accelerate our product roadmap and our service capability roadmap is really what our focus is. I think there's an exceptionally high bar to do any larger M&A, and that's just not really on our radar.
Yeah. Gotcha. Well, look, to wrap things up, you know, I wanna ask you a question back to your biggest business, which is the investment servicing business. You know, and you and I talked about this offline as well, but the market obviously has had a view that State Street is facing a more challenging end market. A lot of it is traditional asset managers, and they have been, you know, shrinking over time. That has translated into more muted servicing and fee growth for you guys over the years. We started to see that really ramp nicely, so super encouraging. But as you think about the sort of multi-year fee growth algorithm for the servicing side of the business, any early thoughts of kind of what would that look like across different buckets?
Yeah. I mean, I would call it. I mean, I think you saw in the third quarter when we talked about we've had core growth outside of the impacts of market levels, and outside of, you know, what you might see from an FX standpoint. So I think.
Yeah.
You've seen core growth in the investment servicing business. And just going back to the changes that Jörg has made from a sales, you know, go-to-market strategy has really pivoted to driving sales north of $300 million, as I mentioned, for the last three years broadly, but then more specifically investing in higher growth categories like private markets. And so our capabilities there are distinctive. We think we have a right to win in the private market space in investment services. And I think the solidification of our unique capabilities front- to- back in investment services is, you know, we're the second largest, you know, you know, in the world in that space and his business. And that scale advantage is pretty attractive. But I think that combined with the higher growth investments that we're making in privates and wealth.
Mm-hmm.
will really be, will combine to drive that growth outlook as you see going forward.
Great. Well, we'll look forward to that. Thank you so much for the time. Pleasure to see you. Welcome, and look forward to more of these.
Yeah. I appreciate it. Thanks.